The Insurance Advocate received an unmarked brown envelope some weeks back disclosing that the New York Insurance Department held a meeting with New York’s No-fault auto insurers to discuss one of their favorite topics – Regulation 68 or 11 NYCRR, part 65. When the carriers listed their complaints with the regulation, the Department asked them to submit their “wish list” of recommended changes. In late 2008, a group of those carriers, known as the “New York No-Fault Working Group” did just that. The submission, not heretofore publicly recognized, is a comprehensive and extensive list of recommended changes, designed both to clarify many of the carrier’s long standing pet peeves with the regulation and to add several critical new provisions designed to give the carriers broad and far-reaching tools to combat fraud. We are told that the trial lawyers were given the same request from the Department, but as of the date of printing, it is unknown if that group has submitted any of their recommended changes to the Department. I will attempt to summarize and explain the changes being sought by the insurance carriers as well as giving a little history and context to the continuing controversy surrounding this most important regulation. P.M.

History of the current Reg 68

It all started in the early 1930’s when a group of academics at Columbia University1 were taking a look at the nation’s nascent auto insurance system with the goal of devising a way to achieve “rapid and full compensation” for auto accidents without the time and expense of civil litigation.2 The system they devised, modeled largely upon the already existing workers’ compensation system, would be one in which insurers would essentially adjudicate all claims made by their insureds, regardless of whether the motorist was at fault.3 The concept was debated and refined over the years and slowly developed into what was known as a “limited no-fault system,”4 in which anyone injured in an auto accident would receive compensation for medical bills and wage loss regardless of fault, but compensation for non-economic damages would be prohibited in all but the most severe accidents and injuries. Motorists would retain the right to go to court to recover medical expenses and other economic costs that exceeded the no-fault benefits.5 The idea caught on and despite a debate between insurers as to whether there should be a “pure” no-fault system, in which all tort liability would be abolished, and the more politically popular “limited” form, it was the insurers themselves that pushed state legislatures to enact the no-fault system during the late 60’s and early 70’s. New York’s ground-breaking No-Fault law, known as the “Comprehensive Motor Vehicle Insurance Reparations Act,”6 was enacted in 1973 and made effective on January 1, 1974. This law was of the “limited no-fault” variety and was designed to provide speedy compensation for basic economic loss to accident victims. The lengthy regulation, designed to implement Article 51, became effective in 1974. By the mid to late 90’s, the Department took notice of a dramatic rise in no-fault fraud in New York that was costing both insurers and insureds millions of dollars annually. In 1992 the Department recorded 489 reported cases of fraud. However, by the year 2000, that number had increased to 12,372. As a result, auto insurance rates were rising rapidly, with no end in sight. Pressure began to increase on the Department from insurers, consumers, and elected officials to do something about runaway fraud in the no-fault area.
After study of the issue, the Department determined in 2000, that changes were needed to the no-fault regulation. The crux of the fraud problem was not numerous, but isolated, cases of individual fraud, but vast networks of individuals, acting in concert, all designed to submit fraudulent claims on a massive scale. In many cases, the conspiracy began with the accident itself, which was fabricated, and then networks of doctors and lawyers would usher the fraudulent claim and imaginary medical treatment through the system. The lengthy time periods contained in the regulation were encouraging and enabling the fraud to occur and perpetuate. The 90- day period within which to file a claim for benefits and the physicians’ 180 day period to submit medical claims to the insurer for payment were found to be unnecessarily long. The Department concluded that these lengthy time periods gave persons intent on committing fraud time to ring up large medical bills for extensive and unneeded services and then “dump” a pile of those claims on the insurer’s desk. At that point the insurer would only have 30 days to decide to pay for those services. The insurers were hampered in their efforts to vigorously investigate these claims as a result. These abusive billing practices were an essential part of the no-fault fraud rings.
The 2000 changes reduced the both time to file a claim to 30 days and the time to file medical bills to 45 days. The new proposal divided Reg 68 into four different parts. The four parts were entitled “Prescribed Policy Endorsements,” “Rights and Liabilities of Self-Insurers,” “Claims for Personal Injury Protection Benefits, and “Arbitration.” Promulgation of these amendments led to the Department being successfully sued on technical grounds by the combined forces of the New York State Trial Lawyers Association (NYSTLA), and the Medical Society of the State of New York (MSSNY). The regulation was thrown out based on an error in the regulatory development process. The Department corrected its error and re-issued the new regulation in August of 2001.
The Department was sued again by the same parties. This suit was vigorously litigated for two years, but ultimately resulted in the Department’s position being vindicated and the amended regulation upheld.7 The Department received reports from insurers across the state that costs associated with no-fault claims began to decline almost immediately upon the effective date of the reduced time periods contained the amended Reg. 68. The number of reported no-fault fraud incidents also declined precipitously after the regulation became effective.8 These changes to the regulation, acting in concert with many other fraud-fighting measures undertaken by the Department in that era, precipitated a drop in auto insurance rates that didn’t stop until 2008.
Despite the positive effects of the much needed changes to Reg. 68, which were wholly supported by New York’s insurers, there was a feeling that the 2001 changes didn’t address some other areas that the carriers also considered problematic. However, considering how hard fought, and won, the 2001 changes actually were, the Department did not take on any additional substantive changes to the regulation in the aftermath of that fight.
Then came 2008 when the insurers began to file for auto rate increases. The Department was successful in convincing the insurers to withdraw their requested increases last year based upon the argument that New Yorkers were driving less due to sharply increasing gasoline prices. Fewer miles equal less exposure to accidents. Nonetheless, the nearly industry-wide request for higher rates must have served as a wake-up call inside the Department that the great “ride” (no pun intended) of decreases in auto rates was over. Concern over rate increases always leads to re-examination of increase costs due to fraud.9 Thus, Regulation 68 popped-up on the Department’s radar screen, again.
When the Department then invited insurers last year to submit their “wish list” of changes that they would like to make to Reg 68, there was a great deal of pent-up demand on the insurers part for those changes. Over the years, many perceived inequities have arisen in the system, which to the insurers, have worked both to increase costs and to aid and abet fraudulent practices. Among the areas of greatest concern are matters relating to the determination of which medical treatment is necessary, the costs of such medical treatment, attorney’s fees for claimants attorneys, and the strict time periods for carrier determination of claims. It appears that the recommended changes are designed to correct these “inequities” and to give the carriers greatly enhanced time and opportunity to combat fraudulent practices. I have summarized some of the major changes recommended by the “New York No-Fault Working Group” of insurers below. The actual proposal is quite lengthy and, as a result I am not able to address all changes in the submission.

