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Wednesday, June 1, 2011


MSSNY has received permission from the New York State Supreme Court, Appellate Division, Third Department to file an amicus curiae brief in Marvin H. Handler, MD., P.C., v. Thomas DiNapolo Comptroller of the State of New York and United Healthcare Insurance Company of New York. The issue that is pending in this appeal concerns whether the Comptroller of the State of New York has the constitutional authority to audit private medical practices that provide out-of-network services to participants in the New York State Empire Plan. The Empire Plan is a health benefit plan that provides health insurance coverage to active and retired State employees, as well as participating local government and school district employees, and their dependents.

The Comptroller has audited several physician practices including the practice of Dr. Handler (the “Petitioner’). The audit of the Comptroller primarily focused on whether the medical practice had “routinely waived” Empire Plan members’ out-of-pocket costs. The Comptroller’s audit report concluded that the petitioner had routinely waived Empire Plan members’ out-of pocket obligations and asserted that, as a result, the medical practice was overpaid at a cost of $903,563 to the State. The Petitioner instituted a legal proceeding seeking to set aside the Comptroller’s audit. On June 18, 2010 New York State Supreme Court Justice Michael C. Lynch (Albany Co.) issued an order to set aside the Comptroller’s audit. Justice Lynch held that the New York State Comptroller had no constitutional authority to conduct an audit of the Petitioner. In this appeal MSSNY’s amicus curiae brief urges the Appellate Division to affirm Justice Lynch’s ruling and to hold that the New York State Comptroller has no constitutional authority to audit private physician offices.



The State of New York contracts with United Healthcare to insure and administer the Empire Plan. Under the contract, the State makes premium payments to United to cover the cost of the claims and the cost of administering the program. Participants in the Empire Plan may see either “participating providers” or “non-participating providers” (or “NPPs”). Participating providers enter into a written agreement with United to accept payments at rates established by United. United pays participating providers directly based on claims they submit for services rendered. Members are required to pay a nominal co-payment to the participating provider for certain services rendered.

In accordance with the Empire Plan benefit plan design, United pays NPP claims based on the “reasonable and customary” charge for the services provided, which is the lowest of the actual amount of the provider’s billed charges, the provider’s usual charge for the same or similar service, or the usual charge of other providers in the same or similar geographic area. As required by the Empire Plan, when United pays a claim from an NPP, the payment is made to the Empire Plan member. The member is then expected to use the funds to compensate the NPP.

The Empire Plan requires members to pay higher out-of-pocket costs, in the form of deductibles and co-insurance, when they use NPPs. After the member meets an annual deductible, United pays the member 80% of the amount United determines to be “reasonable and customary”. The member is then responsible to pay the remaining 20% portion of the amount determined to be “reasonable and customary”, as well as any amount that the NPP charges in excess of the amount determined by United to be “reasonable and customary”.


On April 16, 2009, the Comptroller conducted an audit. The audit focused on 3,364 claims totaling $4.9 million that Petitioner’s medical practice charged for Empire Plan members for the period January 1, 2004 through December 31, 2008. The audit used a statistical sample of 178 claims. According to the audit report, the Petitioner’s medical practice waived the members’ out-of-pocket costs for 165 of the 178 sampled claims. The Comptroller’s audit asserted that Petitioner’s medical practice routinely reported the full base amount for the services, but did not reduce them by the amounts of members’ out-of-pocket costs that were waived. The Comptroller’s audit asserted that from the randomly sampled 178 claims, the routine waiver of out-of-pocket costs resulted in overpayments amounting to $47,188. Using statistical extrapolation, the Comptroller’s report asserted that the total overpayment made to Petitioner was $903,563.

The Petitioner brought a legal proceeding in the New York State Supreme Court in Albany. In addition to arguing that the New York State Comptroller does not have the authority under the New York State Constitution to audit a private medical practice, the Petitioner’s attorney asserted that the Comptroller’s audit methodology was flawed. According to Petitioner’s counsel, the auditor incorrectly concluded that Petitioner “routinely waived” the 20% coinsurance of Empire Plan members because the auditor solely looked at petitioner’s financial ledgers. Petitioner’s counsel asserted that the auditor failed to consider the invoices that were sent by Petitioner’s medical practice and other collection efforts that were made that would have demonstrated that the Petitioner made good faith efforts to bill members’ out-of-pocket amounts.

