The "Notice Prejudice Rule"

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The "Notice Prejudice Rule"

A little-known rule out of California that could result in both fewer claims rejections and increased revenue for your practice

Gil Weber, MBA

Adapted with permission from Podiatry Management
© Copyright, 2005. All rights reserved.
September 2005


Podiatrists who bill commercial third party insurance are finding with increasing frequency what it's like to deal with payers who'll use any means at their disposal to delay, deny, or downcode claims, and make it more difficult for practices to collect the monies they've worked so hard to earn. Resubmitting delayed, denied, and downcoded claims is more than just an annoyance - these are tasks that can place extraordinary resource demands and costs on a practice pursuing revenue that should have been paid promptly and properly in the first place.

Sadly, in addition to using a variety of questionable payment manipulation ploys, some payers have also found it easy and convenient to use ERISA as a seemingly impenetrable defense shield against physicians, especially in those circumstances that would allow payers to avoid paying claims. Even though ERISA was enacted with good intentions, the collateral damage fallout as a result of the turf wars between state and federal legislation always seems to come down unfavorably on the shoulders of the doctors, especially when it comes to financial matters.

There is a little-known but significant provision in California law, and a Supreme Court decision based on the law that, in a number of states, has shifted the claims dispute/resolution balance and the influence of ERISA ever so slightly in favor of health care practitioners.

Timely filing

Many if not most payers will refuse to honor a claim if not submitted within some mandated time frame, typically 60-90 days. The issue of timely claims filing is one that can be problematic and also unfair for practitioners. There can be legitimate reasons why a claim might not be filed in what the payer deems a timely manner. And sometimes it's not the practice's fault.

For example, patients, particularly the elderly can be confused as to their insurance coverage. By the time primary and secondary responsibilities are sorted out it may be past the "X" days filing window mandated by a payer. But at that point to deny payment of an otherwise legitimate claim is absurd and unfair. After all, the payer had the financial responsibility to pay the claim filed, for example, within 90 days. What real difference is there if that claim is submitted in less than 90 days or, perhaps is submitted at 103 days? The financial responsibility was and remains there - it should not magically disappear.

When the Payer Messes Up

Sometimes it's not the practice's problem that created the problem. Occasionally a claim is submitted in a timely manner but the payer completely messes up the claims processing, and then tries to shift responsibility to the practice. One administrator told me of a dispute with a payer that rejected some claims, stating that the doctor who provided the care was not on the panel.

The dispute went back and forth for some time until the payer finally found the paperwork and admitted that the doctor was, in fact, a credentialed provider on the dates the patients received care. But despite the admission the payer then told the practice that the filing deadline for those claims had passed, and now they were no longer valid - not payable!

Outrageous. Disingenuous. This sort of thing is not an isolated incident.

There's Hope

Well, take heart. In some states, 26 as of the last count I could find, you might have a lifeline when facing this issue of payers denying payment for claims they say were filed too late. The lifeline, first put into the law in California and now mirrored in full or in part by other states, is called the "notice prejudice rule."

In essence, the rule says that an insurer can only deny a late-filed claim if it can prove it would be prejudiced (hurt) by the late filing. Absent that an otherwise valid claim should be honored. The burden of proof to show damage is shifted to the insurer.

What makes this "notice prejudice rule" all the more interesting is that in some states it can also be used by physicians in disputes with payers who would try to deny payment by hiding behind the ERISA regulations. Fortunately for physicians, in some states the rule "trumps" ERISA - an astounding fact given how provider-unfriendly ERISA has always been. (If your attorney is interested the key ruling came from the U.S. Supreme Court and is found in: Unum Life Insurance Co. of America v. Ward, Supreme Court of the United States, No. 97 - 1868).

Check Your State

If you're in one of the right states it really could work to your benefit. I was contacted some months ago by a California practice that was having problems getting some "late" claims paid. I advised them to check into this "notice prejudice rule." Awhile later I heard back that they had done as I suggested.

