Government Employees Insurance Co., et al., Respondents,v.Avanguard Medical Group, PLLC, Appellant.BriefN.Y.February 10, 2016To be Argued by: CHARLES MICHAEL (Time Requested: 30 Minutes) APL-2015-00130 Nassau County Clerk’s Index No. 16313/11 Appellate Division–Second Department Docket No. 2013-02277 Court of Appeals of the State of New York GOVERNMENT EMPLOYEES INSURANCE CO., GEICO INDEMNITY CO., GEICO GENERAL INSURANCE CO. and GEICO CASUALTY CO., Plaintiffs-Respondents, – against – AVANGUARD MEDICAL GROUP PLLC, Defendant-Appellant. REPLY BRIEF FOR DEFENDANT-APPELLANT CHARLES MICHAEL Of Counsel STEPTOE & JOHNSON LLP Appellate Counsel for Defendant- Appellant The Grace Building 1114 Avenue of the Americas New York, New York 10036 Tel.: (212) 506-3900 Fax: (212) 506-3950 Date Completed: October 12, 2015 TABLE OF CONTENTS INTRODUCTION ..................................................................................................... 1 DISCUSSION ............................................................................................................ 3 I. The No-Fault Laws Cover Office-Based Surgery Expenses Beyond Professional Fees ..................................................................... 3 II. Neither the Legislature Nor Any Regulator Has Made a “Policy” Choice to Bar Recovery of Expenses Falling Within the Plain Statutory Language................................................................................ 9 III. The Court Should Interpret the No-Fault Laws As Written, Not Defer to Hypothetical Future Legislation or Regulation ............. 10 IV. GEICO’s Remaining Arguments Are Wrong, Irrelevant or Both ...... 13 CONCLUSION ........................................................................................................ 16 - ii - TABLE OF AUTHORITIES CASES Avanguard Med. Group v. GEICO Ins. Co., AAA Case No. 4120130333085 (Jan. 7, 2014) ............................................. 14 Clark v. Cuomo, 66 N.Y.2d 185 (1985) .................................................................................... 13 Gov’t Emps. Ins. Co. v. Avanguard Med. Group, 127 A.D.3d 60 (2d Dep’t 2015) ....................................................................... 9 STATUTES 42 U.S.C. § 1395ww .................................................................................................. 5 42 U.S.C. § 1395x ...................................................................................................... 5 N.Y. INS. LAW § 5102 ........................................................................... 1, 2, 3, 11, 12 N.Y. PUB. HEALTH LAW § 230-d. ............................................................................. 14 N.Y. PUB. HEALTH LAW § 2807-c .............................................................................. 5 N.Y. WORKERS’ COMP. LAW, app. § 329.5 ............................................................4, 5 RULES 10 NYCRR § 755.2 .................................................................................................. 14 10 NYCRR § 86-4.40 ................................................................................................ 5 11 NYCRR § 68.5 .................................................................................................... 12 OTHER AUTHORITIES 11 N.Y. REG. 24-25 (Sept. 27, 1989) ......................................................................... 5 N.Y. Bill Jacket, 2007 S.B. 6052, Ch. 365 .............................................................. 14 N.Y. INS. DEPT. OP. 01-06-07 (June 11, 2001) ........................................................ 10 INTRODUCTION This appeal seeks to reverse a Second Department ruling that wrongly erased a large category of medical reimbursement under the no-fault insurance laws. According to the ruling, the no-fault laws do not allow office-based surgery providers to recoup their legitimate expenses via “facility fees,” even though the same expenses would be covered if the same procedures were performed in hospitals or other types of regulated medical settings. As Avanguard’s opening brief explained, the ruling cannot be squared with the statutory language, which requires reimbursement for “[a]ll necessary” medical expenses, regardless of the setting. N.Y. INS. LAW § 5102(a)(1). Faced with this unambiguous language, GEICO’s opposition brief concedes for the first time that the expenses here are included within the statute, but GEICO devises a new theory for