No-Fault & The Secondary Payer Conundrum
Erin Stamper & Bruce M. Klein
Today, the non-economic risks and responsibilities associated with proper billing of hospital claims are vast and onerous. In 2006, the federal government and, shortly thereafter, New York State, began enacting legislation severely restricting the ways in which hospitals may collect and retain their money. During the last decade, hospitals in New York State have had to grapple with this ever changing landscape, which has made it increasingly hard to obtain reimbursement and has also exposed hospitals to an increased risk of claw-backs (from Medicare, Medicaid, private insurers and patients) and draconian penalties for failure to identify and bill the appropriate primary insurer.
In particular, hospital billers and compliance officers have had to tackle the following regulatory and court-imposed changes: (1) 2006 amendment to the Internal Revenue Code, which incentivized whistleblowers to report fraud under the Federal False Claims Act, 31 U.S.C. Sections 3729 through 3733 (“Qui Tam”); (2) 2007 enactment of New York False Claims Act, N.Y. State Fin. Law §187 et seq.; (3) new reporting requirements under Section 111 of the Medicare, Medicaid and SCHIP Extension Act of 2007 (“MMSEA”), which added mandatory reporting obligations to the Medicare Secondary Payer Act (“MSPA”); (4) implementation of the 10th revision of the International Statistical Classification of Diseases and Related Health Problems (“ICD-10s”); and (5) the New York State Court of Appeals ruling in Aetna Health Plans v. Hanover Insurance Company, 2016 NY Slip Op 04658 (2016), which identified the medical provider, i.e. the hospital, as the party from whom the private health insurer must seek restitution when it has paid for medical treatment that should have been covered by the patient’s no-fault insurer.
The Changing Landscape
2006 – Today
Federal and New York State False Claims Acts
In 2006, Congress amended the Internal Revenue Code to permit whistleblowers to obtain a reward for reporting tax fraud under the Federal False Claims Act, 31 U.S.C. Sections 3729 through 3733 (“Qui Tam”). Qui Tam, under the Federal False Claims Act, allows persons and entities with evidence of fraud against federal programs or contracts to sue the wrongdoer on behalf of the United States Government. As such, with the 2006 amendment, individuals are now incentivized to report fraud against the government, including billing fraud under Medicare and Medicaid. Due to the success of the Federal False Claims Act, New York State enacted its own statute in 2007, the New York False Claims Act, N.Y. State Fin. Law §187 et seq. As such, compliance officers are now at the mercy of billers and doctors who may be willing to “blow the whistle” on perceived fraudulent billing practices in exchange for a high monetary reward.
Medicare, Medicaid and SCHIP Extension Act of 2007
At the end of 2007, Medicare, Medicaid and SCHIP Extension Act of 2007 (“MMSEA”) was signed into law. Section 111 of MMSEA added new mandatory reporting obligations to the Medicare Secondary Payer Act (“MSPA”), requiring group health plans, liability insurers and self-insureds to report all liability settlements and open claims made by Medicare-eligible claimant/plaintiffs, for which they have assumed an ongoing responsibility for medical treatment (“ORM”) to the Centers for Medicare and Medicaid Services (“CMS”). “By imposing this mandatory reporting requirement on Responsible Reporting Entities (“RREs”), Medicare hopes to increase its ability to identify individuals who received Medicare payments and to recoup an estimated $1.74 billion of inappropriately paid benefits per year.” Medicare’s secondary payer status, under 42 U.S.C. § 1395y(b) creates, for Medicare, a right to reimbursement, i.e. the right to “claw back.” This right to reimbursement could expose a hospital, which inappropriately bills Medicare for claims that should have been otherwise been billed to a primary insurer, to a potential risk of future liability.
The duty to pursue a claim against the primary payer is addressed in a publication by the Centers for Medicare & Medicaid Services (“CMS”), entitled “Medicare and Other Health Benefits: Your Guide to Who Pays First” (https://www.medicare.gov/Pubs/pdf/02179.pdf). In the section dealing with no-fault claims, entitled “Who pays first if I have a claim for no-fault or liability insurance?” CMS explains:
No-fault insurance or liability insurance pays first and Medicare pays second, if appropriate. If doctors or other providers are told you have a no-fault or liability insurance claim, they must try to get paid from the insurance company before billing Medicare. (emphasis added).
