Insurance and Managed Care

The Medicaid Fraud Control Unit (MCFU) of the New York State Office of the Attorney General has recently issued restitution demand letters to providers for allegedly entering into percentage-based contracts with their billing agents. The MCFU letters cite the Medicaid Update March 2001, titled “A Message for Providers Using Service Agents as follows:

Billing agents are prohibited from charging Medicaid providers a percentage of the amount claimed or collected. In addition, such payment arraignments, when entered into by a physician, may violate the Education Law and State Education Department’s regulations on unlawful fee-splitting.

A physician will be guilty of misconduct if he or she permits:

any person to share in the fees for professional services, other than: a partner, employee, associate in a professional firm or corporation, professional subcontractor or consultant authorized to practice medicine, or a legally authorized trainee practicing under the supervision of a licensee. This prohibition shall include any arrangement or agreement whereby the amount received in payment for furnishing space, facilities, equipment or personnel services used by a licensee constitutes a percentage of, or is otherwise dependent upon, the income or receipts of the licensee from such practice, except as otherwise provided by law with respect to a facility licensed pursuant to article twenty-eight of the public health law or article thirteen of the mental hygiene law.

See Educ. Law §6530(19)*.

A physician is subject to professional misconduct charges if he or she has

directly or indirectly requested, received or participated in the division, transference, assignment, rebate, splitting, or refunding of a fee for, or has directly requested, received or profited by means of a credit or other valuable consideration as a commission, discount or gratuity, in connection with the furnishing of professional care or service . . .

See Educ. Law §6531.

The prohibition against fee-splitting is related to the state anti-kickback law which prohibits physicians from

[d]irectly or indirectly offering, giving, soliciting, or receiving or agreeing to receive, any fee or other consideration to or from a third party for the referral of a patient or in connection with the performance of professional services . . .

See Educ. Law §6530 (18).

Licensed professionals in New York State must review their contracts to verify that the compensation paid to their agents is not based on a percentage of fees for professional services.

*A similar rule applies to other licensed professionals. See N.Y. Rules of the Board of Regents §29.1(b)(4).

**In addition to the Federal Anti-Kickback Statute at 42 U.S.C. §1320a-7b(b), New York has enacted its own wide-reaching anti-kickback and anti-referral laws and regulations seeking to eliminate fraud and abuse in healthcare on a statewide basis. The state anti-kickback statue is set forth in the Social Services Law (See N.Y. Social Services Law § 366-d). The N.Y. Education Law addresses matters of professional misconduct rather than violations of fraud and abuse laws and regulations.

An interesting SDNY settlement agreement resolves some False Claims Act allegations, but leaves others for another day.  Visiting Nurse Service of New York (VNS) paid just under $35 million to the United States and New York State to settle allegations that VNS improperly billed Medicaid for 1,740 members whose needs did not qualify for a managed care plan.  The government alleged that these members were improperly referred by social adult day care centers (SADCC), or received services primarily from SADCCs, many of which provided substandard and minimal care.   

In the settlement agreement, VNS admitted that 1,740 Medicaid long term care  program members were referred by SADCCs or used SADCC services, and were not eligible to be members of the plan; and that various SADCCs in the provider network did not provide services that qualified as “personal care services” under the long term care program contract with New York’s Department of Health. 

The settlement agreement has a unique “Remaining Investigation” provision.  Most FCA settlement agreements are designed to settle all claims against the defendants.  The VNS settlement agreement, however, provides that it resolves only part of the United States investigation. Examples of allegations that are part of the “Remaining Investigation” are redacted in the publicly-filed document.  In a provision that could lead to interesting questions of interpretation, VNS agrees  “to cooperate with the Remaining Investigation,” but without waiving attorney-client or joint defense privileges, work product protections, or factual or legal defenses covering claims the government may bring against VNS.  The issue of whether VNS is satisfying its duty of cooperation under the agreement while maintaining assertions of privilege and factual and legal defenses will be difficult to sort out if it is ever litigated.  The settlement agreement carves out any potential claims against the president of the corporation that administered the managed health care plan, so that individual could be the focus of the “Remaining Investigation.”  In addition, the Court approved keeping the relator’s complaint and the government’s complaint-in-intervention under seal.

During the pendency of the “Remaining Investigation,” VNS agrees to monitor and further revise standards for credentialing SADCCs; only credential SADCCs that have necessary certificates; monitor SADCCs to ensure compliance with credentialing; ensure that SADCCs provide proper personal care services; and prohibit marketing practices directed at enrolling members through SADCCs.

