OGC Op. No. 09-02-01

The Office of General Counsel issued the following opinion on February 2, 2009 representing the position of the New York State Insurance Department.

RE: Radiology Discounts

Questions Presented:

1. May a third party entity enter in a network arrangement whereby the third party will contract with radiologists, who in turn will agree to accept reduced fees, and offer that network’s services to HMOs?

2. May the third party entity offer the network’s services, under the same conditions, to no-fault insurers?

3. May the third party entity be compensated on the basis of a percentage of the otherwise applicable fee?


1. Yes, an arrangement by which the third party furnishes radiologists, who will accept reduced fees, is not contrary to the Insurance Law or regulations promulgated thereunder.

2. Yes, an arrangement by which the third party furnishes radiologists who will accept reduced fees is not contrary to the Insurance Law or regulations promulgated thereunder.

3. Yes, the third party may be compensated on the basis of the otherwise applicable fee without violating the Insurance Law or regulations promulgated thereunder.


Inquirer is a Florida limited liability company, and operates in many states, including New York pursuant to N.Y. Ltd. Liab. Co. Law § 805 (McKinney 2005). In New York, Inquirer’s subsidiary is a limited liability company organized under the New York Limited Liability Company Law, is controlled by Inquirer, and functions as an independent practice association (IPA) in accordance with N.Y. Comp. Codes R. & Regs., tit.10, § 98-1.2(w) (2005), a regulation promulgated by the state Commissioner of Health.

Inquirer’s New York entity has contracted with a number of radiologists in New York, who have agreed to accept payment from specified HMOs that is less than their regular fees. The amount to be paid to the participating radiologists for a particular procedure is the same for all HMOs. Inquirer asserts that the incentive for the radiologists to so contract is the increased business that they will get from subscribers of the specified HMOs, and prompt payment (as opposed to delayed payment from governmental programs such as Medicaid).

Inquirer further reports that its New York entity has solicited a number of New York-domiciled HMOs on the representation that the use of participating radiologists will save them money. The New York entity is compensated by an HMO in an amount that represents a percentage of the savings that are generated by the use of the contracted radiologists. When the New York entity contracts with an HMO, it provides the HMO with a list of participating radiologists, and puts the name of the new HMO on a portion of its website that is accessible to participating radiologists. When a participating radiologist provides services to a contracting HMO’s subscriber, the physician will furnish the New York entity with a bill at the usual rate.

All participating radiologists submit bills directly to the HMO. If the radiologist participates with the Florida entity, the HMO will forward the bill to the Florida entity. The Florida entity will then “reprice” the bill, and notify the HMO to pay the participating radiologist a percentage (usually, 70% of the billed amount). The HMO pays the New York entity a portion of the savings as an administrative fee. The New York entity compensates the participating radiologist at a contracted rate, which may differ, depending upon the geographic location of the radiologist.

The Florida entity seeks to extend its services to encompass no-fault cases through use of its New York entity. The Inquirer reports that the services will only extend to diagnostic radiology services recommended by an injured person’s primary care provider, and will not extend to performing confirmatory examinations at the request of the contracted no-fault insurer.

The compensation regime for participating radiologists will be similar to that which currently involves HMOs, and the no-fault insurers will pay no more than 70% of the no-fault fee schedule. No-Fault insurers have an incentive to participate because the Inquirer will vet the network radiologists, and thereby decrease the probability of insurance fraud.

Because of limitations on the operation of IPAs in New York, the Florida entity decided to have New York no-fault insurers contract with the Florida entity, instead of its New York entity. Based on the facts recited, it does not appear that either the Inquirer or the participating radiologists will bear any risk. Accordingly, the Insurance Department’s regulation affecting Financial Risk Transfer between Insurers and Health Care Providers, 11 NYCRR Part 101 (Regulation 164), is not implicated.

The inquirer represents that the fees that the Inquirer’s entities receive from HMOs and no-fault insurers will not constitute fee splitting, which is prohibited by New York Education Law § 6530(18) and (19). For present purposes, the Insurance Department assumes that the representation is correct, but offers no formal opinion in that regard.

The Inquirer asks whether the arrangement comports with the Insurance Law and regulations promulgated thereunder.


For the purposes of this opinion, the Insurance Department assumes that the discounted provider fees are sufficient to cover the provider’s cost of rendition of services, including reasonable overhead. Otherwise, by entering into the network, the provider would run the risk of doing an insurance business without a license. See Insurance Law § 1101; Opinions of the Insurance Department’s Office of General Counsel dated August 21, 2007; April 3, 2008; June 30, 2008.