Recommended changes to no-fault claims practices

• Healthcare provider/assignee claims must be accompanied by all documentation and information in support of the position that the claim is “medically necessary.” Claims are not considered complete until all supporting information is submitted.
• A new provision in part 65-3.8 provides that “nothing in this part shall prohibit an insurer from refusing payment of first-party benefits to an applicant or healthcare provider/assignee who has submitted a claim which materially misrepresents or conceals facts concerning the eligibility of the applicant or healthcare provider/assignee for benefits, the scope and/or necessity of the products or services provided, or whether the products or services were actually provided.”
• The proposal contains a new definition of “medical necessity/ medically necessary” which reads as follows; “healthcare products or services that a provider…exercising prudent clinical judgment, would provide to a patient for the purpose of evaluating, diagnosing or treating an illness, injury, disease or its symptoms, and that are: (a) In accordance with the generally accepted standards of the medical practice; and (b) Clinically appropriate, in terms of type, frequency, extent, site duration, and considered effective for the patient’s illness, injury or disease at the time the services were rendered and/or ordered. In assessing necessity the insurer, arbitrator and/or court may consider the pattern of treatment and/or testing with other assignors.”
• An additional claims practice principle in part 65-3.2 which states clearly that the principles do not create a right upon the applicant or healthcare provider/assignee to demand compliance from the insurers, but only permits the Insurance
Department to monitor the carrier. • Time requirements for verification forms are changed from business days to calendar days. Time periods remain roughly the same. Insurer is only required to request additional verification just one time. The party from whom the verification is sought must submit the completed verification within 45 calendar days. In the event such verification is not received within the prescribed period the insurer can deny that portion of the bill for which the verification was requested. To avoid such a denial the “eligible injured person” must submit written proof providing clear and reasonable justification for the failure to comply with such time limitation.
• Applicant has an absolute obligation to return to the insurer a complete and executed application for no-fault benefits (form NF-2) to be eligible to receive benefits. Failure to submit a completed NF-2 after a total of 90 days and a second notice requesting the same shall result in a denial of benefits.

