Provider's Fee Splitting With Billing Company Does Not Constitute a Defense to Provider's No-Fault Claim for Payment

NO-FAULT – PROVIDER FEE SPLITTING WITH BILLING COMPANY – SPECIAL PROCEEDING TO VACATE MASTER ARBITRATION AWARD – LICENSING REQUIREMENTS – PROFESSIONAL MISCONDUCT
Matter of Allstate Prop. & Cas. Ins. Co. v. New Way Massage Therapy P.C.
(1st Dept., decided 12/10/2015)

It is "professional misconduct" and illegal in New York for any licensed professional to "[p]ermit[] 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." New York Education Law § 6530(19).

11 NYCRR § 65-3.16 (a)(12) states:

A provider of health care services is not eligible for reimbursement under section 5102(a)(1) of the Insurance Law if the provider fails to meet any applicable New York State or local licensing requirement necessary to perform such service in New York or meet any applicable licensing requirement necessary to perform such service in any other state in which such service is performed.

So if a New York-licensed health care provider shares or splits its professional fees with a non-professional, may the no-fault insurer deny payment?

Allstate denied payment for massage therapy services to provider New Way Massage Therapy PC based on its conclusion that in violation of New York Education Law § 6530(19) New Way was illegally splitting or sharing 5% of its fees with its billing company, Island Billing and Processing LLC.

New Way contested Allstate's denial in arbitration and initially lost, arbitrator Marilyn Felenstein finding that New Way had not convinced her that its fee-splitting agreement with Island Billing "does not violate the rules of the New York State Education Department or that the agreement does not violate the prohibitions of the New York State Department of Health Medicaid regulations."

New Way appealed to master arbitration, arguing that the lower arbitrator improperly shifted the burden of proof in the matter to New Way.  Master Arbitrator Norman H. Dachs agreed and directed an award in the amount of $1,041.84 for New Way.  In vacating the lower arbitrator's award, the Master Arbitrator found that "the Lower Arbitrator not only inappropriately shifted the burden from [Allstate] to prove its defense to [New Way] to negate it, she also committed an error of law." Specifically, the Master Arbitrator found that Arbitrator Felensten had committed an error of law in two respects. First, the Master Arbitrator found that Arbitrator Felensten was incorrect in finding that New Way was involved in improper fee sharing because

an arrangement whereby a medical provider pays a bill collector a fixed percentages of amount collected on matters referred to such bill collector, after services have been rendered and where self-collection efforts have been unsuccessful, cannot be said to be within the purview of either Education Law § 6530(19) . . . or 8 NYCRR § 29.1. 

Additionally, the master arbitrator found that

if, in fact, the arrangement between the provider and the collection firm is, technically, illegal, the remedy lies in disciplinary proceedings or, at most, may provide a defense to the parties to the agreement. It should not be the basis for a windfall for the benefit of a non-party thereto, such as the insurer in the case. (Emphasis added.)

Allstate thereafter commenced this CPLR article 75 special proceeding to vacate the master arbitration award.  In denying Allstate's petition and confirming the master arbitration award, New York County Supreme Court Justice Cynthia Kern distinguished Allstate's fee-splitting argument from a Mallela defense, and reasoned:

In the instant action, the petition to vacate the Master Arbitration award is denied as there was a rational basis for the award. Master Arbitrator Dachs vacated and reversed the lower arbitrator's award on the ground that it was contrary to law. Specifically, Master Arbitrator Dachs found that, among other things, Arbitrator Felensten's award was incorrect as a matter of law as a provider's participation in an improper fee sharing agreement is not a valid ground to deny said provider's claim for no-fault benefits. This determination is rational as there is no statute, regulation or established precedent that gives an insurer the authority to deny no-fault benefit claims on the ground that the provider is participating in improper fee sharing. Indeed, Allstate has failed to present the court with any authority supporting its contention that it is well established law that a provider participating in illegal fee sharing is not entitled to reimbursement of no-fault benefits. Instead, the cases cited by petitioner stand for the proposition that courts will not enforce contracts between parties that are violative of the prohibition of fee-splitting and, as such, are inapposite. See Necla v. Glass, 231 A.D.2d 457 (1st Dept 1996); LoMango v. Koh, 246 A.D.2d 579 (2nd Dept 1998); Hartman v. Bell, 137 A.D.2d 585 (2nd Dept 1988); Sachs v. Saloshin, 138 A.D.2d 586 (2nd Dept 1988). Thus, the Master Arbitrator acted rationally in vacating the lower arbitrator's decision and issuing an award in favor of New Way.  (Emphasis added.)

On Allstate's appeal of Supreme Court's order confirming the master arbitration award, the First Department, Appellate Division, AFFIRMED in a two-sentence holding:

Whether or not the fee-sharing arrangement at issue constitutes unprofessional conduct (see 8 NYCRR 29.1[b][4]), it does not constitute a defense to a no-fault action (compare State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d 313 [2005] ["insurance carriers may withhold payment for medical services provided by fraudulently incorporated enterprises to which patients have assigned their claims"]). It is solely a matter for the appropriate state licensing board (see e.g. Necula v Glass, 231 AD2d 457 [1st Dept 1996]; see also H & H Chiropractic Servs., P.C. v Metropolitan Prop. & Cas. Ins. Co., 47 Misc 3d 1075, 1078 [Civ Ct, Queens County 2015]).  (Emphasis added.)

The court's "see also" citation to the April 24, 2015 decision of Queens Civil in H & H Chiropractic Servs., P.C. v Metropolitan Prop. & Cas. Ins. Co. is significant.  That case was the first to hold in New York that fee splitting is not a viable defense to payment of an otherwise valid no-fault claim.