A. Contracting with HMOs

The first question concerns whether the New York entity may lawfully contract with HMOs. HMOs in New York are required by New York Public Health Law § 4401(1) to offer comprehensive health care services. In order to meet that obligation, an HMO may either employ health care providers, or contract with health care providers in private practice. Many HMOs contract with third parties to provide networks of health care providers. These networks often take the form of IPAs. An IPA is defined in 10 NYCRR § 98-1.2(w) as follows:

[A] corporation, limited liability company . . . 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 [i.e., Managed Care Organizations] . . . to make the services of such providers available to the enrollees of an MCO . . . . . An IPA may also be considered a provider within the meaning of section 4403(1) 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 [which pertains to fraud prevention plans].

An MCO is defined in 10 NYCRR § 98-1.2(x), and includes HMOs.

Based upon the above definition, and the information provided to the Department in connection with the instant inquiry, it appears that the New York entity, which contracts with HMOs, is an IPA. There is no provision in the Insurance Law or regulations promulgated thereunder that prohibits the New York entity from contracting with HMOs in the circumstances described above.

B. Extension of Services to No-Fault Insurers

The inquirer also asked about extending the services of the Florida entity to no-fault insurers in New York. Insurance Law § 5102(a)(1) also is relevant to your inquiry. That statute defines no-fault medical services as being part of basic economic loss:

All necessary expenses incurred for: (i) medical, hospital . . . surgical, nursing, dental, ambulance, x-ray, prescription drug and prosthetic services; (ii) psychiatric, physical therapy . . . and occupational therapy and rehabilitation; (iii) any non-medical remedial care and treatment rendered in accordance with a religious method of healing recognized by the laws of this state; and (iv) any other professional health services; all without limitation as to time, provided that within one year after the date of the accident causing the injury it is ascertainable that further expenses may be incurred as a result of the injury. . . .

Insurance Law § 5108(a) limits the fees that may be collected by no-fault health providers. The statute reads as follows:

The charges for services specified in paragraph one of subsection (a) of section five thousand one hundred two of this article and any further health service charges which are incurred as a result of the injury and which are in excess of basic economic loss, shall not exceed the charges permissible under the schedules prepared and established by the chairman of the workers" compensation board for industrial accidents, except where the insurer or arbitrator determines that unusual procedures or unique circumstances justify the excess charge.

In order to effectuate Insurance Law § 5108(a), the Superintendent of Insurance has promulgated 11 NYCRR Part 68 (Regulation 83).

While Insurance Law § 5108(a) prohibits a health care provider from billing for services in excess of the maximum fee schedule amounts, a health service provider may accept reimbursement in an amount less than the maximum permissible fees as payment in full from the no-fault insurer. In the situation presented here, the Florida entity wishes to enter into contracts with New York no-fault insurers whereby participating radiologists would accept reimbursement for health services rendered for a lesser fee than the maximum amount permitted under the applicable fee schedules as payment in full for the services. Specifically, the no-fault insurers will pay no more than 70% of the amount specified in the no-fault fee schedule. Further, the no-fault insurers will pay the New York entity a portion of the savings as administrative fees.

Based upon the foregoing facts, the proposed activities do not violate Insurance Law § 5108(a) or regulations promulgated thereunder, because a health service provider may accept reimbursement at a lower rate than the maximum amount permitted under the fee schedules.

However, please be advised that the proposal must also conform with 11 NYCRR § 65-3.11(a) (Regulation 68) as follows:

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 benefits directly to providers of health care services as covered under section five thousand one hundred two (a)(1) of this article . . . .

Thus, only a provider of health care services may receive an assignment of benefits. Because Inquirer is not a provider of health care services, it may not become an assignee of a proper assignee. Therefore, the insurer only may make payments to the participating radiologist. Moreover, please be advised that a no-fault insurer may not presently refer an injured party to any specific health care provider1 . Accordingly, an insurer that contracts with any of Inquirer’s entities may not refer an injured person to any particular radiologist affiliated with Inquirer.

This opinion is limited to an interpretation of the Insurance Law and regulations promulgated thereunder. It does not purport to render any opinion about the construction of the Education Law, Public Health Law, or any other statute.

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


1 In 1993, the Legislature enacted Insurance Law § 5109 to permit insurers to direct injured persons to designated health care providers under specified circumstances. However, that statute expired, by its terms, in 1998.