Government Employees Insurance Co., et al., Respondents,v.Avanguard Medical Group, PLLC, Appellant.BriefN.Y.February 10, 2016APL-2015-00130 Nassau County Clerk’s Index No. 16313/11 Appellate Division, Second Department Docket No. 2013-02277 Court of Appeals 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. >> >> BRIEF IN RESPONSE TO BRIEF FOR AMICUS CURIAE THE MEDICAL SOCIETY OF THE STATE OF NEW YORK AND THE SOCIETY OF NEW YORK OFFICE BASED SURGERY FACILITIES, INC. MELITO & ADOLFSEN P.C. Attorneys for Plaintiffs-Respondents By: RIVKIN RADLER LLP Appellate Counsel for Plaintiffs-Respondents 926 RXR Plaza West Tower, 9th Floor Uniondale, New York 11556 516-357-3000 Of Counsel: Barry I. Levy Evan H. Krinick Henry M. Mascia Date Completed: January 26, 2016 To Be Argued By: Barry I. Levy Time Requested: 30 Minutes i TABLE OF CONTENTS Page TABLE OF AUTHORITIES .......................................................................... ii PRELIMINARY STATEMENT .................................................................... 1 ARGUMENT .................................................................................................. 4 A. The Fee Avanguard Seeks Is Not A Necessary Expense For A Medical Or Professional Health Service, And The Statutory Interpretation Arguments Made In The OBS Amicus Brief Lack Merit ........................ 4 B. The Effect On The Profitability Of A Doctor’s Office Accredited To Perform OBS Is Irrelevant ............................ 7 C. Deciding The Proper Incentives Of The No-Fault System Is A Decision Reserved For The Legislature And The Regulatory Agencies ............................................ 10 D. The Similarities Between A Doctors’ Office Accredited To Perform OBS And An ASC Are Misleading And Immaterial ................................................ 11 CONCLUSION ............................................................................................. 16 ii TABLE OF AUTHORITIES Page(s) Cases N.Y. Stat Ass’n of Nurse Anesthetists v. Novello, 2 NY3d 207 (2004) ............................................................................................... 7 Walton v. Lumbermens Mut. Cas. Co., 88 NY2d 211 (1996) ........................................................................................... 15 Statutes Insurance Law §§ 5102-5103 ................................................................................... 15 Insurance Law § 5102(a)(1) ............................................................... 1, 4, 5, 6, 13, 14 Public Health Law § 2807 ........................................................................................ 14 Article 28 of the Public Health Law ............................................................ 10, 11, 12 Public Health Law § 2800 ........................................................................................ 12 Pupblic Health Law § 2801-a(3) ........................................................................ 11, 12 Other Authorities 10 NYCRR § 709.5 ............................................................................................ 11, 12 10 NYCRR § 715 ..................................................................................................... 12 10 NYCRR Subpart 86-1 ......................................................................................... 12 11 NYCRR § 68.5 ................................................................................ 5, 9, 13, 14, 15 12 NYCRR §§ 329.5 ................................................................................................ 14 Bill Jacket, L. 2007, ch. 365 ...................................................................................... 7 http://codingpro.decisionhealth.com/CPT/Detail.aspx?Code .................................... 6 CPT Code 62310...................................................................................................5, 6 PRELIMINARY STATEMENT Government Employees Insurance Co., GEICO Indemnity Co., GEICO General Insurance Co., and GEICO Casualty Co. (collectively, “GEICO”) submit this brief in response to the amicus brief filed by the Medical Society of the State of New York and the Society of New York Office-Based Surgery Facilities, Inc. (“OBS Amicus Brief”). The OBS Amicus Brief makes four arguments in support of defendant Avanguard Medical Group, PLLC (“Avanguard”). None has merit. The Court should reject the OBS Amicus Brief’s statutory interpretation argument supporting Avanguard’s request for additional overhead compensation. As GEICO explained, the professional fees set forth in the Workers’ Compensation Medical Fee Schedule (“the Medical Fee Schedule”) incorporate all the overhead compensation that the Workers’ Compensation Board has deemed to be medically necessary. The fact that the Workers’ Compensation Board uses a flat-fee for professional services instead of a fee that varies with the site of service is consistent with this conclusion. A flat professional fee takes into account that, in the aggregate, professional services may be performed in different settings and provides an average rate of compensation in accordance with those variables. By incorporating overhead compensation into a flat professional fee, the