The office of General Counsel issued the following informal opinion on February 21, 2001, representing the position of the New York State Insurance Department.

Re: No-fault benefits; PC billing for services rendered by independent contractor providers

Question Presented:

May a professional service corporation ("PC") which renders health services through its owners and employees or through independent contractors, each of whom is appropriately licensed to provide the service in question, be considered a "licensed provider" under Regulation 68, N.Y. Comp. R. & Regs., tit. 11, §65.15(j) (2000) entitled to reimbursement under the New York Comprehensive Motor Vehicle Insurance Reparations Act (No-Fault Law), New York Insurance Law Article 51 (McKinney 2000),?

Conclusion:

(a) Where the owner(s) of a PC is licensed to perform health services and such service are performed by a PC owner or an employee under the supervision of a PC owner, the services may be billed for under No-Fault by the PC as the licensed provider of those services.

(b) Where the health services are performed by a provider who is an independent contractor with the PC and is not an employee under the direct supervision of a PC owner, the PC is not authorized to bill under No-Fault as a licensed provider of those services.

Analysis:

The No-Fault Law includes within the benefits that are to be provided as part of basic economic loss payment for necessary medical services. New York Insurance Law §5102(a)(1) (McKinney 2000). In order to effectuate the requirements of the No-Fault Law, the Superintendent of Insurance has promulgated Regulation 68, which provides:

An insurer shall pay benefits for any element of loss, other than death benefits, directly to the applicant or, when appropriate, to the applicant's parent or legal guardian or to any person legally responsible for necessities, or, upon assignment by the applicant or any of the aforementioned persons, shall pay the providers of health care services or the applicant's employer directly. Death benefits shall be paid to the estate of the eligible injured person. (emphasis added) N.Y. Comp. R. & Regs., tit. 11, §65.15(j).

New York Business Corporation Law Article 15 (McKinney 2000) authorizes the incorporation of Professional Service Corporations. New York Business Corporation Law §1504 (McKinney 2000) provides, in pertinent part:

(a) No professional service corporation may render professional services except through individuals authorized by law to render such professional services as individuals.

New York Business Corporation Law §1507 (McKinney 2000) restricts issuance of shares in a professional service corporation to individuals licensed to practice the profession and New York Business Corporation Law §1511 (McKinney 2000) similarly restricts transfer of shares in the corporation.

New York Business Corporation Law §1515 (McKinney 2000) provides that the regulation of, inter alia, the health professions shall be in accordance with the Education Law. New York Education Law §6509-a (McKinney 2000), which denominates fee sharing as unprofessional conduct, provides, inter alia, that the prohibition shall not be deemed to prohibit a professional service corporation from receiving or sharing in the fees earned by its shareholders and employees.

It is therefore clear that a PC could financially benefit from the services of its owners and employees in the authorized treatment of No-Fault patients. Accordingly, such a corporation could be considered a "licensed provider" within the purview of Insurance Department Regulation 68 eligible for reimbursement for health services provided.

As to independent contractors, I surmise the term is used as it is usually construed in New York:

One who, in exercising an independent employment, contracts to do certain work according to his or her own methods, and without being subject to the control of the employer … ., G.D. Searle & Co. v. Medicore Communications, Inc., 843 Fed Supp. 893 (S.D.N.Y.1994)

Because of the lack of control, the principal is not usually held liable for the negligence of the independent contractor. Beck v. Woodward Affiliates, 226 App. Div. 2d 328, 640 N.Y.S. 2d 205 (2d Dept. 1996).

This Department has noticed that increasingly PCs are billing for No-Fault services provided through independent contractors. Such direct billing by the PC, due to the lack of supervisory control by the PC, may facilitate fraud, since the PC might bill under its own fee schedule as a specialist rather than the general practitioner fee schedule of the independent contractor, who actually provided the service. In addition, the patient may wrongfully believe the independent contractor’s actions are under the supervision of the PC.

Since New York Education Law §6509-a specifically authorizes shareholders and employees to contribute to the income of a PC, and is separate with respect to independent contractors, allowing the PC to bill for the independent contractor may constitute unlawful fee splitting. This is, of course, a determination to be made by the Education Department.

Accordingly, since the control, and therefore the liability, of the principal for the acts of the independent contractor is attenuated, and in order to preserve the integrity of the No-Fault and physician licensing systems, this Department has determined that, when the services are provided by an independent contractor, the PC should not be considered as the "licensed provider" authorized to bill under No-Fault.

This letter is limited to an interpretation of the Insurance Law and is not intended as an interpretation of any other statute, such as the Education Law, which is within the jurisdiction of other agencies.

For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.