The Office of General Counsel issued the following opinion on December 28, 2004 representing the position of the New York State Insurance Department.

RE: Use of Extrapolation.

Questions Presented:

1. Does New York Insurance Law § 3224-a (McKinney 2000) preclude an insurer from auditing claims submitted by a health care provider for which it has already made payment?

2. May an insurer extrapolate findings from a sample of claims to the entire universe of a health care provider’s claims?

Conclusions:

1. New York Insurance Law § 3224-a does not specifically preclude an insurer from auditing claims submitted by a health care provider, for which it has already made payment.

2. While New York law generally allows such extrapolation if the audit is performed in accordance with a valid statistical methodology, the use of such extrapolation by insurers where there is a dispute as to medical necessity is not allowed under New York Insurance Law Article 49 (McKinney 2000) and New York Public Health Law Article 49 (McKinney 2002).

Analysis:

Prompt Payment and Related Statutes

New York Insurance Law § 3224-a provides:

In the processing of all health care claims submitted under contracts or agreements issued or entered into pursuant to articles . . . forty-two . . . of this chapter and article forty-four of the public health law and all bills for health care services rendered by health care providers pursuant to such contracts or agreements, any insurer . . . or corporation licensed or certified pursuant to . . . article forty-four of the public health law shall adhere to the following standards:

(a) Except in a case where the obligation of an insurer . . . or corporation licensed or certified pursuant to . . . article forty-four of the public health law to pay a claim submitted by a policyholder or person covered under such policy or make a payment to a health care provider is not reasonably clear, or when there is a reasonable basis supported by specific information available for review by the superintendent that such claim or bill for health care services rendered was submitted fraudulently, such insurer or organization or corporation shall pay the claim to a policyholder or covered person or make a payment to a health care provider within forty-five days of receipt of a claim or bill for services rendered.

(b) In a case where the obligation of an insurer . . . or corporation licensed or certified pursuant to . . . article forty-four of the public health law to pay a claim or make a payment for health care services rendered is not reasonably . . . an insurer . . . or corporation shall pay any undisputed portion of the claim in accordance with this subsection and notify the policyholder, covered person or health care provider in writing within thirty calendar days of the receipt of the claim: (1) that it is not obligated to pay the claim or make the medical payment, stating the specific reasons why it is not liable; or (2) to request all additional information needed to determine liability to pay the claim or make the health care payment. Upon receipt of the information requested . . . or an appeal of a claim or bill for health care services denied . . . an insurer . . . or corporation licensed pursuant to . . . article forty-four of the public health law shall comply with subsection (a) of this section.

. . .

There is no indication in either the text or legislative history of New York Insurance Law § 3224-a that payment of a claim would preclude an insurer or HMO from subsequently reviewing the claim and then seeking reimbursement for alleged overpayments.

Dr. A complained that ABC Ins. Co. has not furnished, except for the Explanations of Benefits that accompanied its payments, any indication of its standards for chiropractic service. New York Insurance Law § 4803(d) (McKinney 2000) provides:

An insurer shall develop and implement policies and procedures to ensure that health care providers participating in the in-network benefits portion of an insurer's network for a managed care product are regularly informed of information maintained by the insurer to evaluate the performance or practice of the health care professional. The insurer shall consult with health care professionals in developing methodologies to collect and analyze provider profiling data. Insurers shall provide any such information and profiling data and analysis to these health care professionals. Such information, data or analysis shall be provided on a periodic basis appropriate to the nature and amount of data and the volume and scope of services provided. Any profiling data used to evaluate the performance or practice of such a health care professional shall be measured against stated criteria and an appropriate group of health care professionals using similar treatment modalities serving a comparable patient population. Upon presentation of such information or data, each such health care professional shall be given the opportunity to discuss the unique nature of the health care professional's patient population which may have a bearing on the professional's profile and to work cooperatively with the insurer to improve performance. (emphasis added)

New York Public Health Law § 4406-d(4) (McKinney 2002) has similar requirements for HMOs. Although insurers and HMOs are not statutorily required to provide such information to non-participating health care providers, many will, upon request, inform non-participating health care providers of their standards.

Dr. A furnished a copy of the contract utilized by ABC Ins. Co. for participating chiropractic providers, which requires the providers to cooperate with ABC Ins. Co. reviews, and asserted that, in the absence of such a contract, ABC Ins. Co. has no right to audit his claims. In support of that contention, he also cited New York Insurance Law § 4325(e) (McKinney 2000), which regulates contractual provisions relating to retrospective adjustments. The comparable provision that is applicable to HMOs is New York Public Health Law § 4406-c(5-a)(a) (McKinney 2002), which, like New York Insurance Law § 4325(e), is only applicable to contracts with participating health care providers.

There is nothing in New York Insurance Law § 3224-a or any other provision of the New York Insurance Law (McKinney 2000 and 2005 Supplement) that prohibits a retrospective audit of claims. However, if an insurer, including an HMO, were to conduct such retrospective audits as a general practice to avoid either paying claims or providing services covered under the contract, the Department would investigate and take the necessary action against the insurer or HMO.

Extrapolation From Statistical Sampling

Extrapolation to a conclusion concerning a larger universe from a validly constructed sample has long been an accepted statistical technique. The sample size utilized should be sufficiently large so that there is a reasonable probability that it is representative of the entire universe.1 In addition, the sample should be selected in a random fashion, to avoid the possibility of skewing the results toward a desired conclusion.2

However, it is the position of the Department that in reaching conclusions involving medical necessity an insurer, including an HMO, must make a particularized determination as to each situation. Accordingly, the use of extrapolations by an insurer where there is a dispute as to medical necessity under New York Insurance Law Article 49 and New York Public Health Law Article 49 is not allowed.

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

1   Steven K. Thompson, Sampling, 31 (1st ed. 1992).

2  Id. at 11.