Examination Under Oath

• The proposal contains an entire new section 65-3.6-a to govern examinations under oath. The insurer’s request for an examination under oath tolls the time to pay or deny all pending and subsequent claims for benefits of the applicant or healthcare provider/assignee until such time as the examination under oath is completed and the properly executed transcript is returned to the insurer. The appearance of the applicant or healthcare provider/assignee is a condition precedent to coverage and the failure to appear shall preclude the right to benefits or coverage.
• The requirement of an examination under oath by the insurer must be based upon the application of objective standards so that there is specific objective justification supporting the use of such examination. The insurer standards for such determination shall only be available for review by the Department examiners and are not subject to review of the party from whom the examination under oath is requested.
• The date for the examination shall be within 45 days from the demand and in the event the subject does not appear, within 30 days after that. In the event of the second “no-show” or the failure to return a properly executed transcript with any responses to demands made at the exam, the insurer may disclaim coverage for all pending and future claims associated with the applicant or healthcare provider/assignee.
• The exam under oath of the healthcare provider/assignee may include all aspects of the provider’s business affairs.
Healthcare Examination
• Healthcare examinations must be held within 30 calendar days from the date demanded. This request for this exam must also be based upon the application of objective standards so that there is specific objective justification supporting the use of such examination. Insurer standards shall Department examiners.
• The appearance of an applicant at a healthcare examination is a condition precedent to coverage. The failure of the applicant to appear at a healthcare examination shall preclude the applicant or the healthcare/provider assignee from collecting or receiving no-fault reimbursements or obtaining no-fault coverage. The insurer need not establish or prove that the failure to appear was willful on the part of the applicant.
• An insurer may delay the payment of benefits for any element of basic or extended economic loss pending the administration of a healthcare examination. The request for such an exam indicates that the claim is in dispute. As with the exam under oath, two “no-shows” for such an exam allows the insurer to deny all no-fault bills.
Interest
• The proposal contains an entire new section (65-3.9) on interest on overdue payments which caps the total due to 100% of the benefits owed to the applicant and provides that in the event the applicant disputes a denial of claim, interest does not accrue until the action is served on the insurer.
Other relevant provisions
• The proposal contains requirements the medical providers must charge in accordance with the ground rules and CPT codes of the Workers’ Compensation Fee Schedule, as well as the National Correct Coding Initiative (NCCI) promulgated by the Centers for Medicaid and Medicare Services (CMS). The burden is on the provider to establish adherence to the guidelines and the propriety of the fees charged in the event of a dispute.
• Insurers may not be precluded in any dispute from raising the defense that the provider’s bill is higher or greater than the service provided or was unbundled.
• Insurers may directly adjust the codes for services billed by a provider to a code and payment that more accurately reflects the service provided by the healthcare provider and documented in the supporting medical records.
• The proposal clarifies that Workers’ Compensation Benefits are primary to no-fault and that the insurer must deduct the amount of WC benefits from any no-fault benefits payable. No-fault insurers are not responsible for the payment of benefits for workplace injuries in the event that claimant’s employer failed to provide workers’ compensation coverage. Determination by the no-fault insurer that the injuries sustained were a result of the claimant’s employment justifies a denial of no-fault benefits.

Discussion

The insurers’ proposal represents an extensive list of amendments to Regulation 68. Many of the provisions have been discussed for many years and a few are new. The thrust of the changes represent a significant increase on a claimant’s or medical provider/assignee’s burden of bringing and maintaining a claim for no-fault benefits. Each of the recommended changes is very controversial. The provisions that suspend the insurer’s time requirement to process and pay a claim will ostensibly draw the most criticism. I believe that we can assume that if the insurer’s proposals were enacted in full, many incidents of fraudulent behavior that are currently occurring could be detected and stopped. However, opponents of the plan would argue that such a large amount of discretion to stop the processing of claims would be abused by the insurers, leading to the denial or unreasonable delay of claim payment on thousands of cases. For example, when the insurer calls for an examination under oath, the time frame for deciding to pay or deny the claim could be suspended for up to 105 days (three and a half months) at least if there is one no-show to the first exam. While the insurers will argue that this could only happen if the applicant or healthcare provider/assignee misses the first appointment for exam, thereby making the delay the applicant’s fault. However, the appointment could be missed for a variety of reasons which lay outside of any willful neglect of the appointment on the part of the applicant. Two misses, for whatever reason and the insurer could deny the claim and cancel the insurance.
Further, the “objective” foundation for requesting an examination under oath or a healthcare exam lie totally within the control of the carrier, subject only to review at some future period by the Insurance department. It is unlikely that such changes would go without strenuous objection by the trial lawyers, members of the state legislature or consumer groups. Let’s face it anyone familiar with the Department, the insurance industry, the trial lawyers and the legislature can read the proposed changes and know that the opposition they would draw would be extensive and loud. The group of insurers who submitted the proposal is well aware of the depth and breadth of the opposition they will face as they move forward.
Perhaps some changes could be made to the proposal to soften its impact such as writing in some standards for an insurer to require an examination under oath or healthcare exam.

