The Office of General Counsel issued the following opinion on December 9, 2005 representing the position of the New York State Insurance Department.
Re: Adjuster Licensing
Does the Insurance Law require either an independent adjuster or public adjuster license under the facts as provided?
No. Based upon the facts provided, the proposed activities would not require a license for acting as an independent adjuster or a public adjuster, as defined by N.Y. Ins. Law §§ 2101(g)(1) and (2), respectively. However, the arrangement the inquirer proposes would constitute insurance fraud pursuant to N.Y. Penal Law § 176.05(2) (McKinney 1999) and Insurance Law Article 4. Whether the fee arrangement constitutes fee splitting in violation of Education Law §§ 6509-a (McKinney 2001) and 6530(19) (McKinney 2001) is a matter within the jurisdiction of the New York State Education Department. Further, whether the activities proposed constitute acting as an Independent Practice Association is a matter for the New York Department of Health.
The inquirer represents a client that the inquirer refers to as a provider network management company (hereinafter "the company"). The company would agree on a fee schedule with health care providers (hereinafter "network providers"). The company would then contract on behalf of its network providers with health insurers and HMOs (hereinafter "insurers") at a higher fee schedule. The insurers would not be informed of the lower price the company agreed to with the providers.
The company will not contract with any self-funded entities. The inquirer also states that the company is not an Independent Practice Association (IPA).
The network providers would submit claims to the company which would then reprice the claims at the higher fee schedule and submit them to the insurers. The company would receive payments for such claims from the insurers and would compensate the network providers based upon the lower fee schedule.
All payments from insurers and to the network providers will be made after specific services have been rendered and will be based upon the fees set for the particular services. Neither the insurers nor the company will make any advance payments; withhold any of the scheduled fee due; make payments on a per insured basis or percentage of premiums received or by any method other than by paying the designated fees for specific services provided.
The company will not receive premiums or claims from the insureds, make any eligibility or coverage determinations on behalf of the insurers, or disburse any funds to insureds. It is not clear from the information provided whether the company will make any eligibility or coverage determinations on behalf of the network providers. The inquirer has not provided any other information regarding the terms of the contracts with the network providers or the insurers and HMOs.
The inquirer has asked whether under the fee arrangement as described, the company would be required to be licensed as a Third Party Administrator (TPA) in New York State.
The New York State Insurance Law does not specifically define "third party administrator" and does not regulate activities of TPAs as such. However, any person or entity that engages in activities in New York that would require licensing (e.g., acting as an adjuster) must obtain the appropriate license from the New York Insurance Department.
N.Y. Ins. Law § 2101(g) defines two types of adjuster, independent adjuster and public adjuster. N.Y. Ins. Law § 2101(g)(2) (McKinney Supp. 2005) defines public adjuster, in relevant part, as follows:
. . any person, firm, association or corporation who, or which, for money, commission or any other thing of value, acts or aids in any manner on behalf of an insured in negotiating for, or effecting, the settlement of a claim or claims for loss or damage to property of the insured in this state caused by, or resulting from, any of the risks enumerated in paragraphs four, five, six, seven, eight, nine and ten and subparagraphs (B) and (C) of paragraph twenty of subsection (a) of section one thousand one hundred thirteen of this chapter, not including loss or damage to persons under subparagraph (B) of paragraph twenty of subsection (a) of such section or who, or which, advertises for, or solicits employment as an adjuster or such claims, and shall also include any person who, for money, commission or any other thing of value, solicits, investigates, or adjusts such claims on behalf of any such public adjuster . . . (emphasis added)
Thus a public adjuster license would not be required under the facts the inquirer has described since the company will not be adjusting on behalf of the insureds. In addition, health insurance, a kind of insurance defined in N. Y. Ins. Law § 1113(a)(3) (McKinney Supp. 2005), is not included under N. Y. Ins. Law § 2101 (g)(2) (McKinney Supp. 2005). In regard to those kinds of insurance not enumerated, no license is required under the Insurance Law. However, the Department offers no opinion regarding whether such person may be engaging in activity that requires licensing under laws other than the Insurance Law, such as the practice of law or as a private investigator.
N.Y. Ins. Law § 2101(g)(1) (McKinney Supp. 2005) defines "independent adjuster", in relevant part, as follows:
any person, firm, association or corporation who, or which, for money, commission or any other thing of value, acts in this state on behalf of an insurer in the work of investigating and adjusting claims arising under insurance contracts issued by such insurer and who performs such duties required by such insurer as are incidental to such claims and also includes any person who for compensation or anything of value investigates and adjusts claims on behalf of any independent adjuster, ... (emphasis added)
Thus, an independent adjuster license is required for a person or entity that acts as an adjuster for an insurer. However, since the proposed activities do not involve the adjusting or investigation of claims, an independent adjuster license is not required for the company.
