United States District Court, Eastern District of New York
FOR ELECTRONIC PUBLICATION ONLY
For Plaintiffs: Barry I. Levy, Max Saulter Gershenoff, Michael Stanton, Rivkin Radler LLP, Uniondale, NY.
REPORT AND RECOMMENDATION
JOAN M. AZRACK, UNITED STATES MAGISTRATE JUDGE.
On May 16, 2013, plaintiff Allstate Insurance Company (" Allstate") filed suit against the above named defendants, amongst others, alleging that defendants engaged in a series of interrelated fraudulent schemes through which they submitted to Allstate thousands of fraudulent charges relating to medical services for individuals involved in automobile accidents who were covered under Allstate's no-fault policies (" Insured"). Based on the foregoing, Allstate has alleged: (1) violations of the Racketeering Influenced and Corrupt Organizations Act (" RICO"), 18 U.S.C. § 1962(c); (2) violations of the RICO conspiracy statute, 18 U.S.C. § 1962(d); (3) common law fraud; and (4) unjust enrichment. Allstate also seeks declaratory judgment that the defaulting defendants have no right to receive payments for any pending bills submitted to Allstate that were the result of defendants' fraudulent treatment and billing protocol. (Compl. ¶ ¶ 226-31, ECF No. 1.)
Defendants Conrad Robert WILLIAMS (" Williams"); Williams's medical practice, Targee Medical Services, P.C. (" Targee"); Michael George Alleyne (" Alleyne"); and Alleyne's medical practice, Michael Alleyne Medical Doctor, P.C. (" MAMD") (collectively, the " defaulting defendants") failed to appear or otherwise defend against Allstate's allegations. Allstate then moved for default judgment. (Mot. for Def. J. Williams & Targee (" W& T Mot."), ECF No. 47; Mot. for Def. J. Alleyne & MAMD (" A& M Mot."), ECF No. 50.) On March 10, 2014, the Honorable Raymond J. Dearie granted Allstate's motion for default judgment against Alleyne and MAMD, and referred the motion to me for a report and recommendation on the calculation of damages. (Mar. 10, 2014 Order, ECF No. 58.) On March 13, 2014, Judge Dearie referred Allstate's motion for default judgment against Williams and Targee to me for report and recommendation. (Mar. 13, 2014 Order, ECF No. 60.) On October 31, 2014, Judge Dearie issued an order granting a declaratory judgment against MAMD in favor of Allstate. (Oct. 31, 2014 Order, ECF No. 67).
For reasons that I discuss below, I respectfully recommend that Allstate's motion for default judgment against Williams and Targee be granted; Allstate receive the damages set forth below as to each defendant; and Allstate receive declaratory judgment against Targee.
I. NEW YORK'S NO-FAULT INSURANCE LAWS
To understand the facts alleged in Allstate's complaint, it is necessary to provide a brief overview of New York's no-fault insurance scheme. See generally State Farm Mutual Automobile Ins. Co. v. Mallela, 372 F.3d 500, 502-503 (2d Cir. 2004) (providing a detailed overview of New York's no-fault scheme). Under New York's No-Fault Insurance Law, automobile insurers provide mandatory coverage for certain no-fault benefits, including necessary expenses for medical treatment up to $50, 000. N.Y. Ins. Law § § 5102(a)(1), 5102(b), 5103. " The regulations permit covered parties to assign their benefits to health care providers, who in turn submit claims to insurers for treatment and services given to the injured individual." Mallela, 372 F.3d at 503; N.Y. Ins. Law § 5102; 11 N.Y.C.R.R. 65-3.11. However, medical service corporations may not " bill for services provided by physicians who are not employees of the corporation, such as independent contractors." Liberty Mut. Ins. Co. v. Excel Imaging, P.C., 879 F.Supp.2d 243, 257 (E.D.N.Y. 2012) (citing 11 N.Y.C.R.R. § 65-3.11(a); N.Y. Ins. Gen. Counsel Op. No. 05-03-21 (2005); N.Y. Ins. Gen. Counsel Op. No. 01-02-13 (2001)).