why they are nonetheless unrecoverable. According to GEICO, all facility fees are already included in the professional fees that the individual surgeons or other professionals are paid. This new theory is wrong because the applicable rules calculate facility fees to hospitals and ambulatory surgery centers based on the surrounding expenses of surgery—which necessarily means that those expenses are not also part of the professional fees. The distinction in the rules between these two fee components (professional and non-professional) makes practical sense. It allows surgeons to be paid a single -2- fee for their services, regardless of the setting, and allows for a separate facility fee to be paid and tailored to the setting provider. GEICO’s proposed reading of the law, by contrast, is quite anomalous because it would give surgeons little reason to perform procedures in accredited office-based settings. They could instead take their patients to a hospital or ambulatory surgery center where all the equipment and staff would be provided and paid for by facility fees. There would be much less incentive to build accredited office-based surgery locations in the first place. GEICO argues that the legislature and regulators have somehow made a “policy” choice to prohibit the fees at issue here, but there is not one shred of evidence that anyone intended to do so. GEICO points to the absence of an explicit fee schedule, but it is the statute (N.Y. INS. LAW § 5102(a)(1)), not any fee schedule, that defines what is covered. The fee schedules can only impose a cap on covered charges, and the absence of a charge from the schedules merely means that the regulators have not imposed a cap for that particular charge. In those circumstances, under the “catch all” rule, the cap is simply the prevailing rate in the region for similar charges. GEICO also argues that the Court should leave it to the legislature and regulators to decide these questions, but that argument wrongly presumes that the statute as written favors GEICO. It does not. And while it would certainly be easier for all involved if the regulators adopted a schedule defining with precision -3- the recoverable maximums, their failure to do so does not relieve GEICO of its obligations under the statute to cover the expenses that office-based surgery providers unquestionably incur in treating car accident victims. Finally, GEICO argues that Avanguard and other similar providers are engaging in a “money grab,” when, in fact, the vast majority of arbitrators and courts agreed, until the Second Department ruling, that these fees were fair and appropriate. GEICO’s allegations of billing abuse are meritless, but in all events can be addressed by the able arbitrators and judges hearing no-fault cases each day. The Court should reverse the Second Department’s sweeping ruling that would bar recovery of these fees in all circumstances, and should hold that office- based surgery providers may recover facility fees that are proven and justified. DISCUSSION I. THE NO-FAULT LAWS COVER OFFICE-BASED SURGERY EXPENSES BEYOND PROFESSIONAL FEES As detailed in Avanguard’s opening brief, the surgical expenses at issue here easily fall within the broad scope of no-fault reimbursement, which covers “[a]ll necessary expenses incurred for . . . medical [and] surgical . . . . services.” (Avan. Br. 17-20 (quoting N.Y. INS. LAW § 5102(a)(1) (emphasis added)).) In opposition, GEICO all but concedes this central point. Specifically, its brief acknowledges that these costs “can constitute a ‘necessary expense incurred’ for a medical or professional health service” and therefore can be reimbursable. (GEICO Opp. 23.) -4- Having made that concession, GEICO is reduced to arguing that the expenses are not reimbursable only because they are supposedly “already provided for . . . through the professional fees” that the individual surgeons may recover. (Id. at 36.) This theory, which GEICO never saw fit to raise until now and which is nowhere in the Second Department’s ruling, is wrong and should be rejected. First, the applicable regulations are clear that hospital and ambulatory surgery facility fees are fully inclusive of the surrounding expenses of surgical procedures, which means that those same expenses cannot possibly be part of the professional fees, too. The rules state that ambulatory surgery centers may recover 150 percent of the facility charges allowed under a certain Medicaid