Regulation Barring Health Care Providers From No-Fault Program

November 2, 2012 | Appeals | Insurance Coverage

The Superintendent of the New York Department of Financial Services, Benjamin Lawsky, has issued an emergency regulation that may make it easier to bar health care providers ? temporarily and permanently ? who are suspected of engaging in no-fault insurance fraud from demanding payments from insurance carriers for services they claim to have provided. If the new rule, Insurance Regulation 68-E,[1] succeeds in its goal of reducing fraud, it will benefit not only insurance companies operating in New York but also the state’s consumers and all legitimate health care providers.


New York’s no-fault insurance law requires that every vehicle registered in the state have no-fault automobile insurance, enabling the driver and passengers of a registered and insured vehicle to obtain benefits of up to $50,000 per person for injuries sustained in an automobile accident, regardless of fault. The no-fault law requires prompt payment for medical treatment, thereby obviating the need for claimants to file personal injury suits to be reimbursed (although a person who has suffered a “serious injury” as a result of an accident may file a personal injury claim or lawsuit for damages other than no-fault damages).

Under the no-fault law, patients can assign their right to reimbursement from an insurance company to others, including to medical clinics that provide treatment for their injuries. In these cases, insurance carriers typically compensate medical practitioners at a rate pursuant to a fee schedule for various medical services performed on accident victims.

Among other things, the no-fault insurance law also requires that all medical clinics comply with all applicable licensing statutes, which in New York means that all medical providers must be incorporated, owned, operated, and controlled by a licensed medical practitioner to be eligible for no-fault reimbursement. Insurance companies do not have to honor claims for medical treatments from a medical clinic that is not actually owned, operated, and controlled by a licensed medical practitioner.[2]

As this column has frequently observed,[3] insurance fraud in connection with New York’s no-fault automobile insurance law[4] is a tremendously large problem that affects both automobile insurance companies and policyholders, leading to hundreds of millions of dollars in losses ? if not more ? and to higher premiums for policyholders.[5] In explaining his reasons for enacting the regulation, Superintendent Lawsky highlighted a significant part of the problem: 

For years, certain owners and operators of professional service corporations and other types of corporations have abused the no-fault insurance system. These persons are involved in activities that include intentionally staging accidents and billing no-fault insurers for health services that were unnecessary or never in fact rendered.[6]

The regulation specifically discusses the superintendent’s “great concern” over the ownership, control, and operation of professional service corporations or other similar business entities by individuals who are not licensed to practice medicine.[7] As the regulation explains, a large part of the problem arises when “[u]nlicensed persons pay licensed physicians to use the physicians’ names, signatures, and licenses for the purpose of fraudulently billing no-fault insurers for services that were never rendered, are of no diagnostic value, or are medically unnecessary.” These physicians, the superintendent points out, “essentially sell their licenses, for a fee, and become ?paper owners’ of the professional service corporation, which in turn permits unlicensed and unqualified persons to own, operate, and control a professional service corporation, although they are prohibited from having any financial interest in such a corporation pursuant to Article 15 of the Business Corporation Law.” [8]

The upshot, according to the superintendent, is that certain professional business entities have become “unjustly enriched through the ill-gotten proceeds of illegal activity,” increasing the cost of insurance premiums for the driving public.[9]

The regulation is specifically intended to reduce, if not eliminate, this type of fraud.

Insurance Law § 5109

The superintendent enacted the regulation pursuant to authority granted to him by Insurance Law § 5109(a). Section 5109(a) requires that the superintendent, in consultation with the New York Commissioners of Health and Education, promulgate standards and procedures for investigating and suspending or removing the authorization for health services providers to demand or request payment for health services from no-fault insurance carriers under certain specified conditions ? namely, upon findings of certain unlawful conduct reached after investigation, notice, and a hearing.

The Regulation

The heart of the regulation appears after a number of definitions, including of “health services” or “medical services,”[10] “insurer,”[11] and “Noticing Commissioner.”[12] The regulation provides that the superintendent (as well as the commissioners) may investigate[13] “any reports” regarding providers of health services engaging in any of the unlawful activities set forth in Insurance Law § 5109(b). The unlawful activities mentioned in § 5109(b) include where a health care provider has:

  • been guilty of professional or other misconduct or incompetency;
  • exceeded the limits of his or her professional competence in rendering medical care or has knowingly made a  false statement or representation as to a material fact in any medical report made in connection with any no-fault insurance claim;
  • solicited, or has employed another to solicit for himself or herself or for another, professional treatment, examination or care of an injured person in connection with any no-fault insurance claim;
  • refused to answer questions from, or produce information to, the superintendent concerning  his or her conduct in connection with rendering no-fault medical services; or
  • engaged in patterns of billing for services that were not provided.

