Insurance Circular Letter No. 4 (2021)

March 10, 2021

TO:

All Insurers Authorized to Write Accident and Health Insurance in New York State, Article 43 Corporations, Health Maintenance Organizations, Student Health Plans Certified Pursuant to Insurance Law § 1124, Municipal Cooperative Health Benefit Plans, and Prepaid Health Services Plans

RE:

Administrative Denials, Prompt Payment, Utilization Review, Coding of Claims, and Prohibitions Against Retrospective Denials of Pre-Authorized Services

STATUTORY AND REGULATORY REFERENCES:  N.Y. Ins. Law §§ 3216, 3217-b(j), 3221, 3224-a, 3238(a), 4325(k), 4303 and Article 49; NY Pub. Health Law § 4406-c(8) and Articles 28 and 49; 29 C.F.R. § 2560.503-1

I.   Purpose

Part YY of Chapter 56 of the Laws of 2020 (“Part YY”) amended the Insurance Law and Public Health Law with respect to denials of payments to general hospitals certified pursuant to Public Health Law Article 28 (“hospitals”) based solely on the hospital’s noncompliance with certain administrative requirements, coding of claims, and standards for prompt, fair, and equitable settlement of claims for health care services.  The amendments apply to services performed on or after January 1, 2021.  The purpose of this circular letter is to advise insurers authorized to write accident and health insurance in New York State, article 43 corporations, health maintenance organizations, student health plans certified pursuant to Insurance Law § 1124, municipal cooperative health benefit plans, and prepaid health services plans (collectively, “issuers”) regarding implementation of these amendments.  This circular letter also provides clarification to issuers regarding retrospective denials of pre-authorized services.

II.  Administrative Denials

  1. Prohibition Against Denial of Payment Based Solely on Noncompliance with Administrative Requirements

    Previously, Insurance Law §§ 3217-b(j)(1) and 4325(k)(1) and Public Health Law § 4406-c(8)(a) prohibited issuers from denying payment to a hospital for medically necessary inpatient services resulting from an emergency admission based solely on the fact that a hospital failed to timely notify such issuers that the services had been provided.  Part YY amended the Insurance Law and Public Health Law to include medically necessary inpatient hospital services, observation services, and emergency department services, along with emergency admissions.  In addition, Part YY expanded the prohibitions to other administrative requirements with respect to those services, and not only notification requirements.  Specifically, Part YY amended Insurance Law §§ 3217-b(j)(1) and 4325(k)(1) and Public Health Law § 4406-c(8)(a) to prohibit issuers from denying payment by contract, written policy or procedure, or by any other means, to a hospital for medically necessary inpatient services, observation services, and emergency department services solely on the basis that the hospital did not comply with certain administrative requirements of the issuer with respect to those services.

  2. Agreements Between Issuers and Hospitals

    Insurance Law §§ 3217-b(j)(2) and 4325(k)(2) and Public Health Law § 4406-c(8)(b) had permitted hospitals and issuers to agree to requirements for timely notification that medically necessary inpatient services resulting from an emergency admission had been provided and to reductions in payment for failure to provide timely notification.  Pursuant to these sections, any agreed upon reduction in payment for failure to provide timely notification could not exceed the lesser of $2,000 or 12 percent of the payment amount otherwise due for the services provided.

    Part YY amended Insurance Law §§ 3217-b(j)(2) and 4325(k)(2) and Public Health Law § 4406-c(8)(b) to permit hospitals and issuers to agree to certain administrative requirements relating to payment for inpatient services, observation services, or emergency department services, including timely notification that medically necessary inpatient services have been provided, and to reductions in payment for failure to comply with certain administrative requirements, including timely notification.  However, the law still provides that any requirement for timely notification must provide for a reasonable extension of time for notifications for services provided on weekends or federal holidays.  Additionally, Part YY removed the lesser of $2,000 or 12 percent of the payment amount standard and now requires that any agreed to reduction in payment for failure to meet administrative requirements, including timely notification, may not exceed 7½ percent of the payment amount due for the services provided.  The law still requires that any agreed to reduction in payment may not be imposed if the insured’s insurance coverage could not be determined by the hospital after reasonable efforts at the time the services were provided.

