An intermediate appellate court in New York has ruled that the state’s Prompt Pay Law affords claimants a private right of action against insurance carriers to recover payment for health care services based on a violation of the law.

The case

Maimonides Medical Center, a not-for-profit hospital in Brooklyn, New York, furnished services to six patients who had supplemental Medicare insurance coverage policies, known as “Medigap” policies, with First United American Life Insurance Company. The patients assigned their benefits under their respective First United policies to Maimonides, and Maimonides billed First United more than $19 million for services rendered to these six patients. In response, First United allegedly paid Maimonides slightly more than $4 million.

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Maimonides sued First United to recover the balance it claimed it was owed for its care of the six patients on theories of breach of contract, violation of the Prompt Pay Law, and unjust enrichment. The complaint detailed the service dates and the amount of the bills issued by Maimonides to First United for each of the patients and alleged that, despite repeated demands for payment in full, First United had failed to pay the balance owed. Maimonides also alleged that First United never had provided written notice, as required by the Prompt Pay Law, that it was not obligated to pay in full the amounts billed by Maimonides for services furnished to the six patients.

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First United moved to dismiss the six causes of action that alleged violation of the Prompt Pay Law, arguing that there was no private right of action under the law. The trial court denied the insurer’s motion, and it appealed.

The appellate court’s decision

The appellate court affirmed.

In its decision, the appellate court explained that the Prompt Pay Law, Insurance Law § 3224–a, imposes standards on insurers for the “prompt, fair and equitable” payment of claims for health care services. It also noted that the statute sets forth time frames within which an insurer must either pay a claim, notify the claimant of the reason for denying a claim, or request additional information. An insurer that fails to comply with the provisions of the Prompt Pay Law was obligated to pay the full amount of the claim, with interest, the appellate court observed.

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The appellate court then decided that the Prompt Pay Law afforded claimants a private right of action to recover payment for health care services based on a violation of the statute and that enforcement of the statute was not vested solely with the New York State Insurance Department (now known as the New York Department of Financial Services). Because the Prompt Pay Law afforded an implied private right of action, Maimonides could assert claims against First United for its alleged violation of the statute, the appellate court concluded.

The case is Maimonides Medical Center v. First United American Life Ins. Co. (N.Y. App.Div. 2d Dep’t March 5, 2014). Attorneys involved include: Southerland Asbill & Brennan LLP, New York, N.Y. (Ellen M. Dunn and Peter Ligh of counsel), for appellant; Proskauer Rose LLP, New York, N.Y. (Edward S. Kornreich, Roger A. Cohen, and Yafang Deng of counsel), for respondent; Greenberg Traurig, LLP, Albany, N.Y. (Harold N. Iselin and Cynthia Neidl of counsel), for amicus curiae New York Health Plan Association, Inc.

FC&S Legal comment

At least one other court, the U.S. District Court for the Eastern District of New York, also has found an implied private right of action in the Prompt Pay Law. Josephson v. United Healthcare Corp.,No. 11–CV–3665(JS)(ETB) (E.D.N.Y. Sept. 28, 2012).