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

The Office of General Counsel issued the following informal opinion on February 13, 2002, representing the position of the New York State Insurance Department.

Re: Home Health Care Service/Durable Medical Equipment Contracts

Issues:

1. Are Healthcare Company A entities obligated to make payments to Providers that had contracted with DME Company B and provided services to insureds and subscribers of Healthcare Company A?

2. May the Providers make a claim against the insureds and subscribers of the Healthcare Company A entities for amounts owed for services provided to them at the direction or suggestion of DME Company B?

Conclusions:

1. Based upon a review of the applicable contracts, this Department believes that the Healthcare Company A entities are not obligated under the New York Insurance Law to make payments to the Providers.

2. While this Department has not reviewed any contracts between Healthcare Company A entities’ insureds and subscribers and the Providers, collection of such amounts from the insureds and subscribers would be contrary to the contracts between DME Company B and the Healthcare Company A entities and between DME Company B and the Providers.

Facts:

In August 1998, Service Company C, which is a subsidiary of Health Group D, entered into a contract, to be effective October 1, 1998, with DME Company B for DME Company B1 to provide specified services to insureds and subscribers of insurer and HMO affiliates of Service Company C, provided the affiliates entered into a Participating Plan Addendum with DME Company B. Among the services to be provided under the contract was the provision of home health care services, including durable medical equipment (DME), to insureds and subscribers of the affiliates.

Among the affiliates that entered into Participating Plan Addendums were Accident & Health Company F, a domestic accident & health insurance company formed in accordance with New York Insurance Law Article 42 (McKinney 2000); HMO X, a New York corporation holding a Certificate of Authority as an HMO from the Commissioner of Health pursuant to New York Public Health Law Article 44 (McKinney 1993 and 2001 Supplement); and HMO Y, a New York corporation holding a Certificate of Authority as an HMO from the Commissioner of Health pursuant to New York Public Health Law Article 44 (collectively hereafter referred to as Healthcare Company A). The ultimate corporate parent of all the above named affiliates is Health Group D.

DME Company B, in turn, entered into separate contracts with Providers who were in the business of providing home health care services and/or either selling or leasing DME. Mr. G, a Manager at Accident & Health Company F, has represented that Service Company C or the operating entities were not made aware by DME Company B of the terms and conditions of the contracts entered into between DME Company B and the Providers.

It is Health Group D’s position that it and its operating subsidiaries were in full compliance with the contract between itself and DME Company B, while DME Company B had violated various terms of the contract. On September 15, 2000, a subsidiary of Health Group D notified DME Company B that the contract and all Participating Plan Addendums were being terminated because of DME Company B’s failure to allow an audit of its operations and to account for amounts paid to DME Company B by Health Group D and its operating subsidiaries. DME Company B responded and asserted that Service Company C had breached the contract and, in accordance with the contract, demanded arbitration of the dispute.

A number of Providers who had provided home health care and DME services to insureds and subscribers of entities which had executed Participating Plan Addendums complained to this Department that DME Company B had not paid them and asserted that the Healthcare Company A entities are obligated to make the payments not made by DME Company B. The Healthcare Company A entities have made some payments, notwithstanding that payment for these services had already been made to DME Company B.

The contract delineating the relationship between DME Company B and the Healthcare Company A entities, require DME Company B to furnish, inter alia, home health care services and DME to insureds and subscribers of the Healthcare Company A entities. The contract between DME Company B and the Healthcare Company A entities provides that DME Company B is to look solely to Healthcare Company A for payment and, except for deductibles, is not to bill any amounts to insureds or subscribers of Healthcare Company A entities.

Counsel for some of the Providers has furnished examples of the contracts between DME Company B and the Providers. The contract for home health care services differs substantially from the contract for DME.

The contract for home health care services refers to individuals receiving services as "DME Company B patients" and requires the Provider to keep DME Company B’s Clinical Coordinator/Patient Services Representative informed of all aspects of the services rendered, although it is the Provider’s obligation to secure all necessary authorizations and treatment plans from the home health care provider. The Provider was to be compensated by DME Company B on a fee for item/service basis and was prohibited from contacting DME Company B’s source of patients.

The contract for DME provides that DME Company B will administer a program, Group Buyers Program, whereby the Providers will purchase the DME from suppliers furnished by DME Company B and distribute the DME to individuals identified by insurers and HMOs. The Provider is obligated to secure any required authorizations from the participating insurers and HMOs and submit all bills to DME Company B. As a condition to participating in the program, the Provider is obligated to pay DME Company B an enrollment fee and quarterly fees, which appear to be franchise fees, based upon the size and demographics of the patients furnished through the participating insurers and HMOs.

In either instance, the Provider agrees it will not look to DME Company B’s contracted sources, in this case the Healthcare Company A entities, for any payments. The Provider also agrees that it will not look to a Healthcare Company A entity’s subscribers.

Mr. G. has inquired as to whether the Healthcare Company A entities are obligated to continue to make payment to the Providers and whether, if the Healthcare Company A entities do not continue to make payments, the Providers may make claims against the insureds and subscribers.

Analysis:

Liability of Healthcare Company A

This Department understands that it is the position of some of the Providers that the obligation of the Healthcare Company A entities to make the payments in question has been determined by the decision in New York Health Plan Association v. Levin, 187 Misc. 2d 527, 723 N.Y.S. 2d 819 (Sup. Ct. Albany 2001), which dealt with the validity of this Department’s Circular Letter 12 of 2000. The Circular Letter reiterated this Department’s position that insurers and HMOs are ultimately responsible for compliance with the Prompt Pay Law, New York Insurance Law § 3224-a (McKinney 2000).

However, it is the position of this Department that New York Insurance Law § 3224-a does not require an insurer or HMO to be responsible to make payments to health care providers where the health care provider has contractually agreed to look solely to a third party for payment. Here, the Providers contractually agreed to look solely to DME Company B, and not the Healthcare Company A entities, for compensation.

Accordingly, neither Accident & Health Company F nor the HMOs are obligated to make payments to Providers for services provided by the Providers to their insureds or subscribers.

Subscriber’s Obligation

The contracts between DME Company B and the Providers provide that, except for deductibles, co-payments, and services provided after termination of coverage under the policy or contract, the Providers shall not look to insureds and subscribers for any payments. Accordingly, the Providers may not properly look to the insureds or subscribers for any amounts owed.

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


1 DME Company B subsequently changed its name to DME Company E. The original name is used throughout this letter