The Office of General Counsel issued the following opinion on March 30, 2004, representing the position of the New York State Insurance Department.
Re: Permissibility of Providing Radiological Services to Members of Entities such as Unions, Health and Welfare Funds and Insurers
1. May a corporation that sets up a network of licensed radiological centers, enter into a contract with union, health and welfare funds, or other entities, whereby the radiological centers, provide, at a discounted rate, radiological services for such entities, in New York?
2. May a corporation enter into the same service arrangement with insurers?
1. Such corporation may enter into a contract with unions, health and welfare funds, or other entities whereby the radiological centers provide, at a discounted rate, radiological services for the entities, provided that the center, as provider of the services, charges a fee for the services rendered that fully covers the cost of rendition (including reasonable overhead costs) of the services.
2. Generally, under the same set of facts, a corporation may enter into the same type of service arrangement with insurers.
The inquirer states that a non-medical corporation ("the corporation"), working as a vendor, would like to contract with unions, health and welfare funds, other entities, and possibly with insurers, whereby such corporation provide, at a discounted rate, radiological services for such entities, in New York. The corporation will set up a network of existing radiology centers ("the center") that will be licensed and will carry a $1-3 million malpractice policy and the appropriate credentialing read films. The services that will be provided by the centers include MRI, CT Scan and X-ray studies, Myleogram, Nuclear Medicine and Arthrograms.
Pursuant to the contractual arrangement, a union or welfare fund, for example, will contact the corporation to schedule services for its members. The corporation will then contact the center to schedule members for services. Results are then forwarded to the referral source. The corporation will then bill the union or welfare fund for the services rendered. The union or welfare fund pays the corporation directly for the services and the corporation reimburses the center at a discounted rate (i.e., lower than what the union or welfare fund paid the corporation for the services). Whatever amount is left over, the corporation keeps as processing fee to pay overhead expenses such as salaries and office supplies.
The inquirer asks whether a corporation that sets up a network of licensed radiological centers, may enter into a contract with unions, health and welfare funds, or other entities, whereby the centers provide, at a discounted rate, radiological services for the members of such union, health and welfare fund or entity.
N.Y. Ins. Law § 1101(a)(1) & (2) (McKinney Supp. 2004) defines an insurance contract and provides, in pertinent part:
(a) In this article: (1) "Insurance contract" means any agreement or other transaction whereby one party, the "insurer", is obligated to confer benefit of pecuniary value upon another party, the "insured" or "beneficiary", dependent upon the happening of a fortuitous event in which the insured or beneficiary has, or is expected to have at the time of such happening, a material interest which will be adversely affected by the happening of such event.
(2) "Fortuitous event" means any occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party.
N.Y. Ins. Law § 1102(a) (McKinney Supp. 2004) prohibits the doing of an insurance business without a license, unless the person or entity engaging in such business is exempt from the licensing requirements.
The inquirer states that under the arrangement in question the corporation would be called upon by the union, or health and welfare fund, to provide radiological services to its members. Generally, radiological services such as CT Scan and X-Ray studies are based upon an occurrence (an illness or injury) that would be beyond the control of the union or health and welfare fund, or their members. Arrangements that obligate one party to provide a service that is dependent upon a fortuitous event (beyond the control of), constitute insurance under Section 1101 and require licensing by the provider of such services pursuant to Section 1102. However, the Department has opined that such arrangement would not constitute the doing of an insurance business if the provider of such services charges a separate fee for each such fortuitous service. The fee, even if discounted must, however, fully cover the cost of rendition (including reasonable overhead costs) of such services.
Please note that services provided by the center that are not dependent upon the happening of a fortuitous event (i.e., routine/yearly exams), do not come within the definition of "doing an insurance business" in Section 1101(b)(1) and accordingly, no separate fee need to be charged for such non-fortuitous services.
Further, the inquirer asks whether the corporation may enter into the same type of service arrangement with insurers. A corporation may enter into the same type of arrangement with insurers, based on the same analysis above. However, where similar arrangements constitute "financial risk transfer/capitation arrangements," there must be compliance with the provisions of N.Y. Comp. Codes R. & Regs. tit. 11, Part 101 (2002) (Regulation 164) and N.Y. Pub. Health Law § 4403 (2002). See, Gen. Couns. Op. No. 03-08-19 (Aug. 26, 2003), entitled "Regulation 164 - Licensing Requirements for Intermediary Entities that Enter into Financial Risk Transfer Arrangements with Insurers."
Please note that the conclusions herein are limited to the specific set of facts presented. Any factual variation may change the conclusions herein. This opinion is limited to an interpretation of the Insurance Law, thus, no opinion is rendered regarding any other New York State law or Federal law.
For further information you may contact Associate Attorney D. Monica Marsh at the New York City Office.