Effective January 1, 2007, New York passed a law entitled: “Rules relating to the processing of health claims and overpayments to physicians”.   At first blush, the new law appears to give a free 2-year look back period to the insurance companies in which they can freely request what they believe to be “overpayments”, without a need for establishing fraud.  On closer examination, however, the law appears to only set standards for when the insurance company can begin an audit process and it contains some of the standards and situations in which the insurance companies can “initiate overpayment recovery efforts.”

The law states that the insurance company or health plan cannot initiate an overpayment recovery effort more than 2 years after the doctor received the original payment from the insurer or health plan. The exception to the 2 year rule is when the insurer or health plan has a reasonable belief of fraud, intentional misconduct, or abusive billing or when the request for an audit is made by a self insured plan or there is a state or federal government program requiring the audit. The law defines “abusive billing” as billing practices that result in the submission of claims that are not consistent with sound fiscal, business, or medical practices and are engaged in at such frequency and for such a period of time as to reflect a consistent course of conduct.

Rather than answering questions and setting real standards, this new law actually raises a number of issues. The law only determines when an insurer or health plan can “initiate” an overpayment “recovery effort.” It does not state that after an audit is initiated and an effort has been made, that a refund must be paid by the doctor just because the insurance company has requested the refund. In short, while the insurance companies appear to be using the existence of the new law to accelerate their conduct of audits,  the law has not given the insurers or the health plans additional legal rights.  The law has not overruled the court decisions requiring proof of actual fraud in order for a refund to be due.

The law only addresses, in this writer’s view, the timing for the initiation of an audit or overpayment recovery request, not whether the doctor will indeed owe a repayment under any particular circumstance. For those doctors who are participating in a number of plans, there should be a review of the contract the doctor entered into with the insurer or health plan to see whether there are specific audit procedures and a delineation of significant rights granted to the insurer or the health plan. If the doctor has agreed in a contract to make a repayment under defined circumstances, the written agreement would supersede the fraud court decisions and control the relationship between the doctor and the insurer or health plan. The language in these contracts needs to be reviewed carefully, and qualified legal counsel may indeed identify numerous barriers that would prevent the insurer or health plan from obtaining a repayment from the doctor. Out-of-network plans present an entirely different legal situation, since the doctor has not entered into a contract with the insurer or health plan. There is no right to an “audit” in such cases and the doctor is in a stronger position when dealing with an audit request from an out-of-network insurer or health plan.

There are many additional legal issues involved and thus medical providers should seek highly qualified counsel when dealing with requests for medical records by insurers, health plans, or their affiliates on claims that have already been paid.

In the ongoing battle between auto insurers and medical providers in the no-fault system, the insurance companies have started to up the ante by bringing racketeering (“RICO”) lawsuits against medical providers.

RICO provides for “treble damages”, meaning that the loser could be required to pay triple the amount of any judgment obtained in court.  In the ongoing effort to intimidate medical providers, the auto insurers have been trying to use RICO as a weapon.

In one such recent case,  Quadrino Schwartz obtained a dismissal of a RICO lawsuit brought by a major insurer.  The Court ruled in GEICO v. Hollis Medical Care, No. 103431 (EDNY) that GEICO did not allege and cannot prove the existence of a racketeering “enterprise” and thus that portion of GEICO’s case was dismissed.

In a case involving “residential care” for anorexia nervosa, Blue Shield of California had refused to pay claims for an extended stay in a mental health facility.  The Plaintiff, Ms. Harlick, needed extensive treatment that she could not obtain in an outpatient setting.

The sole legal basis for Blue Shield’s denial was that “residential care” was not covered under the Blue Shield health insurance policy issued to Ms. Harlick.  In the claims and ERISA appeals process, Blue Shield did not assert that the mental health care was not “medically necessary”.   In its denial, it had relied solely upon its legal position as to care rendered in a “residential facility”.

A federal judge in California initially ruled against Ms. Harlick and dismissed her case.  On appeal, however, the 9th Circuit Court of Appeals reversed the decision and dealt a blow to Blue Shield.  See Harlick, V. Blue Shield of California,2011 Wl 3796177 (9th Cir, 2011). After finding that the residential care was covered due to California’s Parity law, the Court ruled that Blue Shield could not assert a medical necessity defense in the lawsuit because it did not do so earlier, in the claims process.  Blue Shield was thus ordered to pay in full for the many months of treatment provided to Ms. Harlick.

An insurance company’s late assertion of a defense to a health care claim is a violation of the ERISA regulations that govern health insurance claims under group insurance plans.  The health insurance lawyers at Quadrino Schwartz frequently use these regulations as weapons in the settlement and litigation of health care claims on behalf of medical providers and patients.

A federal judge in the State of Washington has ruled against a group of insurers in refusing to dismiss bad faith claims against them for their refusal to defend and indemnify a construction contractor faced with defect claims in a casino project.

In Aecon Buildings, Inc. v. Zurich of North America et al. No. CO7-832MJP (WD Wash, 2008), Aecon was faced with a number of construction defect claims from an Indian reservation upon which it was building the casino. It sued its subcontractors, seeking recovery from them, and the subcontractors tendered those legal claims to their insurers. Those insurers refused to defend and indemnify the subcontractors.

After a mediation in which Aecon settled the dispute with the owner for $3.75 million, it pursued the insurers for the subcontractors for reimbursement, alleging a bad faith investigation and an unreasonable coverage determination under the insurance policies in question. The claims were asserted under Washington’s Consumer Protection Act and under the common law duty of good faith and fair dealing under the insurance contracts.

The court found that even if it is ultimately found that coverage does not exist and there was never a duty to defend, Aecon can still proceed against the insurers for its bad faith and improper investigation and that due to their bad faith they are estopped from denying coverage.