Regulatory Impact Statement for the Fourth Amendment to 11 NYCRR 65-3 (Insurance Regulation No. 68-C)

1. Statutory authority: Sections 202 and 302 of the Financial Services Law, and §§ 301 and 5221 and Article 51 of the Insurance Law. Insurance Law § 301 and Financial Services Law §§ 202 and 302 authorize the Superintendent of Financial Services (the "Superintendent") to prescribe regulations interpreting the provisions of the Insurance Law and to effectuate any power granted to the Superintendent under the Insurance Law. Insurance Law § 5221 specifies the duties and obligations of the Motor Vehicle Accident Indemnification Corporation ("MVAIC") with regard to the payment of no-fault benefits to qualified persons. Article 51 of the Insurance Law governs the no-fault insurance system.

2. Legislative objectives: Article 51 of the Insurance Law is popularly referred to as the "no-fault law." No-fault insurance was introduced to rectify problems that were inherent in the existing tort system used to settle claims and to provide for prompt payment of health care and loss of earnings benefits.

3. Needs and benefits: The current regulation: (1) imposes no deadline for responding to a verification request nor permits an insurer to deny a claim if it never receives the requested verification, allowing some claims to remain open indefinitely; (2) does not address how a verification request, notice (such as a request for a medical examination or examination under oath), or denial of claim should be treated when the document contains an immaterial defect or omission, resulting in unnecessary legal actions and arbitrations; and (3) provides no express remedy to insurers when applicants for benefits - typically health service providers - bill in excess of the mandated compensation fee schedule or for services not even rendered, resulting in determinations by courts and arbitrators that insurers are precluded from raising as a defense to an untimely denial of claim that the provider has over-billed or billed for phantom services, leading to an unjust reduction in an injured party's benefits.

To combat these problems, the proposed rule will: (1) reduce the number of claims that remain open indefinitely by requiring an applicant for benefits to either submit any requested verification within the applicant's control or possession, or provide reasonable justification for failing to do so within 120 calendar days from the date of the initial verification request; (2) reduce litigation and arbitration by providing that a technical defect in an insurer's verification request, notice, or claim denial does not discharge the recipient's obligation to comply with the request or notice or invalidate an otherwise proper claim denial; and (3) prevent an injured person's policy limit from being unjustly depleted by providing that no payment is due for services to the extent the charges exceed the applicable fee schedules or where the services for which payment is requested were not rendered.

4. Costs: This rule does not impose compliance costs on state or local governments who are self-insures or insurers because the rule only requires that they notify applicants of the new timeframe for responding to verification requests and that failure to do so may result in the denial of claims, all of which would be included in the verification request already being created. Moreover, the rule, which insurers have requested, should reduce costs for no-fault insurers, which may include local governments who self-fund their no-fault insurance benefits, as well as for New York consumers in the form of reduced automobile insurance premiums.

Applicants, typically health service providers not regulated by the Department, may incur additional costs for now being required to submit reasonable justification for failing to respond to verification requests. Their participation in the no-fault system, however, is optional and the Department has established no preauthorization or reporting requirements with respect to applicants. Further, because the Department does not maintain records of either the number of applicants licensed in this state or the number of applicants actually providing services to injured persons eligible for no-fault benefits, it cannot provide the number of these entities that will be affected by this rule. Notwithstanding, this rule only establishes a timeline for an action that is mandated in the current regulation, in an effort to expeditiously resolve or bring finality to no-fault claims that under the current regulation may be pended indefinitely.

5. Local government mandates: This rule does not impose any requirement upon a city, town, village, school district, or fire district. However, local governments who are self-insurers must notify policyholders in the verification requests of the new timeframe requirement and that failure to adhere to the requirement may result in a denial of the claim, clearly define reasonableness standards to their claims staff, and implement expedited internal review procedures for affected claims to ensure they are consistent and fair to all applicants for no-fault benefits.

6. Paperwork: This rule does not impose any additional paperwork on insurers or self-insurers. The rule only sets a timeframe for an applicant to submit paperwork that the current regulation requires to be produced, and requires an insurer to notify the applicant of the new timeframe in the same verification request that is being sent. This rule will entail additional paperwork for applicants who need to provide additional justification for non-compliance. However, the timeframe will result in the more expeditious resolution of claims and a decrease in the number of fraudulent claims being submitted for payment.

7. Duplication: This rule will not duplicate any existing state or federal rule.

8. Alternatives: The Superintendent carefully evaluated written submissions from various stakeholders in response to prior working drafts posted on the Department's website. Listed below by topic is a summary of alternatives to the present version that the Superintendent considered.

Time Limit for Responding To Verification Requests and Denial for Untimely Response

The current regulation does not set forth a time limit to respond to a verification request, and an insurer may not deny a claim until it receives the requested verification. As a result, claims may be pended indefinitely.