What I believe is more important to think about as I review these proposals is what is known as the “law of unintended consequences.” I would worry that in an effort to alleviate the problems faced by the insurers, the proposed changes may make the problems worse.

The proposed regulation seems to be designed to allow the insurers more time to investigate a claim to ensure that they will not be paying benefits to undeserving claimants or healthcare providers. Further, the changes appear intended to reduce litigation and provide more efficient and certain determination of claims. Thus, ultimately, the goal of the insurers in this endeavor is to reduce the costs of writing no-fault insurance.

However, the proposal is replete with new provisions which could, in fact, increase costs and delay determinations. By adding a significant number of “moving parts” into this regulation, the insurers are actually adding to the list of areas that could be subject to increased litigation in the future. The addition of a “medical necessity” standard, for example, may contain a number of terms such as “generally accepted standards of the medical practice” and “clinically appropriate,” which are subject to interpretation and open to disagreement among physicians.

Another problem area could be the application of an insurer’s “objective standards” when used to require examinations under oath or healthcare exams by an insurer. The proposal provides that the content of these “objective standards” may be known only to the insurer and the Insurance Department. How long does anyone believe it will take a Supreme Court Judge to tear through that requirement and open the insurer’s “objective standards” to discovery by claimant’s attorneys and court scrutiny? Would the Insurance Department allow standards to be used to significantly delay processing of a claim without the disclosure of the content of those standards being disclosed to the claimant? The existence of the standards will create another possible area of attack against the insurer. The provision which allows the insurer from refusing payment of first-party benefits to an applicant or healthcare provider/assignee who has submitted a claim which materially misrepresents or conceals facts concerning the eligibility for benefits is another source of litigation.

Will the Department or a Court allow the insurer to be the arbiter of what is “material misrepresentation” or concealment of fact? One may easily imagine that this provision alone could be the source of many lawsuits against insurers.

These are just a few examples of how the proposal, if enacted, could create significant headaches for insurers in the future. The industry should exercise a great deal of caution in the consideration of this proposal in the future to prevent it from becoming a windfall to the very group that insurers don’t want to benefit from them – the trial lawyers.

I’m sure that the Department is considering some of these issues as it reviews the proposed changes. The efforts of the industry to fashion changes designed to further prevent fraud are well intentioned. All New Yorkers benefit when insurance proceeds are paid only to those who rightfully deserve them. The challenge for the Department in the future will be to achieve that result while balancing all of the complex parties and interests in play. The regulatory changes proposed by the industry are developed with the noble intention of making the system better. We must make sure, however, that they don’t make matters worse, unintentionally.

 1 The group was known as the “Columbia University Council for Research in the Social Sciences” and their report was labeled, “Report by the Committee to Study Compensation for Auto Accidents, (1932)”
2 See, “Consumer Watchdog – History of the No- Fault Concept”, June 2005 at www.consumerwatchdog.org
3 Id. 4 See, Robert A. Keeton & Jeffrey O’Connell, “Basic Protection for The Traffic Victim 181” (1965)
5 Id.
6 Article 51 of the New York Insurance Law
7 See, Medical Society of the State of New York v. Serio, 100 N.Y.2d 854 (2003)
8 The 2007 “Report of the Insurance Department’s Fraud Bureau to the Governor” indicates that reports of no-fault fraud dropped from a high of 17,253 in 2003 to a low of 10,117 in 2006.
9 The 2007 fraud report indicates a small increase in no-fault fraud incidents in 2007 to 11,242. This represents about a 10% increase in reports.