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The California Medical Association (CMA) today filed a lawsuit against the California Department of Managed Health Care (DMHC) for the agency’s failure to enforce California’s prompt payment regulations in implementing Senate Bill 510 (Pan). This legislation, sponsored by CMA in 2021, requires health plans and insurers to reimburse physicians and other health care providers for certain COVID-19 services retroactive to March 4, 2020. However, DMHC put out fundamentally flawed guidance that effectively relieved plans of some of their legal payment obligations, resulting in significant delays and reductions in reimbursement.

Despite the requirement under state law for plans to pay claims within specific time frames, DMHC’s All Plan Letter (APL 23-021) allowed health plans to delay reimbursement for COVID-19 services provided between March 4, 2020, and December 31, 2021, until February 12, 2024. This delay left many providers without full payment for covered COVID-19 services rendered almost four years ago.

Furthermore, in direct violation of the Knox Keene Act and SB 510, DMHC’s guidance also improperly shifts financial responsibility from health plans to risk-bearing providers, such as delegated physician groups. It unilaterally makes material changes to the parties’ contractual relationships by requiring that these delegated providers first cover the costs of “downstream” COVID-19 tests and then attempt to seek whatever reimbursement the health plan may pay.

CMA wrote in its lawsuit that providers “...entitled not only to the long-awaited payment as required under SB 510, but payment accompanied by fairly calculated interest as required under the Knox-Keene Act and Department regulations.”

While DMHC’s APL requires health plans to pay 15% per annum interest on late-paid claims, it only requires interest be calculated from June 27, 2023, the date the court lifted a preliminary injunction in an unsuccessful lawsuit filed by the California Association of Health Plans (CAHP) challenging SB 510’s retroactive application. This is in direct violation of state law that requires interest to accrue from the first day after the payment deadline.

When CAHP filed its lawsuit in November 2021 challenging SB 510, health plans were aware that they owed payment for claims for COVID-19 testing that had occurred during the height of the pandemic, some of which were already past due. Rather than pay the claims and any interest that may have applied, the health plans recklessly gambled on a victory in their challenge to SB 510’s retroactivity provision. They delayed payment, knowing that interest would continue to accrue. Ultimately, the health plan industry lost that gamble. Payment is long overdue, including late-payment interest as dictated by the Knox-Keene Act. CMA believes and will argue before the court that plans should not be excused from their timely payment obligations, and providers should not have to cover the costs of the plans’ unsuccessful legal strategy.

CMA’s lawsuit argues that DMHC’s actions to relieve health plans of some of their legal obligations under SB 510 not only harms this set of providers today, but also will harm providers in the future by encouraging plans to litigate any new law they oppose, as the department’s actions have relieved them of financial obligations that are far greater than the cost of litigating.