OGC Op. No. 11-05-03

The Office of General Counsel issued the following opinion on May 5, 2011 representing the position of the New York State Insurance Department.

Re: New York Insurance Law § 3224-a

Question Presented:

Does a Managed Care Organization satisfy the Prompt Pay Law by making payment on a claim to a health care provider’s Independent Practice Association when the provider has designated the Independent Practice Association as an agent to receive payments on behalf of the provider?

Conclusion:

Yes. The Prompt Pay Law is satisfied when the Managed Care Organization pays the provider’s Independent Practice Association when the provider has designated the Independent Practice Association as an agent to receive payments on behalf of the provider. The Prompt Pay Law does not apply to the Independent Practice Association’s payment to its provider under these circumstances.

Facts:

The inquirer’s query states as follows:

Independent Practice Association ¹ X (IPA X) contracts directly with medical service providers and also with Managed Care Organizations ² (MCOs) in accordance with Title 10 NYCRR § 98-1.5(b)(6)(iv), to make the services of such providers available to MCO’s enrollees. IPA X is not at risk for any amounts within the meaning of Title II NYCRR Part 101 (Regulation 164), nor does it provide any management services on behalf of the MCOs, such as quality, assurance, utilization review, or claims payment.

Pursuant to the IPA X-MCO contracts, the MCOs are obligated to pay claims within the time specified in Insurance Law §3224-a (the “Prompt Pay Law”). In turn, pursuant to IPA X’s downstream agreements with its providers, the providers expressly authorize IPA X to accept payment from the MCOs on the providers’ behalf for the purposes of the MCOs’ satisfying the requirement of the Prompt Pay Law.

Analysis:

Insurance Law § 3224-a, commonly know as the Prompt Pay Law, was enacted by the Legislature to provide protection to patients and health care providers in connection with the timely payment of claims by insurers and HMOs. See Opinion of Office of General Counsel (“OGC Opinion”) No. 02-01-33. Insurance Law § 3224-a requires insurers and health maintenance organizations to pay undisputed claims within 45 days after the insurer receives the claim, or within 30 days if the claim is transmitted electronically. The insurer’s payment must be made to “a policyholder or covered person or . . . to a healthcare provider.”

An insurer or HMO may delegate to another the insurer’s or HMO’s duty to pay a healthcare provider’s claim, but the insurer or HMO remains ultimately responsible for compliance with the Prompt Pay Law. See OGC Opinion No. 02-01-18 (January 14, 2002) and Insurance Department Circular Letter No. 12 (2000). Thus, if an insurer delegates its duty to pay a healthcare provider to the healthcare provider’s IPA, the insurer remains responsible for the timely payment by the IPA to the healthcare provider.

The inquirer asks whether, in light of the insurer’s or HMO’s responsibility for payment if the insurer delegates its duty to pay a healthcare provider to another party, the provider may nevertheless itself designate its IPA as its agent for receiving payment from an insurer. If so, the inquirer asks whether under such a designation the insurer may rely on its payment to the IPA as compliance with the Prompt Pay Law, or whether the Prompt Pay Law is satisfied only when the IPA further remits payment to the provider. The inquirer distinguishes her proposed scenario from a delegation by the insurer in that the provider designates the IPA as its agent for receipt of payment, and that the IPA does not take on any functions that would normally be performed by the insurer. The inquirer has not provided to us a copy of the agreement between IPA X and the MCO, so the Office of General Counsel may only answer the inquirer’s question generally, without reference to specific facts.

The Prompt Pay Law by its terms allows a healthcare provider to designate another party to receive payment from the insurer on the provider’s behalf. The authority for a healthcare provider to designate another party to receive payment from the insurer derives from the definition of healthcare provider set forth in Insurance Law § 3224-a(d)(2) as:

“an entity licensed or certified pursuant to Article 28, 36, or 40 of the Public Health Law, a facility licensed pursuant to Article 19, 23, or 31 of the Mental Hygiene Law, a health care professional licensed, registered or certified pursuant to Title 8 of the Education Law, a dispenser or provider of pharmaceutical products, services or durable medical equipment, or a representative designated by such entity or person.” (Emphasis added).

A healthcare provider may voluntarily wish to designate an IPA in which the provider is a member to receive claims on behalf of the provider as a means to reduce the provider’s administrative expenses of handling insurance claims. The provider may also wish to delegate some or all of its claims filing duties to the IPA for the same reason. In such instances, payment to the IPA would be payment to the provider for purposes of Insurance Law § 3224-a. However, if an insurer requires or requests the healthcare provider to designate its IPA as its agent for receipt of payment from the insurer, or delegates any of the insurer’s claims payment duties to the IPA, the insurer or HMO delegating its duties to the IPA, with the result that the insurer or HMO would remain responsible for timely payment by the IPA to its healthcare providers under the timeframes established by the Prompt Pay Law. Thus, if the healthcare provider has voluntarily agreed to an arrangement under which the healthcare provider’s IPA will accept claims payments from the insurer or HMO on the provider’s behalf, and the insurer or HMO has not delegated any claims payment functions to the IPA, then payment by the insurer or HMO to the IPA satisfies the Prompt Pay Law.

The Department has also previously opined on a provider using an electronic clearinghouse as a means of filing and accepting claims payments where the clearinghouse only reviews claims for accuracy, forwards accurate claims to the insurer or HMO and accepts payment from the insurer or HMO on behalf of the provider. See OGC Opinion No. 02-01-18 (January 14, 2002). In such instances, the Department has opined that payment by the insurer or HMO to the clearinghouse, for purposes of determining timely payment under the Prompt Pay Law, is payment to the healthcare provider.

For further information you may contact Senior Attorney Brenda M. Gibbs at the Albany Office.

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¹ N.Y. Comp. Codes R. & Regs. tit. 10, § 98-1.2(aa) (2001) defines an IPA, or independent practice association, as a corporation, limited liability company, or professional services limited liability company, other than a corporation or limited liability company established pursuant to articles 28, 36, 40, 44 or 47 of the Public Health Law, which contracts directly with providers of medical or medically related services or another IPA in order that it may then contract with one or more MCOs and/or workers' compensation preferred provider organizations to make the services of such providers available to the enrollees of an MCO and/or to injured workers participating in a workers' compensation preferred provider arrangement. An IPA may also be considered a provider within the meaning of section 4403(1)(c) of the Public Health Law, but only for the purpose of and to the extent it shares risk with an MCO and/or the IPA's contracting providers, and shall be considered a provider for the purposes of subdivisions (1) and (2) of Section 98-1.21 of this Subpart.

² The term “managed care organization” is not defined in the New York Insurance Law. However, N.Y. Ins. Law § 4801(c) defines “managed care health insurance contract” or “managed care product” as:
a contract which requires that all medical or other health care services covered under the contract, other than emergency care services, be provided by, or pursuant to a referral from, a designated health care provider chosen by the insured (i.e. a primary care gatekeeper), and that services provided pursuant to such a referral be rendered by a health care provider participating in the insurer’s managed care provider network. In addition, in the case of (i) an individual health insurance contract, or (ii) a group health insurance contract covering no more than three hundred lives, imposing a coinsurance obligation of more than twenty-five percent upon services received outside of the insurer’s provider network, and which has been sold to five or more groups, a managed care product shall also mean a contract which requires that all medical or other health care services covered under the contract, other than emergency care services, be provided by, or pursuant to a referral from, a designated health care provider chosen by the insured (i.e. a primary care gatekeeper), and that services provided pursuant to such a referral be rendered by a health care provider participating in the insurer’s managed care provider network, in order for the insured to be entitled to the maximum reimbursement under the contract.