05 Sep COMMERCIAL DIVISION UPHOLDS OUT-OF-NETWORK PHYSICIANS’ RIGHT TO REIMBURSEMENT AT STANDARD RATES: Decisions by New York Supreme Court’s Commercial Division have curtailed carrier efforts to limit reimbursement rates.
By Mark S. Mulholland, Esq.
The Commercial Division of the Supreme Court has rejected a series of attempts by the nation’s largest health insurer to limit reimbursements to medical providers, or to recoup standard-rate payments previously made. The underlying suits have arisen in the context of an important chess match long underway between out-of-network medical providers and health insurance-carriers concerning reimbursement rates.
Health care insurers predictably seek to reimburse treating physicians at the lowest possible rate. For “participating physicians” – meaning those who participate in the carrier’s network pursuant to a negotiated services agreement, the carrier’s goal is easily achieved. However, many employer-sponsored group plans give plan participants the option to pay higher premiums in exchange for the right to seek services outside the designated network, from non-participating physicians. And in many states, such as New York, coverage of hospital emergency services to treat an emergency condition is mandatory, regardless of whether the provider is a network participant. 1
Cases against carriers filed by out-of-network physicians and medical providers have flourished in New York and nationwide. Typically, the plaintiff providers have sued for reimbursement at their standard rates, to challenge carrier efforts to impose their own substantially lower rate schedules, or to block carrier efforts to recoup standard-rate payments previously made. Carriers frequently aim to pay non-participating providers at levels more in line with their own in-network rates, or the Medicaid Reimbursement Rates prescribed by the Centers for Medicare & Medicaid Services, or the rates promulgated by FAIR Health, a not-for-profit research organization maintaining a health care cost database.3
In UnitedHealthcare Services, Inc. v. v. Paracha4 the Commercial Division of the Suffolk County Supreme Court reviewed United Health’s claims aimed at clawing back funds which United Health previously had paid for out-of-network services in the approximate amount $1.7 million.5 The defendant physicians were specialists in providing laparoscopic surgery for a range of gastrointestinal issues, and had rendered emergency laparoscopic appendectomies and gall bladder procedures at hospitals on Long Island.6
United challenged the right of the non-participating defendant physicians’ to retain the standard-rate reimbursements, which United paid between 2011 to 2012 for the surgical procedures performed by the defendant physicians.7 The physician defendants had billed and been paid at their standard billing rates.
There was no dispute that the physician defendants were not participating providers, and thus were not contractually bound by the carrier’s in-network rate structure.8 United Health’s primary claim was that the physician defendants’ charges nonetheless were “excessive” based on FAIR Health’s guidelines.9 The carrier also raised claims of tortious interference with contract based on the carrier’s insurance agreements with its involved patients; common law fraud – based on an alleged side deal supposedly struck between the physicians and their patients, allegedly rendering the physicians’ bills a mere sham designed to wring unconscionably high payments from United Health; negligent misrepresentation, based on essentially the same theory; unjust enrichment; and violation of N.Y. Gen. Bus. Law § 349. At root, each of United’s claims was premised United’s primary claim that the defendants’ charges were fundamentally “excessive” and “unreasonable.”
The physician defendants moved to dismiss, relying on the U.S. Supreme Court’s opinion in Conn v. Gabbert10 and recent opinions from the Appellate Division.11 The defendants asserted that their constitutional right to freedom of contract – meaning their right to contract with patients for reimbursement at their own standard rates. The defendants argued that were not a party to any contractual fee caps,12 and thus remained free to contract with their patients and to set their own fees.13
The Commercial Division (Garguilo, J.) granted dismissal, holding that, “[i]n the absence of a contractually or statutory mandated fee-cap, physicians are at liberty to set their own fees. . . The Defendants were not ‘in network’ and thus were not bound by any pre-agreed fee schedule. The Defendants present . . . as out-of-network providers who ‘set their own fees’ without any nefarious side deals.”14
