New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

George E. Pataki
Governor

Gregory V. Serio
Superintendent

The Office of General Counsel issued the following informal opinion on November 27, 2002, representing the position of the New York State Insurance Department.

RE: Health Insurance, Insurer’s Retroactive Reversal of Treatment Authorization.

Question Presented:

May an insurer retroactively reverse an authorization it had given to a participating health care provider for treatment of an individual covered under a group health insurance contract, and require reimbursement of the amount paid such health care provider, when it is notified by the insured that the coverage of the treated individual was terminated almost a year prior to the authorization and treatment?

Conclusion:

While in most circumstances equity would hold that the insurer is estopped from requiring reimbursement, the rights of the participating health care provider are governed by the contract between the insurer and the participating health care provider.

Facts:

The inquirer is a participating health care provider with ABC Ins. Co., which is one of several insurers that has contracted with the State of New York to provide health insurance to employees of the State and participating local employers (XYZ Plan). Both the contract issued by ABC Ins. Co. to the State and the certificates provided to covered individuals require either the covered individual or the health care provider to secure a pre-authorization for chiropractic treatment. ABC Ins. Co. has contracted with JKL Networks, Inc. (JKL) to both ascertain the existence of coverage and provide authorization for the treatment.

On January 29, 2002, an individual came to the inquirer’s office for non-urgent treatment and indicated that she was covered under the XYZ Plan. The inquirer contacted JKL that day. On February 1, 2002, the inquirer received authorization from JKL to render a specified number of treatments under the XYZ Plan for the period January 29 to February 28, 2002. The inquirer provided the requisite treatments and submitted a bill to ABC Ins. Co. on March 2, 2002. The inquirer’s bill was paid by ABC Ins. Co. on March 29, 2002.

On August 8, 2002, ABC Ins. Co. notified the inquirer that it had received notification from the New York State Department of Civil Service, which administers the XYZ Plan, that the coverage of the treated individual had terminated on April 30, 2001. ABC Ins. Co., therefore, demanded that the inquirer refund the amount it had paid the inquirer or that it would deduct the amount from future payments. By letter of August 24, 2002, the inquirer replied that ABC Ins. Co.’s request was unacceptable. By letter of September 13, 2002, JKL notified the inquirer that the January and February 2002 treatments were not authorized.

The inquirer subsequently contacted ABC Ins. Co. and, on September 23, 2002, had a telephone conversation with an ABC Ins. Co. employee, who informed the inquirer that the State often did not give it timely notification of terminations of coverage. The inquirer was further informed that, notwithstanding the authorization previously received, ABC Ins. Co.’s contract with the State required ABC Ins. Co. to charge-back payments made on terminated employees.

Analysis:

The XYZ Plan policy has been issued in accordance with an authorization in New York Civil Service Law Article 11 (McKinney 1999 and 2002 Supplement) for the State to purchase health insurance for its employees. In addition to authorizing coverage of State employees, New York Civil Service § 163(4) (McKinney 1999) authorizes:

Any public authority, public benefit corporation, school district, special district, district corporation, municipal corporation, or other agency, subdivision or quasi-public organization of the state . . . may elect to participate in such plan. . . . Any such authority, corporation, district, agency, subdivision or organization making such election shall become a participating employer under such plan, subject to and in accordance with the regulations of the president [of the civil service commission] relating thereto.

The Regulations of the Civil Service Commission, N.Y. Comp. Codes, R. & Regs. tit. 4, § 73.4(a) (2002) provide:

The employer shall be responsible for performing the following administrative functions: . . . (4) prompt certification to the insurers of eligibility or noneligibility for benefits for the employees and retired employees, and their dependents, claiming benefits and prompt notification to the carriers, as necessary, of the enrollment, change in status and termination of coverage of its covered employees; . . . .

The doctrine of estoppel is equitable in nature and is designed to prevent one party from making misrepresentations that are relied upon another party to its detriment. The essential elements are a change in position, A. C. Transportation, Inc. v. Board of Education of the City of New York, 253 App. Div. 2d 330, 687 N.Y.S. 2d 1 (1st Dept. 1999), based upon reliance of a representation made by another, Keane v. Kamin, 257 App. Div. 2d 433, 683 N.Y.S. 2d 250 (1st Dept. 1999), and that the party acting in reliance on the representation would be injured if the party making the representation could disaffirm it, Connelly v. Rodriquez, 73 Misc. 2d 745, 342 N.Y.S. 2d 469 (Sup. Ct. Monroe 1973).

The payments made by ABC Ins. Co. under the XYZ Plan are periodically audited by the New York Department of Civil Service, as well as by the State Comptroller. The contract between the State and ABC Ins. Co. provides that, should improper payments be discovered, ABC Ins. Co. is obligated to make a refund to the State. Because of the impact estoppel would have on the public fisc, the general rule is that estoppel is not available against the State or its political subdivisions. A. C. Transportation, Inc, 253 App. Div. 2d at 338, 687 N.Y.S. 2d at 6. Accordingly, the State may recoup from ABC Ins. Co. payments made in error no matter the time since the payment.

Given the possibility of being required to make repayments to the State, it is possible that ABC Ins. Co. included in contracts with participating health care providers a right to recoup payments, should it or the State discover errors, such as authorizations for individuals whose eligibility had previously terminated.

While the contract between ABC Ins. Co. and participating health care providers, such as the inquirer, are not subject to approval by this Department, they are subject to New York Insurance Law § 3217-b(e) (McKinney 2000):

Contracts entered into between an insurer and a health care provider shall include terms which prescribe: (1) the method by which payments to a provider, including any prospective or retrospective adjustments thereto, shall be calculated; (2) the time periods within which such calculations will be completed, . . . . (4) the process to be employed to resolve disputed incorrect or incomplete records or information and to adjust any such payments and adjustments which have been calculated by relying on any such incorrect or incomplete records or information so disputed; . . . .and (5) the right of either party to the contract to seek resolution of a dispute arising pursuant to the payment terms of such contracts through a proceeding under article seventy-five of the civil practice law and rules.

If the contract with ABC Ins. Co. requires the inquirer to make refunds to ABC Ins. Co., such a provision, if entered into after July 1, 1999, the effective date of Insurance Law § 4317-b(e), would have to comply with New York Insurance Law § 4317-b(e) and would control. If, however, there is no such contractual obligation on the inquirer’s part, equity would appear to compel the conclusion that ABC Ins. Co. is estopped from making the inquirer refund the payments made on behalf of the patient in question.

For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.