One insurer proposed a timeframe of 90 days from the date of the initial request to respond to verification requests. Attorneys who represent applicants for benefits generally proposed a timeframe of 180 days from the date of the initial request to respond to verification requests, and only with respect to information within the possession or control of the applicant. They further proposed revising the regulation to prohibit insurers from issuing a denial when the applicant for benefits has provided "reasonable justification" for failure to comply with the 180-day timeframe. Insurers generally do not support the restriction whereby a denial may not be issued if the outstanding verification was requested from a third party and not from the applicant.

In an effort to strike a balance between opposing views regarding verification requests, the proposed amendment adds a new provision - 11 NYCRR § 65-3.5(o) - to require that an applicant for benefits either submit the verification within the applicant's possession or control or provide reasonable justification for the failure to comply within 120 calendar days from the date of the initial verification request. Also, the proposal amends 11 NYCRR § 65-3.8(b)(3) to permit an insurer to deny a claim when an applicant has not submitted the verification requested pursuant to 11 NYCRR §§ 65-3.5 and 65-3.6 after 120 days. These provisions do not apply to prescribed forms (NF-Forms) as set forth in Appendix 13 of this Title, medical examination requests, and examination under oath requests. The rule also will require an insurer to notify the applicant, in the verification request, of the deadline within which to respond to the request and that the claim may be denied for failing to respond.

Preventing Billing in Excess of Mandated Fee Schedule or for Services Not Rendered

Based on case law, two central issues have arisen in situations where an applicant for benefits bills for services in excess of the mandated fee schedule or for services that were never provided. In both instances, courts have ruled that an insurer that fails to timely deny a claim is precluded from asserting as a defense the fact that the provider overbilled or fraudulently billed for services never rendered. As a result, consumers have their benefits unjustly reduced.

Insurers support the Superintendent's attempt to remedy instances when services are overcharged or not provided, and several also believe such a remedy should extend to other reasons for denial of claim.

Attorneys representing applicants for benefits do not object to the Superintendent's attempt to remedy overcharges and phantom billing, but some are concerned that the draft amendment would result in the denial of a claim in its entirety when the applicant has billed in excess of the mandated fee schedule, not just to the extent of the excess.

In order to protect consumers from unjust depletion of benefits, the proposed amendment provides that proof of the fact and amount of loss sustained shall not be deemed to be received by an insurer when the applicant for benefits has billed in excess of the mandated fee schedule and/or for services not rendered. This provision will protect consumers from these fraudulent or abusive practices. Additionally, to absolve the fears of plaintiff attorneys, only the excess portion of an excessive bill is not due, not the entire bill.

Keeping Immaterial Defects in Notices, Verification Requests and Denials from Invalidating Them

Insurers expressed concerns that the current regulation does not address how a verification request, notice, or denial of claim should be treated when the document contains an immaterial defect or omission.

To address these concerns, the proposed amendment makes clear that an applicant's obligation to comply with a notice or verification request is not negated and a denial of claim is not invalidated due to a non-substantive technical or immaterial defect contained in any of these documents.

9. Federal standards: There are no minimum federal standards for the same or similar subject areas. The rule is consistent with federal standards or requirements.

10. Compliance schedule: The amendment will take effect upon publication in the State Register.

Regulatory Flexibility Analysis for Small Businesses and Local Governments for the Fourth Amendment to 11 NYCRR 65-3 (Insurance Regulation No. 68-C).

1. Effect of the rule: This rule affects no-fault insurers authorized to do business in New York State and self-insurers, none of which fall within the definition of "small business" because none are both independently owned and have less than one hundred employees. Self-insurers are typically large enough to have the financial ability to self-insure losses and the Department does not have any information to indicate that any self-insurers are small businesses.

Local government units make independent determinations on the feasibility of becoming self-insured for no-fault benefits or having these benefits provided by authorized insurers. There are no requirements under the state's financial security laws requiring local governments to report to the Department of Financial Services or the Department of Motor Vehicles that they are self-insured. Therefore the Department has no way of estimating how many local government units are self-insured for no-fault benefits.

The types of small businesses that this rule affect are applicants for no-fault benefits, who are typically health service providers not regulated by the Department. Their participation in the no-fault system, however, is optional and the Department has established no preauthorization or reporting requirements with respect to these small businesses. Further, because the Department does not maintain records of either the number of applicants licensed in this state or the number of applicants actually providing services to injured persons eligible for no-fault benefits, it cannot provide the number of these entities that will be affected by this rule. Notwithstanding, this rule only establishes a timeline for an action that is mandated in the current regulation, in an effort to expeditiously resolve or bring finality to no-fault claims that under the current regulation may be pended indefinitely. Therefore, the Department believes that any negative impact of this rule is significantly outweighed by its benefits.

