Recent Federal Court Ruling on Application of Texas Prompt Pay Laws to Self-Funded, Medicaid and Out-of-State Plans and Their Third Party Administrators


What’s new? A Dallas federal district court recently ruled that the Texas Prompt Pay Law does not apply to employer-funded health plans, Medicaid plans, or out of state patients that use Texas providers, or to a Third Party Administrator (“TPA”) processing claims for those types of plans. This new ruling on the application of the Texas Prompt Pay Law (“TPPL”) is the first from a federal judge that specifically addresses whether the TPPL applies to TPAs. In a 30 page ruling, the court found that Medicaid plans were specifically excluded from the law’s coverage; that the Texas Insurance Code did not govern foreign TPAs that might have enrollees obtaining care in Texas; and that the law only applied to insurers acting as insurers (not as TPAs). Healthcare Service Corp. v. Methodist Hosp. of Dallas (N.D. Tex. 2015).

How is this ruling different from prior rulings? There have been both favorable and unfavorable outcomes for providers and payors regarding the application of the TPPL. Older unpublished state trial court opinions found that the TPPL applied to TPAs of self-funded plans. Plano Orthopedic and Sports Medicine Center v. Aetna (Dallas District Court) (Jan 10. 2014); Texas Health Resources v. Aetna (Tarrant County District Court) (October 3, 2014). The Plano Orthopedic case was dismissed by agreement and the Texas Health Resources case is still pending, so the Texas appellate courts have not ruled on these issues.

Why does it matter how the courts decide whether the Texas Prompt Pay law applies to self-funded plans and their third party administrators? If a court (or arbitrator) decides that the TPPL does not apply to self-funded plan’s TPAs, then providers cannot collect billed charges penalties and 18% interest for late paid claims from patients covered by these plans. Instead, the only claims subject to the TPPL would be those fully insured claims arising under insurance policies. Providers and payors may begin to focus on negotiating contractual penalties for late payment, rather than relying on the TPPL where there has been no final appellate ruling on its application.

What’s next? Providers and payors/TPAs will continue to contest the scope of the TPPL’s application, and that issue will likely be resolved by the appellate courts, although it may take some time for that to happen. The issue of ERISA preemption of the TPPL has also recently been ruled on by Texas federal courts, and is the subject of our next newsletter.