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 opinion on April 4, 2003, representing the position of the New York State Insurance Department.

RE: Non-participating Healthcare Provider; Balance Billing

Issue

May a physician with no contractual relationship with an insurer, who treats an insured of that insurer, bill the insured/patient that amount in excess of the insurer’s reimbursement that represents his/her usual customary and reasonable charge (balance billing)?

Conclusion

A physician must charge the patient for any co-insurance amount.

Facts

Patient is insured with Insurer under a managed care health insurance contract, as that term is defined in New York Insurance Law § 4801(c) (McKinney 2000), whereby the reimbursement to the insured who utilizes the services of a non-participating healthcare provider is based on a stated percentage of the usual customary and reasonable charges (UCR) for that particular service. Physician is a non-participating provider, i.e., Physician has no contractual relationship with Insurer, who treats Patient. Physician’s charge for the service is $100.

Patient has met any applicable deductible and submits Physician’s bill to Insurer. Insurer considers the bill and pays Patient $72, representing 80% of Insurer’s calculation of a UCR of $90. In the alternative, Patient assigns any rights to receive payment to Physician, who submits a bill to Insurer. Insurer accepts the assignment and pays Physician the $72.

In either event, Physician desires to bill Patient $28, representing the difference between $100 charged and the $72 paid by Insurer.

Analysis

New York Insurance Law § 4801(c) provides:

a ‘managed care health insurance contract’ or ‘managed care product’ shall mean a contract which requires that all medical or other health care services covered under the contract, other than emergency care services, be provided by, or pursuant to a referral from, a designated health care provider chosen by the insured (i.e. a primary care gatekeeper), and that services provided pursuant to

such a referral be rendered by a health care provider participating in the insurer's managed care provider network . . . and that services provided pursuant to such a referral be rendered by a health care provider participating in the insurer's managed care provider network, in order for the insured to be entitled to the maximum reimbursement under the contract.

Insurance policies and contracts may, without being deemed managed care health insurance contracts, provide a financial incentive for the Insured to utilize participating providers. In addition, managed care insurance contracts may provide that the insured may, by incurring a financial penalty, utilize a non-participating provider.

New York Penal Law § 176.05 (McKinney 1999) defines insurance fraud:

1. A fraudulent insurance act is committed by any person who, knowingly and with intent to defraud presents, causes to be presented, or prepares with knowledge or belief that it will be presented to or by an insurer . . . or any agent thereof, any written statement as part of, or in support of . . . a claim for payment or other benefit pursuant to an insurance policy . . . for . . . personal insurance which he knows to: (i) contain materially false information concerning any fact material thereto . . . .

2. A fraudulent health care insurance act is committed by any person who, knowingly and with intent to defraud, presents, causes to be presented, or prepares with knowledge or belief that it will be presented to, or by, an insurer . . . or any agent thereof, . . . a claim for payment, services or other benefit pursuant to such policy, contract or plan, which he knows to: (a) contain materially false information concerning any material fact thereto; or (b) conceal, for the purpose of misleading, information concerning any fact material thereto. . . .

New York Insurance Law § 403(c) (McKinney 2000) authorizes the Superintendent of Insurance to impose a civil penalty for insurance fraud.

A physician who, as a general business practice, waives otherwise applicable co-insurance, co-payments or deductibles, where such waiver would affect the amount the insurer would pay, would be guilty of insurance fraud. For example, if an individual were to be insured under a health insurance policy obligating the insurer to reimburse the insured 80% of the physician’s usual and customary charges and were the physician to inform the insurer that his or her usual and customary charge for a procedure was $100, the insurer would, in anticipation that the physician would require the patient to pay him or her $20, reimburse the insured $80. If, however, the physician were to, as a general business practice, waive the $20 co-payment, the physician’s usual and customary charge would be $80. Under those circumstances, the obligation of the insurer would be $64.

Accordingly, under the situation where the Patient submits a claim to Insurer knowing that Physician has waived the co-insurance, Insured might be guilty of insurance fraud, as that term is defined in New York Penal Law § 176.05. If Physician submits the claim directly, Physician might similarly be guilty of insurance fraud. In either event, Physician might be guilty of insurance fraud, as that term is defined in Insurance Law § 176.05(2)(b).

However, if a physician were to occasionally waive a co-insurance, co-payment or deductible as a courtesy to a family member or fellow physician or for an indigent patient, he or she would not be guilty of insurance fraud. In addition, a decision, in the exercise of business judgment, not to pursue the full legal remedies available to collect a debt would not constitute insurance fraud.

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