GEICO Seeks to Take the Profit Out of Insurance Fraud
A PROACTIVE ATTEMPT TO DETER AND DEFEAT INSURANCE FRAUD
Although almost every state and the federal government makes it a crime to attempt to defraud an insurance company the crimes are seldom prosecuted and the insurer victims of the crime are seldom reimbursed for their losses. Insurers, using qui tam (whistleblower) statutes allow insurers to take the profit out of the crime.
In Government Employees Insurance Co., GEICO Indemnity Co., GEICO General Insurance Company and GEICO Casualty Co. v. Ningning he, M.D., Advanced Pain Care, L.L.C., Sascha Qian, M.D., Rajivan Maniam, M.D., Young M. Ahn, L.ac., Apex Anesthesia Associates, L.C.C., John Li, M.D., Anthony Surace, M.D., ANI Kalfayan, M.D., Samuel Caruthers, M.d., Timothy Finley, M.D., Sanjay Tewari, M.D., and Louis Quartararo, M.D., Civ. No. 2:19-cv-09465-KM-JBC, United States District Court for the District of New Jersey (October 29, 2019) plaintiffs GEICO, automotive insurers, alleged that the physician defendants submitted or caused to be submitted hundreds of fraudulent claims for reimbursement of medical expenses. GEICO sued to recover $5,298,000.00 that it paid to defendants. GEICO asserts eleven counts, including violations of the New Jersey Insurance Fraud Prevention Act. Defendants moved to dismiss the complaint.
The movants, are all anesthesiologists licensed to practice medicine in New Jersey. They are alleged to have performed the relevant medical services while working at co-defendant Apex Anesthesia Associates, L.C.C. (“Apex”).
Under New Jersey law, automobile insurance policies provide benefits for personal injuries sustained in an accident involving the covered automobile, regardless of whether the driver was at fault for the accident. This coverage is called “personal injury protection,” or “PIP.” When Insureds receive treatment, they can assign their right to PIP benefits to their medical providers, who can then seek direct reimbursement from the insurance companies. Defendants are such medical providers, i.e., assignees of their patients’ PIP benefits.
GEICO alleges that defendant Doctors Li, Surace, and Finley submitted, and caused to be submitted, hundreds of fraudulent no-fault insurance charges for services that were unjustified, medically unnecessary, and designed only to enrich defendants. These services were claimed to have been provided to Insureds involved in automobile accidents who were eligible for coverage under no-fault insurance policies issued by GEICO.
GEICO alleges that its payments to defendants were fraudulently obtained for several reasons. Defendants allegedly billed for medically unnecessary treatments, or for treatments that did not occur at all. Treatments were allegedly provided to Insureds who had only minor accidents. In those cases, defendants followed predetermined protocols that invented diagnoses and billed for medically unnecessary treatments. In many cases the billing codes for services misrepresented and exaggerated the level of service provided.
Defendants argue that (A) GEICO’s fraud claims fail for lack of specificity pursuant to Rule 9(b); (B) GEICO failed to adequately plead a RICO claim; (C) GEICO failed to plead its unjust enrichment claims. Surace separately asserts that (D) GEICO did not properly serve him with the summons and complaint.
Common Law Fraud
GEICO alleges two main theories of common law fraud. First, GEICO alleges that defendants submitted false claims—i.e., billed for services that were not medically necessary, or that were not actually provided at all. Second, GEICO claims that defendants artificially inflated their bills by “unbundling” their billing, i.e., separately billing the subparts of a single procedure, in violation of New Jersey law and regulations. Under either of these theories, GEICO has adequately pled the five elements of common law fraud.
New Jersey Insurance Fraud Prevention Act
In Count 2, GEICO asserts a claim pursuant to the NJIFPA to recover PIP benefits paid to defendants. Count 2 alleges that defendants obtained the benefits through the fraudulent submission of false and misleading claim forms and treatment reports. Defendants move to dismiss, asserting that GEICO failed to plead with particularity any fraudulent claims for anesthesia and has not alleged that defendants were responsible for medical coding and/or billing.
A person or practitioner violates the NJIFPA if he or she: “(1) Presents or causes to be presented any written or oral statement as part of, or in support of or opposition to, a claim for payment or other benefit pursuant to an insurance policy or the ‘Unsatisfied Claim and Judgment Fund Law,’ knowing that the statement contains any false or misleading information concerning any fact or thing material to the claim;…”
The NJIFPA states that an insurance company can bring a private right of action “in any court of competent jurisdiction” to seek compensation for such fraud, including recovery of attorneys’ fees. GEICO’s allegations of false claims and impermissibly unbundled claims are actionable under the NJIFPA. The NJIFPA sweeps more broadly than common law fraud; it prohibits the submission of insurance reimbursement claims when a party knows that the claim contains false or misleading information concerning any fact or thing material to the claim, and prohibits concealment or knowing failure to disclose an event that affects the eligibility for reimbursement or the amount of the reimbursement.
Unlike common law fraud, proof of fraud under the IFPA does not require proof of reliance on the false statement or resultant damages, nor proof of intent to deceive.
The court concluded, therefore, that GEICO’s complaint sufficiently alleges that defendants provided medically unnecessary treatment and that defendants routinely submitted claims for reimbursement that unbundled the injection of the anesthetics necessary for the anesthesia services allegedly provided.
With respect to the pattern of racketeering activity, the statute “requires at least two acts of racketeering activity within a ten-year period,” which may include federal mail fraud under 18 U.S.C. § 1341. In addition, the plaintiff only has standing if, and can only recover to the extent that, he has been injured in his business or property by the conduct constituting the violation.
Defendants argue that GEICO failed to state a claim for RICO violations and that the RICO allegations are not sufficiently particularized. The attachment to the complaint, in particular, lists the specific PIP claims that allegedly constitute mail fraud, the predicate act alleged under RICO. And the frauds are alleged to have been both interrelated and continuous since at least 2014.
These allegations put defendants sufficiently on notice of the activities with which they are accused. Therefore, defendants’ motions to dismiss Counts 4 and 9, GEICO’s federal RICO claims, are denied.
Defendants move to dismiss GEICO’s claims for unjust enrichment. Defendants argue that GEICO’s claims for unjust enrichment fail because GEICO has not identified whether it was paid for each claim referenced in the complaint and has failed to establish that defendants directly benefitted from the alleged scheme.
Regardless, the court concluded that GEICO’s unjust enrichment claims were sufficiently alleged at this stage. The complaint asserts that (1) GEICO paid approximately $5 million in fraudulent claims; (2) that were submitted by defendants; and (3) that the claims were paid to the defendants for services that were duplicative, medically unnecessary, or not performed at all.
In this case GEICO survived the first attempt to defeat their claims by adequately pleading the fraud the insurer claimed the doctors perpetrated to its detriment. As the suit proceeds to trial expect to prove that the actions of the doctors were fraudulent and obtain from them a judgment for the sums it paid for fraudulent claims. Under RICO, if proved, it can obtain a judgment for three times the amount paid or about $15 to $16 million. If successful the action will work to deter other physicians from attempting to defraud insurers.
© 2019 – Barry Zalma
This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.