The Office of General Counsel issued the following opinion on November 10, 2004, representing the position of the New York State Insurance Department.
Re: Medical Card Discount Programs
Is a Medical Card Discount Program subject to regulation by, or required to register with, the Insurance Department?
Based upon the hypothetical provided, the program would not be subject to regulation by, or required to register with, the Insurance Department.
Company X operates a medical discount program. Company X will contract with health care providers who will render services to Company X's customers at a discount from their otherwise applicable charges. Purchasers of the program will receive identification cards that will identify them to the participating health care providers as being entitled to a discount. In addition to sales to individuals, Company X will sell the cards to employers, which in turn, will distribute them to employees.
Company X will not share in any fees or other amounts charged by the health care providers. Its sole income from the program will be generated by sale of the discount cards.
In order to secure a source of health care providers in New York, Company X will contract with what was described as a "Preferred Provider Organization", PPO1, as a means of utilizing for its program the services of health care providers under contract with PPO1. In addition, with the knowledge of Company X, PPO1 will contract with another organization, PPO2, in order to fill gaps in PPO1's network.
It was confirmed that the discount card marketed by Company X is not a drug discount card, as that term is used in the Medicare Prescription Drug, Improvement and Modernization Act, Pub. Law No. 108-173 (2003).
Confirmation is sought to the effect that neither Company X nor the two PPOs would, by virtue of the activities described above, be subject to regulation by, or required to register with, the Insurance Department.
Except in the context of workers' compensation, "Preferred Provider Organization" is not a defined term in New York statutes and regulations. In common usage, the term means: "A medical insurance plan in which members receive more coverage if they choose health care providers approved by or affiliated with the plan." American Heritage Dictionary of the English Language, 4th Ed. (2000).
It is common for health insurers to construct as PPOs networks of participating health care providers.
A PPO may also fall within the definition of an Independent Practice Association, as that term is used in the regulation of Health Maintenance Organizations, N.Y. Comp. Codes R. & Regs. Tit. 10, § 98-1.5(b)(6)(iv)(a) (1996):
the certificate of incorporation of the IPA contains powers and purposes limited to arranging by contract for the delivery or provision of health services by individuals, entities and facilities licensed or certified to practice medicine and other health professions, and, as appropriate, ancillary medical services and equipment, by which arrangements such health care providers and suppliers will provide their services in accordance with and for such compensation as may be established by a contract between the corporation and one or more health maintenance organizations which have been granted a certificate of authority pursuant to the provisions of article 44 of the Public Health Law of the State of New York, as amended[.]
While an organization that constructs a network of health care providers may be subject to regulation by both the Insurance Department and the Health Department, such regulation is because of the organization's functioning as an IPA and not, except in the workers' compensation context, because it is a PPO.
New York Insurance Law § 1101(a) (McKinney 2000 and 2004 Supplement) defines doing an insurance business:
(1). "Insurance contract" means any agreement or other transaction whereby one party, the "insurer", is obligated to confer benefit of pecuniary value upon another party, the "insured" or "beneficiary", dependent upon the happening of a fortuitous event in which the insured or beneficiary has, or is expected to have at the time of such happening, a material interest which will be adversely affected by the happening of such event.
(2) "Fortuitous event" means any occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party.
Provided that the charge by the vendor or provider reflects the cost of rendition plus a reasonable overhead, the granting of a discount by a health care provider or the entity that constructs a network of such health care providers would not constitute the doing of an insurance business. Accordingly, neither Company X nor the PPOs would be subject to regulation by, or required to register with, the Insurance Department by reason of the described transactions.
For further information you may contact Principal Attorney Alan Rachlin at the New York City office.