Mediation as an Option for Medical Malpractice Claims

By Joy David, Albany Government Law Review

Mediation may be the answer to several problems associated with medical malpractice litigation.  “Mediation consists of the use of a neutral third party to facilitate a discussion between two opposing parties in an informal environment where the parties have the opportunity to discuss accusations or other elements of conflict.”[1]  There are reasons to use mediation for medical malpractice claims, and reasons not to.  Policy considerations, as well as potential benefits to all parties involved, are cause to at least consider mediation as an option for dealing with medical malpractice claims. Continue reading “Mediation as an Option for Medical Malpractice Claims”

External Appeal in New York; Are Recent Changes Enough?

By Hunter Raines, Albany Government Law Review

New York’s external appeal legislation, giving patients and health care providers a right to an external appeal of health plan adverse coverage determinations, has been invaluable in improving the patient’s access to care while protecting the provider’s right to adequate reimbursement for health care services.  However, changes enacted in July 2011 measurably impact the operation of this statutory creature, which merits examination and review of the process as it currently stands.[1]

In the early 1990s, the rising costs of health care inspired a new insurance model closely tied to the concept of strict care management.[2]  By strictly managing consumer options, health care costs were constrained.[3]  However, this model encumbered access to needed health care for many.[4]  New York’s Managed Care Reform Act, signed by Governor Pataki in 1996, provided new protection for New York consumers in the health insurance market.[5]  Since the passage of the act, consumers now have the right to obtain a description of services and procedures covered by their health plan, the right to an explanation of the patient’s financial responsibility for such procedures and services and the right to appeal adverse coverage determinations.[6]  These legislative protections are far reaching, applying to most health plans excluding those which are self-funded or otherwise subject to ERISA, which is beyond the scope of this article.[7] Continue reading “External Appeal in New York; Are Recent Changes Enough?”

HEAT Summit Seeks to Help Cure a Dying System: The Obama Administration and the Battle Against Health Care Fraud

 Lynn Nolan, Government Law Review member

             Approximately $125–175 billion are lost to fraud each year in both the private and public health care sectors.[1]  The FBI estimates that in fiscal year 2009, $75–250 billion were stolen from public and private healthcare programs through fraudulent billings alone.[2]  With the prevalence of health care fraud becoming more apparent the government is taking action to prevent and prosecute fraudulent activity.  President Obama has made combating health care fraud a priority of his administration by encouraging the development of innovative methods of preventing fraud and pursuing policy changes to facilitate reform.[3] 

            One of the Administration’s signature initiatives is the Health Care Fraud Prevention and Enforcement Action Team (HEAT), which is a collaborative task force derived from the Department of Health and Human Services (HHS) and the Department of Justice (DOJ).[4]  The HEAT task force was established on May 20, 2009 to aid in the identification of perpetrators of fraud in order to recover funds which have been stolen and prohibit perpetrators from abusing federally funded health care programs, such as Medicare and Medicaid.[5]  The latest initiative of HEAT was the National Summit on Health Care Fraud which was held on January 28, 2010.[6]  The National Summit was held to address the issue of health care fraud and promote the participation of the private health care sector in collaboratively fighting fraud to aid government efforts.[7]  Secretary Sebelius addressed the private sector in saying,

[h]ealth care fraud isn’t just a government problem.  Criminals don’t discriminate and they are stealing from Medicare, Medicaid and private companies at an unacceptable rate . . . [w]e have a shared interest in stopping these crimes and today’s summit brought us together to discuss how we can all work together to fight fraud.[8] 

Continue reading “HEAT Summit Seeks to Help Cure a Dying System: The Obama Administration and the Battle Against Health Care Fraud”

The Bailout Bluff that Saved Wall Street

Eric Schillinger, Editing Chair, ESchillinger@albanylaw.edu

In the wake of September’s now infamous banking collapse, New York State Governor David Paterson played an instrumental role in saving the world’s largest insurance company from bankruptcy and staving off a total collapse of the market. New York based American International Group (A.I.G.) nearly filed bankruptcy on September 15 after the declaration of bankruptcy by Lehman Brothers, and sale of Merrill Lynch to Bank of America for a price roughly half its estimated value twelve months ago. (1)  The market began dropping at a rate frightening to the average investor and high stakes financial planner alike. (2)  Paterson intervened, restoring a modicum of stability in the economy, and freezing the market before its downward spiral went out of control. (3)

Amazingly the bailout Paterson proposed was a bluff, halting the collapse, but not actually bailing out anything. Paterson’s “subsidiary restructuring” plan simply steadied the market’s invisible hand, buying time for A.I.G., while he devised a broad strategy to combat the harsh realities of a market suffocated by foreclosure. The bailout plan Governor Paterson proposed for A.I.G., would have allowed the insurance giant to collateralize its subsidiary holdings, in an effort to obtain needed loans and stave off bankruptcy. (4)  All in all, the deal would have unlocked over twenty billion dollars in capital for the insurance company, presently held by A.I.G. subsidiaries; essentially the governor suggested the state would allow A.I.G. to raid its subsidiaries for cash. (5)  Funds not previously available to A.I.G. would have been liquidized for use as collateral, putting A.I.G. subsidiaries on the line, but allowing the huge corporation to stay afloat. (6)