regulatory agencies determined the precise amount of overhead compensation that constitutes a “necessary expense incurred for medical [and] surgical...services.” Insurance 2 Law § 5102(a)(1). Thus, any additional overhead is not covered by the No-Fault Law. The OBS Amicus Brief also argues that affirming the well-reasoned Appellate Division order will foreclose medical practices from an “important revenue source.” OBS Amicus Br. at 17. Because physicians have been performing office-based surgeries for decades without special compensation and payors do not generally provide overhead compensation beyond what is included in the professional fees, the Appellate Division decision does not, in reality, take away an existing source of revenue. Moreover, reversing the Appellate Division order would provide accredited doctors’ offices with a new source of revenue that provides all the benefits of a facility fee without the commensurate responsibilities. The Court should likewise reject the policy argument that affirming the Appellate Division order will eliminate incentives for physicians to perform more office-based surgeries (“OBS”). See OBS Amicus Br. at 14. Incentivizing office- based surgeries has countervailing policy implications, such as reducing HCRA surcharges to fund public goods pools and encouraging complex procedures, which generate higher fees but pose greater risks to patients. See Resp. Br. at 10, 40-43. The Legislature and the regulatory agencies, not this Court, bear the responsibilities of weighing these policy choices. 3 Finally, the comparison between the accreditations necessary for a doctor’s office to perform OBS and an ambulatory surgery center (“ASC”) is misleading and, in any event, sheds no light on the issue before the Court. Although similarities exist between the accreditations for ASCs and a doctor’s office accredited to perform OBS, they pale in comparison to the differences. More importantly, to determine whether the fee Avanguard seeks is covered by the No- Fault law, the relevant inquiry is about the nature of the fee itself, which seeks compensation for overhead expenditures. Thus, adopting the position advocated by the OBS Amicus Brief will necessarily entitle any office of a doctor, chiropractor or acupuncturist to seek additional compensation for overhead expenses. Further, adopting the position advocated by the OBS Amicus Brief will also cause patients to receive less actual medical care because a greater percentage of their no-fault benefits will be used to compensate providers for overhead. 4 ARGUMENT A. The Fee Avanguard Seeks Is Not A Necessary Expense For A Medical Or Professional Health Service, And The Statutory Interpretation Arguments Made In The OBS Amicus Brief Lack Merit The OBS Amicus Brief argues that “GEICO’s argument...ignores that the statutory framework allows for recovery of ‘all’ necessary expenses..., leaving the regulators only the power to cap fees, not determine what is or is not covered.” Amicus Br. at 13. Contrary to the contention of the OBS Amicus Brief, the regulators have, in fact, capped overhead compensation by incorporating reimbursement for overhead expenditures into a physician’s professional fee. Professional fees incorporate compensation for all the overhead costs the Legislature and the regulating agencies have deemed medically necessary under Insurance Law § 5102(a)(1). See Resp. Br. at 23-25. The professional fees expressly incorporate, among other overhead costs, “the equipment necessary” for the procedure and “expenses for ... facilities.” See Addendum to Resp. Br. at 20, 29, 45. By expressly mentioning “the equipment necessary” and “expenses for...facilities,” the overhead incorporated into the professional fees are obviously not limited to overhead costs that a physician would be expected to provide. See Addendum to Resp. Br. at 45. Thus, a fee to cover additional overhead expenses, like the one Avanguard charges, is not a “necessary expense incurred” for “medical” or “professional health services.” Insurance Law § 5102 (a) (1). 5 Further, 11 NYCRR § 68.5, which covers services “not set forth in the fee schedules adopted or established by the superintendent,” does not apply because the fee schedules expressly provide varying levels of overhead compensation depending upon where the provider delivers the medical services. Although the Medical Fee Schedule reimburses professional costs through a flat-fee, not a variable fee that changes depending upon the setting where the physician performs the service, this policy choice does not mean that professional fees specifically exclude overhead compensation. It simply means that the payor has chosen a different way to reimburse medically necessary overhead expenditures. A flat professional fee takes into account that, in the aggregate, professional services may be performed in different settings and provides an average rate of compensation to account for those variables. See generally Addendum to Resp. Br. Further underscoring the absence of any injustice in this system, the professional rates in the Medical Fee Schedule are significantly higher than the professional fees used by payors that use a variable fee for professional