This same section goes on to explain how a “conditional payment” works, providing an example to illustrate the point:
If the insurance company doesn’t pay the claim promptly (usually within 120 days), your doctor or other provider may bill Medicare. Medicare may make a conditional payment to pay the bill, and then later get back any payments the primary payer should have made.
Example: Nancy is 69 years old. She’s a passenger in her granddaughter’s car, and they have an accident. Nancy’s granddaughter has Personal Injury Protection/ Medical Payments (Med Pay) coverage as part of her automobile insurance. While at the hospital emergency room, Nancy is asked about available coverage related to the accident. Nancy tells the hospital that her granddaughter has Med Pay coverage. Because this coverage pays regardless of fault, it’s considered no-fault insurance. The hospital bills the no-fault insurance for the emergency room services, and only bills Medicare if any Medicare-covered services aren’t paid for by the no-fault insurance.
This is also reiterated in CMS’s “Medicare Secondary Payer” Manual Publication, wherein it states:
When Medicare is the secondary payer, the provider, physician, supplier, or beneficiary must first submit the claim to the primary payer. The primary payer is required to process and make primary payment on the claim in accordance with the coverage provisions of its contract. The primary payer may not decline to make primary payment on the grounds that its contract calls for Medicare to pay first. If, after the primary payer processes the claim, it does not pay in full for the services, Medicare secondary benefits may be paid for the services as prescribed in §10.8. Generally, the beneficiary is not disadvantaged where Medicare is the secondary payer because the combined payment by a primary payer and by Medicare as the secondary payer is the same as or greater than the combined payment when Medicare is the primary payer… (emphasis added)
What makes the payment by Medicare “conditional” is the fact that such funds must be returned to Medicare, once the no-fault insurer has assumed primary payment responsibility. The CMS “Medicare Secondary Payer” Manual Publication notes that “[t]he payment is ‘conditional’ because it must be repaid to Medicare when a settlement, judgment, award, or other payment is made.” (emphasis added). If the issuance of such a “judgment” or “award” is what triggers the provider’s obligation to return of the funds to Medicare, then the provider must adjudicate its denied and overdue claims against the “primary payer”, i.e. the no-fault insurer.
Historically, the rate of denial by no-fault insurers has exceeded the rate of denial by other insurers as the medical professionals (i.e. the peer review and IME doctors) reviewing the claims for no-fault reimbursement are in the direct or indirect employ of the no-fault insurers. As such, it is understood that payment from a no-fault insurer is not likely to be made within one-hundred and twenty (120) days of the hospital’s submission of its claim. As such, to avoid a disruption to a hospital’s cash flow, Medicare, upon receipt of a conditional bill, lends money to the hospital on the assumption that it will be repaid once there is a final “settlement, judgment, or award.” It is understood, in these circumstances, that payment from the no-fault insurer will not be forthcoming given that the no-fault insurer previously denied the claim; therefore, litigation/arbitration against the no-fault insurer will be required to obtain the required “settlement, judgment, or award.”
As such, for over thirty-five (35) years, the Department of Financial Services (“DFS”) has afforded hospitals and other medical providers with a forum within which to conciliate or arbitrate their disputed automobile insurance claims. The American Arbitration Association (“AAA”), which currently administers the conciliation and arbitration of no-fault claims on behalf of DFS, is the only program of its kind, i.e. a state agency sponsored program designed to assist hospitals (and other medical providers) with the collection of their denied or improperly delayed insurance claims. The existence of the AAA No-Fault Program is a testament to DFS’s understanding that state law requires hospitals to pursue collection efforts to prevent their overuse of the state-administered Hospital Bad Debt and Charity Pool (renamed the Hospital Indigent Care Pool in 1997),  and that a prime reason for the creation of mandatory personal injury protection (“PIP”) coverage in 1974 was to eliminate the need for overuse of Hospital Indigent Care Pool, by hospitals.
