Court Decision Reportedly Helps N.Y. Auto Insurers

April 5, 2005

A recent court decision in New York will help insurers make gains in their fight against no-fault insurance fraud, according to the New York Insurance Association (NYIA) and the New York Alliance Against Insurance Fraud (NYAAIF).

The March 29 ruling by the New York State Court of Appeals found that insurance companies may withhold no-fault payments for medical services provided by fraudulently incorporated enterprises to which patients have assigned their claims. NYIA filed an amicus brief in the case, State Farm v. Mallela.

“Illegal ‘doc-in-a-box’ medical clinics secretly set up by non-physicians to charge insurance companies inflated rates add to the cost of auto insurance in New York,” said Bernard Bourdeau, president of NYIA.

The New York Alliance Against Insurance Fraud also applauded the decision. “This decision gives insurers a significant weapon in the fight against fraud and abuse in New York’s no-fault auto insurance system,” said Frank Sztuk, chairperson of NYAAIF.

Patients covered by no-fault insurance often assign their claims to their health care providers rather than seek reimbursement from insurance carriers directly.

In this case, State Farm alleged that to obtain payments from the carriers under the requirements of no-fault insurance, the defendants willfully evaded New York law prohibiting non-physicians form sharing ownership in medical service corporations.

To maintain the appearance that the physicians owned and operated the entities, non-physicians caused the corporations to hire management companies owned by the non-physicians, which billed the medical corporations inflated rates for routine services.

The patients presumably received appropriate care from a health professional at the clinic, the complaint centered on fraud in the corporate form rather than on the quality of care provided.

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