  3. When Administrative Denial Prohibitions Do Not Apply

    Part YY added Insurance Law §§ 3217-b(j)(3) and 4325(k)(3) and Public Health Law § 4406-c(8)(c) to state that the prohibition on the denial of claims submitted by hospitals and the limitations on reduction in payment to hospitals based solely on the hospital’s failure to comply with administrative requirements do not apply when:  the denial is based on a reasonable belief by the issuer of fraud or intentional misconduct resulting in misrepresentation of the insured’s diagnosis or the services provided, or abusive billing; the denial is required by a state or federal government program or coverage that is provided by this state or a municipality thereof to its respective employees, retirees or members; the claim is a duplicate claim; the claim is submitted late pursuant to Insurance Law § 3224-a(g); the claim is for a benefit that is not covered under the insured’s policy; the claim is for an individual determined to be ineligible for coverage; there is no existing participating provider agreement between an issuer and a hospital, except in the case of medically necessary inpatient services resulting from an emergency admission; or the hospital has repeatedly and systematically, over the previous 12-month period, failed to seek prior authorization for services for which prior authorization is required.

    Part YY also added Insurance Law §§ 3217-b(j)(4) and 4325(k)(4) and Public Health Law § 4406-c(8)(d), which provide that the term “administrative requirements” does not include requirements imposed upon an issuer or provider pursuant to federal or state laws, regulations or guidance, or established by the state or federal government applicable to issuers offering benefits under a state or federal governmental program.  Therefore, the prohibition on the denial of claims submitted by hospitals and the limitations on reduction in payment to hospitals in Insurance Law §§ 3217-b(j)(1) and (2) and 4325(k)(1) and (2) and Public Health Law § 4406-c(8)(a) and (b) do not apply to requirements imposed pursuant to federal or state laws, regulations or guidance, or established by the state or federal government with respect to a state or federal governmental program.

    Finally, Part YY added Insurance Law §§ 3217-b(j)(5) and 4325(k)(5) and Public Health Law § 4406-c(8)(e), which provide that the prohibition against denying a claim solely because the hospital failed to comply with certain administrative requirements shall not apply to claims for services in which a request for pre-authorization was denied prior to services being provided.

    The Department has received inquiries as to whether the new administrative denial prohibitions would permit issuers to administratively deny claims for hospital services solely for a hospital’s failure to provide clinical documentation within a certain timeframe from the time a service is provided, but prior to submission of a claim for the service.  Such a denial would be considered an administrative denial and is prohibited.  However, issuers may deny claims for hospital services either:  (1) as not medically necessary when clinical documentation has not been submitted during the utilization review process set forth in Articles 49 of the Insurance Law and the Public Heath Law and the United States Department of Labor (“DOL”) claims payment regulation 29 C.F.R. § 2560.503-1 (“DOL regulation”); or (2) pursuant to the prompt payment requirements of Insurance Law §§ 3224-a(b) when additional information to determine liability for payment has been requested by the issuer after receipt of the claim, but has not been provided.

III.  Standards for Prompt, Fair, and Equitable Settlement of Claims for Health Care and Payments for Health Care Services