If the superintendent determines that any provider has engaged in any of these unlawful activities, he “will send” the provider’s name to the commissioners.  Then, within 45 days, the commissioners must notify the superintendent, in writing, whether they confirm that the superintendent has a reasonable basis to proceed with notice and a hearing for determining whether the provider should be de-authorized from demanding or requesting any payment for medical services in connection with any no-fault insurance claim.

The regulation contains procedural protections for health care providers. It requires that a provider be given written notice at least 30 days before a hearing is scheduled. If the provider wants to proceed with the hearing, then the provider has to notify the superintendent or noticing commissioner in writing, within 10 days of receipt of the notice, demanding a hearing. In that event, a hearing date is fixed.

A provider may file an answer to any charges before the hearing ? which must be open to the public unless the superintendent or noticing commissioner determines that a private hearing would be in the public interest. The provider also has the right to be represented by counsel, inspect all adverse documentary proof, examine and cross-examine witnesses, and present proof.[14]

Temporary Bar

A very significant aspect of the regulation is the section[15] that provides for a temporary prohibition on a health care provider’s ability to demand or request no-fault insurance payments pending a final determination by the superintendent. In this regard, the regulation states that if the superintendent or noticing commissioner “believes” that the provider has engaged in activity prohibited by Insurance Law §5109(b), then the superintendent or noticing commissioner “may temporarily prohibit the provider from demanding or requesting any payment for medical services under [the no-fault insurance law] for up to 90 days from the date of the notice of such temporary prohibition.”

Upon receipt of a final report and recommendation from the hearing officer, the health care provider can be permanently prohibited from demanding or requesting any payment for no-fault insurance medical services ? and also from treating any person seeking no-fault medical care as a “private” patient.


Certainly, some government officials are taking notice of the enormity of the problem of no-fault insurance fraud. Earlier this year, for example, federal prosecutors indicted three dozen people ? including 10 doctors and three lawyers ? for allegedly participating in what they contended was the largest single no-fault automobile insurance fraud ever charged ? an alleged quarter-of-a-billion-dollar scheme.[16] Although the state continues to wait for the Legislature to adopt statutory changes to the no-fault law that also could help reduce fraud,[17] the new regulation certainly is a large step in the right direction. Of course, real success must be more than words on paper; it requires funding, action, and results ? and only then will those who commit no-fault insurance fraud be put permanently out of business.

[1] 11 NYCRR 65-5, available at

[2] See State Farm v. Mallela, 4 N.Y.3d 313 (2005). The author represented State Farm in the Court of Appeals in this case.

[3] See, e.g., Evan H. Krinick, “Anatomy of Massive No-Fault Insurance Fraud Alleged by Government,” NYLJ, May 4 2012.

[4] N.Y. Ins. Law §5101 et seq.; 11 N.Y.C.R.R. §65 et seq.

[5] See Superintendent Benjamin M. Lawsky, “Statement of the Reasons for Emergency Measure” (“Statement of Reasons”), available at

[6] Id.

[7] See Regulation, Section 65-5.0(b).

[8] Id.

[9] Id.

[10] Id., Section 65-5.1. “Health services” or “medical services” is defined to mean services, supplies, therapies, or other treatments as specified in Insurance Law §5102(a)(1)(i), (ii), or (iv), which include surgical, nursing, dental, ambulance,  x-ray,  prescription drug, prosthetic  services,  as well as psychiatric,  physical  therapy (provided that  treatment  is  rendered  pursuant  to  a  referral)  and occupational  therapy and rehabilitation.

[11] Id. The definition of “insurer” includes insurance companies and self-insurers.

[12] Id. The “Noticing Commissioner” is the Commissioner who sends a notice of hearing to the health care provider.

[13] Id., Section 65-5.2.

[14] Id., Section 65-5.4.

[15] Id., Section 65-5.5.

[16] United States v. Zemlyansky, S1 12 Cr. 171 (JPO) (S.D.N.Y. Feb. 29, 2012).

[17] See Evan H. Krinick, “Are Statutory Changes to No-Fault Law on the Horizon?,” NYLJ, Nov. 4, 2011.

Reprinted with permission from the November 2, 2012 issue of the New York Law Journal.  All rights reserved.

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