The New York Court of Appeals decided last week, in Handler v. DiNapoli, that the State Comptroller has the authority to review the billing records of a non-participating provider receiving funds from the State’s primary health benefit plan, even though the payment of state funds is made indirectly.

New York State provides health insurance to its employees, retirees, and their dependents.  The plan at issue, the Empire Plan, is funded by New York State.  United Healthcare Insurance of New York (United) contracts with the State to process and pay claims by Empire Plan beneficiaries.  United processes and pays the claim, and then the State reimburses United and pays it an administrative fee.

When non-participating providers provide a service to Empire Plan members, they charge market rates and bill the patient directly.  United reimburses the patient for 80% of the actual fee or the “customary and reasonable charge” for the service, whichever is lower.  The patient must then pay these funds to the provider  and also pay the remaining 20%.  Non-participating providers have a legal duty to collect co-payments from the patients.

The New York Comptroller sought to examine the billing records of non-participating providers to determine if they had waived Empire Plan member co-payments.  The Court provided an illustration of how failure to collect the co-payment “inflates a claim’s cost and adversely impacts the State’s fisc.”  If a non-participating provider charges $100 for a service, receives $80, and does not collect the $20 co-payment, then the service was provided for $80.  In that case, the State should have only paid $64, and has overpaid by $16.

The providers gave the Comptroller access to their records upon request.  After auditing a random sampling, the Comptroller concluded that the providers had routinely waived the co-payment, extrapolated the sample amount to the universe of claims, and sought recovery of overpayments of $787,000 in one instance and $900,000 in another.  The providers then filed suit, challenging the Comptroller’s authority to audit their records because they did not receive state funds directly, but rather through United.

The Court of Appeals upheld the Comptroller’s authority, stating that the fact that a third party is a conduit for the funds does not change the character of the state funds.  The Court found that limiting the Comptroller’s authority would make its task of auditing state funds impossible; there would be no other way to determine whether providers had required a co-payment.  The Court also noted that the providers certainly knew that the payments were state funds and required the collection of co-payments.

This decision confirms that the Comptroller has wide authority to audit when state funds are at issue, even where the state does not contract with the entity being audited.  Litigants will have to try to fit themselves into some of the areas where the Court states the Comptroller may not act, such as performing the administrative duties of another State agency or overseeing activities that, while financial in nature, have no impact on the state fisc.

Claimants have a private right of action against insurers under New York’s Prompt Pay Law, N.Y. Ins. Law 3224-a, according to the Appellate Division in Maimonides Med. Ctr. v. First United Am. Life Ins. Co., decided earlier this month.
Under the Prompt Pay Law, an insurer must pay undisputed claims within 45 days, and within 30 if electronic submission is received.  The insurer must pay any undisputed portion of a disputed claim within 30 days and notify the policyholder, covered person, or healthcare provider of the reason the insurer is not liable.  The insurer may also request additional information to determine its potential liability.  A violation of the Prompt Pay Law obligates the insurer to pay the full amount of the claim plus 12% interest.
Maimonides Medical Center billed First United American Life Insurance Co. over $19 million for medical services, but First United paid only slightly more that $4 million.  Maimonides sued under the Prompt Pay Law, and First United argued that the statute did not provide a private right of action, but could only be enforce by the Superintendent of Insurance.
The Appellate Division, Second Department held that the claimants including health care providers have a private right of action to sue under the Prompt Pay Law.  The parties did not dispute the first two requirements for finding a private right of action, that plaintiff is one of the class for whose particular benefit the statute was enacted, and that recognition of a private right of action would promote the legislative purpose.  As to the third, the Appellate Division held that a private right of action would be fully consistent with the legislative scheme.  The Court found that the Prompt Pay Law “does impose specific duties upon insurers and creates rights in patients and health care providers, and thus militates in favor of the recognition of an implied private right of action to enforce such rights.”  The Court noted that the legislative history of the statute reflected its purpose in protecting health care providers and patients from late payment, and not as a mechanism for preventing harm to the public in general.
This decision gives health care providers and patients a powerful tool against recalcitrant insurers.  First United will likely seek to bring this issue before the Court of Appeals, and we may see a definitive ruling from New York’s highest court on this important issue.

Earlier this week, in Roman Catholic Archdiocese of New York v. Sebelius, U.S. District Judge Brian Cogan in the Eastern District of New York permanently enjoined the government from enforcing regulations mandating coverage for contraceptive and sterilization services by religious organization health plans.

