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 October 31, 2003 representing the position of the New York State Insurance Department.

RE: Health Insurance, Insurer’s Retroactive Reversal of Authorization for Durable Medical Equipment

Issue

May an insurer reverse an authorization it had previously given to a participating health care provider for the furnishing of durable medical equipment to an individual covered under a group health insurance contract, and require reimbursement of the amount which the insurer had paid to such health care provider, when the insurer notifies the provider that coverage for the individual had ceased prior to the issuance of the authorization?

Conclusion

In most circumstances, equity would hold that the insurer is estopped from requiring reimbursement. However, whether a particular participating health care provider is obligated to repay amounts previously paid by a Health Maintenance Organization (HMO) would be governed by the contract between the provider and the HMO, which contracts are regulated by the Department of Health.

Facts

The inquirer’s firm is a provider of durable medical equipment and in 1996 entered into an agreement with an HMO holding a Certificate of Authority from the Commissioner of Health pursuant to New York Public Health Law § 4403 (McKinney 2002), to provide durable medical equipment to the HMO’s subscribers. Upon the merger of the HMO into a health plan corporation, the merged corporation, succeeded to the contract. The inquirer’s firm continued to serve subscribers of the merged HMO under the 1996 contract.

In April 2002, an individual presented a prescription for a prosthetic arm and indicated that he was an HMO subscriber. The inquirer’s firm contacted the HMO, which confirmed that the individual was covered through a contract issued to a trade association, and authorized the inquirer’s firm to furnish the device. The inquirer’s firm furnished the device and billed the HMO, which made payment to the inquirer’s firm in May 2002.

On September 8, 2003, the HMO notified the inquirer’s firm that a recent audit had revealed that the individual’s coverage had terminated prior to April 2002. Accordingly, the HMO demanded that the inquirer’s firm refund the amount which in May 2002 it had been paid. While the inquirer has inquired of the HMO, at present, the inquirer has no information as to why and when the coverage ceased.

The contract between the inquirer’s firm and the HMO is silent as to any obligation of the inquirer’s firm, as a participating provider, to refund amounts paid in error by the HMO.

Analysis

While, pursuant to New York Public Health Law § 4406(1) (McKinney 2002), the Department has jurisdiction over contracts between HMOs and their subscribers, jurisdiction over quality of care and contractual relations between an HMO and its participating providers resides with the Department of Health. New York Public Health Law § 4406-c(5-a) (McKinney 2002) provides:

Contracts entered into between a plan and a health care provider shall include terms which prescribe: (a) the method by which payments to a provider, including any prospective or retrospective adjustments thereto, shall be calculated; (b) the time periods within which such calculations will be completed, the dates upon which any such payments and adjustments shall be determined to be due, and the dates upon which any such payments and adjustments will be made; . . . (d) the process to be employed to resolved 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 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; provided, however, that nothing herein shall be deemed to authorize or require the disclosure of personally identifiable patient information or information related to other individual health care providers or the plan's proprietary data collection systems, software or quality assurance or utilization review methodologies; and (e) the right of either party to the contract to seek resolution of a dispute arising pursuant to the payment terms of such contract through a proceeding under article seventy-five of the civil practice law and rules.

New York Insurance Law § 3217-b(e) (McKinney 2000) has similar provisions regulating contracts between other types of insurers and health care providers.

There is no intimation in the above statutes that the Legislature, in enacting New York Insurance Law § 3217-b(e) and New York Public Health Law § 4406-c(5-a), intended that such statutes should affect existing contracts between insurers, including HMOs, and participating health care providers. Accordingly, contracts validly entered into prior to the effective date of the statutes, January 1, 1999, did not have to be modified.

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 Department has, both prior to and after the enactment of New York Insurance Law § 3217-b(e), opined, with respect to insurance policies fully within the Department’s jurisdiction, that it would be inequitable and improper for an insurer to attempt to seek reimbursement from a health care provider where it had assured the provider that a group health insurance contract was in effect and subsequently, after the provider had relied on the representation to render treatment, terminated the contract for non-payment of premium retroactive to a date prior to the assurance of coverage. However, whether a particular participating health care provider is obligated to repay amounts previously paid by the HMO would be governed by the contract between the provider and the HMO, which contract is regulated by the Department of Health.

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