The Texas Prompt Pay Law sets firm deadlines for HMOs and insured PPO plans. Carriers act on clean claims within 30 days (electronic) or 45 days (paper). Carriers that miss the deadline owe the contracted rate plus a statutory penalty. Penalties rise from 50% to 100% of the billed-to-contracted difference as delays grow. Payments 91 or more days late also carry 18% annual interest. This guide explains the deadlines, penalty math, underpayment rules, and recovery steps for Texas providers.
What Is the Texas Prompt Pay Law?
The Texas Prompt Pay Law is a group of Texas Insurance Code provisions. These provisions set payment deadlines and penalties for clean claims. The law regulates health maintenance organizations (HMOs) under Chapter 843. The law also regulates preferred provider benefit plans (PPOs and EPOs) under Chapter 1301. The Texas Department of Insurance (TDI) enforces both chapters. TDI rules sit in 28 TAC Chapter 21, Subchapter T.
Two bills shaped the current framework. House Bill 610 (1999) created the first clean claim deadlines. Senate Bill 418 (2003) added the 30-day electronic deadline, tiered penalties, and stricter audit rules. TDI states that contracts entered into or renewed on or after August 16, 2003, fall under SB 418. Nearly every active provider contract today meets that condition.
Prompt pay rules cover only what insurance carriers owe providers. Deductibles, copays, and coinsurance remain the patient’s responsibility after the carrier pays. Collecting those amounts falls outside prompt pay protections. Patient balances follow a separate framework under Texas law on unpaid medical bills.
Which Texas Statutes and Rules Make Up the Prompt Pay Law?
The table below maps each prompt pay provision to the operational question it answers for a billing team.
| Provision | What It Governs |
|---|---|
| Texas Insurance Code Chapter 843 | Claim payment rules for HMOs |
| Texas Insurance Code Chapter 1301 | Claim payment rules for PPO and EPO plans |
| §§843.336 and 1301.101, 1301.131 | Definition and elements of a clean claim |
| §§843.338 and 1301.103 | 30-day and 45-day deadlines for action on clean claims |
| §§843.342 and 1301.137 | Late payment and underpayment penalties |
| §1301.108 | Attorney’s fees in actions to recover payment (PPO claims) |
| 28 TAC Chapter 21, Subchapter T (including §21.2815) | Detailed claim processing, audit, and penalty rules |
Chapters 843 and 1301 use parallel structures. The deadlines and penalty tiers match across HMO and PPO claims. The plan type on the patient’s ID card decides which chapter applies. The full filing rules appear in our guide to Texas medical claim filing deadlines.
Who Is Covered by the Texas Prompt Pay Law?
The Texas Prompt Pay Law covers contracted providers treating patients in TDI-regulated plans. These plans are fully insured HMO, PPO, and EPO products. TDI’s Prompt Pay Guidelines use a three-question test. First, the service must fall under an HMO or insured PPO plan. Second, the provider must hold a contract with that carrier. Third, the contract date decides whether SB 418 or HB 610 rules apply.
Which Health Plans Are Subject to Texas Prompt Pay?
Fully insured HMO, PPO, and EPO plans regulated by TDI are subject to Texas prompt pay rules. Major commercial carriers in Texas offer these plans. Examples include Blue Cross and Blue Shield of Texas, Aetna, UnitedHealthcare, and Cigna. Each carrier also administers plan types that fall outside state law. Billing staff confirms the plan’s funding type before applying Texas deadlines.
Which Claims Fall Outside Texas Prompt Pay?
Five common claim types follow other rules instead of the Texas Prompt Pay Law:
- Self-funded employer plans governed by ERISA, even when a Texas carrier administers them.
- Traditional Medicare claims, which follow federal CMS payment rules.
- Medicare Advantage claims, which follow federal requirements and the provider contract.
- Texas Medicaid and CHIP managed care claims, which follow Texas Health and Human Services Commission (HHSC) contract rules.
- Workers’ compensation claims, which follow Texas Department of Insurance, Division of Workers’ Compensation rules.
Applying Texas prompt pay deadlines to these claims produces invalid penalty requests. Program-specific guidance governs payment timing for each category.
Does Prompt Pay Apply to Out-of-Network Providers?
Texas payment deadlines apply to certain out-of-network claims, but the statutory penalties generally do not. TDI rules extend prompt payment timing to noncontracted providers who deliver emergency care. The rules also cover referral care that is not reasonably available in network.
