Court of Appeals Upholds Comptroller Audit Of Non-Participating Provider’s Billing Records
May 13, 2014
The New York Court of Appeals decided last week, in Handler v. DiNapoli, that the State Comptroller has the authority to review the billing records of a non-participating provider receiving funds from the State’s primary health benefit plan, even though the payment of state funds is made indirectly.
New York State provides health insurance to its employees, retirees, and their dependents. The plan at issue, the Empire Plan, is funded by New York State. United Healthcare Insurance of New York (United) contracts with the State to process and pay claims by Empire Plan beneficiaries. United processes and pays the claim, and then the State reimburses United and pays it an administrative fee.
When non-participating providers provide a service to Empire Plan members, they charge market rates and bill the patient directly. United reimburses the patient for 80% of the actual fee or the “customary and reasonable charge” for the service, whichever is lower. The patient must then pay these funds to the provider and also pay the remaining 20%. Non-participating providers have a legal duty to collect co-payments from the patients.
The New York Comptroller sought to examine the billing records of non-participating providers to determine if they had waived Empire Plan member co-payments. The Court provided an illustration of how failure to collect the co-payment “inflates a claim’s cost and adversely impacts the State’s fisc.” If a non-participating provider charges $100 for a service, receives $80, and does not collect the $20 co-payment, then the service was provided for $80. In that case, the State should have only paid $64, and has overpaid by $16.
The providers gave the Comptroller access to their records upon request. After auditing a random sampling, the Comptroller concluded that the providers had routinely waived the co-payment, extrapolated the sample amount to the universe of claims, and sought recovery of overpayments of $787,000 in one instance and $900,000 in another. The providers then filed suit, challenging the Comptroller’s authority to audit their records because they did not receive state funds directly, but rather through United.
The Court of Appeals upheld the Comptroller’s authority, stating that the fact that a third party is a conduit for the funds does not change the character of the state funds. The Court found that limiting the Comptroller’s authority would make its task of auditing state funds impossible; there would be no other way to determine whether providers had required a co-payment. The Court also noted that the providers certainly knew that the payments were state funds and required the collection of co-payments.
This decision confirms that the Comptroller has wide authority to audit when state funds are at issue, even where the state does not contract with the entity being audited. Litigants will have to try to fit themselves into some of the areas where the Court states the Comptroller may not act, such as performing the administrative duties of another State agency or overseeing activities that, while financial in nature, have no impact on the state fisc.