It is evident from the foregoing that there exists strong public policy in favor of keeping hospitals open and operational. Furthermore, the enactments described above, at both the federal and state level, make clear that the disruption that could be caused to a hospital’s monthly cash flow from fluctuations in payments due from state-mandated insurance plans, like no-fault, would not be in the public’s interest. Equally clear, is that statutory insurers, like Medicare and Medicaid, shall be the payer of last resort and that state-mandated insurers, like no-fault (and workers’ compensation), bear primary payment responsibility. Therefore, under any payment scheme, monies received from these statutory insurers shall be considered loan monies until a definitive adjudication of the no-fault bill is achieved, be in it litigation or arbitration.
Furthermore, and perhaps most importantly, during the course of the hospital’s adjudication of its no-fault claim, it is temporarily protected from any “claw-back” attempt by the statutory insurer. As such, it is of paramount importance that when a hospital submits a bill to the no-fault insurer, that it also submit a conditional bill to the statutory insurer, whether it be Medicare or Medicaid, if it meets the guidelines for such submission. Even though the hospital may collect “loan” monies from Medicare/Medicaid, it cannot prove that it is entitled to retain said monies unless and until it files a litigation/arbitration against the no-fault insurer (assuming the no-fault insurer has denied the claim) and thereafter obtains the required “settlement, judgment, or award.”
The compliance date for implementation of the International Classification of Diseases, 10th Edition, Clinical Modification/Procedure Coding System (“ICD-10”) was October 1, 2015. Prior to the implementation of the ICD-10, the determination of the appropriate insurer, in the first instance, was subject to interpretation. However, ICD-10 causation and severity codes now impose a burden on the hospital (and thus, its compliance officers) to take an accurate and detailed history of the patient, in the first instance, so that the true genesis of the patient’s medical condition, and thus, the responsible payer, can be determined and billed in the first instance.
Beginning in earnest in 2011, the Federal Government through CMS began acquiring the names of future Medicare recipients involved in auto accidents with reported injuries. Now, if that patient upon turning sixty-five (65) undergoes a procedure in a hospital related to a prior automobile accident and the hospital does not conditionally bill Medicare, utilizing the same causation and severity code as both the surgeon and anesthesiologist, the discrepancy may lead to an audit and no payment. A failure to conditionally bill Medicare, while simultaneously pursuing the primary insurer, could also be deemed a violation of the Federal and New York State False Claims Statutes, subjecting the hospital to a Qui Tam lawsuit and heavy monetary penalties.
Aetna Health Plans v. Hanover Ins. Co. 2016 NY Slip Op 04658 (2016)
On June 14, 2016, in Aetna Health Plans v. Hanover Insurance Company, the Court of Appeals ruled that a health insurer, which has paid for medical treatment that should have been covered by the insured’s no-fault auto insurance carrier, may not maintain a reimbursement claim against the no-fault insurer. Rather, as emphasized by the Court, in the concurring opinion of Justice Stein, the health insurer “may seek recovery from the medical providers that improperly billed the health insurer for treatment that should have been covered by the [no-fault automobile insurer].” Aetna Health Plans v. Hanover Insurance Company, 2016 NY Slip Op 04658 (2016) (emphasis added).
Under this scenario, once the medical provider has returned the improperly collected monies to the health insurer, the medical provider may then re-submit its billing to the no-fault automobile insurer. The Court of Appeals acknowledged that the no-fault automobile insurer could then deny the claim due to untimely submission. However, the Court concluded that this would not be an inequitable result “…because they submitted the bills to the incorrect insurer in the first instance.” Aetna Health Plans v. Hanover Insurance Company, 2016 NY Slip Op 04658 (2016).
By foreclosing nearly all means for a private health insurer to obtain recovery directly from the no-fault automobile insurer and by identifying the medical provider as the party from whom the health insurer may seek restitution, the New York State Court of Appeals has opened the floodgates to demands for repayment from both hospitals and medical providers alike. The result shall be to claw back monies improperly collected from the health insurer.
