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 28, 2003, representing the position of the New York State Insurance Department.

RE: N.Y. Ins. Law § 3224-a (McKinney 2000) ("The Prompt Pay Statute").

Question Presented:

When ABC denied payment of a claim because of a claims-processing error, and the claim was not paid within the statutory time frame, is such denial a violation of the prompt pay statute (N.Y. Ins. Law § 3224-a (McKinney 2000))? If so, should interest be calculated from a point 45 days after the date the claim was originally received by ABC or from a point 45 days after an appeal of the denial of the claim was received by ABC?

Conclusion:

When an insurer mistakenly denies claims because of a claims-processing error, and such claims are not paid within the statutory time frame such denials are violations of N.Y. Ins. Law § 3224-a (McKinney 2000). Interest should be calculated from a point 45 days after the date the claim was originally received by ABC, pursuant to N.Y. Ins. Law § 3224-a(c) (McKinney 2000).

Facts:

The Department received a complaint against ABC, a Health Maintenance Organization licensed pursuant to Article 44 of the Public Health Law.

ABC agrees that effective February 1, 2000 the A Plan, a coverage option issued by ABC, no longer required a pre-treatment estimate for periodontal scaling and root planing (prior to that date a provider was required to submit a pre-treatment estimate before providing such services to a patient).

On December 20, 2000 ABC received a claim from a provider for periodontal scaling and root planing. The services were provided on December 13, 2000. On January 21, 2001 the claim was denied because of the provider's failure to file a pre-treatment estimate. ABC has conceded that the denial was the result of a failure to update its claims processing system effective February 1, 2000 to allow payment of claims for periodontal scaling and root planing without submission of a pre-treatment estimate by the provider.

On April 25, 2001 the provider appealed the denial, asserting that no pre-treatment determination was required. Ultimately, ABC agreed that no pre-treatment determination was required and paid the claim on March 8, 2002.

The Department requested, pursuant to the prompt pay statute, that ABC pay interest on the claim. ABC agreed that a violation of the statute had occurred and that interest was due under the provisions of the statute. The matter in dispute is whether, under such circumstances, interest should be paid from the point 45 days after December 20, 2000 (the date the claim was first received by ABC from the provider) or from the point 45 days after April 25, 2001(the date ABC received the provider's appeal of its denial of payment).

Analysis:

N.Y. Ins. Law § 3224-a (McKinney 2000)(the prompt pay statute), reads, in relevant part, as follows:

Standards for prompt, fair and equitable settlement of claims for health care and payments for health care services.

In the processing of all health care claims submitted under contracts or agreements issued or entered into pursuant to articles thirty-two, forty-two and forty-three of this chapter and article forty-four of the public health law and all bills for health care services rendered by health care providers pursuant to such contracts or agreements, any insurer or organization or corporation licensed or certified pursuant to article forty-three of this chapter or article forty-four of the public health law shall adhere to the following standards:

(a) Except in a case where the obligation of an insurer or an organization or corporation licensed or certified pursuant to article forty-three of this chapter or article forty-four of the public health law to pay a claim submitted by a policyholder or person covered under such policy or make a payment to a health care provider is not reasonably clear, or when there is a reasonable basis supported by specific information available for review by the superintendent that such claim or bill for health care services rendered was submitted fraudulently, such insurer or organization or corporation shall pay the claim to a policyholder or covered person or make a payment to a health care provider within forty-five days of receipt of a claim or bill for services rendered.

(b) In a case where the obligation of an insurer or an organization or corporation licensed or certified pursuant to article forty-three of this chapter or article forty-four of the public health law to pay a claim or make a payment for health care services rendered is not reasonably clear due to a good faith dispute regarding the eligibility of a person for coverage, the liability of another insurer or corporation or organization for all or part of the claim, the amount of the claim, the benefits covered under a contract or agreement, or the manner in which services were accessed or provided, an insurer or organization or corporation shall pay any undisputed portion of the claim in accordance with this subsection and notify the policyholder, covered person or health care provider in writing within thirty calendar days of the receipt of the claim:

(1) that it is not obligated to pay the claim or make the medical payment, stating the specific reasons why it is not liable; or

(2) to request all additional information needed to determine liability to pay the claim or make the health care payment.

Upon receipt of the information requested in paragraph two of this subsection or an appeal of a claim or bill for health care services denied pursuant to paragraph one of this subsection, an insurer or organization or corporation licensed pursuant to article forty-three of this chapter or article forty-four of the public health law shall comply with subsection (a) of this section.

(c) Each claim or bill for health care services processed in violation of this section shall constitute a separate violation. In addition to the penalties provided in this chapter, any insurer or organization or corporation that fails to adhere to the standards contained in this section shall be obligated to pay to the health care provider or person submitting the claim, in full settlement of the claim or bill for health care services, the amount of the claim or health care payment plus interest on the amount of such claim or health care payment of the greater of the rate equal to the rate set by the commissioner of taxation and finance for corporate taxes pursuant to paragraph one of subsection (e) of section one thousand ninety-six of the tax law or twelve percent per annum, to be computed from the date the claim or health care payment was required to be made. When the amount of interest due on such a claim is less then two dollars, an insurer or organization or corporation shall not be required to pay interest on such claim.

ABC contends that when a claim is not paid due to an error in the insurer's claims-processing system, the obligation to pay the claim is "not reasonably clear" and no violation of the prompt pay statute occurs until the provider files an appeal of the denial with the insurer and the insurer fails to make payment within 45 days following the filing of the appeal.

The material in support of Chapter 637 of the Laws of 1997, which enacted Section 3224-a of the Insurance Law, clearly expresses the intention to strongly encourage the prompt resolution and payment of claims. In this case, the insurer's obligation to pay the claim is clear, whether or not there is an error in the insurer's claim processing system. The Department has previously opined that an insurer's failure to pay a claim within the statutory time limit because of a claims-processing error is a violation of the prompt pay statute. Accordingly, ABC must pay interest to the provider from the point forty-five days after the date the claim was submitted and should have been paid, if not for the claims-processing error, an error that was entirely within the control of ABC to prevent.

For further information you may contact Associate Attorney Sam Wachtel at the New York City Office.