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

George E. Pataki
Governor

Howard Mills
Superintendent

The Office of General Counsel issued the following opinion on September 12, 2005 representing the position of the New York State Insurance Department.

Re: Audit of Health Insurance Claims

Issues

1. Is there any limitation on how far back an insurer may go in auditing claims of health care providers?

2. May an insurer extrapolate findings from a sample of claims to the entire universe of a health care provider’s claims?

Conclusions

1. With respect to participating healthy care providers, the contract between the health care provider and the insurer, including a Health Maintenance Organization, would control how far back the insurer could audit claims. With respect to non-participating health care providers, there is no provision in the New York Insurance Law (McKinney 2000 and 2005 Supplement) or the regulations promulgated thereunder imposing any such limitation.

2. While New York law generally allows such extrapolation if the audit is performed in accordance with a valid statistical methodology, the use of such extrapolation by insurers where there is a dispute as to medical necessity is not allowed under New York Insurance Law Article 49 (McKinney 2000) and New York Public Health Law Article 49 (McKinney 2002).

Facts

The inquirer represents a professional council, (hereinafter, the Council), and indicates that several members of the Council have complained to the Inquirer about the auditing practices of several insurers. The Council members, some of whom are participating health care providers, some of whom are non-participating health care providers, and one of whom recently left a network and believes he is being retaliated against, complain that the insurers are requiring repayment of monies that had been paid several years ago. In addition, some of the members complain that the insurers are extrapolating from a review of several files to make demands for substantial sums of money.

The inquirer has referenced an April 10, 2002 Opinion from this Office indicating, in part, that there is no provision in the New York Insurance Law or the regulations promulgated thereunder barring an insurer from auditing claims after a specified period of time and inquire, in view of the subsequent enactment of legislation in several jurisdictions limiting the amount of time that insurers may reach back, whether the position of the Insurance Department has changed.

Analysis

New York Insurance Law § 3224-a provides:

In the processing of all health care claims submitted under contracts or agreements issued or entered into pursuant to articles . . . forty-two . . . 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 corporation licensed or certified pursuant to . . . 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 corporation licensed or certified pursuant to . . . 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 corporation licensed or certified pursuant to . . . article forty-four of the public health law to pay a claim or make a payment for health care services rendered is not reasonably . . . an insurer . . . 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 . . . or an appeal of a claim or bill for health care services denied . . . an insurer . . . or corporation licensed pursuant to . . . article forty-four of the public health law shall comply with subsection (a) of this section.

. . .

There is no indication in either the text or legislative history of New York Insurance Law § 3224-a that payment of a claim would preclude an insurer or HMO from subsequently reviewing the claim and then seeking reimbursement for alleged overpayments.

New York Insurance Law § 4803(d) (McKinney 2000) provides:

An insurer shall develop and implement policies and procedures to ensure that health care providers participating in the in-network benefits portion of an insurer's network for a managed care product are regularly informed of information maintained by the insurer to evaluate the performance or practice of the health care professional. The insurer shall consult with health care professionals in developing methodologies to collect and analyze provider profiling data. Insurers shall provide any such information and profiling data and analysis to these health care professionals. Such information, data or analysis shall be provided on a periodic basis appropriate to the nature and amount of data and the volume and scope of services provided. Any profiling data used to evaluate the performance or practice of such a health care professional shall be measured against stated criteria and an appropriate group of health care professionals using similar treatment modalities serving a comparable patient population. Upon presentation of such information or data, each such health care professional shall be given the opportunity to discuss the unique nature of the health care professional's patient population which may have a bearing on the professional's profile and to work cooperatively with the insurer to improve performance. (emphasis added)

New York Public Health Law § 4406-d(4) (McKinney 2002) has similar requirements for HMOs. Although insurers and HMOs are not statutorily required to provide such information to non-participating health care providers, many will, upon request, inform non-participating health care providers of their standards.

There is nothing in New York Insurance Law § 3224-a or any other provision of the New York Insurance Law (McKinney 2000 and 2005 Supplement) that prohibits a retrospective audit of claims. However, if an insurer, including an HMO, were to conduct such retrospective audits as a general practice (1) to avoid either paying claims or providing services covered under the contract or (2) in retaliation for a health care provider leaving a network, the Department would investigate and take the necessary action against the insurer or HMO.

While the contract between an insurer and a participating health care provider may regulate the conduct of such audits, with respect to non-participating health care providers, there is no limitation in the New York Insurance Law or the regulations promulgated thereunder imposing such limitations. Further, as was indicated in the 2002 Opinion, N.Y. Comp. Codes R. & Regs. tit. 11, Part 86 (2003) (Regulation 95) imposes an affirmative obligation on insurers to conduct fraud audits.

Extrapolation to a conclusion concerning a larger universe from a validly constructed sample has long been an accepted statistical technique. The sample size utilized should be sufficiently large so that there is a reasonable probability that it is representative of the entire universe.1 In addition, the sample should be selected in a random fashion, to avoid the possibility of skewing the results toward a desired conclusion.2

However, it is the position of the Department that in reaching conclusions involving medical necessity which is the purpose of most insurer audits), an insurer, including an HMO, must make a particularized determination as to each situation. Accordingly, the use of extrapolations by an insurer where there is a dispute as to medical necessity under New York Insurance Law Article 49 and New York Public Health Law Article 49 is not allowed.

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


Steven K. Thompson, Sampling, 31, (1st ed. 1992).

2  id at 11.