Additionally, New York General Obligations Law (“NY Gen. Oblig.”) §5-335 prevents health insurers from asserting claims for reimbursement, liens or subrogation claims on personal injury actions, whether in litigation or otherwise; only Medicare and Medicaid, or a policy of insurance or insurance contract providing workers’ compensation benefits, may assert claims for reimbursement, liens or subrogation claims on personal injury actions. See, NY Gen. Oblig. §5-335(c).
Historically, medical providers have been hesitant to bill no-fault insurers, which have, until recently, utilized a solely paper-based system. Furthermore, no-fault claims are subject to a retrospective decision making process, rather than to a pre-certification process, which creates an inherent monetary risk for medical providers. However, these administrative and monetary concerns are now outweighed by the following new realities: (a) new coding specificity offered by the ICD-10, as discussed in the foregoing section; and (b) potentially higher rates of reimbursement offered by no-fault insurers than can be expected from commercial carriers going forward. With private insurers offering “Bronze” plans, which carry substantial deductibles, and with an ever-increasing number of individual exchange policies now having exclusions for auto accidents, hospitals can now expect timely and properly submitted no-fault claims to yield greater returns than they have previously produced when compared to billing submitted to health insurers.
DFS Has Long Recognized the Hospital’s Right to Conditionally Bill,
Provided That It Does Not Retain Duplicate Payment
As early as April 2003, the New York State Insurance Department, which was subsumed by DFS in 2011, acknowledged that a health insurer might be billed concurrently with the no-fault insurer, due to the terms of a provider’s contract with said health insurer, which may necessitate same. On April 30, 2003, The Office of General Counsel (“OGC”) issued an opinion (“the Opinion Letter”), representing the position of the New York State Insurance Department, in response the following inquiry:
- When the provider of health services has submitted a bill to the No-Fault insurer for payment, and the insurer denies payment, may the provider bill the patient’s medical insurance on the patient’s behalf, or may it bill the patient directly for the services rendered? See, OGC Opinion Letter, April 3, 2003, Opinion No. 03-04-36.
In reply to said inquiry, the OGC stated the following:
- Under the “Authorization” option, the provider retains the right to bill the eligible injured person (“patient”) for the health services provided and the patient all rights, privileges and remedies to which he or she is entitled under Article 51 (the No-Fault statute) of the Insurance Law. Except under a narrow exception found in section 68.7(a) of Regulation 83 (or in the event that a determination is made by the No-Fault insurer that the patient’s injuries were not related to the automobile accident), the provider would be limited to the billing the patient directly for the services rendered. See, OGC Opinion Letter, April 3, 2003, Opinion No. 03-04-36.
The OGC makes clear that a provider of health services, that has received a denial for payment from the no-fault insurer, may not bill the patient’s health insurer unless, or until: (a) the no-fault policy has been exhausted; (b) the patient’s injuries were determined to be not causally related to the automobile accident; or (c) the provider is subject to the exception set forth in 11 N.Y.C.R.R. §68.7(a). The OGC provides a more in depth discussion of the “11 N.Y.C.R.R. §68.7(a) exemption” on page 2 of the Opinion Letter:
Only upon exhaustion of available No-Fault benefits may an individual submit bills for reimbursement to his or her health insurer and, as previously stated, payment for health services rendered under the health policy must be limited by the fee schedules established pursuant to section 5108. However, N.Y. Comp. Codes. R. & Regs. tit. 11, §68.7(a) (Regulation 83) provides as follows:
(a) No provider of health services specified in section 5102(a)(1) of the Insurance Law may demand or request any payment in addition to the charges permitted by the provision of this Part. If the insured also possesses health insurance coverage and such health insurance contract does not exclude payment for no-fault benefits, payment by the health insurer for health services under such contract is restricted by the limitations of section 5108 of the Insurance Law, unless such limitation would impair the terms of a provider’s contract with the health insurer, in which case payment by the health insurer to the provider may be made in accordance with the provider’s contract; however, the provider may not receive duplicate payment. See, OGC Opinion Letter, April 3, 2003, Opinion No. 03-04-36.
