Can you learn something from California’s struggles with pre-authorization?

State forces payers to respond to screening and post-stabilization. But is it working?

Frustrated to the point of bewilderment, emergency physicians nationwide tell similar stories about working under managed care. Each tale has a common thread. This one has to do with pre-authorization and a double-edged sword:

Physician Smith needs a plastic surgeon for a 21-year-old patient with severe facial injuries. It’s 1 a.m. and the emergency department (ED) is overcrowded as usual for a Saturday night. Typical waiting time is two hours.

When Dr. Smith calls up the health plan representative, she is told that only a plan-approved plastic surgeon can attend to the patient or the plan won’t pay for the service. The surgeon’s name has to appear on the plan’s approved list, the rep tells her. (Dr. Smith herself does not have a contract with the plan through her medical group, neither does the hospital.)

When Dr. Smith asks for a name from the list, the plan rep replies that he doesn’t have the list at the moment but could get it. Dr. Smith also tries to contact the patient’s primary care physician (PCP), who doesn’t answer the phone.

Doc, specialist, and hospital end up working for free.

An hour later, the plan rep calls back to say that the surgeons list was found but none of the plastic surgeons contacted from Dr. Smith’s area would agree to take the case. Why should one, Dr. Smith later concludes. The surgeon is likely to be capitated, which offers absolutely no incentive for anyone to venture out for a patient at that hour of the night.

Meanwhile, the patient has been stabilized but has been sitting in the patient suite waiting for nearly three hours while other cases are waiting outside.

Finally, Dr. Smith gives up and calls in a non-contracted surgeon affiliated with the hospital. The surgeon agrees to come in as a favor to Dr. Smith. But both Dr. Smith and the specialist proceed to treat the patient knowing well that the plan is likely to refuse payment for all or part of the service. The outcome: Dr. Smith, the surgeon, and the hospital staff end up working for free.

The moral to this story, according to Daniel Higgins, MD, is that pre-authorization, as a contributor to medical quality and efficiency under managed care, is a fiasco.

The double-edged sword is the dilemma that pre-authorization imposes on emergency physicians. On one hand, it is the only way to ensure payment from a contracting health plan. But at the same time, for providers it almost always defeats the purpose of the effort, says Higgins, medical director of emergency services at St. Francis Medical Center, a 512-bed hospital in Lynwood, CA.

"So why bother to make that call?," says an angry Higgins, who notes that the same scenario is played out dozens of times each week at hospitals nationwide.

But in California, where emergency physicians have scored a victory of sorts on pre-authorization, this hasn’t occurred as often. In 1994, state lawmakers passed a measure that requires health plans to return phone calls to emergency providers within 30 minutes. (A similar measure limits plans to one hour for Medicare and Medicaid cases in the federal Balanced Budget Act of 1997.) It also does away with telephone pre-authorization for medical screenings in a manner similar to but not exactly like the prudent layperson standard.

Bergeson Act helped end a nightmare in state

Health maintenance organizations (HMOs) have steadfastly claimed that pre-authorization calls help reduce cost and inefficiency by screening out non-emergencies and unnecessary medical care. But emergency physicians counter that the calls only get in the way.

Does the California law, known as the Bergeson Act, offer a solution? Can other states faced with increasing HMO hurdles benefit from the California experience? And is legislation the ultimate solution to force health plans into thinking more about patients than the way services are used?

"Until we had the Bergeson Act, it was an outright nightmare in California," says Loren A. Johnson, MD, director of emergency medicine at 49-bed Sutter Davis Hospital in Davis, CA. "There is no doubt that the law has improved things enormously." While problems associated with pre-authorization calls haven’t disappeared entirely, the law offers providers the promise of curbing abuses, Johnson says.

And the abuses have been considerable, Johnson adds. Typically, when emergency physicians have called in compliance with health plan procedures, they’ve encountered busy signals, voice-mail messages, or low-level employees who answer at the other end. And when they’ve left messages or spoken with someone on the line, getting a return call confirming anything was a gamble, Johnson says.

Usually, the physician calls the plan rep or the patient’s assigned PCP to obtain approval for the patient disposition, which often involves either an admission or consultation. In many cases, the call is made when the patient needs additional diagnostic testing such as a CAT scan (computerized axial tomographys), which could end up being disapproved by the plan.

But registrars routinely run into the same problem when calling for screening pre-authorization. "These tactics used to go on all the time and were clearly intended to dodge the payment issue," Johnson believes.

In essence, the Bergeson Act reduces the power that health plans wield over providers in requiring that they obtain telephone pre-authorization as a condition for payment approval. The law does this by:

Stipulating that a health plan may not deny payment to the provider "unless the health plan enrollee [patient] reasonably should have known that an emergency did not exist;"

Dropping the requirement that providers make pre-authorization calls in order to be paid for services to a patient;

Limiting the time that a health plan, such as a physician network, can delay payment to a provider to 30 working days. HMOs have up to 45 working days. In either case, each payer has the same number of days respectively to respond to a provider if the medical claim is being contested or denied,

Requiring that health plans, including their reps and the patient’s PCP, assume early responsibility for post-stabilization case management for emergency patients being treated at an out-of-plan hospital when requested by an emergency physician.