Insurance Law § 3224-a sets forth the requirements for payment of claims for health care services.  Insurance Law § 3224-a(a) provides that when the obligation to pay a claim is reasonably clear, an issuer must pay the claim within 30 calendar days of receipt of the claim (if the claim was transmitted via the internet or electronic mail) or 45 calendar days of receipt of the claim (if the claim was submitted by other means such as paper or facsimile).  Insurance Law § 3224-a(b) provides that in the case where an obligation of an issuer to pay a claim or make payment for health care services is not reasonably clear, an issuer must, within 30 calendar days of receipt of the claim, pay any undisputed portion of the claim, and either notify the insured or health care provider in writing that it is not obligated to pay the claim, stating the specific reasons why it is not liable, or request all additional information needed to determine liability to pay the claim.  Upon receipt of the additional information requested pursuant to Insurance Law § 3224-a(b)(2) to determine liability to pay the claim, or receipt of an appeal of a claim or bill for health care services denied pursuant to Insurance Law § 3224-a(b)(1), an issuer must comply with Insurance Law § 3224-a(a).  This means that if payment is due, it must be made within 30 calendar days (if the claim was transmitted via the internet or electronic mail) or 45 calendar days (if the claim was submitted by other means such as paper or facsimile) of receipt of the information needed to make a determination on the claim or receipt of the appeal of a claim or bill for health care services denied pursuant to Insurance Law § 3224-a(b)(1) (if all information necessary to determine liability for payment is provided with the appeal).  Part YY amended Insurance Law § 3224-a(b) to provide further that if an issuer determines that payment or additional payment is due on the claim, such payment must be made within 15 calendar days of the determination.  As a result, upon receipt of the additional information requested pursuant to Insurance Law § 3224-a(b)(2) or an appeal of a claim or bill for health care services denied pursuant to Insurance Law § 3224-a(b)(1), where the obligation to pay the claim is clear, an issuer must make payment within 15 calendar days of its determination that payment is due.  However, in no event shall such payment be made later than 30 calendar days of receipt of the information (if the claim was transmitted via the internet or electronic mail) or 45 calendar days of receipt of the information (if the claim was submitted by other means such as paper or facsimile), except for payment due in connection with a utilization review determination made pursuant to Insurance Law or Public Health Law Articles 49.  In the case of a utilization review determination made pursuant to Insurance Law or Public Health Law Articles 49, where payment is due, the issuer must make payment within 15 calendar days of the utilization review determination.

Part YY also changed Insurance Law § 3224-a(b) to require that the written notice, provided by the issuer to the insured or health care provider that it is not obligated to pay the claim or requesting information, be transmitted via the internet or other electronic means for a claim that was submitted in that manner.  Note that an issuer may not use facsimile to provide the notification to an insured or health care provider if the insured or provider submitted the initial claim electronically, such as through an Electronic Data Interchange system, because a facsimile is not the same as the internet or electronic means as demonstrated by the language used in Insurance Law § 3224-a(a).

Additionally, Part YY added a requirement that such notice identify the specific type of plan or product in which the policyholder or covered person is enrolled, if applicable.  Insurance Law § 3224-a(d) defines “plan or product” as Medicaid coverage provided pursuant to Social Services Law § 364-j; a child health insurance plan pursuant to Public Health Law § 2511; basic health program coverage certified pursuant to Social Services Law § 369-gg (including the specific rating group in which the policyholder or covered person is enrolled); coverage purchased on the New York insurance exchange pursuant to Public Health Law § 268-b; and any other comprehensive health insurance coverage subject to Article 32, 43 or 47 of the Insurance Law or Article 44 of the Public Health Law.  Part YY also amended Insurance Law § 3224-a(d) to clarify that “emergency services” has the same meaning as set forth in Insurance Law §§ 3216(i)(9)(D), 3221(k)(4)(D), and 4303(a)(2)(D).

Insurance Law § 3224-a(i) still requires that, except where an issuer and a hospital have developed a mutually agreed upon process for the reconciliation of coding disputes that includes a review of submitted medical records to ascertain the correct coding, a hospital must, upon receipt of payment of a claim for which payment has been adjusted based on the application of a particular coding to an insured, including the assignment of diagnosis and procedure, have the opportunity to submit the affected claim with medical records supporting the hospital’s initial coding of the claim within 30 calendar days of receipt of payment.  Upon receipt of such medical records, an issuer must review such information to ascertain the correct coding for payment and process the claim in accordance with the timeframes in Insurance Law § 3224-a(a).  Part YY amended this section to require issuers, when ascertaining the correct code for payment, to base their review of medical records submitted in support of a hospital’s initial coding of a claim on national coding guidelines accepted by the federal Centers for Medicare & Medicaid Services or the American Medical Association, to the extent there are codes for such services available, including ICD-10 guidelines.