regulation, see N.Y. WORKERS’ COMP. LAW, app. § 329.5(a), which, in turn, calls for “full reimbursement” for (among other expenses): “nursing services, technician services, and other related professional expenses”; “drugs, biologicals, surgical dressings, supplies, splints, appliances and equipment directly related to the provision of the surgical procedures”; “materials for anesthesia”; “space occupancy and plant overhead costs”; and “facility overhead expenses.” -5- 10 NYCRR § 86-4.40(d) (emphasis added); see also 11 N.Y. REG. 24-25 (Sept. 27, 1989) (adopting release stating that ambulatory surgery facility fees are “inclusive” of all these costs). The rules call for entirely separate reimbursement for “physician services,” whose fees are calculated under the Medical Fee Schedule applicable in all medical settings (a copy which is attached to GEICO’s brief). N.Y. WORKERS’ COMP. LAW, app. § 329.5(a). The same basic framework applies to hospital reimbursement. Hospital facility fees are based on the “reimbursement of inpatient hospital service” under federal law, see N.Y. PUB. HEALTH LAW. § 2807-c(1)(b) (referring to “case based payments” under subsection (3)(a)); id. § (3)(a), which, in turn, bases reimbursement on (among many other things) “all routine operating costs, ancillary service operating costs, and special care unit operating costs with respect to inpatient hospital services.” 42 U.S.C. § 1395ww (a)(4). The term “inpatient hospital services” is broadly defined to include “such nursing services and other related services, such use of hospital facilities, and such medical social services as are ordinarily furnished by the hospital for the care and treatment of inpatients, and such drugs, biologicals, supplies, appliances, and equipment.” 42 U.S.C. § 1395x(b)(2). The term excludes “medical or surgical services provided by a physician, resident, or intern,” because those are covered by professional reimbursement rules. Id. at (b)(4). -6- Professional reimbursement is plainly not inclusive of the very expenses that are addressed explicitly in calculating facility fees. If, as GEICO contends, professional fees fully covered those expenses, the facility fees to hospitals and ambulatory surgery centers would be based on unique or marginal regulatory costs, as opposed to being calculated based on the same expenses (nurses, equipment, etc.) that will be incurred in any setting. It makes eminent practical sense for the rules to distinguish between professional and non-professional charges in this way. Surgeons often perform services in the environment of a separate company (whether a hospital, an ambulatory surgery center or an accredited, office-based surgery provider) that employs the support staff and provides the space and equipment that make the procedures possible. (R. 621 ¶ 16.) It would make no sense to reimburse surgeons for these expenses in cases where a separate entity actually incurs them. That would amount to paying for the same expenses twice—once to the surgeon and again to the surgical center or other provider of the medical setting. GEICO’s reading is particularly unreasonable because it would diminish the incentive to establish and operate office-based surgery locations in the first place. Why would surgeons pay to create their own surgical environment when they could just walk into a fully-staffed and equipped ambulatory surgery center or hospital and be paid the same fee for the same work? GEICO does not explain. -7- Second, the Medical Fee Schedule detailing the professional fees (the primary evidence GEICO cites on this issue) nowhere suggests that it is intended to cover all non-professional charges. If that were the intent, surely there would be a clear statement along those lines. There is not. GEICO plucks out of context various snippets of the Schedule, but none help its case. For instance, GEICO highlights language stating that, for procedures with charges too variable for fixed pricing, the doctor must prepare a report describing (among other things) “the time, the skill, and the equipment necessary” for the procedure. (GEICO Opp. 11 (quoting GEICO Add. 20) (emphasis in original).) That language simply means that the equipment used is one factor in determining the professional reimbursement. It hardly suggests that the professional reimbursement will cover every item of equipment. GEICO also highlights a passage of the Medical Fee Schedule stating that the “sections