services rendered in a hospital or ASC. Compare Addendum to Resp. Br. at 12, 42 (indicating that the reimbursement rate under the Medical Fee Schedule for services rendered in Queens (area code 11432) under CPT Code 62310 is $396.24 (1.73 [relative value] multiplied by 229.04 [conversion factor for Region IV, which 6 includes area code 11432]) with http://codingpro.decisionhealth.com/CPT/Detail.aspx?Code (indicating that the non-facility reimbursement under Medicare for services rendered in Queens (area code 11432) under CPT Code 62310 is $289.82). As the Appellate Division correctly recognized, compensation for overhead, by definition, does not reflect the cost of a single procedure; it spreads the total operating costs across individual procedures (10). Thus, it should come as no surprise that the Medical Fee Schedule compensates the average costs of overhead, factoring in the variables associated with services being provided in different settings. Indeed, the most recent Medical Fee Schedule for professional services, which includes overhead compensation for physicians, became effective on June 1, 2012 – many years after doctor’s offices became accredited to perform office- based surgeries. See Addendum to Respondent’s Br. Although the amount of overhead compensation may not be sufficient to cover all of Avanguard’s particular overhead costs, the professional fees incorporate all the overhead that is a “necessary expense incurred” for “medical” or “professional health services.” Insurance Law § 5102(a)(1). Any other conclusion would force judges and arbitrators to distinguish between overhead costs that are medically necessary from overhead costs that are incurred for marketing, employee convenience, etc. – an endeavor that both judges and arbitrators are ill-equipped to 7 perform and that will inevitably bring these parties back before this Court again and again. Thus, any request for overhead compensation above the amount already incorporated into the professional fees should be directed toward the Legislature. B. The Effect On The Profitability Of A Doctor’s Office Accredited To Perform OBS Is Irrelevant The OBS Amicus Brief argues that affirming the Appellate Division order will “chok[e] off an important revenue source for OBS providers.” OBS Amicus Br. at 16-17. This argument is doubly flawed. First, the Appellate Division decision did not take away an existing source of revenue. A fee to use a doctor’s office is a relatively new phenomenon, and physicians have performed surgeries in their offices for many decades without historically receiving a fee for the use of their offices. See N.Y. Stat Ass’n of Nurse Anesthetists v. Novello, 2 NY3d 207, 209 (2004) (noting that the “practice of surgeries performed in physicians’ offices” was “burgeoning, but unregulated” in 1997); see also Letter from the Center for Medical Consumers, dated July 11, 2007, Bill Jacket, L. 2007, ch. 365 at 27 (indicating that the New York State Senate published a report on the safety of office-based surgeries in 1999); Letter of the N.Y.S. Ass’n. of Nurse Anesthetists, Inc., dated July 16, 2007, Bill Jacket, L. 2007, ch. 365, at 31 (stating that Certified Registered Nurse Anesthetists have “been providing safe, high quality and affordable anesthesia care for over 120 years in all types of settings, including in the office.”). 8 Currently, private and governmental payors do not generally provide overhead compensation beyond the amount already included in professional fees. See Amicus brief submitted by the New York State Association of Ambulatory Surgery Centers, Inc. (“ASC Amicus Brief”) at 13, 31-32. By Avanguard’s own admission, a split exists among arbitrators as to whether no-fault payors must compensate accredited doctors’ offices for overhead costs beyond those included in the professional fees. Finally, as discussed, the professional rates in the Medical Fee Schedule are significantly higher than the professional fees used by payors that use a variable fee for professional services rendered in a hospital or ASC. Thus, affirming the well-reasoned Appellate Division order would not take away any significant revenue that doctors’ offices currently receive; reversing the Appellate Division order, on the other hand, would provide accredited physician practices with a new source of revenue that provides all the benefits of a facility fee without the commensurate responsibilities. See Resp. Br. at 42-43. Avanguard and other practices accredited to perform OBS will not, for example, be responsible for paying a HCRA surcharge, unlike every other entity that actually receives a facility fee. Similarly, Avanguard’s fee will not be governed by a State-mandated methodology in the same way true facility fees are governed by a State-mandated methodology based upon data submitted to the State. Instead, Avanguard and other similar practices will be free to base their fee 9 on whatever factors they choose, so long as the fee is comparable to what others in the same geographic region see fit to charge. See 11 NYCRR § 68.5(b). This will serve to artificially reduce no-fault benefits that would otherwise be available to reimburse for other necessary care. Second, the OBS Amicus Brief