Did Kentucky's Prompt Pay Law apply to clean claims from health providers without an insurer contract?

Plain-English summary

The Attorney General concluded that Kentucky's Office of Insurance could not limit Prompt Pay Law enforcement to health care providers with insurer contracts. The statute's definitions of “clean claim” and “provider” did not add that contract condition. The AG rejected a 2004 Office advisory opinion that had adopted the narrower interpretation.

The opinion distinguished submitting a clean claim from having a right to payment. Under the law it quoted, an insurer could reimburse, deny, or contest a clean claim within 30 calendar days after receipt, or 60 days for a claim involving an organ transplant. The AG specifically noted that an insurer could assert it was not contractually obligated to pay. Its holding removed the proposed contract prerequisite to the prompt payment process; it did not guarantee payment of every clean claim.

Currency note

This opinion was issued in 2004. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Q: Did a Kentucky health care provider need an insurer contract to submit a clean claim under the Prompt Pay Law? A: The AG said no. The statutory definitions addressed the billing form and provider categories without making an insurer contract a prerequisite.

Q: Did a clean claim have to be paid?
A: No. The opinion said an insurer could pay, deny, or contest it within the applicable statutory period, and could assert that it had no contractual duty to pay.

Q: Did the opinion cover providers outside an insurer's network? A: Yes, for the provider categories described in the statute. The AG said the Office could not refuse to enforce the claims-payment provisions for nonparticipating providers solely because they lacked an insurer contract.

Q: Could the Office of Insurance change the statute through an advisory letter? A: No. The AG said an agency policy had to remain within the statute and its regulations. It concluded that the Office's contract requirement impermissibly changed the statute.

Background and statutory framework

The opinion quoted KRS 304.17A-702(1) as requiring an insurer to “reimburse a provider for a clean claim or send a written or an electronic notice denying or contesting the claim” within the specified period. It also quoted the provider definition and explained that the definitions did not distinguish contracting from noncontracting providers. KRS 13A.130 restricted changes to regulations by internal policy. Together, those provisions led the AG to reject the Office's 2004 advisory opinion.

Citations and references

Statutes: KRS 304.17A-702(1); KRS 304.17A-700(9); KRS 304.17A-005(19); KRS 13A.130.

Source

• Landing page: https://kdla.access.preservica.com/uncategorized/IO_ed9163e8-62bd-4a5b-a3d9-76b6a2e33841/
• Original PDF: https://kdla.access.preservica.com/download/file/IO_ed9163e8-62bd-4a5b-a3d9-76b6a2e33841

Original opinion text

OAG 04-011
December 6, 2004
Subject:

Application of the “Prompt Pay Law”

Requested by:

Mr. James R. Bruce, State Representative, 9th Legislative District

Written by:

Robert S. Jones, Assistant Attorney General

Syllabus:

The “Prompt Pay Law” requires an insurer to pay or
deny a “clean claim” within the allotted time without
reference to the provider’s contractual relationship
with the insurer.

Statutes construed:
KRS 13A.130; KRS 205.593, 304.14-135; KRS
304.17A-700 through 304.17A-730; KRS 304.99-123
Constitutional
Sections
Construed:

Sections 15, 27, 28 and 29, Constitution of Kentucky

Opinion of the Attorney General
Representative James E. Bruce submitted a request for an opinion on the following two questions: 1. Whether the Office of Insurance, Public Protection Department, Environmental and Public Protection Cabinet (“Office”), may limit the applicability of the provisions of KRS 304.17A-700 to 304.17A-730, KRS

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205.593, 304.14-135, and
304.99-123
(“Prompt
Pay
Law”) only to health care providers that participate with or have contracts with a particular in surer; and 2. Notwithstanding the answer to question 1, whether the Office may create the requirement described above through an opinion letter rather than an administrative regulation promulgated in accordance with KRS Chapter 13A. An Executive Branch Agency must enforce statutes and regulations consistently with their actual language. As stated, the questions implicate a separation of powers issue; whether the Office may limit the applicability of a statute. The answer is clearly no. Sections 27 and 28 of the Kentucky Constitution divide the government into three distinct departments, executive, legislative and judicial, none of which may exercise power properly belonging to the other. Sections 15 and 29 of the Kentucky Constitution further grant all legislative power to pass and suspend laws exclusively to the General Assembly. See Taylor v. Beckham, 56 S.W. 177(1900); Martin v. Chandler, Ky., 318 S.W.2d 40(1958). However, the substantive issue raised by the opinion request is whether “Advisory Opinion 2004-01” (the “advisory opinion”) issued by the Office’s Executive Director on July 30, 2004 creates an enforcement standard which has the affect of modifying the Prompt Pay Law. The authority of an agency is limited to a direct implementation of the functions assigned to the agency by statute. Hence, administrative regulations promulgated by an agency are only valid where they are within the frame work of the enabling legislation. Flying J Travel Plaza v. Commonwealth, Transportation Cabinet, Ky., 928 S.W.2d 344 (1996). By the same token, an agency’s internal policy must comply with the actual language of its regulations. Fluor Constructors, Inc., 861 F.2d 936 (6th Cir. 1988). KRS 13A.130 prohibits an administrative body from modifying an administrative regulation by internal policy. Within this