The Patient Protection and Affordable Care Act requires health insurance plans to provide preventative medical services.  HHS regulations require these preventative services to include services such as contraception, sterilization and related counseling (the “HHS Mandate”).  In response to objections by religious organizations, the government promulgated a regulation it presented as an accommodation, which required those organizations to self-certify their religious objection, after which a third party administrator would have to provide the coverage at no cost to the organization or the individual. 

Several non-profit religious organizations, including Catholic Health Services of Long Island, sued under the Religious Freedom Restoration Act (“RFRA”), arguing that the HHS Mandate forced them to choose between violating their religious beliefs and paying substantial penalties.  They asserted that the HHS Mandate required them to affirmatively act and rendered them complicit by endorsing or facilitating coverage for services to which they have religious objections. 

Under RFRA, the government may only substantially burden a person’s exercise of religion if it demonstrates that the burden: (1) is in furtherance of a compelling governmental interest, and (2) is the least restrictive means of furthering that compelling governmental interest. 

The Court first addressed whether plaintiffs had demonstrated a substantial burden on their exercise of religion.  The Court found it “indisputable” that the substantial burden inquiry does not permit a court to determine the centrality of a particular religious practice to an adherent’s faith.  The Court found it “difficult to comprehend any situation where a court could rule that a plaintiff facing government compulsion to engage in affirmative acts forbidden by his religion has not suffered a substantial burden, without implicitly ruling that the belief he has been forced to violate is just not that important.” 

The religious organizations argued that submitting a self-certification stating their religious objection would make them complicit in a scheme violating their religious beliefs, because it would result in the provision of coverage.  The government did not contest the fact that completing the self-certification violated plaintiffs’ religious beliefs, but argued that the certification was de minimus.  The Court rejected this argument, holding that the religious organizations believed that the self-certification compelled the affirmation of a repugnant belief, and “[i]t is not for this Court to say otherwise.”  The Court concluded that the HHS Mandate compelled plaintiffs to perform acts contrary to their religion, and that the coercive pressure was a substantial burden.

The Court next addressed whether the HHS Mandate is narrowly tailored to serve a compelling governmental interest.  The Court rejected the government’s argument that an exemption for plaintiffs would undermine its ability to enforce the regulations in a rational manner, noting that the Supreme Court has held that a general interest in uniformity is not enough to show a compelling interest, and that tens of millions of people are already exempt from the Mandate.  “Having granted so many exemptions already, the Government cannot show a compelling interest in denying one to these plaintiffs.” 

The Court found that “the Mandate burdens plaintiffs’ religion by coercing them into authorizing third parties to provide this coverage through the self-certification requirement, an act forbidden by plaintiffs’ religion.”  The Court noted that numerous less restrictive alternatives were available, such as the government providing the contraceptive coverage directly to individuals or through tax incentives. 

The Court permanently enjoined the government from enforcing the HHS Mandate against the religious organizations.  Only one other Court, the Western District of Pennsylvania, has addressed whether the HHS Mandate violates RFRA as applied to religious non-profits, and that Court issued a preliminary injunction.  Judge Cogan’s decision is certain to be appealed to the Second Circuit, and thereafter this case or a similar one will be before the Supreme Court.  Next year, in a closely watched case, the Supreme Court will be addressing RFRA challenges to the Mandate brought by several for-profit corporations, and that decision may have a significant impact on the ruling for religious non-profits.  

(This post was authored by Heather Harrison, an associate in the Labor & Employment practice at Farrell Fritz)

Although key provisions of the Patient Protection and Affordable Care Act (ACA) have been delayed until 2015, one important notice requirement is just around the corner. By October 1, 2013, virtually all employers must provide written notice to their employees about the federal and state Health Insurance Marketplaces (commonly referred to as the “exchanges”).  Open enrollment for the exchanges begins on October 1, 2013.

The notice must provide the following information:

  • an explanation of the Marketplaces;
  • a reference to for employees to find information about the programs available to them;
  • information about premium subsidies that may be available to employees if they purchase a qualified health insurance plan through a Marketplace; and
  • notification that employees may lose their employer contribution to the health plan if it is obtained through a Marketplace.

The notice must be given to all employees, regardless of status (e.g., eligibility for employer-sponsored health insurance, part-time, full-time, exempt or non-exempt). For employees hired after October 1, 2013, employers must provide the notice within two weeks of their start date.

Employers must distribute the notice in a manner designed to actually reach each individual employee.  This can include direct in-hand distribution to employees (e.g., attached to employee paychecks), first class mail, or electronic delivery (if certain requirements are met).

