The Office of General Counsel issued the following opinion on November 9, 2005, representing the position of the New York State Insurance Department.
Re: Fee-for-Service Arrangement Between Independent Practice Association ("IPA") & Insurer
Does the Insurance Law, or any regulation promulgated thereunder, prohibit an association, such as an independent practice association ("IPA"), from contracting with an insurer pursuant to a fee-for-service arrangement?
Neither the Insurance Law, nor any regulation promulgated thereunder, prohibits an association, such as an IPA, from contracting with an insurer pursuant to a fee-for-service arrangement. However, the Public Health Law and New York State Department of Healths regulations may prohibit such contractual arrangement. As a result, the inquirer was referred to the New York State Department of Health for an opinion as to the permissibility of such arrangement pursuant to its laws and regulations.
An insurer would like to contract with an IPA to provide health care services pursuant to a fee-for-service arrangement. The insurer will not make any payments on a pre-paid capitation basis.
N.Y. Ins. Law § 1101 (a) (1) & (2) (McKinney Supp. 2005) defines an insurance contract and provides, in pertinent part:
In this article: (1) "Insurance contract" means any agreement or other transaction whereby one party, the "insurer", is obligated to confer benefit of pecuniary value upon another party, the "insured" or "beneficiary", dependent upon the happening of a fortuitous event in which the insured or beneficiary has, or is expected to have at the time of such happening, a material interest which will be adversely affected by the happening of such event.
(2) "Fortuitous event" means any occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party.
N. Y. Ins. Law § 1102(a) (McKinney Supp. 2005) prohibits the doing of an insurance business without a license, unless the person or entity is exempt from the licensing requirements.
Based on the limited facts supplied, payments under the arrangement in question will be made on a fee-for-service basis, i.e., payments will fully cover the cost of rendition of the services, including reasonable overhead. Consequently, no payments will be made on a pre-paid capitation basis. The Department has opined that the licensing requirements in Article 11 of the Insurance Law are not implicated where payments are made on a fee-for-service basis. Therefore, there is nothing in the Insurance Law or regulations that would prohibit such arrangement. This opinion is limited to an interpretation of the Insurance Law and the regulations promulgated thereunder.
The Public Health Law or the New York State Department of Health's regulations may prohibit such contractual arrangements between IPAs and insurers. Consequently, it was recommended to the inquirer to consult, directly, with the Department of Health for an interpretation of its law and regulations and, in particular, an answer as to whether the contractual arrangement in question is permissible.
For further information please contact Associate Attorney D. Monica Marsh at the New York City Office.