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narrow construct an agency may state policy through the use of an opinion letter or similar device. The advisory opinion recognizes that prior to July 15, 2004 the Office interpreted the Prompt Pay Law “to require insurers to treat both participating and non-participating providers equally with regard to pay issues.”1 Indeed, the purpose of the opinion is “to give notice the Office of Insurance has modified and limited its interpretation of the Prompt Pay Law.” It is within the discretion and authority of an administrative agency to depart from its prior precedents so long as it explicitly and rationally justifies the change of position. In re Hughes & Coleman, Ky., 60 S.W.3d 540 (2001). Nevertheless, authority to change policy does not remove the obligation upon the agency to act within the framework of its statutes and regulations. The Office’s justification for the new policy was as stated as follows: The Prompt Pay Law requires “Insurers” (as defined in KRS 304.17A-700 (12)) to “Adjudicate” (as defined in KRS 304.17A-700 (1)) a “Clean claim” (as defined in KRS 304.17A-700 (3)) from a “Health care provider” or “Provider” (as defined in KRS 304.17A-700 (9)) in accordance with the applicable “Claims payment time frame” (as defined in KRS 304.17A-700 (2)). KRS 304.17A-700 (9) does not specifically distinguish between participating providers and those providers choosing not to participate with an insurer. The specific provisions of the Prompt-Pay Law do not expand any provider’s right to claim a covered person’s benefits. In the absence of a contractual right arising out of an agreement with an insurer, as disclosed in the health benefit plan documents, or in the absence of an assignment of benefits by a covered person if permitted under the plan, a 1

The advisory opinion uses the terms “participating” and “contracting” interchange-

ably when describing the relationship between providers and insurers.

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provider has no legal right to submit any claim for benefits on behalf of a person covered under the plan and an insurer has no legal obligation to pay that provider. The Prompt-Pay Law did not specifically repeal or amend the provisions of KRS 304.12-235, 304.18-040, 304.18-090, or 304.17-130. The provisions of KRS 304.17A-702(2)(a), 304.17A-710, 304.17A-706(3), 304.17A-708 and 304.17A728(2)) further indicate an intent that the law only applies to providers participating with the insurer. For these reasons, the Office of Insurance concludes that: 1. A “clean claim” under the provisions of the PromptPay Law, can only be made by a provider who has the contractual right to submit a claim on behalf of a person covered under the plan. 2. Only providers defined in KRS 304.17A-700 (9), who have directly or indirectly contracted with an insurer to provide services to persons covered under a Kentucky health benefit plan qualify to submit a “properly completed billing instrument” necessary for a “clean claim.” The Environmental and Public Protection Cabinet, Office of Legal Services, Insurance Legal Division reiterated this interpretation of the Prompt Pay Law in its letter to the Office of the Attorney General dated December 3, 2004. The advisory opinion misconstrues the effect of the duties placed on insurers by KRS 304.17A-702 in characterizing the Office’s prior interpretation of the statute as expanding a provider’s right to claim a covered person’s benefits. The statute plainly allows the insurer to deny a “clean claim” so long as the denial is within thirty (30) calendar days (sixty (60) days for organ transplants). Further, a “clean claim” can be denied by an insurer both because another insurer is primarily

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responsible or because the claim has been fraudulently submitted. KRS 304.17-706(1) (a) &(c). Hence, the insurer retains the right to assert it is not contractually obligated to pay a “clean claim”, logically excluding a contractual prerequisite to the submission of a “clean claim”. However, even if it is accepted for the sake of discussion that the Prompt Pay Law, enacted by the legislature in 2000, conflicts with existing statutes as the Office asserts in the advisory opinion, the Kentucky Supreme Court has held: A special statute preempts a general statute [and] . . . a later statute is given effect over an earlier statute . . . Troxell v. Trammell, Ky., 720 S.W.2d 525, 528 (1987). The legislation, passed as Senate Bill 279 during the 2000 regular session, provides as one of its purposes to “create new sections to define terms including ‘claims payment time frame’ and ‘clean claim’…” Moreover, KRS 304.17A-726 states: Upon enactment, all health care claims incurred after July 14, 2000, and contractual agreements between insurers and providers regarding the payment of health care claims entered into after July 14, 2000, shall conform to KRS 304.17A-700 to 304.17A-730 and KRS 205.593, 304.14135, and 304.99-123. An insurer shall not request or require a provider to pursue any other course of action regarding the payment of health care claims outside of the provisions set forth in KRS 304.17A-700 to 304.17A-730 and KRS 205.593, 304.14-135, and 304.99-123. Therefore, the Prompt Pay Law is not only more recent in time and more specific, preempting older more general statutes cited in the advisory opinion under the rules of statutory interpretation, but the legislature has stated a specific intent to preempt those other statutes. As a result, analysis of the Prompt Pay Law must look exclusively to the provisions set forth in KRS 304.17A-700 to 304.17A-730 and KRS 205.593, 304.14-135, and 304.99-123.