are organized according to the type of service and variations of overhead expense ratios for providing the services.” (GEICO Opp. 24 (quoting GEICO Add. 8).) That language does not mean, as GEICO apparently reads it, that all “overhead expense” is included. Rather, it is plainly referring only to how the document is “organized”—specifically, that similar procedures are grouped together, based on the variations that increase the recoverable charges. Thus, for example, the charge for removing lesions increases depending on whether the -8- doctor is removing one lesion, two to four lesions (a higher charge), or more than four lesions (the highest charge). (GEICO Add. 38.) GEICO next points to various references in the Medical Fee Schedule to discrete expense items that are explicitly encompassed within the professional fees (GEICO Opp. 24), but those items only underscore the point that, as a general matter, non-professional expenses are not included. For instance, the Schedule states that digital radiology images are “considered to be a component of the basic procedure and shall not merit any additional payment.” (GEICO Add. 44.) That statement would be wholly unnecessary if, as GEICO contends, professional fees fully covered the surrounding expenses of medical services. To be sure, GEICO may argue that Avanguard’s facility fees here improperly include certain items like digital imaging that are already covered by the Medical Fee Schedule for professional fees. But even if GEICO could prove some level of “double dipping” (which Avanguard disputes), that would not affect this appeal. The Second Department’s sweeping summary judgment decision, which was issued before any discovery into the 167 underlying surgery cases (R.49 ¶ 28), held that office-based surgery providers may not recover any facility fees under any circumstances. Gov’t Emps. Ins. Co. v. Avanguard Med. Group, 127 A.D.3d 60, 66-67 (2d Dep’t 2015). Unless GEICO can show that every component -9- of every facility fee amounts to “double dipping”—which it clearly cannot do—the Court must reverse, and hold that facility fees are recoverable where appropriate. II. NEITHER THE LEGISLATURE NOR ANY REGULATOR HAS MADE A “POLICY” CHOICE TO BAR RECOVERY OF EXPENSES FALLING WITHIN THE PLAIN STATUTORY LANGUAGE GEICO repeatedly refers to the supposed “policy choices” of legislators or regulators to prohibit office-based surgery providers from recovering facility fees (see GEICO Opp. 3, 25, 26, 27, 40), but that is a complete fiction. The broad statutory language concededly covers the expenses at issue. (GEICO Opp. 23.) There is no statute, rule or regulation saying otherwise. In all the years prior to the Second Department’s ruling, when arbitrators by a three-to-one majority were awarding facility fees to office-based surgery providers in thousands of cases (Avan Br. Add.), the regulators never once issued an advisory or suggested in any way that the prevailing view of the issue was somehow wrong. It is true that the regulators never specifically adopted a fee schedule for office-based surgery providers, but the failure to do so cannot amount to a “policy choice.” That is because the schedules merely establish the amounts that charges may “not exceed.” N.Y. INS. LAW §5108(a). The schedules do not establish what falls within the statute or not. As the Insurance Department has explained: “[T]he question of whether an eligible service provided is reimbursable under No-Fault will be determined by whether the procedures billed for are medically necessary -10- for the treatment of a claimant’s injuries arising out of an accident, not whether fees for those services are specified and included under the Worker's Compensation fee schedule.” N.Y. INS. DEPT. OP. 01-06-07 (June 11, 2001) . In any event, it is undisputed that the regulators have not bothered to update the facility fee schedule for ambulatory surgery centers since 2003—five years before the law relating to office-based surgery providers went into effect (Avan. Br. 18-19)—and so GEICO’s hypothesized policy choice is particularly dubious. (For the same reasons, GEICO’s arguments about the fees under the HCRA, which was passed over a decade before the office-based surgery law (GEICO Br. 9-10), are entirely unhelpful, too.) Finally, GEICO points out that the Medical Fee Schedule for professional services was updated long after the office-based surgery law. (GEICO Opp. 31- 32.) But, as discussed, that