Texas Attorney General Opinion KP-0250 (2019) concluded the penalty formula likely fails for these claims. The formula depends on a contracted rate, and out-of-network providers have none. Out-of-network billing disputes fall under separate rules on Texas surprise billing requirements.
What Is a Clean Claim Under Texas Law?
A clean claim contains every data element required by TDI rules. The claim also arrives in the correct format. A paper claim is clean when the CMS-1500 or UB-04 form contains all elements listed in 28 TAC §21.2803. An electronic claim is clean when the ASC X12N 837 transaction meets HIPAA standards. The 837 transaction also follows the carrier’s companion guide and trading partner agreement.
Texas law limits what a carrier demands at submission. Carriers may not require data elements beyond the rule. Carriers may not require attachments to establish a clean claim. A claim with secondary coverage also lists the primary payer’s payment amount.
Only clean claims start the payment clock. A deficient claim gives the carrier a right to notify the provider instead of paying. The provider then corrects and resubmits, and the clock restarts on receipt.
How Long Do Texas Insurers Have to Pay a Clean Claim?
Texas insurers have 30 days for electronic clean claims and 45 days for paper clean claims. The clock starts on the date the carrier receives the claim. Pharmacy claims follow a shorter track. The table below lists each statutory deadline.
| Claim Type | Deadline for Carrier Action | Clock Starts |
|---|---|---|
| Electronic clean claim (837) | 30 days | Date of receipt |
| Non-electronic clean claim (paper, fax, hand delivery) | 45 days | Date of receipt |
| Affirmatively adjudicated electronic pharmacy claim | 21 days | Date of receipt |
Electronic submission cuts the statutory wait by 15 days compared with paper. Clearinghouse acceptance reports also create the strongest proof of the receipt date.
The provider side carries a deadline as well. Texas providers file claims within 95 days of the date of service, unless the contract allows longer. Missing that window forfeits payment. The full filing rules appear in our guide to Texas medical claim filing deadlines.
What Actions Must a Carrier Take Before the Deadline?
Before the statutory deadline expires, the carrier completes one of 4 actions:
- Pay the full contracted amount of the clean claim.
- Deny the claim and state the reason in writing.
- Pay the undisputed portion and explain in writing why the rest is unpaid.
- Notify the provider of an audit and pay 100% of the contracted rate.
The deadline is a deadline to act, not a guarantee of payment. A timely written denial satisfies the statute, even when the provider disagrees with the denial.
How Do Requests for Additional Information Affect the Deadline?
A carrier may make one specific request for additional information within 30 days of receiving the claim. The request pauses the payment deadline until the provider responds. The carrier then acts within 15 days of receiving the information or by the original deadline, whichever comes later. Requests to third parties do not pause the deadline.
How Do Audits Affect the Deadline?
A carrier that audits a clean claim still pays 100% of the contracted rate within the statutory deadline. The explanation of payment must state that the claim is under audit. The carrier completes the audit within 180 days of receiving the claim. The carrier recovers money only through the audit and overpayment procedures in Subchapter T.
What Happens When a Texas Insurer Pays a Clean Claim Late?
A Texas insurer that pays a clean claim late owes the full contracted rate plus a statutory penalty. Texas Insurance Code §1301.137 sets the penalty for PPO claims. Section 843.342 sets the same structure for HMO claims. The carrier must show the contracted amount and the penalty amount separately on the explanation of payment.
Four facts decide whether a penalty is owed:
- Receipt date: the date the carrier received the claim, shown on clearinghouse or mail records.
- Clean status: whether the claim contained every required element on that date.
- Carrier response: whether a denial, deficiency notice, or audit notice arrived before the deadline.
- Payment date: how many days after the deadline the payment arrived.
TDI calculates penalties per claim. Providers contact the carrier first to assert the right to a penalty payment.
How Are Texas Prompt Pay Penalties Calculated?
Texas prompt pay penalties equal a percentage of billed charges minus the contracted rate. Each tier carries a dollar cap. The penalty is paid in addition to the contracted rate. The underlying claim payment and the penalty are two separate amounts.
What Are the Texas Late Payment Penalty Tiers?
Texas Insurance Code §1301.137(a) through (c) sets 3 penalty tiers based on days late:
| Days Paid After Deadline | Penalty (Lesser Of) | Interest |
|---|---|---|
| 1 to 45 days | 50% of (billed charges minus contracted rate), or $100,000 | None |
| 46 to 90 days | 100% of (billed charges minus contracted rate), or $200,000 | None |
| 91 days or more | 100% of (billed charges minus contracted rate), or $200,000 | 18% annual interest on the penalty |
The penalty doubles once a payment crosses 45 days late. Interest begins on the date payment was due and runs until the claim and penalty are paid in full.