In other words, pursuant to 11 N.Y.C.R.R. §68.7(a), a provider of health services, that has received a denial for payment from the no-fault insurer, may bill the patient’s health insurer when its contract with said health insurer would be impaired by its inability to submit billing.
A perfect example of such a contractual obligation would be if the hospital’s contract with the health insurer mandated that billing be submitted within a specified timeframe. For example, if the hospital’s contract requires submission of all billing within sixty (60) days of the date the medical services are rendered, then failure to submit said billing would impair the terms of the provider’s contract with the health insurer. As such, under such a scenario, the hospital would be required to concurrently bill both the no-fault insurer and the health insurer. If the hospital failed to timely bill the health insurer, the health insurer could disclaim coverage once the primary source of no-fault benefits exhaust. Or, in a mixed causation case, the health insurer could disclaim coverage even if a final award were rendered, determining that all, or a portion of the claim, were not covered by no-fault. As such, it is imperative that a hospital be permitted to bill the health insurer concurrently to ensure that a patient, who has paid for said coverage, be able to realize the benefits of said coverage. To hold otherwise could result in the patient being held individually responsible for its outstanding hospital bills despite having paid premiums for both no-fault and private health insurance – a result which would run counter to public policy.
In light of DFS’ longstanding appreciation of the fact that a hospital must concurrently bill both the health insurer and the no-fault insurer, in order to protect not only its own file but also the interest of the patient, the New York State Court of Appeal’s ruling in Aetna Health Plans v. Hanover Ins. Co. is not a surprise, but a natural extension of the Court’s and Legislature’s keen understanding of the concurrent billing process. In Aetna Health Plans v. Hanover Ins. Co., the New York State Court of Appeals ruled that a health insurer, which has paid for medical treatment that should have been covered by the insured’s no-fault auto insurance carrier, must seek recovery from the medical provider, not from the no-fault automobile insurer. If the hospital has billed correctly, i.e. concurrently, it will have submitted billing to both the health insurer and the no-fault automobile insurer in order to comply with all contractual obligations it has with the health insurer and in order to guarantee that the primary payer, i.e. the no-fault insurer, affords coverage. First, any and all billing which is determined “covered” by the no-fault insurer and within the no-fault policy limits, be it through voluntary payment, arbitration or litigation, shall be paid by the no-fault insurer. Then, any and all billing which is determined to be over the no-fault policy limits, or not “covered” by the no-fault policy (i.e. not causally related the motor vehicle accident), shall be deemed covered and payable by the health insurer.
As can be gleaned from the foregoing, no-fault claims encompass multiple decision points within the hospital’s billing of a claim. Therefore, from a compliance standpoint, what can a hospital do to protect itself from whistleblowers, Qui Tam lawsuits and claw-backs from Medicare, Medicaid, private insurers and individuals?
Generally, the answer lies in education. But, who should be educated?
- Intake staff
- Faculty Practice
- Attending Physicians
- Contract Administrators
- Revenue Cycling
Understanding the hospital’s response to any the following circumstances:
- When a submitted claim is improperly pended or denied by the no-fault insurer
- Receipt of a “claw-back”
- Receipt of a lawsuit, alleging improper billing practices
- Asking questions and being willing to pursue the hospital’s claims until settlement, judgment, award or other payment is made defining the liability of each payer.
 See, Compendium of Laws Effecting and Concerning False Claims False Statements, Insurance Fraud, Health Care Fraud, and Whistleblower Protections annexed hereto and incorporated herein as Exhibit “A”.
 In 2014, one of the nation’s largest medical imaging providers, which operates more than 20 facilities in the New York City area, paid $15.5 million to settle a whistleblower lawsuit, filed under the Federal, New York State and New Jersey False Claims Acts, that alleged Medicare and Medicaid billing fraud. The allegations, which were the subject of the lawsuit, were first asserted by the former Associate Medical Director. http://www.falseclaimsact.com/wp-content/uploads/2014/02/Doshi-Press-Release.pdf
 On March 11, 2014, the Federal Bureau of Investigation (“FBI”) raided a radiology practice, which operates 12 medical offices on Long Island, New York, to investigate “allegations that [Zwanger-Pesiri] ha[d] engaged in a multimillion-dollar fraud by vastly overbilling the federal Medicare Program for its services, which include X-rays, MRIs and CT scans.” http://liherald.com/stories/Feds-investigating-Zwanger-Pesiri-radiology,53709
 ORMs often arise in the context of no-fault and workers’ compensation claims. With respect to ORM reporting, it is required for claims on which ORM exists as of July 1, 2009. Sean P. Dwyer, Taking Medicare’s Interests Into Consideration: Mandatory Insurer Reporting, NBI: Medicare Set-Asides In Personal Injury Litigation, Nov. 30, 2012, at 8-9.
