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New York Expands Effort to End No-Fault Fraud

Posted on 03 May 2012

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Benjamin M. Lawsky, Superintendent of Financial Services, on Wednesday continued New York Governor Cuomo's Administration's aggressive program to end no-fault auto insurance fraud with regulatory reforms that close loopholes that allow lawbreakers to exploit the system. This follows an investigation announced last month into health care providers whose participation in medical mills is essential to making fraudulent no-fault claims possible.

The new regulation tackles two issues--doctors being paid for health care they do not actually provide and some technical issues that are often used to prevent a decision on a claim or keep an otherwise faulty claim open, both of which increase costs to consumers.

The new regulation:

Puts an end to requirements that mandate insurers pay for treatments that were never actually provided, or pay more than the established fee schedule for a given service.

Prevents healthcare providers from ignoring requests for evidence that the treatments they are providing are medically necessary by setting a 120 day deadline to provide requested information.

Closes the loophole that allows courts and arbitrators to force insurers to pay fraudulent claims simply because the insurer made minor paperwork errors when processing a claim.

"These reforms will ensure that New Yorkers get the proper and timely treatment for legitimate injuries that they deserve, while closing loopholes that allow criminal medical mills to scam the system and drive up insurance premiums. We can and must have a system that works effectively for those in need and protects all drivers from paying a 'Fraud Tax' imposed by criminals," Superintendent Lawsky said. "The new regulations will give insurers more time to prove fraud and prevent payment, unlike the current system that requires insurers to pay no-fault claims within 30 even when they suspect that health care services have not actually been provided."

"I applaud Governor Cuomo and Superintendent Lawsky for continuing the fight to reform New York's broken no-fault auto insurance system," said Kristina Baldwin, co-spokesperson for Fraud Costs NY and assistant vice president for Property Casualty Insurers Association of America. "If implemented, these regulatory changes will help close the glaring loopholes that allow criminals to rip off the system and control the ensuing costs which are passed on to drivers by way of higher premiums."

Ellen Melchionni, co-spokesperson for Fraud Costs NY and president of the New York Insurance Association said, "Governor Cuomo and Superintendent Lawsky demonstrated real leadership when they took the critical first step reforming New York's no-fault system by targeting unscrupulous medical providers. Now, they are continuing the fight with important and crucial reforms that will protect consumers to ensure that those truly injured in an accident receive the necessary treatment they deserve."


Gary Henning, Regional Vice President, Northeast Region American Insurance Association, said, "The American Insurance Association applauds Governor Cuomo and Superintendent Lawsky for their continuing efforts against no-fault fraud with the promulgation of these regulations. These common-sense reforms will help take costs out of the no-fault system to the benefit of New York's drivers."

Regulation 68 implements New York's no-fault automobile insurance law by establishing no-fault claims settlement procedures. The new regulatory reforms amend Regulation 68 in three ways:

1. Prevent billing for services not rendered or billing for more than the mandated fee schedule.

The current law provides no remedy to insurers when doctors and other health care providers bill in excess of the mandated workers' compensation fee schedule or for services not actually rendered--two major issues plaguing the no-fault system.

No-fault law requires insurers to pay claims in 30 days, but often it takes longer to discover that the health care was not actually provided. Under current law, courts do not allow insurers to deny claims after the deadline based on the fact that the provider has over-billed or billed for phantom services.

This amendment provides that no payment is due where the treatments were not actually provided or to the extent that the fees charged exceeded the fee schedule. So insurers will be able to use those as grounds for denying a claim.

Consumers would greatly benefit from curbing these dishonest practices because no-fault benefits are typically subject to a $50,000 limit. Thus, when providers over-bill or bill for phantom services, the consumer's no-fault monetary limit is unjustly depleted.

2. Set a time limit for responding to verification requests and denial for untimely response.

Within 30 days of receiving a no-fault claim from a healthcare provider, the insurer must pay or deny the claim, or, within 15 days, send a request for additional information to verify the claim. Once it receives verification, the insurer has 30 more days to pay or deny the claim.

There is currently no deadline for responding to a verification request. In addition, an insurer is not allowed to deny or close a claim if it never receives the requested verification. Accordingly, some claims remain open indefinitely. Under the law, insurers must pay a very high interest rate on delayed payments, so anything that causes delays can substantially increase costs.

To solve this problem, this amendment requires the healthcare provider to provide a response within 120 days of an insurer's verification request, or provide reasonable justification why it cannot do so. If the applicant fails to do one or the other, the amendment permits an insurer to deny the claim. The amendment should thus speed claims resolution and reduce the number of claims that remain open indefinitely

3. Prevent immaterial defects in notices from invalidating them.

Under current law, if there is a small and insignificant error in an insurer's verification request or a claim denial, the healthcare provider can seek to fight it through the courts or arbitration. The new amendment states that a technical error cannot be used to avoid responding to a verification request and does not invalidate an otherwise proper claim denial. The amendment should substantially reduce litigation and arbitration over these issues, reducing yet another obstacle to the timely resolution of no-fault claims.