The purpose of the many state prompt-pay laws on the books is to ensure that health plans pay undisputed medical charges without delay or face steep late-payment interest rates in addition to the claim’s principal amount. For added protection against delinquent payers, hospitals nationwide are increasingly negotiating their prompt-pay laws’ terms as separate, binding conditions in their contracts with payers.
Whether in the form of a statute or regulation, the fine points in Maryland’s prompt-pay statute have distinct implications from those of other states. Maryland hospitals are disproportionately hurt by contradictions between the state’s prompt-pay statute and a separate regulation that denies providers the full interest owed by health plans on unpaid medical claims as required under the state’s prompt-pay law.
A legal loophole found in the Maryland Health Services Cost Review Commission (HSCRC) regulation (COMAR 10.37.10.26B), titled Working Capital Differentials–Payment of Charges, allows the HSCRC, which establishes rates for hospitals, to give a third-party payer a significant discount on interest for unpaid claims if the payer advances a working-capital-differential deposit to the hospital.
Even more troubling, a 1999 memorandum from the Maryland Insurance Administration (MIA) – the agency tasked with enforcing the prompt-pay statute – bolstered the HSCRC’s position by finding that the working-capital-allowance regulation supersedes interest imposed by the prompt-pay statute. Unfortunately, that 1999 opinion is still official MIA policy even though it conflicts patently with the plain language of the state prompt-pay statute (Maryland Insurance Article Section 15-1005).
Thus, even if a third-party payer is in violation of the prompt-pay statute’s plain language, a health plan meeting the guidelines of the working-capital-allowance program is considered to be in compliance and pays no further interest on unpaid claims.
To qualify for the deep interest-rate discount, payers must deposit an amount equal to the outstanding daily balance due as an average from billing to payment – the average accounts received, or A/R, days. The justification for this favorable interpretation is that while the health plan retains the principal, the hospital keeps the interest on that deposit, accounting for the average processing time for each payment.
But in reality, the interest returned on the deposit is much smaller than what is owed in such cases. For example, a payer advances $1 million in working capital to a hospital under the HSCRC current-financing program, and the hospital receives the market interest on that amount – about 2 percent. However, that interest is offset by the regulation’s 2.25 percent discount given to the payer on outstanding charges for discharged patients, making the hospital’s net gain negligible, if not a loss. The yield pales in comparison with the maximum 30 percent annual interest rate on the unpaid bill, which the prompt-pay statute requires after a lapse of 120 days.
And because no meaningful interest accrues under the working-capital-allowance program, interest is no longer a determining factor to ensure hospitals are paid promptly. The current interpretation by the MIA creates a convenient escape hatch for delinquent payers, which can pay as little as 2 percent interest on unpaid claims.
While it is easy to calculate for any improperly denied claim the interest owed on unpaid claims pursuant to the applicable prompt-pay law, under the current operational regime in Maryland, accurate yearly calibrations of the working-capital-allowance amounts are exhaustive – and experience shows they are prone to disputes about the total amount to be deposited.
Under most states’ prompt-pay laws, a hospital faced with a delinquent payer does not have the right on its own to pursue lost interest payments in court. Usually, a provider may turn to the state regulatory agency to seek enforcement of interest or sanctions, but that is a non-starter in Maryland given the MIA’s support for the HSCRC’s working-capital-allowance rule.
This special exemption in the working-capital-allowance regulation is beyond unfair: Capping interest is contrary to the plain language of the prompt-pay statute and discourages the timely payment of claims – the law’s primary objective.
The best near-term solution is to incorporate the conditions of state prompt-pay laws as separate terms in hospitals’ provider-payer contracts. But unfortunately in Maryland, absent a change in state law, those hospitals with working-capital agreements may be unable to protect themselves against forfeiting statutory interest that is otherwise due, even if the contract expressly allows for it.
Anderson & Quinn, LLC is a renowned law firm based in Rockville, Maryland, providing individuals, businesses, corporations, and healthcare institutions with the legal and litigation support they need.
