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Healthcare Finance
New York's Prompt Pay Law
Presented by Craig J. Zicari, Esq., Harter Secrest & Emery, LLP.
New York’s Prompt Pay Law (Insurance Law § 3224-a)(the “Law” or the “Prompt Payment Law”) was signed into law by Governor George Pataki in September, 1997 and took effect on January 22, 1998. The Law was enacted to provide protection to patients and health care providers with respect to the timely payment of health insurance claims by both health maintenance organizations (“HMOs”) and insurance companies (collectively, the “Payors”).
The Law sets forth standards for the prompt, fair and equitable settlement of claims for payment for health care services. Payors are required to pay undisputed or “clean” claims within 45 days of receipt. A “clean” claim is one where the obligation to make payment to a health care provider is reasonably clear. There is no requirement to pay claims where the obligation to make payment is not reasonably clear or where there is a reasonable basis to support the position that the claim may have been fraudulently submitted.
Even where the obligation to pay is unclear due to the existence of a good faith dispute regarding the eligibility of an individual for coverage, the liability of another insurer or entity for all or part of the claim, the amount of the claim, the benefits covered under a contract or agreement or the manner in which services were accessed or provided, the Payor must still pay the undisputed portion of the claim within the 45-day period.
When the Payor decides not to pay part or all of a claim, the Payor must notify the provider within 30 days of receipt of the claim that there is no obligation to pay the claim, and further state the specific reasons why it is not liable and request all additional information needed in order to determine liability to pay the claim.The Payor must dispose of the claim within 45 days after receipt of such additional information.
In the event of a violation, the Law provides that each claim processed after the 45-day period is a separate violation and must include the payment of interest to the health care provider at the greater of twelve percent (12%) or the corporate tax rate as determined by the Commissioner of Taxation and Finance. Additionally, the Law permits the Superintendent of Insurance to fine payors up to $500 per claim for each day a claim is processed beyond the 45-day limit, up to a maximum of$5,000 for each individual violation of the Law.
In an effort to prevent recidivism under the Law, the State Insurance Department recently issued a Circular Letter (January 27, 2000) where it announced that it will significantly increase the fines it imposes on Payors for violations of the Prompt Pay Law. Payors who have repeatedly failed to pay claims on time will face fines of up to $5,000 per violation. The State Insurance Department had previously imposed fines of approximately $100 to $150 per violation. Additionally, as set forth in this Circular Letter, Payors will also now be required to report additional claims processing information to the State Insurance Department.
The Prompt Pay Law also permits the Superintendent of Insurance to impose a penalty of up to $500 per day for any Payor that fails to timely respond to an official inquiry from the State Insurance Department. The penalty for such a violation may not exceed $7,500 per inquiry.
The Superintendent may also impose a penalty of up to $500 per day for any individual that fails to cooperate with a State Insurance Department investigation. This particular fine can be levied against insurance companies as well as insurance agents and brokers. The maximum penalty which can be imposed is $10,000. However, any individual or entity that violates the law five times within a five year period can be fined an additional $50,000.
Finally, a recent Circular Letter (March 1, 2000) issued by the Department of Insurance advised Payors that they are ultimately responsible for compliance with the Prompt Pay Law despite any delegation of the claims payment process to outside entities, such as independent practice associations (“IPAs”) or third party payors. This responsibility includes not only compensation to the health care provider for the delay in paying the claim, including all interest payments, but also any sum to be paid to the Insurance Department as a penalty for any late payments.
As set forth above, the primary penalty for a violation of the Law is a fine imposed by the Insurance Department. Although a provider will be entitled to interest on the late claim, a provider cannot sue a Payor under the Prompt Pay Law.
If a provider believes that a Payor has violated the Prompt Pay Law, the provider should file a complaint with the Insurance Department. This can be accomplished by contacting the Insurance Department’s toll-free hotline number, 1-800-358-9260, and by following the applicable procedures, which will include filing a complaint form with the Insurance Department. Information can also be obtained from the Department’s website: www.ins.state.ny.us.
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