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October 12, 2017

Provider Due Process Under Fire Amid Flurry of Network Terminations

Public Health Law § 4406-d represents an important due process right for New York health care providers besieged by managed-care driven network retractions. At a time when networks continue to shrink and consolidate, providers facing termination from health plans need to know their rights to protect themselves and their patients.

A. A Provider's Right to a Written Explanation and Hearing.

A health care plan is not permitted to arbitrarily terminate plan contracts. Section 4406-d provides a measure of due process that mandates a written explanation of the reasons for the proposed contract termination and an opportunity for review or hearing in most circumstances.i These statutory rights apply without regard to the terms and conditions of a plan contract.ii

The written explanation from the health care plan must include: (1) the reasons for the proposed termination; (2) notice of the provider's right to request a hearing or review; (3) at least 30 days to request an appeal; and (4) a hearing within 30 days of the appeal request.iii The health care plan may not terminate a provider sooner than 60 days from the receipt of a written termination notice in most cases.iv If the provider appeals the termination and the termination is upheld by the hearing panel, the termination cannot be effective for 30 days after receipt of the decision by the provider.v

Upon receipt of the termination notice, the clock begins to tick on a health care provider's rights. This is a critical time to evaluate both the merits of the termination and whether any of the provider's or his/her/its patient's rights are being violated that may require legal intervention. Importantly, a New York appellate court has affirmed a provider's right to assert a cause of action for a violation of PHL § 4406-d against a health care plan when the provider alleges the termination was arbitrary, i.e. proper notice was not Other legal causes of action and remedies may also exist, as well as the ability to negotiate directly with the health care plan.

The battle is not over by merely asserting a cause of action against the health care plan for violating the contract or PHL § 4406-d. This scenario recently played out in a New York appeals court. In Alhmed Elkoulily, M.D., P.C. v. New York State Catholic Healthplan, Inc., the health care plan immediately terminated the provider after conducting a review of patient records because it determined that the provider was treating patients outside its "credentialed expertise," which created an "imminent harm" to its enrollees.viii While the appeals court found the provider's allegation that the health care plan acted in bad faith by terminating its contract without justification and fabricating evidence, it ultimately dismissed the case because the provider failed to produce any evidence supporting the allegations. The lesson to the provider is that you will need evidence that the health care plan is acting arbitrarily in terminating the contract in order to proceed with a lawsuit for violations of PHL § 4406-d.

Ultimately, whenever a provider receives a termination notice, immediate action is required to protect the provider's business and patient rights. Options to prevent a network termination evaporate quickly.

B. What is A Hearing?

When we think of a hearing, our mind conjures up images of an independent panel of peers that will seek the truth through the examination of witnesses and review evidence that is presented by both sides. The existing standards for provider hearings are well established in law. For example, a provider subject to termination from the Medicaid program has well-defined procedural rights during a termination hearing.ix These rights include, among others, the right to be represented by an attorney or representative, to testify, to produce witnesses, to present documentary evidence and to examine opposing witnesses.x The provider also is permitted to examine the documentary evidence against it prior to the hearing.xi It would seem appropriate that a provider subject to termination and afforded a hearing under PHL § 4406-d should have similar rights. However, there is very little statutory guidance in the PHL relating to how a hearing must be conducted under PHL § 4406-d. Moreover, the DOH does not appear willing to enforce due process rights under PHL § 4406-d, like those applicable to Medicaid terminations.

The health care plan determines the persons who will serve on the hearing panel.xii Only one-third of the panel members must be a clinical peer of the provider, which typically consists of only 3 panelists. Id. There is no requirement that panel members be independent or health care professionals or disclose any conflicts of interest they may have, including being an employee of the health care plan. Moreover, by requiring only a single clinical peer, there is no guarantee the other panel members will have any understanding of how the provider's industry works or its usual and customary practices. This is a major roadblock to a fair and impartial hearing.

While PHL § 4406-d protects a provider's due process rights by providing for a hearing, it does not define how the hearing is to be conducted, who has the burden of proof or what that burden is. This legislative silence on hearing conduct is unlike the well-defined, statutorily-mandated hearing processes that exists in the analogous situation of professional misconduct. In a professional misconduct hearing, the professional has a right to have counsel, submit a written answer to the charges, produce witnesses and present evidence, as well as cross-examine witnesses and examine the evidence against them and have a record made of the hearing itself.xiii All of this evidence may be used in a later court proceedings, if needed. However, in a hearing conducted by a health care plan, these usual due process protections are eliminated or prohibited by the plan. In addition, the standard of proof required is also defined as a preponderance of the evidence, i.e. more likely than not, in a professional misconduct case. There is no such standard required in a hearing under Section 4406-d, leaving the provider to speculate as to the burden, or even worse, placing a strict and heavy burden on the provider to prove his/her/its case in absolute terms, rather than the health care plan. This is a true reversal of the customary adversarial role in making an accusation of wrongdoing, which amounts to a guilty until proven innocent standard.

