OGC Opinion No. 09-11-01

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

RE: Proposed Medical Service Plan

Question Presented:

Would ABC, LLC’s (“ABC”) proposed medical service plan constitute the doing of an insurance business in violation of N.Y. Ins. Law § 1102 (McKinney 2006)?

Conclusion:

No. ABC’s proposed medical service would not constitute the doing of an insurance business in violation of Insurance Law § 1102.

Facts:

The inquirer reports that ABC is a Delaware limited liability company that seeks to provide preventative and primary medical care to the medically underserved market through individual privately-owned medical offices staffed with physicians, nurses and other health professionals that provide health care, education and coaching. All physicians and nurses will be employees of ABC and not employees of third-party contractors.

The inquirer further states that ABC will provide access to a physician or physician assistant for a flat monthly fee of approximately thirty-five to forty dollars per individual per month. Members will have email and telephone access to the health care providers and ABC-sponsored group sessions on chronic conditions such as obesity, diabetes, and heart disease. A member must commit to a minimum initial sign-up period such as three to six months, after which the member may cancel his or her membership at any time.

In addition to the foregoing services, members will receive access to pre-negotiated prices with local area specialists, laboratories, hospitals, and pharmacies. Moreover, the inquirer states that the physicians will perform a discrete set of in-office services for members beyond simply talking to the patient or performing a general medical examination, and at some locations, may dispense generic prescriptions as permitted by law. ABC will charge members at least the full cost for these services and prescriptions. Further, the inquirer explains that for each procedure performed in-office that is preventive, ABC will not charge a member an additional fee, as the cost would be included in the monthly membership fee. However, the inquirer notes that for some preventative procedures, ABC may charge the member the marginal cost for materials used during the procedures.

The inquirer further explains that for treatment rendered due to a fortuitous event, ABC will charge a member an additional fee, which ABC will calculate in the following manner: (1) ABC’s medical consultant will estimate the amount of “physician time” required to complete each procedure and the amount of the physician’s yearly compensation that the physician time represents; (2) ABC will use the physician time to allocate to the member a portion of ABC’s total indirect overhead costs; and (3) ABC will add an additional five percent of the sum of the cost for physician time and the allocated cost for overhead to cover materials used during the procedure. The inquirer avers that ABC will not be at risk of loss for any care dependent on the happening of a fortuitous event, as ABC will charge the member a reasonable amount for services rendered for any such care.

The inquirer also sets forth the following scenarios, and the manner in which ABC will handle those scenarios.

(1) Well-visit: If a member visits a physician for an annual examination, then the monthly membership fee will include time with the physician, preventive blood work, and vaccinations. ABC will not charge the member any additional fees.

(2) Well-visit resulting in need for non-preventative diagnostic test or procedure: If the physician determines during an annual examination that the member should undergo further diagnostic tests or procedures, then the physician will inform the member and explain: the reason for the test or procedure; how the test or procedure will be used; the potential risk of not undergoing the test or procedure; and the options for undergoing the test or procedure. If the physician can perform the test or procedure in-office, then the physician will inform the member of the associated costs, and charge the member an additional fee if the physician performs the test or procedure. If the physician cannot perform the test or procedure in-office, then the physician will inform the member of various local options for obtaining the test or procedure.

(3) Acute visit: If the member visits a physician because the member does not feel well and after examination the physician determines that there is no obvious infection or other area of concern, but advises the member that self-care is the appropriate approach, then ABC will charge the member an additional fee for the physician’s time. For example, ABC would charge a member forty-five dollars for a fifteen-minute examination, which includes labor and reasonable overhead.

(4) Acute visit resulting in need for a diagnostic test or procedure: If the physician determines during an acute visit that a member should undergo diagnostic tests or procedures, then the physician will inform the member of the additional costs, and ABC will charge the member a separate fee for any test or procedure performed in-office.

(5) Care coordination: A diabetic member visits a physician for a maintenance visit, during which the member receives a blood glucose count and counseling on how to monitor his or her blood glucose at home, watch his or her diet, and live as normally as possible with his or her condition. The physician determines that the member should see an endocrinologist for more advance counseling and monitoring, and refers the member to an endocrinologist in the community. A few weeks later, the endocrinologist contacts the physician for a consultation regarding the member’s history and requests a copy of the member’s medical records. All communication takes place via secure email, internet, or telephone. After the member visits the endocrinologist, the physician requests from the endocrinologist a copy of the member’s medical record to have a complete view of the patient’s history for the next office visit. The member is responsible for any payments due to the endocrinologist and ABC will charge the member a fee for the diabetes-related visit.