schedule does not address the non-professional expenses at issue here and thus cannot possibly show an intent by anyone to categorically deny facility fees to office-based surgery providers. III. THE COURT SHOULD INTERPRET THE NO-FAULT LAWS AS WRITTEN, NOT DEFER TO HYPOTHETICAL FUTURE LEGISLATION OR REGULATION GEICO argues that courts and arbitrators would not be equipped to properly calculate the reimbursement for office-based surgery expenses, and that these issues should therefore be left to regulators or to the legislature, which, as GEICO -11- emphasizes, is considering remedial legislation. (Opp. 37-38, 41-42.) This line of argument is wrong for several reasons. First, as Avanguard explained in its moving brief, arguing that the matter should be left to the legislature reflects classic question-begging logic by presuming the legislature did not already decide the issue when it broadly required reimbursement for “all” necessary medical expenses. (Avan. Br. 23-24.) GEICO offers no answer to this point. To be sure, it may be preferable and more efficient for the regulators to adopt a fee schedule affirmatively establishing exactly how much (or how little) in facility fees may be recovered by office-based surgery providers, but that has nothing to do with the question before the Court of what current law allows. GEICO appears to believe that no recovery is appropriate unless and until the regulators act, but that gets the statutory framework backwards. As discussed, the no-fault laws cover all necessary expenses, N.Y. INS. LAW § 5102(a)(1), which are then capped only to the extent the regulators have established schedules with maximum charges. Id. § 5108. The fee schedules cannot determine coverage; they can only cap particular amounts. This framework protects providers from being penalized for regulatory delays or inaction. The virtue of this framework is illustrated by the case law and an Insurance Department opinion cited in Avanguard’s opening brief concerning licensed -12- acupuncturists (Avan. Br. 19-20), notwithstanding GEICO’s efforts to argue otherwise. (GEICO Opp. 36.) As Avanguard explained, the fee schedules refer only to acupuncture provided by doctors and chiropractors, but the courts and Insurance Department have not concluded, as GEICO urges the Court to do here, that recovery by other types of providers should be denied until the specific question is addressed in a fee schedule. (Avan. Br. 19-20.) Quite the contrary, the fact that a general type of charge (acupuncture) is on the fee schedules shows it tp be a “necessary” expense under the law as written. That same logic applies here. Second, contrary to GEICO’s argument, courts and arbitrators are plainly capable of determining the appropriate reimbursement, which is straightforward enough: providers can be paid the “prevailing fee in the geographic location of the provider.” 11 NYCRR § 68.5. As is undisputed, arbitrators awarded facility fees to office-based surgery providers by a three-to-one majority in thousands upon thousands of cases prior to the Second Department’s ruling. (Avan. Br. Add.) There is no evidence they had difficulty ascertaining the prevailing fees. If the Second Department is reversed, those same arbitrators would presumably resume the methodologies they have been using all along. While GEICO appears to prefer the simplicity of a bright-line rule denying reimbursement altogether, the legislature chose to cover “all” expenses “necessary,” N.Y. INS. LAW § 5102(a)(1), -13- and thus invariably invited line-drawing in certain cases. The Court cannot jettison this language because a different system might be easier to administer. Finally, the existence of legislation under consideration to provide for reimbursement is meaningless, as Avanguard explained in detail in its opening brief. (Avan. Br. 27-28 (citing, among other authorities, Clark v. Cuomo, 66 N.Y.2d 185, 190-91 (1985).) GEICO fails to address these points or cite any authority to suggest how unenacted legislation could affect the meaning of laws passed by different legislators decades ago. IV. GEICO’S REMAINING ARGUMENTS ARE WRONG, IRRELEVANT OR BOTH GEICO caricatures Avanguard’s position by arguing that it would allow doctors to charge for every “stethoscope” or “lab coat.” (GEICO Opp. 34.) But, as discussed, certain ordinary expenses incidental to surgeries are included in the professional fee precisely because they would be expected to be