OGC Opinion No. 10-12-05
The Office of General Counsel issued the following opinion on December 6, 2010 representing the position of the New York State Insurance Department.
RE: Specialty Bill Review
Question Presented:
Would a company that advises self-funded employee welfare benefit plans as to the amount the plans should pay non-participating hospitals, reviews the bills submitted by those hospitals, and makes recommendations to such plans as to how to negotiate with the non-participating hospital have to be licensed as an independent adjuster?
Conclusion:
Yes. Based upon the descriptions, such a company and its employees would have to licensed as an independent adjuster, in accordance with N.Y. Ins. Law § 2108(a)(3) (McKinney Supp. 2010).
Facts:
The inquirer reports that he proposes to form a new company (hereinafter “Newco”), which would contract with self-funded employee welfare benefit plans, operated either by an employer or a labor union, which plans are regulated pursuant to the Employee Retirement Income Security Act (“ERISA”) 1 , with relation to the plan’s dealings with non-participating hospitals.
The inquirer partially describes the operations of Newco as:
[Newco] will work with TPAs [third party administrators], health carriers, self funded/self administered groups (Unions and commercial), and medical reinsurance companies. What [Newco] will do is access public Medicare cost/charge data that is specific to the hospital that they filed with CMS [Center for Medicare and Medicaid Services] (their CFO and CEO signed an affidavit stating that they are correct) for the out of network claim that is being reviewed and compare their actual costs to the charges they submitted to my client for payment. While the cost for each claim will differ, depending upon the services provided, the particular cost for each service for each hospital will be the same. We will produce a cost plus reimbursement that is much less than the billed charges, but is reasonable (margin for the hospital is built in). We will also compare the cost charge reimbursement to Medicare and reimburse the hospital the higher of the two calculations/figures. After the cost plus reimbursement is sent to the provider, we will follow up with the provider and secure sign off on the reimbursement we remitted to them so that they will not balance bill the member nor go after the plan for the balance at a future date.
The inquirer further reports that Newco would, in conjunction with an attorney, draft a reimbursement schedule for the particular plan, which would reimburse the hospital on the basis of its cost for a particular procedure or condition, plus a “reasonable” profit. The profit factor would differ, depending upon factors unique to the hospital and the desires of the plan.
When a bill is received by a plan, it would transmit the bill to Newco for review. 2 If the bill were to be on a per-diem or diagnostic related group basis, and the amount were consistent with the plan’s guidelines, Newco would recommend payment. If the bill were on the basis of charges for discrete services, Newco would compare the bill with the hospital’s records to confirm that the services were properly ordered and performed. If the full hospital record were not present, Newco would request the plan to secure it. The inquirer represents that the plan would have secured an authorization from the patient, and the inquirer’s company would have entered into a business associate agreement with the plan, so that there would be compliance with the privacy rule 3 promulgated by the United States Department of Health and Human Services in accordance with the Health Insurance Portability and Accountability Act. 4
If the hospital bill were to be, in the view of Newco, excessive, Newco would so advise the plan and assist it in negotiations with the non-participating hospital. Such assistance would include providing the services of a retained non-employed attorney. It is assumed that the relationship between the fund, Newco and the attorney would be in compliance with the Judiciary Law, in that Newco would not engage in the practice of law, or interfere in the attorney-client relationship.
Analysis:
ERISA, in 29 U.S.C. § 1144, limits state authority over self-funded plans subject to its jurisdiction:
(a) Supersedure; . . . Except as provided in subsection (b) of this section, the provisions of this title and title IV shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan . . . .
(b) Construction and application. . . . (2) (A) Except as provided in subparagraph (B), nothing in this title shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities. (B) Neither an employee benefit plan . . . nor any trust established under such a plan, shall be deemed to be an insurance company or other insurer, bank, trust company, or investment company or to be engaged in the business of insurance or banking for purposes of any law of any State purporting to regulate insurance companies, insurance contracts, banks, trust companies, or investment companies.
Thus, a state may not impose requirements upon self-funded plans. However, that prohibition does not prevent a state from enforcing its laws upon entities that perform services for such self-funded plans. See O’Neil v. Wal-Mart Corporation, 507 F. Supp. 2d 318 (WDNY 2007).
Insurance Law § 2102(a)(1) prohibits any person, firm, association, or corporation from acting as an insurance adjuster in New York without being licensed by the Department. Furthermore, Insurance Law § 2108(a)(3) prohibits an adjuster from acting on behalf of an insurer 5 unless licensed as an independent adjuster. Insurance Law § 2101(g)(1), which is relevant to the inquiry, defines the term “independent adjuster” in relevant part:
[A]ny person, firm, association or corporation who, or which, for money, commission or any other thing of value, acts in this state on behalf of an insurer in the work of investigating and adjusting claims arising under insurance contracts issued by such insurer and who performs such duties required by such an insurer as are incidental to such claims and also includes any person who for compensation or anything of value investigates and adjusts claims on behalf of any independent adjuster . . . . 6
Thus, any person or entity that exercises any discretion on behalf of an insurer in the handling of a claim, rather than engaging in strictly ministerial acts, is investigating and adjusting claims within the meaning of Insurance Law § 2101(g)(1). See Opinion of General Counsel dated October 23, 2007; Opinion of General Counsel dated June 29, 2001. Any determination whether an entity must become licensed as an independent adjuster is fact specific.
The Insurance Department has opined that discretionary acts that require licensing include claims review and processing, payment authorization, check signing and issuance, loss evaluations, responding to claimant inquiries, and making payment recommendations to the insurer. See Office of General Counsel Opinion dated July 29, 2008. However, tasks such as data entry and processing are considered ministerial in nature. See id. While certain persons and entities are exempt from securing licenses as independent adjusters, based upon the information furnished, it does not appear that any exemption applies to Newco.
While some of the services of Newco, as described, fall within the ministerial category, given that the “costs” for a particular procedure will differ for each hospital, the independent determination by Newco of what would constitute “overpayments” after an investigation by Newco, and transmittal of that determination to the client, would constitute the exercise of discretionary authority. The recommendation of an attorney would also constitute the exercise of discretionary authority.
Accordingly, Newco would be engaged in adjusting and, as such, Newco and those employees who actually engage in the above activities would have to become licensed as independent adjusters, if Newco provides services in New York.
For further information, you may contact Principal Attorney Alan Rachlin at the New York City Office.
1 29 U.S.C. Ch. 18 (West 2007)
2 It is assumed that the payment relationship between the fund and the hospital is governed by Public Health Law § 2807-c.
3 45 CFR Part 160 et seq.
4 Pub L. 104-91 (1966).
5 Even if the fund is an exempt insurer in accordance with ERISA, it is still considered an insurer for the purposes of licensing adjusters.
6 While there are statutory exceptions, none are applicable to the inquirer’s situation.