In addition, Petitioner’s Counsel stated that the Comptroller’s Audit Report and methodology failed to take into account the intentional underpayments made by United as a result of the flaws with the Ingenix database. In 2009, the New York State Attorney General concluded a year long investigation and determined that United and its wholly owned subsidiary Ingenix used unreliable and insufficient data to determine “usual and customary” charges which systematically reduced the rate at which insurers paid consumers or their physicians for our-of-network care. The Attorney General’s report, “The Consumer Reimbursement System is Code Blue”, concluded that the Ingenix-based system is “broken” and in need of “dramatic reform”. Also, numerous lawsuits were brought as a result of the flaws in the Ingenix database. For example, in AMA and MSSNY v. United Healthcare, a class action pending in the United States District Court, Southern District of New York, United paid $350 million to settle the lawsuit. The class action lawsuit brought by MSSNY and the AMA provided a significant source of information to the Attorney General in his investigation of the United Healthcare/Ingenix UCR database. Petitioner’s counsel argued that the Comptroller’s audit should have taken into account the higher payments that United should have made had it not used the flawed Ingenix database, which would definitively reduce the amount of the alleged overpayment.

Justice Lynch’s Ruling

In his ruling on June 18, 2010, Justice Lynch primarily relied upon the ruling of the New York State Court of Appeals in Matter of New York Charter Schools Ass’n Inc. v. DiNapoli1 to find that the Comptroller had no constitutional authority to conduct the audit of the Petitioner. In Matter of NY Charter Schools, the Court of Appleals addressed the issue whether the NY Legislature violated Article V, Section 1 of the New York State Constitution when it assigned and directed the State Comptroller to audit charter schools. The Court of Appleals held in Matter of NY Charter Schools that the Comptroller lacked the authority under the constitution to audit charter schools because such schools are neither a political subdivision of the State and do not directly receive money from the State. According to the Court of Appeals, the State provides funds to school districts, and school districts pass along some funds to charter schools. Notwithstanding, the Court of Appleals rejected the State’s contention that it could “follow the money”, and held that the money paid by school districts to charter schools was no longer under State control. Justice Lynch held that the holding of the Court of Appeals in Matter of NY Charter Schools was clearly applicable in this case.

The State alternatively argued that even if the Comptroller lacked the authority to conduct the audit, the Petitioner waived his right to challenge the Comptroller’s authority because he had cooperated in the audit. Justice Lynch held, however, that Petitioner’s cooperation in the audit should not constitute a waiver of his right to challenge the audit in court.

Having found that the Comptroller lacked the authority to conduct the audit, Justice Lynch stated that the court need not decide the issue whether the audit methodology was proper.

MSSNY’s Amicus Curiae Brief

MSSNY’s amicus curiae brief urges that the Appellate Division should affirm Justice Lynch’s ruling that the Comptroller lacks the constitutional authority to audit a private medical practice that does not directly receive State funds. The amicus brief asserts that as an out-of-network medical provider, the Petitioner has no contractual relationship with either the State or United Healthcare and does not receive any State money. The State can not reasonably argue that monies paid by patients to the Petitioner’s medical practice constitute State funds, according to MSSNY. In fact, according to MSSNY, the Petitioner in this case is even further removed from State funds than charter schools. The State pays premium dollars to United. The Petitioner, however, as an out-of-network physician does not receive payment from United. Instead, when United receives a claim from an Empire Plan member regarding treatment from an out-of-network physician, United reimburses the member 80% of the amount United has determined to be “reasonable and customary” and it is the patient that pays Petitioner’s medical practice.


MSSNY’s furthermore, urges the Appellate Division to reject the State’s “waiver” argument. MSSNY’s brief asserts that State agencies must conduct investigations and audits in compliance with constitutional requirements and limitations. The argument that any cooperation in an audit constitutes a waiver would provide an improper incentive to state agencies to violate constitutional requirements and limitations out of the possibility that the target of the audit would not know his or her constitutional right and cooperate in the audit. The better public policy, according to MSSNY, is that in order to assure that state agencies conduct investigations and audits within constitutional requirements, the right of the individual to challenge an audit in court should not be deemed to be waived.

MSSNY’s amicus curiae brief stated that MSSNY has substantial interest in the appeal because physicians should be free to make an independent business determination whether to be in-network or our-of-network with the Empire Plan, and should not be pressured into becoming in-network based on the apprehension that the Comptroller is targeting out-of-network physicians for audit. Physicians should not be the target of the audits asserted MSSNY, because these audits are conducted without constitutional authority.

  • 113NY3d120(2009)




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