Pre-Existing Conditions – Policy Exhaustion

American Arbitration Association New York No-Fault Arbitration Tribunal In the Matter of the Arbitration between Lutheran Medical Center and GEICO AAA Case No. 412012029477 AAA Assessment No. 17 991 24504 12 Brynne L. Haines, Esq., Arbitrator

Summary of Issues in Dispute Does Public Health Law which requires insurers to pay for hospital treatment of pre-existing conditions when a patient is admitted take precedence over No Fault law which absolves an insurer of further payments where the policy is exhausted? The Assignor/Patient, age 66 years, was a pedestrian struck by a vehicle on April 30, 2011. He sustained a fractured left tibia and fibula. He was taken from the accident scene to Applicant hospital where he remained until May 3, 2011 and was discharged. Prior to the accident, the Assignor/Patient was being treated with kidney dialysis. The Applicant hospital continued the dialysis and billed $1,710.83 for it. Respondent paid Applicant’s bill except for the charge for kidney dialysis. Applicant submitted its total bill of $11,921.45 for the hospital stay to Respondent on June 3, 2011. On July 1, 2011, Respondent paid $10,210.62 to Applicant, but did not pay $1,710.83 for the dialysis.

Respondent’s July 1, 2011 denial with the partial payment was based on a peer review by Dr. Bazos. He recognized that the accident caused injuries to the Assignor/Patient, but he noted that the patient had a complicated medical history including diabetes and renal disease. Except for the dialysis, he found the patient’s treatment was justified and related to the accident.

Applicant argues that Respondent illegally held back payment for the dialysis, and that by doing so, Respondent violated Public Health Law (PHL). Applicant submitted a brief with its arbitration request, and after the hearing submitted excerpts from Public Health Law which it cited at the hearing. An affidavit from Applicant’s employee shows that 8 days after the denial, Applicant appealed in writing to Respondent that the claim was underpaid. On Aug. 16, 2011, Respondent wrote back that it was standing by its denial.

Respondent argues that the $75,000 policy is exhausted (as of Aug. 10, 2011). Applicant does not dispute it. There is no money left in the policy to pay the $1,710.83, and Respondent contends it is not obligated to pay it now. Respondent did not respond to Applicant’s post hearing submission. Review of No Fault Law and Regulations and Public Health Law My review of No Fault law and Public Health Law follows. No Fault Law, 11 NYCRR 65- 3.15, states “When claims aggregate to more than $50,000, payments for basic economic loss shall be made . . . in the order in which each service was rendered or each expense was incurred, provided claims therefore were made to the insurer prior to the exhaustion of the $50,000. If the insurer pays the $50,000 before receiving claims for services rendered prior in time to those which were paid, the insurer will not be liable to pay such late claims. If the insurer receives claims of a number of providers of services, at the same time, the payments shall be made in the order of rendition of services.” Generally speaking, an insurer is not required to pay a claim where the policy limits have been exhausted. [Hospital for Joint Diseases v State Farm, 8 AD3d 533 (2nd Dept. 2005); Presbyterian Hospital in the City of NY v Liberty Mut. Ins., 216 AD2d 448 (2nd Dept. 2004)]. Exhaustion is a question of fact, and therefore Respondent’s cases are not exactly on point where the courts determined the fact question precluded summary judgment. Mt. Sinai Hospital v Zurich American Ins., 15 AD 3d 55 (2nd Dept. 2005); NY & Presbyterian Hosp. v Allstate Ins., 12 AD3d 579, (2nd Dept); Nyack Hosp. v. GMAC, 8 NY 3d 294 (2007) affirming 27 AD2d 96 (2nd Dept 2005); but cf: Crossbridge Diagn. Rad. v Encompass Ins., 24 M3d 134 (A), 2009 NY Slip Op 51415(U) (App Term 2nd Dept. 2009) where Defendant did not present admissible evidence to show policy was exhausted; therefore the defense of exhaustion had no probative value.

In the instant case, it is undisputed that the policy is now exhausted, but it was not exhausted at the time Respondent received the completed claim for initial medical services to the Assignor/Patient.

There are cases, however, where insurers have been made to pay in excess of the policy limits.

