Despite a robust economy, these are not easy times for California doctors: physicians face the economic reality of heightened patient demands, increased governmental oversight, and increasing practice risks. Indeed, the California Medical Association estimates that some 90% of the state’s medical practice groups face a realistic risk of insolvency.

In addition to the preceding challenges, many physicians face a recurring dilemma from an unlikely source that is seemingly without a practical solution: the refusal of many payors (health insurers, HMOs, and IPAs) to properly reimburse physicians for uncontested claims.

Ideally, payors should promptly reimburse doctors for medical services rendered in accordance with the services agreement shortly after such claims are submitted. Too often, however, payors simply ignore doctors’ payment claims, unreasonably delay payment, or improperly reject claims – believing that doctors have little or no leverage in claims payment disputes.

In response to the problems many of the state’s doctors have experienced in obtaining proper claims reimbursement, the California legislature has provided physicians with a veritable cornucopia of rights and remedies in connection with payor claim disputes. Perhaps most importantly, California law now requires most health insurers and health care service plans to reimburse doctors for uncontested within thirty working days after the payor receives the claim – a far cry from the 180 or more days that many payors claim as their birthright. See Health and Safety Code § 1371.

To encourage payors to comply with their statutory obligations, the Legislature decreed that payors who do not reimburse physicians within the designated time period are liable for 10% interest beginning upon the date that payment was due. See Health and Safety Code § 1371; Insurance Code § 10123.13. Thus, delinquent payors incur substantial penalties when they shirk their contractual obligations – in theory, at least.

In spite of the above-referenced statutory protections, too many physicians still face unnecessary hassles in securing timely payment for uncontested claims. The three most common problems involve (1) payor attempts to require physicians to waive their statutory rights, (2) intermediary payor default, and (3) breach of the payor’s contractual obligations.

Perhaps the most common problem that physicians face in securing timely claims payment involves attempts by many payors to strong-arm unwary physicians into waiving the statutory protections that the Legislature provided in the Health and Safety Code and the Insurance Code. For example, many payors’ contracts contain standard provisions granting 90 days or more – triple the statutory time period – to reimburse doctors for uncontested claims. Since most payors’ adhesion contracts are offered to physicians on a take-it-or-leave-it basis, many doctors mistakenly believe that they have no choice but to grant the payor a contractual extension, but such is not the case: doctors cannot effectively waive the safeguards of legislation intended to protect them. See Fineberg v. Harney & Moore, 207 Cal. App. 3^rd 1049, 1050 (1989). Thus, regardless of any waivers or extensions in provider contracts, payors remain liable to reimburse doctors for uncontested claims within the statutory period.

A less common (though potentially more serious) payment problem involves the default of an intermediary IPA. In the past three years, several high-profile, mismanaged IPA’s have gone into bankruptcy – and simply defaulted on millions of dollars of uncontested claims, leaving unsuspecting doctors in dire financial straits.

Remarkably, in each instance of a defaulting IPA, the parent health plan contracting with the defaulting IPA disclaimed all responsibility for paying physician claims – arguing that, since the payor’s duties had been contractually delegated to the defaulting IPA, the payor had no responsibility to the affected doctors. Finally, in response to the recent bankruptcy of FPA Medical Management, the Legislature clarified California law to make clear that health plans and HMOs are ultimately responsible for paying physician claims – even when an intermediary organization defaults. See Health and Safety Code § 1371 et seq.

Finally, many physicians find themselves facing the added specter of improper retaliation (in the form of heightened claims scrutiny) if they insist that payors comply with their statutory and contractual duties. Indeed, many physicians have noted that, after receiving a payment demand on pending uncontested claims, many payors retaliate by challenging future, routine claims, or even by complaining to the hospital with which the physician group is affiliated. Such behavior can lead to the payor’s liability for various business torts.

Tired of being on the receiving end of abusive tactics like those described above, many physicians and other affected organizations are left with little practical choice but to consider legal action against payors who routinely improperly deny uncontested claims. The affected physicians should consider two important theories under which payors could face substantial liability: breach of contract and fraudulent inducement.

Breach of contract: When payors simply refuse to reimburse physicians in accordance with their contract (for example, by improperly delaying claims payment or underpaying uncontested claims), the physicians’ most obvious remedy is a claim for breach of the services contract. To prevail on such a claim, the physician need only prove that the payor breached its express contractual obligations. See Williams v. California Physicians’ Serv., 72 Cal. App. 4^th 722, 725-27 (1999).

Fraudulent Inducement: When faced with claims by angry doctors, many payors conveniently forget about the myriad of promises they made to induce the doctors into entering the disputed services contract in the first place. To prevail on a fraudulent inducement claim, doctors must show that they relied on the payors false, material representations in deciding to enter into the disputed services contract. See Sumitomo Bank of California v. Taurus Dev. Inc., 185 Cal. App. 3^rd 211, 222 (1986). A claim for fraudulent inducement will expose the payor to punitive damages. See Freeman & Mills, Inc. v. Belcher Oil Co., 11 Cal. 4^th 85, 108 (1995).

Most physicians agree that payors are motivated more by fear than by generosity. Thus, at the outset of any payment dispute, doctors should make sure that the payor understands that it faces substantial liability for improper claims tactics – and subtly remind the payor that most jurors are far more sympathetic to mistreated medical professionals than to faceless corporations. By aggressively insisting that payors comply with their contractual and statutory obligations, a physicians group will earn a reputation for being willing to fight for its right to payment – and will undoubtedly witness payors with renewed interest in claims cooperation.