 While MMSEA was signed into law in December 2007, the first claim forms were to have been submitted beginning April 1, 2010. Sean P. Dwyer, Taking Medicare’s Interests Into Consideration: Mandatory Insurer Reporting, NBI: Medicare Set-Asides In Personal Injury Litigation, Nov. 30, 2012, at 4.
 RREs include group health plans, liability insurers, no-fault insurers, workers’ compensation insurers and individuals and/or entities that are self-insurers, are responsible for deductibles or otherwise make direct payments for settlements. Sean P. Dwyer, Taking Medicare’s Interests Into Consideration: Mandatory Insurer Reporting, NBI: Medicare Set-Asides In Personal Injury Litigation, Nov. 30, 2012, at 8-9.
 Jacey Kaps and Brooke Guenot, Rumberger Kirk & Caldwell Provides Information on Medicare Secondary Payer Act (MSP): What Is It? and What Impact Will It Have?, (July 21, 2009), http://rumbergerkirkcaldwell.blogspot.com/2009/07/rumberger-kirk-caldwell-provides.html; CMS Insurer Reporting Requirements Call for Fast, Thorough Action, Ingenix.com, April 14, 2009, http://www.ingenix.com/thoughtleadership/innovations/041409.
 Kaps and Guenot, Rumberger Kirk & Caldwell Provides Information on Medicare Secondary Payer Act (MSP): What Is It? and What Impact Will It Have?, dated July 21, 2009. http://rumbergerkirkcaldwell.blogspot.com/2009/07/rumberger-kirk-caldwell-provides.html ; CMS Insurer Reporting Requirements Call for Fast, Thorough Action, Ingenix.com, April 14, 2009, http://www.ingenix.com/thoughtleadership/innovations/041409.
 AAA NYS Auto Insurance ADR Center Overview, https://nysinsurance.adr.org/.
 “[H]ospitals are not supposed to include the cost of services, other than emergency room visits, which have been denied reimbursement by a third-party payer for lack of medical necessity or for lack of compliance with prior authorization requirements.” Elisabeth Benjamin & Kat Gabrisheski, The Case for Reform: How New York State’s Secret Hospital Charity Pool Funds Fails To Help Uninsured and Under Insurered New Yorkers, 8:5 N.Y.U. J. Legis. & Pub. Pol’y 5 (2004); § 2807-k(1)(e); Lucette Lagnado, Dunned for Old Bills, Poor Find Some Hospitals Never Forget, The Wall Street Journal (June 8, 2004) http://www.wsj.com/article_email/SB108664488952730872-lMyQjAxMTA2ODA2OTYwNDk0Wj
 NY Gen. Oblig. Law §5-335 does not apply to “a subrogation claim for recovery of additional first-party benefits provided pursuant to article fifty-one of the insurance law.” See, NY Gen. Oblig. Law §5-335(b). The NYS Form NF-11, “Additional PIP Subrogation Agreement”, is provided to the eligible injured party (“EIP”) by the no-fault insurer and provides that in consideration for additional personal injury protection (hereinafter “A-PIP”) benefits paid, the no-fault insurer is “subrogated to the extent of any payment for additional first-party benefits to the rights of the applicant against any person because of bodily injury with respect to which additional personal injury protection benefits are afforded under this policy.”
See, NYS FORM NF-11, http://www.dfs.ny.gov/insurance/r_finala/2004/rf68ca2f.pdf
 See, Sample “Exclusions and Limitation” Section annexed hereto and incorporated herein as Exhibit “B”.