An example is Nyack Hospital supra. In Nyack, the defendant was granted summary judgment dismissing the complaint on the ground that plaintiff was paid the balance of No Fault benefits remaining at the time the insurer received the verification it requested from plaintiff. The Court of Appeals noted that after receiving the requested verification, the insurer may have paid claims for services that were rendered later in time in violation 11 NYCRR 65-3.15 before paying plaintiff. The Court therefore denied the defendant’s motion for summary judgment and remitted the case to the Supreme Court for further proceedings. More recently, the Second Department upheld summary judgment in favor of a plaintiff hospital entered against a No Fault insurer for an amount ($416,039.42) far in excess of the policy limits. In Westchester Medical Center v Lincoln General Ins., 82 AD3d 1085 (2nd Dept 2011) the Appellate Division sustained the denial of the defendant’s motion to modify the judgment entered against it because the defendant moved belatedly, post judgment, to assert exhaustion.

Arbitrators, also, have awarded No Fault benefits despite exhaustion of policy limits where claims were submitted and complete prior to the exhaustion of No Fault benefits. See (no name) and Utica Nat’l. Ins., AAA Case No 412005020780, aff ’d on appeal, where the Respondent denied the Applicant’s claim on round, inter alia, that benefits were exhausted. The Respondent failed to demonstrate that it paid claims in accordance with 11 NYCRR 65- 3.15 so the arbitrator found the Respondent liable to pay the Applicant’s claim despite the fact that the policy limits were exhausted.

In Lutheran Med. Center and American Transit Ins., AAA case no 412010064637, the Applicant’s claim exceeded the policy limit and the Applicant alone was entitled to payment of its claim. The Respondent however, paid other providers and the Applicant sought an award of the monies paid to those other providers which the arbitrator denied. On appeal the master arbitrator awarded the Applicant the amount improperly paid to other providers noting that the exhaustion of benefits did not relieve the Respondent of its liability to the Applicant absent proof that Respondent made payment in compliance with 11 NYCRR 65- 3.15.

Other arbitrators have ruled likewise. See Haar Orthopedics and First MutualTrans., AAA, Case No. 412007015447 (Arb. Kurz) (“insurer may not invoke the defense of policy exhaustion , as the claim was properly presented and improperly denied prior to the point of reaching the policy limits;” Long Island Spine& Ortho and Allstate, AAA Case No. 412007009249 (Arbitration request. Cutler Igoe) (award for Applicant despite fact policy limits were exhausted as limits were not exhausted when Respondent received Applicant’s proof of claim); Dr Trimba and Progressive Ins., AAA Case No. 412007001916 (Arb. Winning) (that policy limits were exhausted several months after claim at issue was denied had no relevance to Applicant’s entitlement to payment as Applicant’s claim was submitted before the policy had been exhausted); Triboro Med. and American Transit Ins., AAA Case No. 412006052199 (Arb. Weisman) (Respondent was liable to pay claims for which it issued late denials despite exhaustion of policy limits since funds were available to pay claims on date claims were received; (no name) and Geico, AAA Case No. 412006020147 (Arb. Benziger) (where verification requests were untimely, claims for lost wages were due prior to exhaustion of policy limits so Applicant was entitled to award on those claims); Perry Phys. Med. & Rehab. and Geico, AAA Case No. 412006037785 (Arb. Bianchino) (where Respondent was liable for claim as its denial was defective, it must reimburse Applicant despite exhaustion of benefits as there were more than sufficient benefits to pay claim on date claim was received); LI Med. Imaging, and Auto One Ins., AAA Case No. 412005056224 (Arb. Hirshhorn) (where two denials were late and Respondent failed to establish third denial was timely sent, provider was entitled to reimbursement for services rendered despite exhaustion of benefits, as claims were submitted and complete prior to policy exhaustion).

Public Health Law 2807-c (1) (b-1) and (b-2) read in pertinent part as follows. “A payor included in the payor categories specified in paragraph (a) or (b-1) of this subdivision shall not be provided the option of payment to a general hospital for inpatient services based on the lower of hospital charges or the case based payment per discharge determined in accordance with this section for a patient or apportioning the appropriate case based payment per discharge for a patient by excluding payment for a preexisting condition or acquired condition which has to be treated along with the reason for the admission or, except as may affect qualification for payments in accordance with paragraph (b) or (d) of subdivision four of this section, for days within the inlier stay determined to be medically unnecessary.” The payor categories specified in paragraph (b-1) include payors making payments to general hospitals for inpatient services provided to patients eligible for payments pursuant to the comprehensive motor vehicle insurance law. Public Health Law 2807-c (1) (b-1) prohibits deductions for treatment of pre-existing conditions which have to be treated along with new condition for which the patient is admitted. It applies to the following laws and reads in pertinent part:

“For patients discharged on and after . . . on and after Jan. first, two thousand, payments to general hospitals for reimbursement for inpatient hospital services provided to patients eligible for payments pursuant to the workers’ compensation law, the volunteer firefighters’ benefits law, the volunteer ambulance workers benefit law and the comprehensive vehicle insurance reparations act shall be . . .”