How Does a Late Payment Penalty Work in Practice?
A worked example shows the math. A Houston cardiology practice bills $1,000 for a service. The contracted rate is $400. The difference between billed charges and the contracted rate is $600.
| Payment Timing | Contracted Rate Owed | Penalty Owed | Total Paid by Carrier |
|---|---|---|---|
| 20 days late | $400 | $300 (50% of $600) | $700 |
| 60 days late | $400 | $600 (100% of $600) | $1,000 |
| 120 days late | $400 | $600 plus 18% annual interest | $1,000 plus interest |
At 120 days late, interest on the $600 penalty is about $35.51 (18% x 120/365 x $600). The 18% interest follows the payment rules described in the next section.
Who Receives the Penalty and the Interest?
Non-institutional providers keep the full penalty, but the 18% interest goes to the State of Texas. Institutional providers, such as hospitals, receive 50% of the total penalty, including interest. The State of Texas receives the other 50%. TDI Bulletin B-0005-19 states that a provider contract or settlement cannot waive the state’s portion. TDI now collects that portion after the Texas Health Insurance Pool dissolved.
What If an Insurer Underpays a Clean Claim?
An underpaid clean claim earns a penalty when the carrier pays the balance after the statutory deadline. Texas Insurance Code §1301.137(d) through (f) applies the same 3 tiers to underpayments. The base is the “underpaid amount” instead of the full billed-to-contracted difference.
Underpayment is a separate problem from nonpayment. Billing teams compare each payment with the contracted rate, adjustment codes, and bundling edits. A coding or bundling disagreement is a contract dispute, not a prompt pay violation. Contract disputes follow the carrier’s appeal process and the provider agreement.
How Is the Underpaid Amount Calculated?
The underpaid amount equals the underpayment’s share of the contracted rate, applied to billed charges minus the contracted rate. Section 1301.137(g) sets this ratio formula. The example below uses the same $1,000 claim.
- Identify the shortfall: the carrier paid $300 on a $400 contracted rate, leaving $100 unpaid.
- Compute the ratio: $100 divided by $400 equals 25%.
- Apply the ratio: 25% of ($1,000 minus $400) equals an underpaid amount of $150.
- Apply the tier: a balance paid 1 to 45 days late earns 50% of $150, or $75.
The carrier also pays the $100 balance. The total payment on the balance becomes $175.
What Is the 270-Day Underpayment Notice Rule?
Providers notify the carrier of an underpayment within 270 days of receiving the payment to preserve the penalty. Section 1301.137(h) covers late notice. No penalty applies when notice arrives after day 270, and the carrier pays within 30 days. The carrier still owes the unpaid contracted rate in that case. The 270-day window is separate from the carrier’s own claim appeal deadlines.
How Can Providers Recover Late Payments and Prompt Pay Penalties?
Texas providers recover late payments and prompt pay penalties through 7 documented steps:
- Identify the delayed claim. Record payer, claim number, date of service, submission date, receipt confirmation, and amount due.
- Confirm the law applies. Check the plan funding type, network contract, and claim category.
- Verify clean status. Confirm the claim was clean, not deficient, denied, partially paid, or under audit.
- Calculate the deadline. Count 30 or 45 days from the documented receipt date.
- Contact the carrier. Request payment status and the applicable penalty by phone or provider portal.
- Submit a written request. Attach claim records, correspondence, and the remittance showing the late payment.
- Escalate unresolved issues. File a complaint with TDI when the carrier refuses a penalty that is owed.
Strong records decide most penalty disputes. Billing teams retain 7 document types for every disputed claim:
- Clearinghouse acceptance reports (999 and 277CA)
- Certified mail or courier receipts for paper claims
- Explanations of benefits (EOBs) and electronic remittance advice (ERA 835 files)
- Carrier correspondence, including deficiency and audit notices
- Call reference numbers with dates and representative names
- The provider contract and current fee schedule
- Penalty calculation worksheets
How Do Providers File a Prompt Pay Complaint With TDI?
Providers file prompt pay complaints with TDI’s Consumer Protection division through the health provider complaint process. TDI advises contacting the carrier first. A complaint follows when the provider believes a penalty is owed and the carrier has not paid it.
