Proposed Ninth Amendment to Regulation 68

On November 14, 2018, the New York State Department of Financial Services (“DFS”) published the Proposed Ninth Amendment to Regulation 68 (“Proposed Amendment”).[1] If adopted, the Proposed Amendment would give the no-fault insurer the option to void the assignment of benefits (“AOB”) when the insurer issues a denial for the patient’s failure to attend either an independent medical examination (“IME”) or an examination under oath (“EUO”) (collectively “No-Show Denials).[2]

If the no-fault insurer opts to void the AOB between the patient and his treating healthcare provider, what would this mean for both the patient and the no-fault healthcare provider?

The Patient:

1. Only the patient, and not the treating healthcare provider, would be permitted to litigate and/or arbitrate No-Show Denials.

2. The patient would be forced to litigate/arbitrate the denial of his no-fault benefits to protect himself from mounting medical bills once his billing is switched to “self-pay” by his treating healthcare provider(s).

3. The unrepresented patient (i.e. the patient without a personal injury attorney) would be in an extremely vulnerable position as he would be ill equipped to deal with the complex legal issues associated with the IME and EUO verification processes. Said patient would be more likely to default in appearing for an IME/EUO in the first instance as he would not understand the significance of appearing for same. Furthermore, if said patient were to receive an improper No-Show Denial (i.e. after requesting an adjournment, etc.), then said unrepresented patient would be less likely to commence a lawsuit/arbitration to contest the validity of said denial. Thus, the unrepresented (i.e. non-litigious) patient would be more vulnerable to having his policy voided ab initio, making him personally responsible for all medical bills related to the automobile accident.

4. If the patient has a personal injury action pending, then the patient’s personal injury attorney (rather than the healthcare provider’s no-fault attorney) would be forced to arbitrate the denial of the patient’s no-fault benefits to protect the potential proceeds of the personal injury action from extensive liens, which could exceed the limits of the bodily injury liability portion of the automobile policy.

5. The patient would have to pay upfront and out-of-pocket for any future medical treatment (i.e. surgeries, injections, physical therapy). Alternatively, the patient would have to forego necessary medical treatment until he was able to obtain a decision overturning the No-Show Denial, which could take upwards of one-year in both court and in arbitration.

The Healthcare Provider:

1. The healthcare provider’s only means of obtaining reimbursement for medical services previously rendered would be to switch the underlying billing to “self-pay” and attempt to collect same directly from the patient, who may or may not have a pending personal injury action.

2. If the patient has a pending personal injury action, then the treating healthcare provider would be forced to file a lien against said action. Depending on the duration of the personal injury action, it could take the healthcare provider years to obtain reimbursement, if ever.

3. If the patient does not have a personal injury action pending and the patient does not voluntarily tender payment, then the healthcare provider would have to pursue collection efforts.

4. The no-fault healthcare provider would be forced to demand payment upfront from the patient.

The DFS argues that the Proposed Amendment is necessary to curb “widespread abuse by unscrupulous medical mills that often obtain patients from ‘runners’ who are paid to steer injured persons to the mills, or are part of a staged accident ring.”[3] The DFS further posits that forcing the patient to litigate/arbitrate the validity of these types of denials would reduce the number of court and arbitration filings dealing with No-Show denials for two reasons.[4] First, a patient connected to a staged accident ring or otherwise engaged in fraudulent activities concerning no-fault is unlikely to contest the insurer’s denials for IME and EUO no-shows.[5] Second, the disposition of the patient’s case would apply to all related claims of the patient arising out of the accident. The rationale that the DFS, as the protector of the public, is using to rationalize the Proposed Amendment is disturbing because it presupposes that persons injured in automobile accidents, the healthcare providers treating them (with the exception of hospitals), and the attorneys representing them both, are all engaged in a fraudulent scheme against the no-fault insurers.

It is the Firm’s position that DFS’ rationale with respect to both the need for and the benefit of the Proposed Amendment is fundamentally flawed. First, it is the unrepresented patient (i.e. the non-litigious patient), and not the co-conspirator to a staged loss, who is less likely to either appear for an IME/EUO or to commence an action to overturn an improper No-Show Denial. The unrepresented patient is less likely to understand the necessity of appearing for the IME/EUO in the first instance and is also less likely to understand the process for commencing a lawsuit/arbitration. On the other hand, the co-conspirator to a staged loss, who is probably being coached by a “ringleader” and whose entire goal is to obtain a large monetary payout, would be incentivized to comply with policy preconditions and to challenge the validity of a No-Show denial, which would jeopardize his future payout.

Second, the Proposed Amendment is not needed to reduce the number of court/arbitration filings dealing with No-Show Denials for two reasons. Once one no-fault healthcare provider obtains a court or arbitration decision addressing the validity of the No-Show Denial, then the doctrine of collateral estoppel operates to preclude other no-fault healthcare providers from successfully re-litigating/arbitrating the same issue as they are mere assignees of the patient. Additionally, no-fault insurers already have a remedy for reducing the number of court/arbitration cases that they have to defend, which they use actively for this very purpose—the Declaratory Judgment action. A sampling of the Firm’s data reveals that a single no-fault healthcare provider can receive upwards of 20 new Declaratory Judgment Actions per month seeking to void all personal injury protection benefits (often for multiple patients) based on No-Show Denials.

Not only is the Proposed Amendment unnecessary to achieve its stated purpose—to curb fraud and reduce the number of court/arbitration filings dealing with No-Show Denials—but, if enacted, the Proposed Amendment would have the following detrimental consequences:

1. It would lead to an increase in the number of IME/EUOs sought by the no-fault insurers as their verification practices would no longer be routinely scrutinized by no-fault healthcare providers striving to protect their billing by filing lawsuits/arbitrations as a means of challenging and overturning defective No-Show Denials;[6]
2. There would be negative cost impact on the patient who will be forced to litigate/arbitrate the denial of his no-fault benefits and to pay upfront and out-of-pocket for any future medical treatment after receiving a No-Show Denial;
3. There would be negative cost impact on the healthcare provider which will have to switch its outstanding claims to self-pay and attempt to collect same directly from the patient who may or may no have a pending personal injury action;
4. It would upend the current no-fault system, which utilizes the AOB to facilitate prompt payment of medical expenses and wage loss for those parties injured as a result of an automobile accident;
5. In effect, it would make the mandatory $50,000.00 in personal injury protection (“PIP”) benefits a lien against the bodily injury liability (“BI”) portion of the automobile policy.

The Firm has already had an early opportunity to discuss the Proposed Amendment with representatives of the DFS and also plans to submit extensive remarks addressing the negative impact it will have on the public before the expiration the Comment Period on January 13, 2019.

The Firm encourages other attorneys as well as healthcare providers, that will be negatively impacted by the Proposed Amendment, to submit their own comments to the DFS on or before January 13, 2019. While the Firm does not expect members of the personal injury bar that do not regularly handle their clients’ no-fault cases to appreciate the full impact that the Proposed Amendment may have on their clients, every personal injury attorney and plaintiff no-fault attorney should be incensed by the DFS’ negative characterization of persons injured in automobile accidents, the healthcare providers with whom they treat, and implicitly the lawyers that represent them. The DFS’s position in the Regulatory Impact Statement diminishes the public’s view of persons injured in automobile accidents and the attorneys that represent them.

The Firm shall keep you apprised of any new information related to this proposal.

Please direct any questions regarding this memorandum to Erin S. Stamper, Partner of Horn Wright, LLP by e-mail at ess@hornwright.com.