Part YY also amended Insurance Law § 3224-a(i) to change the timeframe upon which interest begins to run where the payment was increased after the initial claim determination so that interest is computed from the date that is 30 calendar days after initial receipt of the claim if submitted electronically or 45 calendar days if submitted by paper or facsimile.  Prior to Part YY, Insurance Law § 3224-a(i) provided that interest was to be computed from the end of the 45-day period after resubmission of the additional medical record information.

Part YY further amended Insurance Law § 3224-a(i) to state that Insurance Law § 3224-a(i) does not apply to instances when an issuer engages in reasonable fraud, waste, and abuse detection efforts, provided, however, to the extent any subsequent payment adjustments are made as a result of the fraud, waste, and abuse detection processes or efforts, such payment adjustments must be consistent with the coding guidelines set forth in § 3224-a(i)

IV.   Utilization Review Determination Timeframes

Insurance Law § 4903(b)(1) and Public Health Law § 4903(2)(a) generally require issuers (and their utilization review agents) to make a determination on health care services that require pre-authorization within three business days from the receipt of necessary information.  However, Part YY reduced the timeframe for issuers to make a determination on a pre-authorization request for inpatient rehabilitation services following an inpatient hospital admission provided by a hospital or skilled nursing facility to within one business day from the receipt of necessary information.[1]  Issuers that are subject to the DOL regulation are further reminded that they must also comply with the timeframes in that regulation, which require a decision to be made regardless of whether the necessary information is received.  As a result, issuers that need additional information to make a determination on a standard (non-expedited) pre-authorization request for inpatient rehabilitation services following an inpatient hospital admission provided by a hospital or skilled nursing facility must request the information within one business day.  Issuers must provide 45 calendar days for the information to be submitted and must make a decision within the earlier of one business day of receipt of the necessary information, 15 calendar days of receipt of partial information, or 15 calendar days after the end of the 45-day period if no information is received.  Issuers subject to the DOL regulation are also reminded that, with respect to an urgent (expedited) pre-authorization request for inpatient rehabilitation services following an inpatient hospital admission, they must make a determination within the earlier of 72 hours or one business day of receipt of a complete request.  If additional information is necessary, it must be requested within 24 hours.  A determination must be made within the earlier of 48 hours or one business day of receipt of the necessary information, or 48 hours from the end of the 48-hour period if the information is not received.

Insurance Law § 4904(c) and Public Health Law § 4904(3) previously required issuers (and their utilization review agents) to make a determination with regard to a standard (non-expedited) appeal of an adverse determination within 60 calendar days of the receipt of information necessary to conduct the appeal.  Part YY reduced the 60-day timeframe to 30 calendar days and also added a requirement that, upon overturning the adverse determination, issuers must comply with the prompt pay provisions set forth in Insurance Law § 3224-a(a), as applicable.  Issuers that are subject to the DOL regulation are further reminded that they must also comply with the timeframes in that regulation, which require a decision to be made regardless of whether the necessary information is received.  As a result, if a standard (non-expedited) appeal relates to a pre-authorization request, issuers must make a decision within 30 calendar days of receipt of the appeal if they have one level of internal appeal and within 15 calendar days of receipt of the appeal if they have two levels of internal appeal.  If a standard (non-expedited) appeal relates to a retrospective claim, issuers that have one level of internal appeal must make a decision within the earlier of 30 calendar days of receipt of the information necessary to conduct the appeal or 60 calendar days of receipt of the appeal, and issuers that have two levels of internal appeal must make a determination within 30 calendar days of receipt of each appeal.

V.  Utilization Review and Coding of Claims

It has come to the Department’s attention that some issuers may be reducing or denying claims based on a review of the billing code submitted by the provider (“down-coding”) when a medical necessity review and determination should have been provided.  As such, the Department is clarifying what constitutes utilization review under Insurance Law and Public Health Law Articles 49 and what constitutes down-coding.

