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

Andrew M. Cuomo
Governor

James J. Wrynn
Superintendent

OGC Op. No. 11-02-03

The Office of General Counsel issued the following opinion on February 7, 2011 representing the position of the New York State Insurance Department.

Re: Termination of Behavioral Health Care Networks

Questions Presented:

1. Did an insurer and HMO violate the New York Insurance Law in terminating a provider’s membership in their networks, and transferring the provider to the networks of an affiliate insurer and HMO?

2. Did the insurer’s termination of the provider’s network membership violate either N.Y. Ins. Law § 3217-b(g)(1) (McKinney Supp. 2010) or N.Y. Pub. Health Law § 4406-c(5-c)(a) (McKinney Supp. 2009)?

Conclusions:

1. No. Neither the insurer nor the HMO violated the New York Insurance Law in terminating the provider’s membership in their networks, and transferring the provider to the networks of an affiliate insurer and HMO.

2. No. The insurer’s termination of the provider’s network membership violated neither Insurance Law § 3217-b(g)(1) nor Public Health Law § 4406-c(5-c)(a).

Facts:

ABC Insurance Company is an accident and health insurance company licensed in accordance with Insurance Law Article 42. ABC Plan (NY) is an HMO with a certificate of authority in accordance with Public Health Law § 4403. XYZ Insurance Company of New York is an accident and health insurance company licensed in accordance with Insurance Law Article 42. XYZ of New York is an HMO with a certificate of authority in accordance with Public Health Law § 4403. All four companies have a common corporate parent in XYZ Group.

The inquirer is a licensed social worker and has contracts with all four companies to be a participating provider in their networks. By letter of December 31, 2009, EFG Company (“EFG”), which also is an ultimate subsidiary of XYZ Group, notified the inquirer that, effective April 1, 2010, it was terminating the inquirer’s ABC participation agreements, so as to maintain only one behavioral network, and the inquirer’s “EFG participation agreements will govern when [the inquirer] provides services to members with ABC plans.”

The December 31, 2009 letter also stated:

In accordance with [the inquirer’s] ABC Agreement and applicable state law, [the inquirer] may request a review of the termination of [the inquirer’s] ABC Agreement by submitting a written request . . . within 30 days of receipt of this letter. [The inquirer] will be informed of a hearing date, which will be held within 30 days after the date [XYZ] receives [the inquirer’s] request.

The inquirer asserts that, because the reimbursement rate for social workers is lower under the XYZ agreements than under the ABC agreements, the insurers’/HMOs’ actions will result in a lowering of provider fees, and the inquirer requests a review of the legality of the termination of the ABC provider agreements.

Analysis:

1. Propriety of Termination of Network Membership

The inquirer asks whether the termination of the ABC and XYZ network contracts, and the transferring of the inquirer to other networks violated the Insurance Law. It is presumed that ABC is not terminating any insurance contracts, and that the same benefits are being provided. The only change is in the identity of the third party administrator.

The Insurance Department has exclusive jurisdiction over insurers, while jurisdiction over HMOs is shared with the New York State Health Department. The Insurance Department regulates the financial condition of HMOs and HMO subscriber contracts, and the Health Department regulates quality of care.

The Insurance Law imposes limited requirements on contracts between participating providers and insurers. Insurance Law § 4803(b), which applies to managed care contracts as defined in Insurance Law § 4801(c), provides in relevant part that:

(1) A health care plan shall not terminate a contract with a health care professional unless the health care plan provides to the health care professional a written explanation of the reasons for the proposed contract termination and an opportunity for a review or hearing as hereinafter provided. . . . .

(2) The notice of the proposed contract termination provided by the health care plan to the health care professional shall include: (i) the reasons for the proposed action; (ii) notice that the health care professional has the right to request a hearing or review, at the professional's discretion, before a panel appointed by the health care plan; (iii) a time limit of not less than thirty days within which a health care professional may request a hearing; and (iv) a time limit for a hearing date which must be held within thirty days after the date of receipt of a request for a hearing.

Thus, a contract between a managed care insurer and a health care provider must provide appropriate due process protections before the contract may be terminated. Public Health Law § 4406-d(2) provides similar protections to participating providers in HMOs.

In the case of the inquirer’s termination from the ABC networks, although the inquirer’s termination was not because of any misconduct on the inquirer’s part, the HMO and insurer provided the inquirer with adequate notice and informed the inquirer of the available applicable appeal rights. In addition, the reason for the termination of the inquirer’s network membership was because ABC/XYZ had decided to maintain only one behavioral network. This is an acceptable reason for termination of a network. Accordingly, neither the insurer nor HMO acted in violation of the Insurance Law.

2. Adverse Effect of Termination

The inquirer questions whether the termination of the inquirer’s contracts with the ABC/XYZ entities constituted a violation of the Insurance and Public Health Laws. Insurance Law § 3217-b(g)(1) is also relevant to the inquiry, and provides:

No health care plan shall implement an adverse reimbursement change to a contract with a health care professional that is otherwise permitted by the contract, unless, prior to the effective date of the change, the health care plan gives the health care professional with whom the health care plan has directly contracted and who is impacted by the adverse reimbursement change, at least ninety days written notice of the change. If the contracting health care professional objects to the change that is the subject of the notice by the health care plan, the health care professional may, within thirty days of the date of the notice, give written notice to the health care plan to terminate his or her contract with the health care plan effective upon the implementation date of the adverse reimbursement change. For the purposes of this subdivision, the term "adverse reimbursement change" shall mean a proposed change that could reasonably be expected to have a material adverse impact on the aggregate level of payment to a health care professional . . . . The notice provisions required by this subdivision shall not apply where: (i) such change is otherwise required by law, regulation or applicable regulatory authority, or is required as a result of changes in fee schedules, reimbursement methodology or payment policies established by a government agency or by the American Medical Association's current procedural terminology (CPT) codes, reporting guidelines and conventions; or (ii) such change is expressly provided for under the terms of the contract by the inclusion of or reference to a specific fee or fee schedule, reimbursement methodology or payment policy indexing mechanism.

Thus, a reimbursement change that would reasonably be expected to have a material adverse impact on the aggregate level of payment to a health care professional triggers certain rights for the health care provider. Public Health Law § 4406-c(5-a) provides similar protections to participating providers of HMOs.

A termination from a network does not necessarily result in an adverse effect within the meaning of Insurance Law §3217-b(g)(1) or Public Health Law § 4406-c(5-c)(a). However, the inquirer indicated there was an adverse impact on the inquirer because termination from the ABC network resulted in a lower reimbursement rate from the XYZ network. But, even if such was the case, so long as the ABC entities gave adequate notice (which, with three month’s notice, it did), and provided the opportunity to terminate the contract, they may institute an adverse reimbursement change.

The December 31, 2009 Notice is in compliance with the applicable statutory requirements, including the provision of adequate notice. There is nothing in either the Insurance or Public Health Laws that would prohibit an insurer or HMO from revising its internal management, or modifying its reimbursement rates, as the various XYZ entities have done.

Therefore, the insurer’s termination of the inquirer’s network membership violated neither Insurance Law § 3217-b(g)(1) nor Public Health Law § 4406-c(5-c)(a).

For further information, you may contact Principal Attorney Alan Rachlin at the New York City Office.