(6) Group visits: ABC would invite all members within a certain population, such as those members with pre-existing diabetes, high blood pressure, or obesity, to a group discussion with a physician assistant on healthy dieting, lifestyle and condition-specific management techniques. A member will join five to ten other members in ABC’s offices for a one to two hour session. During the session, the physician assistant will assess behavioral patterns and record any side effects due to medication. The member will also receive advice from the physician assistant on how to improve self-care, and will have an opportunity to discuss lifestyle tips with other members and learn from the group’s collective experience. ABC will not charge a member an additional fee for the foregoing services.

Lastly, the inquirer states that from time-to-time, a physician will have the discretion to waive additional fees based upon the member’s ability to pay, and that the physician will exercise this discretion on a case-by-case basis.

Analysis:

Insurance Law § 1102(a) prohibits any person, firm, association, corporation or joint-stock company from doing an insurance business in New York unless authorized by a license or exempted from licensure by the Insurance Law. Insurance Law § 1101(b)(1) is relevant here, and states in pertinent part that:

Further, Insurance Law § 1101(a)(1) defines “insurance contract” as:

Insurance Law § 1101(a)(2) defines “fortuitous event” as “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.”

The Department has opined that the making of a service plan, which for a prepaid fee provides unlimited services dependent upon the happening of a fortuitous event, constitutes the doing of an insurance business in violation of Insurance Law § 1102. See OGC Opinion 09-02-02 (Feb. 2, 2009); OGC Opinion 03-10-02 (Oct. 2, 2003). However, if the services occasioned by the happening of a fortuitous event are offered for an additional discounted fee per service, then the making of the service plan would not constitute the doing of an insurance business so long as the fees cover the cost rendition, including reasonable overhead. See OGC Opinion 09-02-02; OGC Opinion 03-10-02. In such instances, the arrangement does not involve risk transfer – the hallmark of any insurance arrangement.

Additionally, the Department has opined that a plan with a prepaid membership fee may offer services for no charge or a nominal separate charge, so long as the services are not dependent upon the happening of a fortuitous event. See OGC Opinion 09-02-02; OGC Opinion 03-10-02. For example, a routine annual examination at no additional charge is permissible, because the examination is not dependent upon the happening of a fortuitous event. See OGC Opinion 09-02-02; OGC Opinion 03-10-02.

In the situation presented here, the inquirer reports that ABC will provide members with access to a physician or physician assistant for a flat monthly fee of approximately thirty-five to forty dollars per individual per month. Moreover, the inquirer states that the physicians will perform a discrete set of in-office services for members beyond simply talking to the patient or performing a general medical examination, and at some locations, may dispense generic prescriptions as permitted by law. ABC will charge members at least the full cost for these services and prescriptions. Further, the inquirer explains that for each procedure performed in-office that is preventive, ABC will not charge a member an additional fee, as the cost would be included in the monthly membership fee. However, the inquirer notes that for some preventative procedures, ABC may charge the member the marginal cost for materials used during the procedures. The inquirer avers that ABC will not be at risk of loss for any care dependent on the happening of a fortuitous event, as ABC will charge the member a reasonable amount for services rendered for any such care.

Based upon the foregoing, ABC’s proposed medical service plan would not, as a general matter, constitute the doing of an insurance business in violation of Insurance Law § 1102, so long as the fees charged for services occasioned by the happening of a fortuitous event cover the cost of rendition, including reasonable overhead. See OGC Opinion 09-02-02; OGC Opinion 03-10-02.

In addition, the inquirer’s inquiry sets forth six scenarios, each of which is analyzed seriatim below.

(1) Well-visit; and (6) Group visits

In the first scenario the inquirer presents, a member receives an annual examination at no additional charge. This annual examination includes time with the physician, preventive blood work, and vaccinations.