Subsection (b-2) prohibits payors from “excluding payment for a pre-existing condition . . . which has to be treated along with the reason for admission.”

On April 20, 2012, Applicant wrote to the Department of Health asking for an opinion on Public Health Law 2807-c (1) (b-1) (b-2) as to whether a No Fault insurer may exclude payment for preexisting conditions which have to be treated along with the reason for admission. (Apparently the Insurance Division of the new Department of Financial Services (into which the Insurance Department was merged) wrote to Applicant that the question of interpretation of Public Health Law should be referred to the Department of Health). In a legal opinion letter dated June 19, 2012, counsel Robert A Veino, Associate Attorney for the Bureau of Health Insurance Programs, Department of Health, wrote to Applicant that the answer to the question “is straightforward and founded in the plain language of PHL 2807-(c) 1 and (b-2)” and “under the provisions of PHL 2804 c(1) (b-2) no-fault payors are required (to) pay the full DRG amount for the hospital stay as computed in accordance with paragraph (b-1) and explicitly prohibited from apportioning the bill so as to exclude payment for treatment of what the no-fault payor deems pre-existing conditions or conditions otherwise unrelated to the primary reason for the hospitalization.”

I thank Applicant’s able attorney for providing much of the case law for this opinion.

My conclusions are as follows. I find there are two violations here – one of No Fault regulations, and the other of Public Health Law. Public Health Law in any event takes precedence. Furthermore, I believe this may be a case of first impression. I cannot find any cases or arbitration awards which deal with the interplay between Public Health Law and No Fault. Applicant’s claim was first in time (apart from the ambulance which brought the Assignor/Patient to Applicant hospital). The claim was complete when Applicant mailed it to Respondent. Respondent sought no verification and acknowledged receipt on June 8, 2011 in the denial dated July 1, 2011. Therefore, when Respondent held back $1,710.83 for the dialysis treatment Respondent should have known, and actually was on notice from Applicant’s subsequent letter of July 9, 2011, that Applicant disputed the partial nonpayment. Yet Respondent did not hold the amount in a reserve fund, but paid other medical providers for their services later in time until the policy was exhausted. I find this is a violation of 11 NYCRR 65-3.15. Secondly, Public Health Law is even more relevant to Applicant as a hospital making claims of an insurer such as Respondent. PHL 2807-c (1) and (b-2) make it clear that that every NYS general hospital is obliged to treat admitted patients for their pre-existing conditions independent of the reason for admission. Payors such as Respondent insurer are liable for making payments to said hospitals. PHL 2807 c(1) and (b-2) “prohibit deductions for treatment of pre-existing conditions” by insurers. Finally, PHL at 2807-c (b- 2)specifies that the law applies to the comprehensive vehicle insurance reparations act (No Fault).

The Respondent was on notice with regard to the PHL law that it could not deduct for a preexisting condition which had to be treated along with the condition for which the Assignor/Patient was admitted. The explicit answer to Applicant’s inquiry by the Department of Health is contained in its opinion letter of June 19, 2012. The legal opinion of the attorney for the Department of Health makes clear the priority of PHL over No Fault law in these circumstances. “No-fault payors are required to pay the full DRG amount for the hospital stay . . . and are explicitly prohibited from apportioning the bill so as to exclude payment for treatment of what the no-fault payor deems pre-existing conditions. . .” I find it decisive that the Insurance Department within the Department of Financial Services deferred to the Department of Health for interpretation of the Public Health Law at issue in this case. Accordingly, I find that the denial and peer review are invalid because they take no notice of and violate PHL. Moreover, Respondent has not paid the claims in priority order pursuant to No Fault. I find Applicant’s claim is first in time in terms of services billed. I grant the claim with interest and attorney’s fees.