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New York State Appellate Ruling Confirms That Providers Have Direct Right of Action Against Health Plan Insurers for Failure to Comply with Prompt-Pay Rules  
Health Law Perspectives, May 2014
May 1, 2014

Some insurers flout prompt-pay statutes that require payment to health care providers within prescribed time periods following submission of a claim. A recent state appellate court ruling in New York can help providers seek relief from such behavior in the Empire State, and may assist providers in other states to enforce similar prompt-pay requirements under their state laws.

Like most states, New York has enacted a prompt-pay statute requiring insurers, within a set period of time following the submission of a claim, to either (1) pay the provider or (2) notify the provider that the claim is being disputed in whole or in part, and specify the reasons for the dispute. Failure to timely comply with New York’s prompt-pay statute exposes the insurer to pay the full amount of the claim, plus interest.

The statute also gives state insurance regulators the authority to impose penalties against insurers that violate the statute. This led some plans to argue that the providers did not have the power to enforce the statute by suing a delinquent insurer. 

In Maimonides Medical Center v. First United American Life Insurance Co., 2014 N.Y. Slip Op. 01441 (2d Dep’t Mar. 5, 2014), a New York appellate court identified the following issue as one of first impression in that State: can a health care provider sue an insurer to enforce the prompt-pay statute’s requirements and recover amounts owed under the statute? The court answered this question with a clear “yes.”

The underlying lawsuit was brought by a hospital that alleged a Medigap insurer failed to pay approximately $15 million in claims submitted over a four-year period. The lower trial court had denied the insurer’s motion to dismiss in 2012, finding that the prompt-pay statute created an express private right of action whereby providers could sue insurers to enforce the statute’s requirements.

The appellate court disagreed that the statute contained an express private right of action, but nonetheless found that the statute implicitly created such a right. In affirming the trial court’s decision, the appellate court resoundingly rejected the insurer’s argument that private enforcement of the statute was inconsistent with the legislative scheme. The statute “is not simply remedial in nature,” the appellate court explained. Instead, it “affords health care providers and patients certain rights, and imposes an affirmative duty upon insurers to timely pay or dispute claims. In the event of a violation, health care providers and patients are given the right to full payment of the claim plus interest, and insurers are obligated to make such payment.”

The appellate court also rejected the insurer’s reliance on the fact that there had been failed legislative efforts to amend the prompt-pay law to add an express private right of action. It was undisputed that proposed laws which “would have added a section expressly permitting private causes of action were introduced in the Assembly in 2007, 2009, and 2011, and in the Senate in 2011, but were not enacted.” However, the appellate court recognized that “unsuccessful attempts to codify an express private right of action do not establish that the Legislature intended to prohibit private actions. Where, as here, there is no express legislative authorization, whether the violation of a statute gives rise to an independent private cause of action is a matter for the courts . . ..” (Internal quotation marks omitted.)

It remains to be seen whether the insurer in Maimonides will seek permission to appeal the recent ruling to New York’s highest court. Furthermore, the possibility remains that other branches of the intermediate appellate court or federal courts could disagree with the recent ruling.

Be that as it may, members of the health care industry directly impacted by the Maimonides ruling—which include a wide variety of health care providers and suppliers licensed in New York State such as hospitals, nursing facilities, physicians, pharmacies, and suppliers of durable medical equipment—should take note of this recent ruling in assessing their options in dealing with recalcitrant insurers. Furthermore, members of the health care industry licensed in other states may find this ruling serves as persuasive law in support of similar remedies under prompt-pay statutes that exist in other states.

Hooper, Lundy & Bookman, P.C. has represented members of the health care industry throughout the United States in disputes with both contracted and non-contracted payors. For more information regarding the Maimonides case or other issues involving disputes with insurers, please contact James Segroves or Ariana Ornelas in the Washington, D.C. office at 202.580.7700; or Glenn Solomon or Daron Tooch in the Los Angeles office at 310.551.8111.

For media assistance, please contact Maura Fisher at 202-580-7714.