Moreover, the inquirer sets forth a situation in his sixth scenario in which ABC would invite all members within a certain population to a group discussion with a physician assistant on healthy dieting, lifestyle and condition-specific management techniques. During the session, the physician assistant will assess behavioral patterns, and will record any side effects due to medication. A member will receive advice from the physician assistant on how to improve self-care, and will have an opportunity to discuss lifestyle tips with other members and learn from the group’s collective experience. The inquirer explains that ABC will not charge the member an extra fee for these services.

A plan with a prepaid membership fee may offer services for no charge or a nominal separate charge, so long as the services are not dependent upon the happening of a fortuitous event. See OGC Opinion 09-02-02; OGC Opinion 03-10-02. Further, as noted above, a routine annual examination at no additional charge is permissible, because the examination is not dependent upon the happening of a fortuitous event. See OGC Opinion 09-02-02; OGC Opinion 03-10-02. Therefore, the services the inquirer describes in his first and sixth scenarios would not constitute the doing of an insurance business, because the services are not dependent upon the happening of a fortuitous event.

(2) Well-visit resulting in need for non-preventative diagnostic test or procedure; (3) Acute visit; (4) Acute visit resulting in need for a diagnostic test or procedure; and (5) Care coordination

In the second scenario the inquirer presents, the inquirer states that if during an annual examination the physician determines that the member should undergo a certain test or procedure, then the physician will explain the test or procedure. If the physician can perform the procedure in-office, then the physician will charge the member an additional fee for so doing. If the physician cannot perform the test or procedure in-office, then the physician will inform the member of various local options for obtaining the test or procedure.

In the inquirer’s third scenario, the inquirer describes a situation in which a member does not feel well and wishes to speak with a physician. The physician examines the member and determines there is no obvious infection or other area of concern, and advises the member that self-care is the appropriate approach. In such a situation, ABC will charge a member for the physician’s time. In this example, ABC would charge the member forty-five dollars for a fifteen-minute examination, which includes labor and reasonable overhead.

Further, the inquirer states in his fourth scenario that if during an acute visit the physician determines that a member should undergo diagnostic tests or procedures, then the physician will inform the member of the additional costs, and ABC will charge the member an additional fee for any test or procedure performed in-office.

Finally, the inquirer presents a situation in his fifth scenario in which a diabetic adult sees a physician for a maintenance visit, the physician refers this patient to an endocrinologist for more advanced counseling and monitoring, and then the physician discusses the member’s history with the endocrinologist and provides the endocrinologist with a copy of the member’s medical records. The physician would also request a copy of the member’s medical record from the endocrinologist after the member visits the endocrinologist. The inquirer states that the member is responsible for any payments due to the endocrinologist and ABC will charge the member a fee for the diabetes-related visit.

In the foregoing scenarios, the physician’s services are occasioned by the happening of a fortuitous event. If services occasioned by the happening of a fortuitous event are offered for an additional discounted fee per service, then the making of the service plan would not constitute the doing of an insurance business so long as the fees cover the cost rendition, including reasonable overhead. See OGC Opinion 09-02-02; OGC Opinion 03-10-02. So long as the additional fee charged for the physician’s services covers the cost of rendition, including reasonable overhead, the foregoing services would not constitute the doing of an insurance business.

Finally, the inquirer states that from time-to-time, a physician may waive fees based upon the member’s ability to pay, and that the physician will exercise this discretion on a case-by-case basis. As noted above, the Department has opined that the making of a service plan, which for a prepaid fee provides unlimited services dependent upon the happening of a fortuitous event, constitutes the doing of an insurance business in violation of Insurance Law § 1102, unless offered for an additional discounted fee per service that covers the cost of rendition, including reasonable overhead. See OGC Opinion 09-02-02; OGC Opinion 03-10-02. Therefore, if a service plan were to include a provision upfront that waives the fees for services occasioned by the happening of a fortuitous event for all those who cannot pay the additional fees, then the service plan would constitute the doing of an illegal insurance business, because the service plan would be conferring a pecuniary benefit (i.e., free health services) upon the happening of a fortuitous event.

However, in the situation presented here, the inquirer states that a physician may waive fees based upon the member’s ability to pay, and that the physician will exercise this discretion on a case-by-case basis. In light of the foregoing, such a waiver is permissible so long as it is: (1) done on a case-by-case basis based upon need; (2) not made a part of the medical service plan; and (3) not used as a method to evade the Insurance Law and regulations promulgated thereunder.

For further information, you may contact Senior Attorney Joana Lucashuk at the New York City Office.