The U.S. Department of Labor (DOL) has published model notices, which are available for download.

Please contact any of the attorneys in the Farrell Fritz Employment or Healthcare practices with questions about the ACA, notice requirements, or the DOL’s model language.

Is your office photocopy machine a HIPAA time-bomb?  Affinity Health Plan recently learned that the answer is yes, to the tune of a $1.2 million settlement with the US Department of Health and Human Services Office for Civil Rights (OCR).  Affinity is a not-for-profit managed care organization which includes one of the New York metropolitan area’s largest Medicaid managed care programs.  In 2010, Affinity made a mandatory breach report to OCR when it learned that the protected health information (PHI) of over 300,000 individuals was found on the hard drives of multiple photocopiers that Affinity had leased.  Affinity failed to have the hard drives wiped or destroyed prior to the return of the copiers at the end of the leases.

As HIPAA Covered Entities, healthcare organizations from hospitals and inpatient facilities to physician practices and health plans should take note of this matter.   For Covered Entities, this may mean new policies covering copiers and other hard drives containing PHI, revised risk analyses and safeguards, and revised Business Associate Agreements (BAAs).

Additionally, Business Associates of healthcare organizations, including consultants, lawyers, accountants, and billing companies, who may possess protected health information should also pay close attention.  Under the Omnibus Rule, finalized earlier this year and taking effect on September 23, 2013, business associates will be directly responsible for compliance with the privacy and security provisions HIPAA, HITECH and the Ominbus Rule. This means developing their own policies and procedures, conducting internal risk assessments and audits, and implementing physical and electronic safeguards to protect PHI.  Business Associates should carefully read new or revised BAAs they receive from Covered Entities to better understand their obligations.

The health care attorneys at Farrell Fritz understand HIPAA, can help your organization move toward compliance with new and old requirements, and minimize your risk of substantial fines.


On May 29, 2013, the US Departments of Health and Human Services, Labor, and Treasury issued final regulations regarding wellness programs under the Patient Protection and Affordable Care Act (the “ACA”).  Wellness programs are programs offered by employers, or directly by insurance companies to their enrollees, to improve health and promote fitness. The ACA, in conjunction with the Health Insurance Portability and Accountability Act of 1996, prohibits discrimination against individuals regarding plan eligibility, benefits or premiums, but makes an exception for wellness programs. Wellness programs such as weight loss programs or smoking cessation programs allow employers to offer certain rewards in return for the employee’s adherence to health promotion and disease prevention.

Participatory Programs

There are two types of wellness programs under the ACA: participatory wellness programs and health-contingent programs.  Participatory wellness programs, which constitute the majority of wellness programs, are those that either do not provide a reward or do not include any conditions for obtaining a reward other than participation in the program. Participatory wellness programs include programs that reimburse employees for all or part of their gym memberships, offer rewards for participating in diagnostic testing programs, and provide a reward to employees for attending monthly, free health education seminars. Participatory wellness programs must be offered to all similar situated individuals, regardless of health status.

Health-contingent Programs

Health-contingent wellness programs require an individual to satisfy a standard related to a health factor to obtain a reward. Health-contingent wellness programs are divided into two sub-types: activity-only and outcome-based.

Under activity-only wellness programs, an individual is required to perform or complete an activity related to a health factor in order to obtain a reward but isn’t required to attain or maintain a specific health outcome. Examples of activity-only wellness programs include walking, diet or exercise programs. The final regulations implement safeguards so that individuals that are unable to participate in or complete the program’s prescribed activity due to a health factor such as recent surgery or pregnancy are given a reasonable opportunity to qualify for the reward.

In contrast, outcome-based wellness programs require an individual to attain or maintain a specific health outcome in order to obtain a reward. For example, an outcome-based wellness program may offer a reward to an employee that stops smoking or that attains certain results on cholesterol or blood pressure readings. Outcome-based wellness programs generally have a measurement test or screening as part of an initial standard, and individuals who do not meet the initial standard may be offered an educational program or other activity to achieve the same reward.

Program Compliance

To comply with the final regulations, health-contingent wellness programs must: (1) give individuals eligible for the programs the opportunity to qualify for the reward at least once per year; (2) provide rewards that do not exceed, together with the reward for other health-contingent wellness programs with respect to the plan, 30% of the total cost of employee-only coverage under the plan, or 50% to the extent the program is designed to prevent or reduce tobacco use; (3) be reasonably designed to promote health or prevent disease; (4) be uniformly available to all similarly situated individuals and provide a different, reasonable means of qualifying for the reward to those individuals who are unable to participate due to a medical condition; and (5) disclose the availability of a reasonable alternative standard to qualify for the reward in all plan materials describing the terms of a health-contingent wellness program.

