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It’s a case of dueling lawsuits that could force the courts to determine whether Texas can require a health maintenance organization to pay physicians and hospitals more than it contracted to pay and fine it if it fails to do so. Alleging that the failure of PacifiCare of Texas Inc. to pay tens of millions of dollars of claims has disrupted patient care, state Attorney General John Cornyn sued the HMO on Feb. 11. Cornyn filed State of Texas, et al. v. PacifiCare on behalf of Texas Insurance Commissioner Jose Montemayor, who says in a written statement that he tried for several months to resolve prompt-pay issues with the HMO and will continue negotiating with PacifiCare even though the matter is now in court. The suit, filed in Austin’s 250th District Court, alleged that PacifiCare has violated the Texas HMO Act, Insurance Code Articles 20A.01-20A.38, by failing to “properly oversee” its delegated networks, failing to comply with prompt-pay provisions and failing to have a complaint system that complies with state law. Cornyn further alleges that the HMO has violated the state’s Deceptive Trade Practices-Consumer Protection Act, Business and Commerce Code � 17.41-17.63. “PacifiCare has not been following the law, putting the bottom line ahead of the well-being of patients, and it must be stopped,” Cornyn alleged at a Feb. 11 news conference. Austin, Texas, attorney Michael Klein, who represents PacifiCare, declines to comment on Cornyn’s suit and refers reporters to the Santa Ana, Calif.-based HMO. Tyler Mason, spokesman for PacifiCare, says Cornyn is asking the HMO “to, in effect, pay medical claims twice,” which is not required by state law. The HMO has challenged the validity and constitutionality of the state’s “clean claims” law, Insurance Code Article 20A.18B. That suit , PacifiCare v. Texas Department of Insurance, was filed Nov. 27, 2001, in Austin’s 53rd District Court. Cornyn’s suit is the first action brought against a managed health care company under the “delegated networks” law passed by the Legislature in 1999, says Texas Department of Insurance spokesman Jim Davis. Under that law, Insurance Code Article 20A.18C(a)(5), an HMO is required to make sure its delegated networks comply with the state’s statutory and regulatory requirements. According to Cornyn’s suit, delegated networks — often referred to as independent physician associations and approved nonprofit health corporations — contract to provide care to an HMO’s members. Jane Shepperd, a spokeswoman for the Texas Office of the Attorney General, says the delegated networks serve as the “middleman” between the HMO and the physicians and hospitals. The HMO pays the network a monthly capitation fee — a flat fee per person — to provide its members the services of health care providers. ‘UNSUBSTANTIATED ALLEGATIONS’ While PacifiCare assumed the risk that the cost of the health care that it contracts to provide will be higher than the amount it’s paid, it typically transferred that risk to the delegated networks, Cornyn alleges in the suit. However, the suit alleged that PacifiCare is prohibited under Insurance Code Article 20A.18C(a)(4) from contractually relieving itself of regulatory responsibility and accountability for the delegated networks. If PacifiCare or the delegated network fails to pay a physician’s clean claim — one that meets the requirement of the law — the HMO is subject to a penalty of $1,000 per day for each claim not paid, Cornyn alleged in the suit. The suit said three of PacifiCare’s delegated networks — Heritage Southwest Medical Group in Dallas, Medical Select Management in Fort Worth and Quantum Southwest Medical Associates in San Antonio — have filed for bankruptcy. PacifiCare failed to assure that those entities paid millions of dollars owed to physicians and hospitals, the suit alleged. Mason says TDI has taken the position that a health plan must guarantee the performance of groups that are licensed by the insurance department. TDI has oversight and can review the delegated networks, he says. When some medical groups faced financial insolvency, PacifiCare stepped in to ensure that its members continued to receive health care, Mason says. PacifiCare already has made payments to doctors and hospitals of more than $43 million for obligations of its contracted providers, he says. “PacifiCare has monitored and managed its delegated networks consistent with state law,” Mason says. “The attorney general’s unsubstantiated allegations on this issue are without merit, and the company will defend itself vigorously.” The HMO is seeking a declaratory judgment. In its suit, PacifiCare is asking the court to find that Article 20A.18B does not authorize the insurance department to require that it pay the claims of doctors and hospitals who have agreements with its delegated networks. It’s also asking the court to find that TDI lacks authority to assess penalties for alleged violations of those groups. PacifiCare alleges that the clean claims law is unconstitutionally vague and lacks standards to guide those charged with interpreting it. It also alleges that the law violates the due process and equal protection provisions of the U.S. and Texas constitutions in that the insurance department seeks to require HMOs with delegated networks to pay twice for the same health care. HMOs that do not enter into capitated agreements are obligated to pay for the services only once, PacifiCare alleged in the suit. Certain states specifically require that an HMO pay claims not paid by an entity with which it has a capitated agreement. Colorado Insurance Code � 10-16-705(5)(a) says that in the event of a nonpayment by or insolvency of a contractor or subcontractor, the HMO is responsible for paying all participating health care providers. PacifiCare argues that Texas does not have a “double pay” law and cannot require it to pay claims when it already has paid the capitated fee. “We do not contend that Texas is a ‘double pay’ state in the sense that other states are,” says OAG spokesman Mike Viesca. “PacifiCare failed to comply with its obligations, under Texas law, to oversee and monitor its delegated networks. Under Texas law, PacifiCare cannot use its contracts with its delegated networks to relieve itself of its financial and regulatory responsibilities if those networks fail to carry out their responsibilities.” Viesca says the state also alleges that PacifiCare has violated Texas law by engaging in unfair or deceptive practices. The state’s remedy, he says, is to ask a court to order the HMO to make restitution to the physicians and health care providers who either have not been paid or have been paid late.

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