does not point to any evidence in the record or in its own appendices, supporting the facile contention that overhead compensation beyond what is provided in the professional fees is an “important source of revenue” for doctors’ office performing OBS. As discussed, physicians have been performing OBS for decades without compensation. See, supra at 6-7; Resp. Br. at 13-14. Indeed, the fallacy created by the OBS Amicus Brief flies in the face of reality. By design, the ability of accredited practices to perform surgical procedures in an office based setting results in additional revenue for physician practices because (i) they are no longer required to compete with others for space in ASCs or hospitals, and (ii) they can maximize reimbursement that can be received by scheduling the performance of such procedures for given days or times according to physician availability. Further, practices that perform office-based surgeries can receive payments form numerous other payors, such as private insurance carriers, Medicare and Medicaid, yet neither the record on appeal nor the OBS Amicus Brief contains any evidence demonstrating how much OBS practices, in fact, rely on no-fault payors 10 in general or “facility fees” in particular. Such evidence would help this Court determine how “important” this “revenue stream” is to physicians’ offices that perform OBS. Instead of identifying this evidence, the OBS Amicus Brief offers mere speculation. C. Deciding The Proper Incentives Of The No-Fault System Is A Decision Reserved For The Legislature And The Regulatory Agencies The OBS Amicus Brief also argues that affirming the Appellate Division order would “reduce the incentives for surgeons to perform procedures in [doctors’ offices accredited to perform OBS], or even to establish OBS locations in the first place.” OBS Amicus Br. at 14. Regardless of whether this unsupported prediction is accurate, reversing the Appellate Division order creates perverse incentives. The Legislature and regulating agencies, not this Court, must evaluate which set of incentives is in the best interest of the public. To illustrate, providing additional overhead compensation to doctor’s offices that perform OBS will incentivize these practices to attempt more complex procedures, which generate higher fees but present increased risks to patients. Incentivizing surgeries in an office-based setting will also funnel patients away from Article 28 facilities, necessarily decreasing the number of procedures generating HCRA surcharges for public goods pool, and place Article 28 facilities, which must pay a HCRA surcharge, at a competitive disadvantage. This Court is 11 not equipped on this record to weigh these policy considerations and determine the best course action. Thus, the incentives argument in the OBS Amicus Brief underscores the conclusion that whether to award Avanguard this fee is a policy question reserved for the Legislature and the regulatory agencies. D. The Similarities Between A Doctors’ Office Accredited To Perform OBS And An ASC Are Misleading And Immaterial The OBS Amicus Brief states: “GEICO’s brief to this Court would suggest that [the Appellate Division order is correct] because an accredited OBS office is really nothing more than an ordinary ‘doctor’s office,” apparently, in GEICO’s view, with negligible additional expense.” Id. The OBS Amicus Brief then seeks to demonstrate that an “OBS office” is “more than an ordinary ‘doctor’s office’” by comparing its accreditation to the accreditation of an ASC. OBS Amicus Br. at 5 (quoting Resp. Br.). The OBS Amicus Brief misconstrues GEICO’s position, and the comparison it offers is meaningless. As an initial matter, any similarities between an accreditation for a doctor’s office to perform an OBS and an ASC are negligible compared to the differences described in the ASC Amicus Brief. For example, an ASC must obtain a Certificate of Need (“CON”) from the New York State Public Health and Health Planning Council based upon public need, financial feasibility, and the character and competence of the proposed operator. See Public Health Law § 2801-a(3); 10 12 NYCRR § 709.5. A physician, by stark contrast, can open an office anywhere that he/she chooses, and the accreditation required to perform OBS in that office does not require any consideration of public need, financial feasibility, or the character and competence of the proposed operator. Compare Public Health Law § 2801- a(3); 10 NYCRR § 709.5 with OBS Amicus Br., Exhs. A-D. In addition to obtaining a CON, an ASC must obtain a license under Article 28 of the Public Health Law, and comply with the construction standards set forth in 10 NYCRR §§ 715-2.1 to 2.5. By contrast, in order to open a doctor’s office, even one accredited to perform OBS, a physician does not have to comply with those requirements or anything even remotely comparable. Compare Public Health Law § 2800 et. seq.; 10 NYCRR §§ 715-2.1 to 2.5 with OBS Amicus Br., Exhs. A-D. A licensed ASC must accept Medicaid patients and provide charity care to uninsured patients who do not otherwise qualify for Medicaid. See 10 NYCRR § 709.5(d)(2)-(3). To determine what an ASC will receive from Medicaid, the ASC must submit a detailed cost report, which is ultimately subject to audit. 