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KRS 304.17A-700 defines “clean claim” for KRS 304.17A-700 to 304.17A-730 and KRS 205.593, 304.14-135, and 304.99-123 as follows: (3) “Clean claim” means a properly completed billing instru- ment, paper or electronic, including the required health claim attachments, submitted in the following applicable form: (a) shall con-

A clean claim from an institutional provider
sist of:
1.

The UB-92

submitted
electronic format as
2.

data set or its successor
on the designated paper or
adopted by the NUBC ;

Entries stated as mandatory by the

NUBC; and
3.

Any state-designated data requirements
determined and approved by the
Kentucky State
Uniform Billing Committee and included in
the UB-92 billing
manual effective at the time
of service.
(b)
A clean claim for dentists shall consist of the
form and
data set approved by the American
Dental Association.
(c)

A clean claim for all other providers shall consist of
the HCFA 1500 data set or its successor submitted on
the designated paper
or electronic format as adopted
by the National Uniform Claims Committee.
(d)
uni-

A clean claim for pharmacists shall consist of a
versal claim form and data set ap-

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proved by the
tion Drug Programs.

National Council on Prescrip-

This definition of “clean claim” leaves no room to imply the requirement that such a claim can only be made by a provider who has a contractual relationship with an insurer. Kentucky courts have long held the view that generally, a statute should be interpreted according to the plain meaning of the language and a court is not free to add or subtract words. Commonwealth v. Harrelson, Ky., 14 S.W.3d 541, 546 (2000); Magic Coal Co. v. Fox, Ky., 19 S.W 3d 88, 94 (2000); Commonwealth v. Plowman, Ky. App., 86 S.W.3d 47 (2002). Where there is a specific definition provided in the statute, courts are required to apply the definition; otherwise, the words of the statute are construed according to their common and ordinary usage. Wheeler & Clevenger Oil Co., Inc. v. Washburn, Ky., 127 S.W.3d 609 (2004); Griffin v. City of Robards, Ky., 990 S.W.2d 634, 638 (1999); Marcinek v. Commonwealth, ex rel. Marcum, Ky. App., 999 S.W.2d 721, 723 (1999). Furthermore, when a “clean claim” has been submitted to an insurer, KRS 304.17A-702(1) provides: Except for claims involving organ transplants, each insurer shall reimburse a provider for a clean claim or send a written or an electronic notice denying or contesting the claim within thirty (30) calendar days from the date that the claim is received by the insurer or any entity that administers or processes claims on behalf of the insurer. Clean claims involving organ transplants shall be paid, denied, or contested within sixty (60) calendar days from the date that the claim is received by the insurer or any entity that administers or processes claims on behalf of the insurers. (emphasis added). For purposes of KRS 304.17A-702, “provider” is a defined term. KRS 304.17A-700(9) states in pertinent part:

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“Health care provider” or “provider” has the same meaning provided in KRS 304.17A-005 and, for the purposes of KRS 304.17A-700 . . . shall include physical therapists licensed under KRS Chapter 327. KRS 304.17A-005(19) provides: “Health care provider” or “provider” means any facility or service required to be licensed pursuant to KRS Chapter 216B. “Pharmacist” is defined pursuant to KRS Chapter 315, and any of the following independent practicing practitioners: (a) physicians, osteopaths, and podiatrists licensed under KRS Chapter 311; (b) chiropractors licensed under KRS Chapter 312; (c) dentists licensed under KRS Chapter 313; (d) optometrists licensed under KRS Chapter 320; (e) physician assistants regulated under KRS Chapter 311; (f) nurse practitioners licensed under KRS Chapter 314; and (g) other health care practitioners as determined by the department by administrative regulations promulgated under KRS Chapter 13A. These definitions do not distinguish between non-contracting and contracting “providers.” “Provider,” for purposes of the Prompt Pay Law, includes all the providers listed in KRS 304.17A-005(19) that hold a Kentucky license. Finally, “shall” as used in KRS 304.17A-702(1) does not permit discretion on the part of the entity from which action is expected. Therefore, the Office lacks the discretion to refuse to enforce the claims payment provisions of the Prompt Pay Law equally for both participating and non-participating providers. As a result, the Office’s addition of the requirement that a provider must have a contractual relationship with an insurer to submit a “clean claim” under the Prompt Pay Law before the Office will enforce the Prompt Pay Law constitutes an impermissible modification of statute by an Executive Branch

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agency whose duty is to directly implement the functions assigned by statute. GREGORY D. STUMBO ATTORNEY GENERAL

Robert S. Jones, Director
Civil & Environmental Law Division
#370