Insurance Law § 4900(h) and Public Health Law § 4900(8) define “utilization review” in relevant part as “the review to determine whether health care services that have been provided, are being provided or are proposed to be provided to a patient, whether undertaken prior to, concurrent with, or subsequent to the delivery of such services, are medically necessary.”  The definition of “utilization review” in Insurance Law § 4900(h) and Public Health Law § 4900(8) specifies five categories of review that are not considered a medical necessity review, one of which is a review of the appropriateness of the application of a particular coding to an insured, including the assignment of diagnosis and procedure.

Reviews to determine whether the services provided are consistent with the services billed on the claim are not medical necessity reviews.  For example, an adjustment to a claim from a higher-level coding to a lower level coding because the services that were provided were not consistent with the services billed is typically considered to be down-coding and not utilization review.

Reviews to determine:  the clinical appropriateness of the treatment; whether the service is required for the direct care and treatment or management of the insured’s condition; whether the insured’s condition would be adversely affected if the service was not provided; whether the service was provided in accordance with generally accepted standards of practice; whether the provision of the service was not primarily for the convenience of the insured; the cost of the service as compared to alternative services; or the setting of the service as compared to alternative settings are medical necessity reviews subject to the utilization review requirements in Articles 49 of the Insurance Law and Public Health Law.  For example, denials because inpatient hospital services should have been provided as an observation level of care or on an outpatient basis because a lower level of care may have been medically appropriate are medical necessity determinations subject to the utilization review requirements in Articles 49 of the Insurance Law and Public Health Law, and nothing in this paragraph is intended to result in the restriction or expansion of an issuer’s authority to review such services pursuant to Articles 49 of the Insurance Law or Public Health Law.

VI.  Retrospective Denials of Pre-authorized Services

Questions have been raised as to whether issuers may deny previously authorized services for reasons other than those expressly permitted under the Insurance Law.  Issuers may not deny coverage for a previously authorized service, except in limited circumstances.  Insurance Law § 3238(a) specifies the following situations in which coverage of a previously approved service may be denied:  (1) the insured was not a covered person at the time the health care service was provided, except for certain retroactive terminations; (2) the claim was not submitted in a timely manner; (3) the insured exhausted a benefit limitation for the service between the time prior approval was granted and the time the service was provided; (4) the pre-authorization was granted based upon information that was incomplete or materially inaccurate and, had the information been complete  or accurate, pre-authorization would not have been granted; and (5) there is a reasonable basis, supported by specific information, to believe that the insured or the provider engaged in fraud or abuse.  Insurance Law § 3238(e) also provides that an issuer is not precluded from denying a claim if it is not primarily obligated to pay the claim because other insurance coverage exists that is primary.  These criteria are the only permissible grounds for retrospectively denying a service for which pre-authorization was required and received.

Insurance Law § 4905(e) and Public Health Law § 4905(5) include additional prohibitions for a denial of a previously approved service.  These sections state that if a health care service has been specifically pre-authorized or approved by a utilization review agent, a utilization review agent shall not, pursuant to a retrospective review, revise or modify the specific standards, criteria or procedures used for the utilization review for procedures, treatment, and services provided to the insured during the same course of treatment.

VII.  Conclusion

Issuers should review the changes in the law related to administrative denials and the standards for prompt, fair, and equitable settlement of claims and ensure that they are in compliance with the requirements.  Further, issuers should review their policies and procedures related to their review of billing codes and retrospective review denials of pre-authorized services to ensure that those policies and procedures are consistent with the statutory requirements described in this circular letter.

Please direct any questions regarding this circular letter by email to [email protected].

 

Very truly yours,

 

Lisette Johnson
Bureau Chief, Health Bureau

 

[1] Insurance Circular Letter No. 17 (2020) suspends pre-authorization requirements for inpatient rehabilitation services following an inpatient hospital stay for 60 calendar days starting from December 23, 2020.