10 NYCRR Subpart 86-1. The accreditation necessary to perform OBS in a doctor’s office, however, does not impose any such obligations - physicians need not provide any charity care, accept Medicaid patients or report costs to the State in 13 any way. Compare 10 NYCRR § 709.5(d)(2)-(3) with OBS Amicus Br., Exhs. A- D. Finally, an ASC must electronically submit data on all procedures to the DOH’s Statewide Planning and Research Cooperative System (“SPARCS”) database, which is used, among other purposes, to establish reimbursement rates for ASCs. ASC Amicus Br. at 13. A physician accredited to perform OBS does not have to submit such data to the Department of Health, and the OBS Amicus Brief urges this Court to grant OBS practices the freedom to base their fees for overhead compensation on whatever factors they themselves choose, so long as the fee is comparable to what others in the same geographic region see fit to charge. See 11 NYCRR § 68.5 (b); see also ASC Amicus at 13-14. More fundamentally, GEICO does not argue that the No-fault law precludes Avanguard’s fee simply because Avanguard is “an ordinary doctor’s office.” OBS Amicus Br. at 5 (internal quotation marks omitted). Rather, GEICO argues that to determine whether the fee Avanguard seeks is covered by the No-Fault law, the relevant inquiry focuses on the nature of the fee itself, not the general nature of the practice. See Insurance Law § 5102(a)(1) (covering a “necessary expense”) (emphasis added). Avanguard seeks compensation for overhead costs that exceed the overhead that is already included in the professional fees. Because the fee schedule already 14 incorporates overhead costs into the professional fees, any additional fees are not a “necessary expense incurred” for “medical” or “professional health services” and cannot be covered by the so-called “catch-all” regulation. Insurance Law § 5102(a)(1); see 11 NYCRR § 68.5 (b). GEICO also argues that under the interpretation of the law adopted by the OBS Amicus Brief, the overhead costs of any medical practice would be reimbursable under Insurance Law § 5102(a)(1) because “if fees for surgical space, nurses, equipment, administrative personnel, medical supplies, and the like are among the ‘necessary expenses’ under [Insurance Law § 5102(a)(1)] in one type of state-regulated medical setting, then there is no reason why those same expenses are somehow unnecessary in another.” See Resp. Br. at 34 (quoting Appellant’s Br. at 18). This consequence is significant for several reasons. First, it means that overhead costs for any office of a doctor, chiropractor, acupuncturist or physical therapist (among others) can simply be re-characterized as a “facility fee” to cover the costs of any overhead that exceeds that which is include in the professional fees, drastically increasing the costs of professional services and artificially reducing policyholder benefits. Moreover, awarding a “facility fee” to the offices of doctors, chiropractors, acupuncturists and physical therapists divorces the “facility fee” from the methodology the State mandated for hospitals and ASCs. Compare 12 NYCRR §§ 329.5 (guidelines ambulatory 15 surgery services fee schedule), App. C-6 (outpatient hospital services fee schedule); Public Health Law § 2807 (authorizing establishment of inpatient hospital services schedule) with 11 NYCRR § 68.5 (b) (regulation relied upon by Avanguard, which does not contain any methodology). Thus, awarding a “facility fee” to such practices without any standards for how to compute it will create uncertainty for judges and arbitrators determining whether, when and how much an office will receive in additional overhead compensation. Such uncertainty erodes the foundation of the No-Fault system, which was crafted to be “a quick, sure and efficient system for obtaining compensation for economic loss suffered” from automobile accidents. Walton v. Lumbermens Mut. Cas. Co., 88 NY2d 211, 214 (1996). Finally including the additional cost of overhead that Avanguard seeks will adversely affect patients by causing them to use up their $50,000 of no-fault benefits more quickly. See Insurance Law §§ 5102-5103. By using a greater percentage of their no-fault benefits for overhead costs, patients will receive less actual medical care. Inevitably, the fee schedules and levels of reimbursement payable for professional services have a direct correlation with those benefits that insurers are mandated to provide in New York, and the rule proposed by Avanguard and supported by the OBS Amicus Brief turns that balance on its head. 16 CONCLUSION For these reasons, the Appellate Division order should be affirmed, with costs. Dated: Uniondale, New York January 26, 2016 Yours, etc., RIVKIN RADLER LLP -and- MELITO & ADOLFSEN P.C. Attorneys for Plaintiffs-Respondents Government Employees Insurance Co., GEICO Indemnity Co., GEICO General Insurance Co., and GEICO Casualty Co. By: Barry I. Levy 926 RXR Plaza Uniondale, New York 11556-0926 (516) 357-3000 MELITO & ADOLFSEN P.C. 233 Broadway, Suite 1010 New York, New York 10279 (212) 238-8900 Of Counsel: Barry I. Levy, Esq. Evan H. Krinick, Esq. Henry M. Mascia, Esq.