Overview

According to the No-Fault Regulations, an insurance company may demand, as a condition to no-fault coverage, that an applicant for benefits appear at an examination under oath (“EUO”). By accepting a patient’s assignment of benefits, a healthcare provider stands in the shoes of his or her patient and is subject to many of the same conditions and obligations, including responding to a request for an EUO (See “Assignment of Benefits.”)

Physician EUOs are often made in conjunction with an insurance company’s investigation into the corporate structure of the healthcare provider.  However, the scope of an EUO is not limited to that. A physician EUO can be prompted for many other reasons (e.g., billing practices, reasons for deciding on a particular method of treatment, etc.).

The nature of an EUO is very similar to a deposition.  During an EUO, a physician is questioned about his or her practice under oath and the testimony is recorded by a court reporter.  

Often, the EUO request is accompanied by document demands. These documents can be as simple as the treating physician’s credentials, and as complex as his or her financial records.  Insurance companies like to ask for anything and everything under the sun when it come to physician EUOs.  Therefore, physiciansshould seek advice from an attorney prior to attending an EUO and/or turning over any documentation.

An Insurance Company’s Right to Demand an EUO of a Physician

An insurance company’s demand that a healthcare provider appear for an EUO is an extraordinary means to verify a no-fault claim.  While an insurance company has the right to demand this verification, its right is not unrestrained.

It is well-settled that an insurance company must demonstrate a reasonable basis for conducting an EUO. Furthermore, the Superintendent’s regulations “demand that carriers delay the payment of claims to pursue investigations solely for good cause.”

An insurance company’s reasonable basis or good cause for demanding an EUO must be based upon the application of specific facts and objective standards. These standards are subject to review by the Department of Financial Services.

Unfortunately, both the Department of Financial Services and the courts have largely determined that an insurance company is under no obligation to disclose its reason for demanding an EUO during the verification. Therefore, usually, the reasonableness of the EUO demand cannot be challenged until the claim is submitted to arbitration or litigation.  

Mallela and Corporate Status Verifications

The rights and obligations of insurance companies and providers in relation to a physician EUO request are the subject of vigorous contention. Insurance companies have notoriously abused their right to conduct physician EUOs as a way to defeat otherwise indefensible claims and/or discourage healthcare providers from accepting its insured.

In order to understand what a corporate status verification is, it is necessary to have a basic understanding of both the Business Corporation Law (“BCL”) and the No-Fault Law. To summarize, BCL § 1503 states in substance that each shareholder, director, and officer of a professional corporation must be authorized by law to practice the profession that the corporation is being organized to practice. For example, if a corporation is formed for a medical practice, all shareholders of that corporation must be physicians. If a non-physician is also a shareholder, then that corporation is not legally organized.  

This law was directly incorporated into No-Fault Law in 2002 when Regulation 11 N.Y.C.C.R. § 65-3.16(a)(12) was enacted.  It provided in pertinent part that a “provider of healthcare services is not eligible for reimbursement under 5102(a)(1) of the Insurance Law if the provider fails to meet any applicable New York State or local licensing requirement.”

Following the promulgation of the regulation, it was clear that if a professional corporation was not in compliance with the BCL, it was not eligible for reimbursement under No-Fault. But who had the right to question whether a provider was properly incorporated? Could an insurance company withhold payment from a provider it suspected as being fraudulently incorporated? Could an insurance company demand cooperation from a provider it suspected of being controlled by a layman?

These issues were presented before the Court of Appeals in the seminal case of State Farm Mut. Auto. Ins. Co. v. Mallela.

In Mallela, the Court held that insurance companies can withhold reimbursement from fraudulently licensed medical corporations. Furthermore, insurance companies were entitled to “look beyond the face of licensing documents to identify willful and material failure to abide by state and local law.” As such, even if a medical corporation is properly incorporated, an insurance company is entitled to investigate further if it suspects that a layman is improperly influencing that practice.  

Subsequent to the Mallela decision, insurance companies have turned their investigatory privilege into a vehicle for delay and recalcitrance. Unlike a verification that is specific to an individual claim, a Mallela verification is global and encompasses all claims submitted by the provider. Once an insurance company unilaterally determines it has good cause to investigate a provider’s licensing credentials, it can withhold all payments to that provider, regardless of the patient’s medical needs. Finally, if the provider is not compliant with reasonable requests associated with the investigation, the insurance company can assert a potentially insurmountable defense to payment.

Healthcare Providers Subject to an EUO Request

The rights and obligations of healthcare providers and insurance companies in the context of verifications by physician EUOs are complex and ever-changing as new court decisions are rendered and new regulations are promulgated.

What course of action a healthcare provider should take is largely dependent on the facts and circumstances surrounding the nature of the specific verification.  What you must know is that if your practice bills no-fault to any significant degree, it is almost certain that an insurance company will demand a physician EUO. Sadly and contrary to warnings by the Court of Appeals, abuses of the corporate status verification process have gone largely unregulated. Once a physician EUO is requested, it is essential that your practice be represented by counsel through all stages of the verification.