The substance of the plan was less important then the fact that a plan existed. By placing the state in the center of the collapse, the governor helped to slow down the downward spiral sparked by the collapse of Lehman Brothers. Patterson’s plan restored trust in the market, showing that, while the government might let the situation get bad, it would not stay uninvolved in the face of system-wide collapse. This action bought Paterson time, and with total disaster staved off for the moment, to move past his initial plan and draw the Federal Reserve into the mix. (7)  With the collapse at least on pause, the governor sent New York State Insurance Department Superintendent Eric Dinallo to negotiate with the Federal Reserve. Dinallo secured a Federal loan for A.I.G. totaling more than eighty billion dollars. ( 8 )  That loan would never have happened without the state first stabilizing the market. Just like private investors, the federal government was unwilling to throw money at a terminally ill market. (9)  Paterson put the market in stable but critical condition, and showed the Federal Reserve a capital injection would likely restore the market to relatively good health.

Amazingly, Paterson’s authority to “bailout” A.I.G under the proposed plan violated the State’s Insurance Law. (9)  The state bailout system presented by Paterson and Dinallo emphasized the fact that no tax payer money was going to A.I.G. (11)  Under the Paterson plan, capital would have been generated by A.I.G. restructuring itself to produce liquid funds. In effect, the state offered to allow A.I.G. to loot its own subsidiaries to stave off bankruptcy, in blatant violation of New York State Insurance Law § 1608. That section of the code states in part that:

The business operations, corporate proceedings and fiscal and accounting records of subsidiaries organized or acquired pursuant to this article shall be conducted or maintained so as to assure the separate legal and operating identities of the parent and subsidiary . . . . (12)

The bailout plan that Paterson proposed would have allowed A.I.G. to pull capital out of its subsidiaries solely for the purposes of generating collateral to borrow more money and keep the company running. Doing so would have obliterated the separate operating identities of the companies, as A.I.G. would have been reliant solely on its subsidiaries as a source of operating capital. With all the money mixed, the critical but sometimes fine line between parent corporation and subsidiary would have evaporated. However, the legal validity of the plan was of no consequence. Implementation took a back seat to involvement – by showing that the state was not going to let the market collapse without a fight, investors developed a restored sense of stability. With stability restored, Paterson had time to figure out another means of bailing out A.I.G. that was both legal and effective. The initial plan bought him time, and with that time he enabled the Federal Reserve’s involvement, eventually securing over eighty billion dollars in bailout money for the injured insurance giant. (13)

Essentially, the governor stalled the market’s collapse for one critical day by merely proposing a state-based regulatory bailout of A.I.G. With the market stabilized, Paterson bought enough time for Eric Dinallo to seek and secure federal aid. When eighty five billon dollars in aid from the Federal Reserve came down the pipeline, Paterson’s proposed plan became unnecessary. The legal issues surrounding it were mooted – A.I.G. never actually restructured its subsidiaries, instead they took a high interest loan directly from the federal government.

Paterson’s plan was successful because it was never implemented. The governor over-reached his authority in offering to allow A.I.G. to restructure itself and draw capital out of its subsidiaries, but in an amazingly frail market, a functional sounding but potentially illegal legal bailout plan saved the day. By demonstrating New York’s willingness to help prevent enormous corporate collapses, Paterson generated enough trust to create market stability when no other factors encouraged it. With the collapse frozen, Paterson had the time he needed to secure a functional and legal bailout of A.I.G. from the Federal Reserve. In effect, he offered a bluff of a bailout, holding the market at bay just long enough to get the federal government involved to save the day.

Robert Magee, _____________ editors.

____________________________________________________________________________________

1 – Andrew R. Sorkin, Bids to Halt Financial Crisis Reshape Landscape of Wall St., N.Y. TIMES, Sept. 15, 2008, at A1.

2 – Id.

3 – Posting of Irene J. Liu to Capital Confidential, http://blogs.timesunion.com/capitol/archives/8720 (Sept. 15, 2008, 12:48 EST).

4 – Id.

5 – Id.

6 – Id.

7 – Press Release, Boards of Governors of the Federal Reserve System, Federal Reserve Board, with full support of the Treasury Department, authorizes the Federal Reserve Bank of New York to lend up to $85 billion to the American International Group (AIG) (Sept. 16, 2008 ) (stating that the Federal Reserve was providing an $85 billion dollar bailout to A.I.G.) available at http://www.federalreserve.gov/newsevents/press/other/20080916a.htm.

8 – Michael Gromley, N.Y. Gov. Paterson Praises Insurance Chief Dinallo on A.I.G. Rescue, INSURANCE JOURNAL, Sept. 18, 2008 available at http://www.insurancejournal.com/news/east/2008/09/18/93807.htm.

9 – Liu, supra note 4.

10 – N.Y. INS. LAW § 1608 (2008 ).

11 – Liu, supra note 4.

12 – N.Y. INS. LAW § 1608 (a) (2008); see generally Counties of Warren & Wash. Indus. Dev. Agency v. Adirondack Res. Recovery Assocs., 283 A.D.2d 846, 849 (N.Y. App. Div. 3d Dep’t 2001) (discussing separate identities of corporate parents and subsidiaries).

13 – Federal Reserve Board, supra note 7.