Court Rules that DME Provider's Illegal Billing Is Excused by No-Fault Insurer's Untimely Denial

NO-FAULT – DME BILLING – DEFENSE PRECLUSION – FEE SCHEDULE DEFENSE – INSURANCE LAW § 5108
Yklik, Inc. a/a/o Tammy Agosto v. Allstate Ins. Co.
(NYC Civil Ct., Richmond Co., decided 12/31/2008)

New York Insurance Law § 5108 provides:

§ 5108. Limit on charges by providers of health services.

(a) The charges for services specified in paragraph one of subsection (a) of section five thousand one hundred two of this article and any further health service charges which are incurred as a result of the injury and which are in excess of basic economic loss, shall not exceed the charges permissible under the schedules prepared and established by the chairman of the workers' compensation board for industrial accidents, except where the insurer or arbitrator determines that unusual procedures or unique circumstances justify the excess charge.

(b) The superintendent, after consulting with the chairman of the workers' compensation board and the commissioner of health, shall promulgate rules and regulations implementing and coordinating the provisions of this article and the workers' compensation law with respect to charges for the professional health services specified in paragraph one of subsection (a) of section five thousand one hundred two of this article, including the establishment of schedules for all such services for which schedules have not been prepared and established by the chairman of the workers' compensation board.

(c) No provider of health services specified in paragraph one of subsection (a) of section five thousand one hundred two of this article may demand or request any payment in addition to the charges authorized pursuant to this section. Every insurer shall report to the commissioner of health any patterns of overcharging, excessive treatment or other improper actions by a health provider within thirty days after such insurer has knowledge of such pattern. (Emphasis added.)

Plaintiff DME provider sued to recover $317 in unpaid bills and moved for summary judgment. Allstate opposed the motion on two grounds: (1) that plaintiff had failed to establish a prima facie case because the affidavit of its billing manager was not based on personal knowledge of the plaintiff's office practices and billing procedures; and (2) that because plaintiff's claims were in excess of the fee schedule contained in the Workers' Compensation Law, and because defendant made a partial payment to plaintiff, a triable issue of fact existed as to whether Allstate paid the appropriate amount for medical services. Plaintiff argued that Allstate's late denial precluded it from raising and relying on the fee schedule defense.

Richmond County NYC Civil Court Judge Katherine Levine agreed with plaintiff and found that Allstate's late denial (57 days after receipt of plaintiff's billings) precluded it from asserting the statutory fee schedule defense. After discussing the preclusion rule in general, Judge Levine held:

A medical provider must limit its charges to those permitted by approved fee schedules. Ins. Law §5108(a), 11 NYCRR 68.0(f) "which protects a patient from erosion of available benefits by inflated charges" Complete Orthopedic Supplies, Inc. v. State Farm Ins. Co., 16 Misc 3d 996, 1005 (Civil Ct., Queens Co. 2007)) citing from Ops. Gen Counsel NY Ins. Dept. No. 04-06-11 ( 6/16, 2004). The fees for services and procedures are governed by the workers compensation fee schedule ( 11 NYCRR 68.1) and durable medical goods fees are governed by the NY Medicaid fee schedule (11 NYCRR part 68). An insurer who raises this defense will prevail if it demonstrates that it was correct in its reading of the fee schedules unless the plaintiff shows that "an unusual procedure or unique circumstance justifies the necessity" for a charge above the schedules fee ( 11 NYCRR 68.4) Complete Orthopedic Supplies , Inc, supra 16 Misc 3d at 1005. However, before this defense can be invoked an insurer must prove a timely denial.

In Fair Price, supra , the Court distinguished the defense that the assignor never received the medical supplies from the plaintiff from the defense raised by the insurance company in Chubb, supra - that the claimant's injuries arose out of a prior related accident rather than a car accident. Only the latter - "a lack of coverage defense" - fell outside the preclusion rule since if in fact the injuries were unrelated to the accident, the treatment would not have been covered by the automobile liability policy in the first instance. 10 NY3d at 564 citing Chubb, supra at 199. The defense that the billed for services were never rendered, on the other hand, was more akin to a normal exception from coverage, like the defense of billing for unnecessary procedures found by the Chubb court to fall within the preclusion rule. 10 NY3d at 564 citing Chubb, 90 NY2d at 199 (over billing does not ordinarily implicate a coverage matter). This is so because in both situations, there was an actual accident and an actual injury, where "coverage legitimately came into existence". Id. at 565 citing Fair Price, supra , 42 AD3d at 285.

The same reasoning applies to the defense that the claims were in excess of a fee schedule. The parties do not dispute that the assignor is entitled to no-fault insurance benefits. There was an actual accident where the assignor sustained real injuries; the assignor was covered by defendant under an actual insurance policy; and the assignor was prescribed medical equipment which Yklik provided and for which the insurer was billed. Thus, an insurer can only preserve a fee schedule defense by first complying with the 30 day rule and issuing a timely denial. Complete Orthopedic Supplies, supra at 1005; Jamil M. Abraham v. Park Health Center Rockaway Blvd., 3 Misc 3d 130A, 787 NYS2d 678 (App. Term, 2d Dept. 2004)("by virtue of a timely claims denial an insurer is entitled to raise a fee schedule defense and establish that charges exceeded those permitted by law"). See Forrest Chen Acupuncture v. GEICO, 54 AD3d 996 (2d Dept. 2008).

In light of these opinions, it is clear that the defenses of fee schedule non-compliance and partial payment made in accordance with the fee schedule are precluded if defendant fails to disclaim coverage in timely manner pursuant to the no-fault regulations. Here, the denial annexed to plaintiff's papers as Exhibit "3" reveals that defendant received the claims on July 10, 2007 and mailed the denial on 9/04/07, waiting approximately 56 days to send out its denial. By failing to timely submit its denial, defendant is precluded from raising the defense of non-compliance with the fee schedule and summary judgment is granted to plaintiff.

Unfortunately, the cases cited by Judge Levine -- Complete Orthopedic Supplies, Abraham, and Forrest Chen Acupuncture -- do not actually hold that "an insurer can only preserve a fee schedule defense by first complying with the 30 day rule and issuing a timely denial", and it is arguable whether they implicitly support that conclusion.

In 1989, the Second Department held that Insurance Law § 5108 was not unconstitutional, finding that "a person of average intelligence would understand this [statute] to constitute a prohibition against accepting any payments in excess of the fee schedule[.]" Goldberg v. Corcoran, 153 AD2d 113, 119 (2d Dept. 1989). Fair Price can be distinguished because it involved a fraud defense and did not involve any statutory prohibition against billing for DMEs that were not actually delivered. It is doubtful that, in enacting Insurance Law § 5108, the New York State Legislature intended the first sentence of subsection (c) to become "[n]o provider of health services . . . may demand or request any payment in addition to the charges authorized pursuant to this section [unless the no-fault insurer does not issue a timely denial of payment, in which case the provider may demand or request payment of whatever excessive charges it wishes]." For this stautory prohibition to have any real meaning, it cannot be dependent on a no-fault insurer's response to illegally excessive charges. Illegal conduct does not become legal simply because someone does not object to it.

This defense is not a coverage defense at all; it's a statutory defense. That's why it cannot be analyzed under the Fair Price and Central General Hospital, Presbyterian Hospital and Hospital for Joint Diseases defense preclusion rubric. Thou shall not, means thou shall not. Period.