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

David A. Paterson
Governor

Eric R. Dinallo
Superintendent

OGC Op. No. 08-06-10

The Office of General Counsel issued the following opinion on June 18, 2008, representing the position of the New York State Insurance Department.

Re: Application of Insurance Law § 3224-a to the Retroactive Payment of Adjusted Diagnosis Related Group Rates

Question Presented:

When is N.Y. Ins. Law § 3224-a (McKinney 2006) triggered with regard to the retroactive payment of adjusted diagnosis related group (“DRG”) rates to hospitals?

Conclusion:

With regard to the retroactive payment of adjusted DRG rates, Insurance Law § 3224-a is triggered when an insurer receives an adjusted bill for services rendered from a hospital. At that point, the insurer has forty-five days to retroactively pay the adjusted DRG rates to the hospital. However, even in the absence of an adjusted bill for services rendered, an insurer should, in an expeditious manner, retroactively adjust the payments in accordance with any requirements established by the New York State Department of Health (the “Health Department”).

Facts:

The inquiry is of a general nature, without reference to particular facts.

Analysis:

42 U.S.C. § 1395ww (2008), which applies to payments to hospitals for inpatient hospital services, “sets forth a system of payment for the operating costs of acute care hospital inpatient stays under Medicare Part A (Hospital Insurance) based upon prospectively set rates.” Acute Inpatient PPS Overview, Centers for Medicare & Medicaid Services, U.S. Department of Health and Human Services, http://www.cms.hhs.gov/acuteinpatientpps/. Under the inpatient prospective payment system, “a hospital is paid a fixed amount for each patient discharged in a particular treatment category” or DRG. Inpatient PPS PC Pricer, Centers for Medicare & Medicaid Services, U.S. Department of Health and Human Services, http://www.cms.hhs.gov/PCPricer/03_inpatient.asp. This fixed payment “is intended to cover the cost of treating a typical patient for a particular DRG.” Id.

Pursuant to N.Y. Pub. Health Law § 2807-c(3) (McKinney Supp. 2008), the Commissioner of the Health Department is responsible for establishing “the same classification system of diagnosis-related groups for classification of hospital discharges as established for purposes of reimbursement of inpatient hospital service pursuant to title XVIII of the federal social security act.”1 In New York, these DRG rates are typically used to reimburse a hospital when there is no contracted payment rate.

Pursuant to conversations with the Health Department, it is the New York State Insurance Department’s understanding that the Health Department issues updated DRG rates each year. However, the Health Department typically does not issue the updated DRG rates on or before January 1st. Rather, the Health Department issues the updated DRG rates at a later date, and requires insurers to apply these rates retroactively to January 1st. As a result, insurers must retroactively adjust the payments they have already made to hospitals using the updated DRG rates.

The inquirer asserts in his inquiry to the Insurance Department that Insurance Law § 3224-a requires an insurer to retroactively pay adjusted DRG rates issued by the Health Department within forty-five days of receipt of an adjusted bill for services rendered from a hospital, not forty-five days from the insurer’s receipt of the adjusted DRG rates from the Health Department.

Insurance Law § 3224-a sets forth standards for prompt, fair, and equitable settlements of claims for health care and payments for health care services. This section reads in relevant part as follows:

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. (Emphasis added.)

Thus, based upon the express language of Insurance Law § 3224-a, the statute is triggered when an insurer receives a claim or bill for services rendered.

In the situation about which the inquirer inquires, Insurance Law § 3224-a is initially triggered when an insurer receives a bill for services rendered from a hospital. However, when the Health Department issues updated DRG rates, it is the Insurance Department’s understanding that the Health Department requires an insurer to retroactively adjust the payments that the insurer has already made to hospitals. Thus, a question arises as to how much time an insurer has to retroactively adjust the payments it has already made.

Given the express language of Insurance Law § 3224-a, this section is only triggered if an insurer receives a bill for services rendered. Since the insurer has typically already received an initial bill for services rendered, and has paid it within forty-five days of receipt, Insurance Law § 3224-a is only triggered again if the insurer receives an adjusted bill for services rendered from a hospital. At that point, the insurer again has forty-five days to retroactively adjust the payments it has already made. Nonetheless, even in the absence of an adjusted bill for services rendered, an insurer should, in accordance with the Health Department’s requirements, retroactively adjust payments in an expeditious manner.

For further information, you may contact Attorney Joana Lucashuk at the New York City office.

______________________________________________________________________________________________

1 42 U.S.C. § 1395ww is part of Title XVIII of the federal Social Security Act.