Their attorney was not aware of the "notice prejudice rule," but he checked and found that it was for real. Apparently a lot of attorneys, including many in health plan legal departments, are not aware of the rule. So don't be surprised if your attorney or your state society's legal counsel has not heard of it.

The attorney drafted a letter (used as a model for the sample letter included with this article). They then presented a letter to the problematic payers - in this case secondary to Medicare -- and it worked. The practice has received payment on several claims that previously had seemed destined for write-off. Dollars that looked to have been "lost" to problematic payers were suddenly found and added directly to the bottom line.

Not a Slam-Dunk

It's not a slam-dunk, but it's a solid tactic. The "notice prejudice rule" is one of those rare, provider-friendly aspects of insurance law that can tip the scales in your favor. However, please understand that the rule can be used successfully only some states, not in all, and within those favorable states in some circumstances but not necessarily in every one of them. Thus it's not a slam-dunk, and much depends on state-specific laws that vary greatly.

For example, Texas has a "notice prejudice rule," but it also has a Prompt Payment law that mandates claims must be submitted within 95 days or a payer can reject them. The apparent conflict has yet to be tested.

Your success may also rest, in part, on how specifically your Provider Agreement is worded. For example, a stipulated filing deadline such as 90 days may be tougher to challenge than a less specific limit, and may or may not take precedence over the more general intent of the "notice prejudice rule." So it's essential that you check with an experienced attorney in your state to see if the "notice prejudice rule" can help you collect when a payer says the time has passed and you're out of luck.

Caution: Do not attempt to use the sample letter shown here by simply inserting your practice's name and that of a problematic payer. Instead, start by showing the sample verbiage to your attorney, and ask whether the "notice prejudice rule" applies in your state. If your attorney says that it does then this sample letter can be used by counsel as a starting point to craft a letter customized to your specific circumstances and the rule's applicability in your state.

<Date>

<Insert Claim Number>
<Insert Patient's Name>

The above referenced claim was submitted to Medicare on or about <insert date>, via Medicare's electronic claims processing system. Medicare promptly paid its portion of the charges and forwarded the claim to <XYZ Healthcare> for further processing on <insert date>. Subsequently, on <insert date> we billed <XYZ Healthcare> directly. As of the date of this letter, the claim still has not been paid.

This is far from an isolated incident. We have had ongoing difficulties in collecting balances owed by <XYZ Healthcare> on its Medicare supplemental policies.

<ABC Podiatry>'s patients, many of whom are elderly, sometimes cause delays in the processing of the initial claim due to confusion over their insurance coverage. This can cause delays in the billing of secondary and supplemental insurers, and <XYZ Healthcare> has provided itself with a convenient means of denying claims, by stating that they are late-filed.

Please be advised that under California law, a denial based on late filing of a claim will only be upheld where the insurer can show actual prejudice from the late filing.

In the present matter, Medicare forwarded the claim to <XYZ Healthcare> almost a year and a half ago, and <XYZ Healthcare> has failed to pay the claim. A denial based on late filing at this point would be disingenuous and entirely unjustified. <XYZ Healthcare> has failed to show that it has been prejudiced in any way. On the contrary, <XYZ Healthcare> has been aware of this claim since <insert date>, and has enjoyed continuous use of the money that it owes its insured as a policy benefit.

<XYZ Healthcare>'s stubborn refusal to promptly pay this and other claims puts <ABC Podiatry> in a very uncomfortable position vis-a-vis our patients. The patients expect insurers to pay their appropriate share of claims. When insurers do not, and the doctor approaches the patients directly for payment, this results in a disruption of the trust that must exist between doctor and patient.

Please respond in writing directly to me. We hereby request that you pay the claim in full within <insert number> days of the date of this letter. If you do not, then we may have no choice but to take further action to protect our interests.

Thank you for your attention to this matter.

<Insert Name>
<Insert Title>


Gil Weber is a nationally recognized author, lecturer and practice management/managed care consultant to physicians and industry. He has also served as Director of Managed Care for the American Academy of Ophthalmology.

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