A complete complaint contains 5 elements:
- Carrier name, plan type, and patient member ID
- Claim numbers, dates of service, and receipt dates
- Amounts billed, contracted, paid, and penalty claimed
- A short timeline of contacts with the carrier
- Copies of supporting records listed in the previous section
TDI answers general prompt pay questions at [email protected]. A complaint does not guarantee a specific outcome. Self-funded plans and federal programs fall outside TDI jurisdiction.
What Other Remedies Do Texas Providers Have?
Texas law gives providers 3 additional protections beyond the per-claim penalty.
- Attorney’s fees: Texas Insurance Code §1301.108 lets a preferred provider recover reasonable attorney’s fees and court costs. The right applies in an action to recover payment.
- Administrative penalties: TDI may penalize a carrier that misses deadlines on more than 2% of clean claims. The penalty reaches up to $1,000 per day per unpaid claim.
- No contractual waiver: Texas Insurance Code §1301.107 prohibits contract terms that waive prompt pay protections.
Litigation and contract questions require a licensed Texas health care attorney. Billing teams route these matters to legal counsel instead of resolving them alone.
What Mistakes Delay Prompt Pay Recovery?
Seven recurring mistakes delay or defeat prompt pay recovery for Texas providers:
- Applying Texas deadlines to Medicare, Medicaid, or self-funded plan claims
- Losing proof of the carrier’s receipt date
- Treating a timely denial as a late payment
- Ignoring a carrier’s request for additional information
- Missing the 270-day underpayment notice window
- Skipping reconciliation of penalties against ERA records
- Escalating a bundling dispute as a prompt pay violation
Each mistake traces back to incomplete claim tracking, one of the recurring challenges in Texas medical billing. Structured follow-up workflows prevent most of them.
How Do Medical Billing Teams Track Late Payments and Penalties?
Medical billing teams track late payments by monitoring every claim against its statutory deadline from submission to payment. Manual tracking fails at scale because each payer, plan type, and claim format carries a different clock. A structured workflow covers 6 functions:
- Logging submission and receipt dates for every claim
- Flagging claims approaching day 30 or day 45 without a response
- Comparing each payment against the contracted rate
- Calculating penalties owed on late or underpaid claims
- Storing documentation for carrier follow-up and TDI complaints
- Routing contract disputes to compliance staff or legal counsel
Transcure supports Texas practices across this workflow. CLAIR, Transcure’s claims scrubbing agent, submits clean 837 claims and captures acceptance reports. REMITA posts payments and flags variances against contracted rates. ARIA monitors aging accounts receivable and surfaces claims past statutory deadlines. Certified billing specialists review every flagged claim before follow-up. Practices exploring outsourced support can review Transcure’s medical billing services in Texas.
Frequently Asked Questions
1. Does The Texas Prompt Pay Law Apply To All Health Insurance Companies And Medical Claims?
No, the law applies only to clean claims under fully insured HMO, PPO, and EPO plans regulated by TDI. Self-funded ERISA plans, Medicare, Medicare Advantage, Medicaid, CHIP, and workers’ compensation claims follow separate rules.
2. Can An Insurance Company Pause The Prompt-Pay Deadline While Waiting For Additional Information?
Yes, a carrier can pause the deadline once by sending a specific information request within 30 days of receiving the claim. The carrier then acts within 15 days of receiving the information or by the original deadline, whichever is later.
3. Can Texas Medical Providers Collect Prompt-Pay Penalties If An Insurer Denies A Clean Claim Incorrectly?
Yes, TDI rules treat an incorrect denial of a valid clean claim as a failure to act on time. When the carrier later pays that claim, penalties apply based on the days elapsed since the original deadline.
4. How Long Does A Texas Provider Have To Notify An Insurer About An Underpaid Claim To Qualify For A Prompt-Pay Penalty?
A provider has 270 days from receiving the underpayment to notify the insurer and preserve the penalty. After day 270, no penalty applies if the insurer pays the balance within 30 days of the notice.
5. How Can A Provider File A Texas Department Of Insurance Complaint About Delayed Or Incorrect Claim Payments?
Providers file through TDI’s online health provider complaint process after first asking the carrier to pay. A strong complaint includes claim numbers, receipt dates, amounts owed, carrier correspondence, and remittance records.
6. What Are The Top Medical Billing Companies In Texas That Help Providers Manage Insurance Claims, Payment Delays, And Denial Follow-Up?
Transcure supports Texas practices across claim submission, payment variance tracking, A/R follow-up, and denial management. Our list of the Top 10 Medical Billing Companies in Texas compares more options by specialty, services, and pricing.