2. Compliance requirements: This rule will require applicants to respond to verification requests within 120 days or provide reasonable justification for not complying with the request. Local governments who are self-insurers will be required to notify applicants in the verification request of the new deadline for responding and that claims may be denied for failing to respond within the prescribed timeframe.

3. Professional services: This rule does not require anyone to use professional services.

4. Compliance costs: Small businesses affected by this rule may have to hire additional staff to comply with verification requests within the prescribed timeframe or may require some revision to the applicant's office procedures, but since many applicants currently use electronic means or outside billing agencies to prepare and their claims, the costs of imposing a deadline within which to provide all the necessary information to support the claim or reasonable justification for non-compliance should be minimal. Notwithstanding, the Department is unable to estimate the cost of such compliance because the cost depends on the number of the applicant's no-fault patients and current staffing.

Local governments who are self-insurers will not incur any additional costs because although required to notify applicants of the deadline for submitting verification request, the notice would be included in the verification request that is being sent. On the other hand, the rule will help to reduce costs because it will result in the more expeditious resolution of claims and a decrease in the number of fraudulent claims being submitted for payment.

5. Economic and Technological feasibility: There should not be any issues pertaining to economic and technological feasibility because the documents necessary to submit as further proof of claim already should have been created in the ordinary course of business.

6. Minimizing adverse impact: Because of systemic fraud and abuse, this rule imposes on small businesses a timeframe for responding to verification requests. The regulation does not treat small businesses differently since, in many instances, those businesses that engage in fraud and abuse are small businesses.

Although some small businesses may incur additional costs in complying with the new requirements, it is expected that any costs incurred will be offset by more expeditious payment of claims and increased efficiencies in the no-fault system.

7. Small business and local government participation: Interested parties have had an opportunity to review and comment on certain portions of this proposed rule in previous draft amendments to Regulation 68 distributed for outreach.

Rural Area Flexibility Analysis for the Fourth Amendment to 11 NYCRR 65-3 (Insurance Regulation No. 68‑C).

1. Types and estimated number of rural areas: Applicants, who are typically health service providers, insurers, and self-insurers affected by this regulation do business in every county in this state, including rural areas as defined under Section 102(10) of the State Administrative Procedure Act. Some government entities that are self-insurers for no-fault benefits may be located in rural areas.

2. Reporting, recordkeeping and other compliance requirements: This rule will require applicants, who are typically health service providers not regulated by the Department, to respond to verification requests within 120 days or provide reasonable justification for not complying with the request. This will entail additional paperwork for applicants, who need to provide additional justification for non-compliance. Insurers must notify their policyholders of the new timeframe requirement and that failure to adhere to the requirement may result in a denial of the claim, clearly define reasonableness standards to their claims staff, and implement expedited internal review procedures for affected claims to ensure they are consistent and fair to all applicants for no-fault benefits. However, no additional paperwork will be created because notice of the new timeframe will be included in the verification request already being created.

3. Costs: Although not regulated entities, applicants may incur additional costs in having to provide, within 120 days of the verification request, reasonable justification for failing to comply with the request. This new timeframe may require some revision to the applicant's office procedures, but since many applicants currently use electronic means or outside billing agencies to prepare and their claims, the economic impact of imposing a deadline within which to provide all the necessary information to support the claim should be minimal. Additionally, the timeframe will result in the more expeditious resolution of claims and a decrease in the number of fraudulent claims being submitted for payment.

4. Minimizing adverse impact: This rule affects uniformly applicants and no-fault insurers and self-insurers throughout New York State. Therefore, it does not impose any adverse impact on rural areas.

5. Rural area participation: Interested parties have had an opportunity to review and comment certain portions of this proposed rule in previous draft amendments to Regulation 68 distributed for outreach.

Statement Setting Forth the Basis for the Finding that the Adoption of the Fourth Amendment to 11 NYCRR 65-3 (Insurance Regulation No. 65-C) will not have a Substantial Adverse Impact on Jobs and Employment Opportunities

The proposed rule should have no adverse impact on jobs and employment opportunities with insurers and self-insurers in this state because the rule only requires them to notify applicants of the new timeframe for responding to verification requests and that claims may be denied for failing to respond within the deadline.

While this rule may affect applicants for no-fault benefits, typically health service providers not regulated by the Department, their participation in the no-fault system is optional and there are no preauthorization or reporting requirements with respect to these small businesses. Further, because the Department does not maintain records of either the number of applicants licensed in this state or the number of applicants actually providing services to injured persons eligible for no-fault benefits, it cannot provide the number of these entities that will be affected by this rule. Notwithstanding, this rule only establishes a timeline for an action that is mandated in the current regulation, in an effort to expeditiously resolve or bring finality to no-fault claims, which under the current regulation, may be pended indefinitely. Therefore, the rule should have no adverse impact on jobs and employment opportunities of these non-regulated entities.