The final regulations apply to group health plans with plan years beginning on and after January 1, 2014.  The three Departments anticipate issuing guidance in the future, and may propose modifications to the final regulations as necessary.

Senator Kemp Hannon, Chair of the New York State Senate Committee on Health (and counsel at Farrell Fritz), will be hosting a health care forum featuring a presentation by State Medicaid Director Jason Helgerson.  The event will take place on Monday, August 5 from 10:00 am to noon at the Hofstra University Student Center Theatre.

Helgerson, also Executive Director of the Medicaid Redesign Team (MRT), will speak on the topic “An Update on Medicaid Redesign and the Medicaid Budget in New York.”  He will give an overview of the State’s $53 Billion a year Medicaid program, the deep changes effected in the program by the MRT, and the progress of the changes.

Seating is extremely limited.  Parties interested in attending should call Senator Hannon’s office at (516) 739-1700, or email with their name, title, address, organization and telephone number.


Over fifty cases across the country have challenged regulations promulgated under the Patient Protection and Affordable Care Act (“PPACA” or “Obamacare”) that require employer group health insurance plans to provide coverage for contraception, sterilization and related counseling (the “HHS Mandate”).  Suits have been filed by religiously-affiliated organizations as well as private business owners, asserting that the HHS Mandate will require them to provide health insurance plans that violate their deeply-held religious beliefs.  Claims have been brought under the Establishment, Free Exercise and Free Speech clauses of the First Amendment of the US Constitution, as well as the Religious Freedom Restoration Act and the Administrative Procedure Act.  Two of these cases have been filed in the Eastern District of New York and have now reached contrary conclusions on whether the suits are ripe for adjudication.

The United States has argued that challenges to the HHS Mandate are not ripe because the government is in the process of amending it to address religious objections.  A notice of proposed rulemaking suggesting amendments was issued in February 2013.  In addition, for certain non-profit organizations, a “safe harbor” applies, which extends the deadline for complying with the HHS mandate to August 1, 2013.

Judge Block decides “Not ripe”; Judge Cogan says “Yes it is”

In April, in Priests for Life v. Sebelius (decision),  EDNY Judge Frederic Block held that a challenge to the HHS Mandate was not ripe for judicial decision.  Although the HHS Mandate regulations have been published, Judge Block noted that the government had indicated an intent to amend them and had issued a notice of proposed rulemaking, and he cited to the presumption that government agencies are acting in good faith.  The Court found that the HHS Mandate is “not truly final” and that adjudicating the current regulations would be “a waste of judicial resources.”  Judge Block also noted that his holding was consistent with the overwhelming majority of courts to address the issue.

One case reaching a contrary result is also in the EDNY, Roman Catholic Archdiocese of New York v. Sebelius (decision).  In December 2012, Judge Brian M. Cogan held in that case that certain plaintiffs had standing to sue, and that challenges to the HHS Mandate were ripe and should go forward.  Judge Cogan recognized the government’s stated intent to amend the regulations, but observed that the HHS Mandate is “the currently-operative law,” and that failure to comply could result in substantial penalties.  The Court observed that a notice of proposed rulemaking would not prevent the HHS Mandate from going into effect, and found that the HHS Mandate “is not a non-final policy; it is a final rule.”  In language applicable to both his standing and ripeness analysis, Judge Cogan discounted the government’s argument that its intent to amend the regulations required dismissal, stating that: “There is no ‘Trust us, changes are coming’ clause in the Constitution.”

Issues concerning the HHS Mandate and any amendment will continue to work their way through the courts.  In the Archdiocese of New York case, the government recently filed declarations stating that it would never enforce the current regulations against the plaintiffs. The Court stayed proceedings and discovery, and indicated it would consider the newly-filed representations in the context of the government’s motion for reconsideration or an interlocutory appeal.  Courts outside of New York have split on whether injunctions against current enforcement of the HHS Mandate should issue in cases brought by for-profit plaintiffs not covered by the safe harbor.  The more than fifty cases at various stages throughout the country can be tracked on the website of the Becket Fund, which is representing plaintiffs in several of the cases.  Regardless of whether or how the HHS Mandate is amended, the issue of whether it conflicts with the religious liberty rights of organizations, businesses and individuals is likely to find its way to the Supreme Court.