PCPs are required to assume responsibility for patients in ED

This last provision requires that the plan return a call from an emergency physician within 30 minutes. It also requires that if a disagreement occurs between the plan and the attending physician over post-stabilization levels of care, including patient disposition, the plan’s physician must assume personal, legal responsibility for the patient. In these cases, according to Johnson, the plan’s PCP has to come to the ED to personally take responsibility for the patient’s care.

In effect, the Bergeson Act addresses two built-in problems with the present system, says Tom Hafkenschiel, MD, chairman of quality assurance in emergency medicine at 550-bed Santa Clara Valley Hospital and the original author of the Bergeson Act.

It forces the PCP to take a more personal stake in the patient’s emergency case management. No longer can the plan or PCP avoid responsibility for the post-stabilization case management and yet deny payment to the ED later. And it counteracts existing incentives created by plans to pay PCPs extra for discouraging expensive utilization unless deemed absolutely necessary, such as an inpatient admission.

However, critics believe the law, while good, isn’t far-reaching. For one, it makes violations of the statute simply a misdemeanor. Worse yet, exceptions in the code allow payers that have existing contracts and pre-authorization agreements with providers to be shielded from the statute.

Physicians have since introduced legislation that corrects this exception. A bill passed by the California legislature imposed monetary penalties of three times the billed amount for non-payment beyond 90 days and 30% of the bill for slow payment, meaning after 63 days. However, as of mid-September, the measure was still awaiting a signature by Gov. Pete Wilson. Earlier, state officials had imposed a penalty of 10% of the claim if a plan took up to one year to pay.

And some emergency physicians aren’t convinced for other reasons. Here are some:

Despite passage of the law, health plans throughout the state are still denying payments on the basis of pre-authorization, or lack of it. Some critics, such as Higgins, believe that the Bergeson Act lacks real enforcement teeth.

As yet, there have been no penalties imposed on any payer in the state for violating the law. And the Department of Corporations, which regulates HMOs in California, has not successfully pursued a single health plan for payment denials under the statute. Why? The law doesn’t have any real enforcement teeth behind it, Higgins claims.

And "why should health plans care?," Higgins says. "In California, the average ED visit costs them about $40 [under Medicaid managed care]. If they ignore ten times that many claims, it’s not enough for them to lose sleep over. So they’ll pay the $4000 down the road some day."

At the same time, the Bergeson Act hasn’t gotten the health care community’s full support, says Higgins. Hospitals are not abiding by the statute and are still requiring registrars to obtain pre-screening authorization. "Hospitals [have] largely ignored the law and continued the practice of calling for pre-authorization," Johnson reported in an open letter to the Annals of Emergency Medicine.1

Another reason, according to Higgins and others, has to do with fear and competition. "Hospitals are afraid of losing their contracts if they stand up to the plans. The prevailing message from some payers seems to be if you give us trouble, we’ll just contract with the hospital across the street.’," Higgins says.

Finally, a bureaucratic logjam has almost ensured no action by state officials. Some 20,000 unresolved appeals for unpaid or denied claims have been sitting for more than a year with the Department of Corporations, Higgins reports. Any action on new claims is highly unlikely, he adds.

Nationally, the Health Care Financing Administration in Baltimore, MD, has judged the practice of mandatory pre-authorization a violation of the 1985 federal Emergency Medicine Treatment and Labor Act (EMTALA). The act effectively bars emergency providers from denying treatment to patients on the basis of their ability to pay.

Recognition of this view has begun to catch on with providers and "has improved the short-term, bargaining position for emergency physicians in managed care contract negotiations," says Johnson. The American Association of Health Plans in Washington, DC, the leading HMO trade group, has also pledged to work with providers on eliminating delays and improving access to emergency medical care.

But are voluntary steps enough? Without tough enforcement and stiff monetary penalties, no, says John Guisto, MD, clinical director of emergency medicine at the Arizona Health Sciences Center, a division of the University of Arizona in Tucson.

In 1996, Guisto co-authored an analysis of federal penalties for EMTALA violations in which the authors found that federally imposed penalties were relatively low compared to the number of illegal patient transfers that have been reported since the law’s enactment.2

Ultimately, the answer may not be legislation at all but an intrinsic change in the system of reimbursing emergency providers. However, Guisto stopped short of advocating for a fully capitated system of reimbursement.

Some medical groups are experimenting with case rates as a middle ground between fee-for-service and risk capitation. But not enough is known about the effects of case rates to warrant such contracts, Guisto admits. Under capitation, the concern, according to Guisto and others, is that physicians would expose themselves inordinately to financial risk due the unpredictable nature of patient visits.


1. Johnson LA. Managed care and emergency medicine: Current experience in California. Ann Emerg Med 1998;31:414-415.

. Levine RJ, Guisto JA, Meislin HW, et al. Analysis of federally imposed penalties for violations of the Consolidated Omnibus Reconciliation Act. Ann Emerg Med 1996;28:45-50.