Appellate precedent supported the Commercial Division’s conclusion. In Huntington Hospital v. Abrandt,15 a hospital had sued a former patient on an account stated. The patient defended by arguing that she had been charged more than the “fair market value” for the services rendered to her, based on the fact that the hospital typically charged lower rates to other patients – such as patients covered by Medicaid and Medicare.16 The patients’ argument was thus implicitly the same as the carriers’ argument in United v. Paracha – i.e., that a medical provider’s rate should be deemed unreasonable and unenforceable simply because it is higher – even substantially higher – than “governmental” or other types of “high volume” rates charged for the same service in other settings. The Appellate Term in Huntington Hospital rejected the argument – just as the Commercial Division did in United v Paracha, reasoning that, “[t]he fact that lesser amounts for the same services may be accepted from commercial insurers or government programs as payment in full does not indicate that the amounts charged to [these] [patients] were not reasonable.”17 The Appellate Term also rejected the argument that the provider’s rates were unreasonably high based on a comparison with other contractual cost structures – which the plaintiff in Huntington Hospital cited as “evidence” of the “fair market value” of the services in question – precisely as the plaintiff United Health argued in United v. Paracha.18 The court went on to dismiss the claim regarding “unreasonable charges” and awarded summary judgment to the provider hospital.19
In two other cases with remarkably similar overtones, UnitedHealthcare Servs. v. Tesser,20 and UnitedHealthcare Servs. v. Davenport,21 United Health sued non-participating physicians (surgeons), again to limit those physicians’ reimbursements to amounts consistent with FAIR Health billing guidelines. The Commercial Division of the Nassau County Supreme Court (Bucaria, J.) initially either dismissed outright or expressed significant concerns regarding the viability of United Health’s core claims. In Tesser, the court dismissed United Health’s tortious interference, fraud, negligent misrepresentation, and GBL § 349 claims, consistent with the outcome in United v. Paracha, while leaving intact United Health’s claim based on unjust enrichment.22 The court in Tesser reasoned that although United Health’s ability to recoup alleged overpayments may be limited in light of the New York Insurance Law,23 “a doctor may not charge a fee which is excessive or unreasonable.”24
In Davenport, the court similarly dismissed each of United’s claims based on excessive billing rates, and left intact only United Health’s conceptually distinct claim (unique to that case, apparently) regarding allegedly “duplicate payments.”25
In another case, discontinued by stipulation of the parties, United Health v. Asprinio,26 United Health again had sought to prevent a non-participating physician from billing at rates deemed by United Health to be “excessive” and “unreasonable.” The Commercial Division of the Westchester County Supreme Court (Scheinkman, J.) denied United Health’s initial motion for injunctive relief, which was aimed at preventing the non-participating provider from billing his patients for the unpaid balance due based on his standard-rate invoices, after applying United’s remittance.27 Just as in Paracha and Tesser, in Asprinio United Health claimed that the physician’s standard charges were “unlawful, excessive and unenforceable,”28 and that billing patients at that level tortiously interfered with United’s contractual relations with its insureds, and violated Section 349 of New York’s General Business Law. The court found it unlikely that United would succeed on the merits of its claims and denied injunctive relief, observing that, “while the predicate of the action against Defendants is the contention that their charges are excessive, United has not offered any evidence that such is in fact the case.”29 The court rejected United’s suggestion that the FAIR Health guidelines constituted a binding measure: “[T]he FAIR Health database . . . has not been shown to be the sole authoritative standard . . . .”30 Following the filing of counterclaims by the involved provider, on December 11, 2015 the parties stipulated to discontinuance of the case, with prejudice.
These cases commenced by United Health are notable in that each involved a carrier in the role of plaintiff, seeking offensively to limit reimbursements. More commonly, the non-participating provider initiates suit in an effort to win reimbursement from a defendant carrier.31 In that setting, the physician plaintiffs frequently assert claims under the Employee Retirement Income Security Act of 1974 (“ERISA”).32 ERISA’s civil enforcement provisions provide avenues for non-participating providers to seek reimbursement at their standard rates, provided that the requisite circumstances are presented.33
For the foreseeable future, non-participating providers will continue to fight for their right to standard-rate reimbursements, both in federal and state court. The series of negative decisions suffered recently in this area by United Health constitute important developments in a complex field.
Mark S. Mulholland is a Senior Litigation Partner and former Managing Partner of Ruskin Moscou Faltischek, PC in Uniondale, New York. Mr. Mulholland represented defendants in UnitedHealthcare Services, Inc. v. Paracha, et al. (Sup. Ct. Suffolk Cty. Index No. 070033/2014).
- See N.Y. Ins. Law §§ 3216(i)(9), 3221(k)(4) and 4303(a)(2).
- FAIR Health, Inc. is a national, not-for-profit corporation that describes its mission as being, “[t]o bring transparency to healthcare costs and health insurance information.” 2See www.fairhealth.org/About-FH
- UnitedHealthcare Services, Inc. v. Paracha (Sup. Ct. Suffolk Cty. Sept. 16, 2015) (Index No. 070033/2014), Short Form Order dated 9/16/2015.
- Id. at pp. 1-2.
- See 526 U.S. 286, 291 (1999) (The “liberty guaranteed by the Fourteenth Amendment [includes] ‘the right of the individual to contract . . .’”).