In addition, although the inquirers question concerned only whether, under the facts the inquirer has proposed, an adjuster license would be required, the inquirer has noted several additional issues of concern. Please be aware of the following:
First, the arrangement the inquirer proposes would constitute insurance fraud pursuant to N.Y. Penal Law § 176.05(2) (McKinney 1999) and Insurance Law Article 4 since the claims submitted by the company on behalf of the network providers, unbeknownst to the insurers, would not contain the actual fees charged by the network providers. The fee schedule agreed upon between the network providers and the company would contain the actual fees of the network providers not the fee schedule agreed upon between the company and the insurers. As a result, the claims forms would contain materially false information concerning a material fact in violation of N.Y. Penal Law § 176.05(2)(a). The forgoing applies notwithstanding an agreement between an insurer and the company that contains a fee schedule that is different from the actual fee schedule used by the network providers where the insurer is not informed of the difference.
N.Y. Penal Law § 176.05(2) (McKinney 1999) provides, in relevant part, as follows:
2. A fraudulent health care insurance act is committed by any person who, knowingly and with intent to defraud, presents, causes to be presented, or prepares with knowledge or belief that it will be presented to, or by, an insurer or purported insurer or self-insurer, or any agent thereof, any written statement or other physical evidence as part of, or in support of, an application for the issuance of a health insurance policy, or a policy or contract or other authorization that provides or allows coverage for, membership or enrollment in, or other services of a public or private health plan, or a claim for payment, services or other benefit pursuant to such policy, contract or plan, which he knows to:
(a) contain materially false information concerning any material fact thereto; or
(b) conceal, for the purpose of misleading, information concerning any fact material thereto. Such policy or contract or plan or authorization shall include, but not be limited to, those issued or operating pursuant to any public or governmentally-sponsored or supported plan for health care coverage or services or those otherwise issued or operated by entities authorized pursuant to the public health law . . . (emphasis added)
N.Y. Ins. Law § 403(c) (McKinney 2000) authorizes the Superintendent of Insurance to impose a civil penalty for insurance fraud and provides as follows:
(c) In addition to any criminal liability arising under the provisions of this section, the superintendent shall be empowered to levy a civil penalty not exceeding five thousand dollars and the amount of the claim for each violation upon any person, including those persons and their employees licensed pursuant to this chapter, who is found to have: (i) committed a fraudulent insurance act or otherwise violates the provisions of this section; or (ii) knowingly and with intent to defraud files, makes, or assists, solicits or conspires with another to file or make an application for a premium reduction, pursuant to subsection (a) of section two thousand three hundred thirty-six of this chapter, containing any materially false information or which, for the purpose of misleading, conceals information concerning any fact material thereto.
Next, the fee arrangement may constitute fee splitting in violation of Education Law §§ 6509-a (McKinney 2001) and 6530(19) (McKinney 2001), which include fee splitting by health care providers as a type of professional misconduct. However, this is a matter within the jurisdiction of the New York State Education Department and consequently the Department offers no opinion.
Finally, although the inquirer stated that the company is not an IPA, the Department recommends that the inquirer confirms the inquirers conclusion with the Health Department as it appears that the company could be acting as an IPA under the facts as described. An IPA is defined by N.Y. Comp. Codes R. & Regs. Tit. 10 § 98-1.2(w) (LEXIS 2005) as follows:
Independent practice association or IPA means a corporation, limited liability company, or professional services limited liability company, other than a corporation or limited liability company established pursuant to articles 28, 36, 40, 44 or 47 of the Public Health Law, which contracts directly with providers of medical or medically related services or another IPA in order that it may then contract with one or more MCOs and/or workers" compensation preferred provider organizations to make the services of such providers available to the enrollees of an MCO and/or to injured workers participating in a workers" compensation preferred provider arrangement. An IPA may also be considered a provider within the meaning of section 4403(1)(c) of the Public Health Law, but only for the purpose of and to the extent it shares risk with an MCO and/or the IPA's contracting providers, and shall be considered a provider for the purposes of subdivisions (1) and (2) of Section 98-1.21 of this Subpart.
N.Y. Comp. Codes R. & Regs. Tit. 10 § 98-1.5(b)(6)(vii) (LEXIS 2005) provides, in relevant part, as follows:
(vii) An MCO [managed care organization] shall not enter into a contract with a not-for-profit or business corporation, limited liability company or professional services limited liability company which proposes to provide the services of an IPA unless:
(a) the certificate of incorporation or articles of organization of the IPA, which shall include "Independent Practice Association" or "IPA" within the IPA name, contains powers and purposes permitting the arranging by contract for the delivery or provision of health services by individuals, entities and facilities licensed or certified to practice medicine and other health professions, and, as appropriate, ancillary medical services and equipment, by which arrangements such health care providers and suppliers will provide their services in accordance with and for such compensation as may be established by a contract between the IPA and one or more MCOs which have been granted a certificate of authority pursuant to the provisions of article 44 of the Public Health Law of the State of New York, as amended;
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(d) the IPA's certificate of incorporation or articles of organization has been reviewed by the Education and Insurance Departments and the commissioner, have been filed with the Secretary of State and, when presented for filing, had annexed thereto the waiver, approval or consent of the Education and Insurance Departments and the commissioner.
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This opinion is limited to an interpretation of the New York State Insurance Law. The Department offers no opinion regarding the inquirers proposal with respect to any other laws that may be applicable including, but not limited to, such laws as previously mentioned herein and federal antitrust laws.
For further information one may contact Assistant Counsel Brenda M. Gibbs at the Albany Office.