Appeals Court Upholds Anti-Fraud Rules

'Doc-in-a-box' clinics get clocked. Decision seen as a victory for insurers.

By Cyril Tuohy

In a decision considered a victory for New York's anti-fraud regulations, bogus incorporated medical practices are not entitled to reimbursement under a no-fault policy assigned to a patient, a New York appeals court has ruled.

In the case, State Farm v. Malleta, the insurer successfully argued that anti-fraud regulation enacted in 2003 renders a fraudulent health care provider ineligible for no-fault reimbursement.

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"The impact on the industry at large is going to be significant," said Francis J. Serbaroli, an attorney with Cadwalader, Wickersham & Taft, which filed a friend-of-the-court brief in the case. "There will be a carryover from the no-fault arena to the health-care arena."

State Farm sued, declaring that it need not reimburse defendants--fraudulently incorporated medical corporations--for assigned claims submitted under no-fault insurance policies.

According to the insurer, nonphysicians paid doctors to use their names on paperwork filed with state authorities to establish doctor's offices. Once established, the nonphysicians forced the doctors to hire management companies owned by the nonphysicians.

The management companies inflated the medical bills and sent them to insurance companies for reimbursement. Profits ended up in the pockets of the nonphysicians.

State Farm denied the claim on the basis of anti-fraud regulations passed by New York insurance regulators. Defendants argued that they were entitled to reimbursement, even though they were fraudulently licensed.

State property-casualty insurance lobbies were pleased with the the court's decision. "Illegal 'doc-in-a-box' medical clinics secretly set up by nonphysicians to charge insurance companies inflated rates add to the cost of auto insurance in New York," said Bernard Bourdeau, president of the New York Insurance Association.

Frank Sztuk, chairman of the New York Alliance Against Insurance Fraud, called the decision "a significant weapon in the fight against fraud and abuse in New York's no-fault insurance system."

Serbaroli also said that while this latest decision applies to New York state law and federal cases which rely on New York law, it will also serve to boostgood quality health care for people involved in auto accidents. Some nonphysicians managed as many as 20 or 30 companies, and the dollar amount involved in fraudulent billing reached into the tens of millions, he said.

May 1, 2005

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