- See, e.g., Village Taxi Corp. v. Beltre, 91 A.D.3d 92, 99 (2d Dep’t 2011) (“‘[P]arties should be free to chart their own contractual course’ unless public policy is offended.”); see also Matter of Riese, 100 A.D.3d 516, 516 (1st Dep’t 2012) (‘[S]ignatories of any agreement [ ]are free to tailor their contract to meet their particular needs and to include or exclude those provisions which they choose.’). (Citations omitted).
- There are of course statutorily imposed fee-caps for certain medical services, such as the statutorily imposed fee-caps for No-Fault and Workers’ Compensation, which set forth the maximum permissible charges by medical providers, and Medicaid and Medicare, which limit the amount that doctors charge Medicaid and Medicare beneficiaries. See N.Y. Ins. Law § 5108 (McKinney’s 1993) (No-Fault); N.Y. Workers’ Comp. Law § 442.2 (McKinney’s 2013); N.Y. Pub. Health Law § 19 (McKinney’s 1990) (Medicare); Medicaid Procedure Codes & Fee Schedules, eMedNY, Jan. 1, 2014 (Medicaid). Defendants in UnitedHealth v. Paracha were not alleged to have provided services in connection with No-Fault or Workers’ Compensation or for Medicare or Medicaid patients.
- See Village Taxi Corp. v. Beltre, supra, 91 A.D.3d at 99; Matter of Riese, supra, 100 A.D.3d at 516
- Decision and Order at p. 3.
- 4 Misc.3d 1 (App. T. 2d Dep’t 2004).
- 4 Misc.3d at *3 (emphasis added).
- UnitedHealthCare Services, Inc. v. Tesser, Index No. 606619/2014 (Sup. Ct. Nassau Cty. Dec. 11, 2015) (“Tesser”).
- UnitedHealthCare Services, Inc. v. Davenport, Index No. 603617/2015 (Sup. Ct. Nassau Co.Nov. 2, 2015) (“Davenport”).
- Tesser, Short Form Order at p. 3.
- Citing N.Y. Ins. Law § 3224-b[b].
- Tesser, Short Form Order at p. 4. The court cited no case supporting this proposition, which is inconsistent with the court’s reasoning in United v. Paracha, which was determined based on a physician’s general freedom to contract with patients under Conn v. Gabbert, supra, 526 U.S. at 291.
- Davenport, Short Form Order at pp. 2-4.
- UnitedHealthCare Services, Inc. v. Asprinio, Index No. 58353/2015 (Sup. Ct. Westchester Cty. Aug. 27, 2015), Short Form Order at pp. 1-2.
- Id. at 4-6.
- Id. at 6.
- Id. at 10.
- See, e.g., Star Multi Care Servs., Inc. v. Empire Blue Cross Blue Shield, 6 F. Supp.3d 275 (E.D.N.Y. 2014); The Plastic Surgery Group, P.C. v. United Healthcare Ins. Co. of New York, Inc., 64 F. Supp.3d 459 (E.D.N.Y. 2014); New York State Psychiatric Ass’n, Inc. v. UnitedHealth Grp., 980 F. Supp.2d 527 (S.D.N.Y. 2013); Staten Island Chiropractic Assocs., PLLC v. Aetna, Inc., No. 09-cv-2276, 2012 WL 832252 (E.D.N.Y. Mar. 12, 2012).
- 29 U.S.C. § 1001 et seq.
- See Neuroaxis Neurosurgical Assoc., P.C. v. Costco Wholesale Co., 919 F. Supp.2d 345, 351 (S.D.N.Y. 2013) (“In order for an assignee to prevail on an ERISA claim . . . , the assignee must establish the existence of a valid assignment that comports with the terms of the . . . plan benefits. . . [W]here plan language unambiguously prohibits assignment, an attempted assignment will be ineffectual.”) (citing Physicians Multispecialty Grp. v. Health Care Plan of Horton Homes, Inc., 371 F.3d 1291, 1295 (11th Cir. 2004)) (other citations omitted). “Thus, a healthcare provider who has attempted to obtain an assignment in contravention of a plan’s terms is not entitled to recover under ERISA.” Id.; The Plastic Surgery Group, P.C., supra, 64 F. Supp.3d 459 (dismissing non-participating provider claim for reimbursement based on conclusion that insurance company was not susceptible to suit under ERISA, which limits available defendants to the subject “plan,” “plan administrator,” and “plan sponsor”); Harrison v. Metro. Life Ins. Co., 417 F. Supp.2d 424, 431-32 (S.D.N.Y. 2006) (dismissing common law causes of action for breach of contract, fraud, and breach of a fiduciary duty as preempted by ERISA).