Recently, Emblem Healthcare drastically reduced its provider network, including slashing its pharmacy network in half in New York. This action appears to have been approved by the New York Department of Health, the agency tasked with enforcing the Public Health Law and acting as a "gatekeeper" for provider rights, including the enforcement of Section 4406-d. The mass terminations lead to en masse "hearings" that consisted of a brief telephone call with a large number of providers, who were not given the opportunity for questioning, presentation of witnesses or any other right that would resemble the modern notions of due process. With the health care plans having full control of the panelists, the rules and the conduct of hearings, the provider is placed at a severe and often fatal disadvantage, as seen with Emblem's recent interpretation of a "hearing."

C. What Can A Provider Do?

The due process rights provided by Section 4406-d will be rendered meaningless if health care plans are permitted to retain full control over all aspects without adequate oversight or challenges. The legislature does not appear anxious to remedy its silence on the conduct of termination hearings. Likewise, the Department of Health does not appear to be concerned with permitting health care plans from conducting mass terminations of providers with superficial hearing processes. So where does this leave providers?

The longer due process violations go unchallenged, the harder it will be to undo the damage; particularly to small and mid-size providers who may not have the resources to be a lone soldier. The health care industry has undergone significant change and consolidation in recent years. The forces leading this endeavor are continuing to expand their power and influence in their practices and through the legislature, government agencies and the courts. Providers need to proactively take action to define and protect their rights contractually, legislatively and using the legal avenues available to them. The legislature had good intentions in enacting Section 4406-d's due process protections, but providers need to ensure those protections are being implemented and enforced.

i See PHL § 4406-d(2)(a ). A contract can be immediately terminated in cases involving imminent harm to patient care, a determination of fraud, or a final disciplinary action by a state licensing board or other governmental agency that impairs the health care professional's ability to practice. Id.

ii See PHL § 4406-d(6)-(7).

iii See PHL § 4406-d(2)(b)-(c).

iv See PHL § 4406-d(2)(f).

v See § 4406-d(2)(e).

vi See Alhmed Elkoulily, M.D., P.C. v. New York State Catholic Healthplan, Inc., 2017 NY Slip Op 06242, Index No. 8552/13 (2d Dept Aug. 23, 2017) (holding a private right of action existed under PHL § 4406-d for health care professionals).

vii Id.

viii Id.; Ahmed Elkoulily, M.D., P.C. v. New York State Catholic Healthplan, Inc., 2017 NY Slip Op 06244, Index No. 8852/13 (2d Dept Aug 23, 2017) (dismissing case because the provider failed to raise an issue of fact whether the health care plan's termination was arbitrary).

ix See 18 NYCRR § 519; Visiting Nurse Serv. of N.Y. Home Care v. N.Y. State Dep't of Health, 5 N.Y.3d 499, 502 (2005) (holding provider had a right to notice and hearing before the DOH concerning the DOH's determination to recoup Medicaid payments)

x See 18 NYCRR § 519.8; 18 NYCRR § 519.10; 18 NYCRR 519.19.

xi 18 NYCRR § 519.13.

xii See PHL § 4406-d(2)(b)(ii) and (c). Legislation has failed several times"”most recently in 2016"”in efforts that would have refined PHL § 4406-d to permit the health care plan to appoint a member, the provider to appoint a member and the two panel members to appoint a third panel member. See New York State Assembly Bill No. A1212 and Senate Bill No. S04751. The legislation further required the panelists to be licensed health care professionals in New York in the same area as the provider. Id. This would have created an independent peer-reviewed hearing process. As of this writing, another bill is pending before the New York State Senate to include these revisions to the PHL. See New York State Assembly Bill No. A02704 and Senate Bill No. S03943. The legislation would also extend due process rights to contract non-renewals. Id.

xiii Education Law § 6510 (Proceedings in cases of professional misconduct)

If you have questions or require further assistance regarding the information contained in this Legal Alert and the impact on your organization, please contact Brad M. Gallagher at, or Linda J. Clark, Chair of the Barclay Damon Health Care Controversies Practice Area at

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