provided by the surgeon, as opposed to the hospital or other entity providing the medical setting. Along these lines, GEICO also argues that Avanguard’s interpretation would apply equally to an ordinary doctor’s office (id.), but, even if that were theoretically possible, it is irrelevant because Avanguard is fully accredited. In any event, accredited office-based surgery settings can hardly be equated with ordinary doctors’ offices, because they must have the necessary staff, equipment, operating rooms, and recovery rooms for surgical procedures—all to exacting accreditation -14- standards from the same agencies that accredit ambulatory surgery centers. N.Y. PUB. HEALTH LAW § 230-d.1 These standards ensure that patients receive the “same standard of care” in office-based settings as they would in hospitals and ambulatory surgery centers. See N.Y. Bill Jacket, 2007 S.B. 6052, Ch. 365. According to GEICO, however, the legislature expected that doctors would incur the costs of creating these newly-regulated entities while intending that they charge nothing for their services. As one arbitrator aptly explained, this makes no sense: “Why enact such laws at all, if . . . an [office-based surgery prover] is prohibited from providing the service and billing for them?” Avanguard Med. Group v. GEICO Ins. Co., AAA Case No. 412013033308, at 5 (Jan. 7, 2014).2 Finally, GEICO accuses Avanguard of engaging in a “money grab” by supposedly charging excessive fees — $3,500 to perform a single surgery in an office rented for $1,000 a month. (GEICO Opp. 42-43.) But, as discussed, given the Second Department’s sweeping holding, the only the question here is whether office-based surgery providers are categorically barred from ever recovering 1 See https://www.health.ny.gov/professionals/office-based_surgery/ obs_faq.htm (Question 10, identifying agencies); 10 NYCRR § 755.2 (requiring ambulatory surgery centers to be accredited by agencies approved by the Centers for Medicare and Medicaid Services); https://www.cms.gov/Medicare/Provider-Enrollment-and- Certification/SurveyCertificationGenInfo/Downloads/Accrediting-Organization- Contacts-for-Prospective-Clients-.pdf (identifying same agencies). 2 Available at https://nysinsurance.adr.org/viewaward?awardId=345124. -15- facility fees or whether there are circumstances meriting recovery. Arbitrators and trial courts can address any excess on a case-by-case basis. Nonetheless, GEICO’s smear grossly distorts the record and demands a brief correction. What the record actually shows is as follows. An affiliate of Avanguard (Metropolitan Medical and Surgical Group, P.C.) rents space at approximately 10 locations throughout New York City to meet with and evaluate patients. (R. 97.) Those office spaces are what cost up to $1,000 per month, and that rent is paid by Metropolitan, not Avanguard. (Id. at 116-17.) If those patients require surgery, they are brought to Avanguard’s three-story, 4,500 square-foot, accredited surgical location in Brooklyn, which is equipped for various pain management and plastic surgery procedures. (Id. at 98, 142, 147.) All of the non- professional components for those procedures are separately provided by Avanguard, including nurses, technicians, imaging equipment (both the purchase and maintenance) and so forth. (Id. at 50-51, 105-07.) As Avanguard’s principal testified, maintaining an accredited surgical environments with all of these features “cost money” (id. at 107)—money that facility fees are intended to recoup. Far from a “money grab,” Avanguard is seeking to recover real costs incurred in treating real patients, just as hospitals and other surgical providers routinely do when identical procedures are performed in those settings. That is what the plain statutory language requires. The Court should not allow GEICO to avoid its statutory obligation to pay for these costs in appropriate circumstances, and should therefore reverse. CONCLUSION For the stated reasons, and those in Avanguard's opening brief, the Court should reverse the decision of the Second Department and hold that in appropriate circumstances office-based surgery providers may recover facility fees under the no-fault laws. Dated: New York, New York October 12, 2015 Respectfully submitted, ByC.£2~ Charles MiChael -16- STEPTOE & JOHNSON LLP 1114 Avenue of the Americas New York, New York 10036 Tel: (212) 506-3900 Fax: (212) 506-3950 Appellate Counsel for Avanguard Medical Group PLLC