" New York's No-Fault Insurance Laws require an insurer...to pay or deny a verified claim for benefits within thirty calendar days of its submission." State Farm Mut. Auto. Ins. Co. v. Grafman, No. 04-CV-2609, 2007 WL 7704666, at *8 (E.D.N.Y. May 22, 2007) (citing N.Y. Ins. Law § 5106(a); 11 N.Y.C.R.R. § 65-3.8(c)). If an insurer fails to act on a claim within thirty days, any defenses to payment, including lack of medical necessity, are waived. Grafman, 2007 WL 7704666, at *8.
Allstate uses current procedural terminology (" CPT") codes for billing. (Compl. ¶ 5(iii).) Each CPT code corresponds to specific medical services that are billed in accordance with the applicable fee schedule. (See, e.g., id. ¶ ¶ 47-59.) For example, billing under CPT code 99205 indicates that the physician had " (i) taken a 'comprehensive' patient history; (ii) conducted a 'comprehensive' physical examination; and (iii) engaged in medical decision-making of high complexity." (Id.¶ 50.)
The facts set out below are drawn from the allegations in the complaint and the exhibits attached thereto. (See id.)
As early as 2007 and continuing through the filing of the instant action, the defaulting defendants organized and participated in several schemes to defraud Allstate under New York's No-Fault Insurance Laws. Specifically, the defaulting defendants fraudulently submitted no-fault bills relating to initial and follow-up examinations (" the Examinations"); digital range of motion and muscle tests (the " ROM/Muscle Tests"); spirometry tests; functional capacity evaluation tests (the " FCE Tests"); transcutaneous electrical nerve stimulation sessions (the " TENS Sessions"); neurological consultations (the " Consultations"); and electrodiagnostic tests (the " EDX Tests") (collectively, the " Fraudulent Services"). Allstate seeks damages from the defaulting defendants for claims that Allstate paid where the services were either never conducted, improperly billed by independent contractors, medically unnecessary, or exaggerated. (Id. ¶ ¶ 1-6.)
A. Allegations Common to All Defaulting Defendants
1. Independent Contractor Services
Allstate alleges that the technicians who performed Fraudulent Services, to the extent that they were performed at all, were, in fact, independent contractors. (See id. ¶ ¶ 35-38.) Thus, their services are not reimbursable. Williams and Alleyne (collectively, the " Individual Defendants") were the only physicians in their respective medical offices and outsourced their testing to independent contractors--specifically Targee outsourced to Marat Tsilrin, M.D. (" Tsilrin") and MAMD outsourced to Choon Kwon Kim, M.D. (" Kim"). (Id.¶ 38.) The technicians, Tsilrin and Kim, qualify as independent contractors because of their tax treatment, lack of employee benefits, their non-exclusive relationships with Targee and MAMD (collectively, the " PC Defendants"), and the fact that they performed contemporaneous services for their own practices and on behalf of other medical practices that were in direct competition with one another. (Id. ¶ ¶ 35-38.) When the Individual Defendants billed for the Fraudulent Services performed by independent contractors, the billing submitted for those services falsely stated that the independent contractors were employees of the PC Defendants, or omitted that information in order to lead Allstate to believe that the services were performed by someone whose services were reimbursable. (Id. ¶ ¶ 40-41.)
2. Initial Examinations
When an Insured visits a PC Defendant's facility, the Insured receives an initial examination, which is charged to Allstate. (Id.¶ 44.) The charges, however, were fraudulent because the defaulting defendants: (1) used CPT billing codes that misrepresented the nature and extent of the initial examinations; (2) often exaggerated the Insureds' injuries in order to inflate the charges; (3) misrepresented the time, depth, and complexity of the initial examinations; and (4) used predetermined " diagnosis" for every Insured and prescribed virtually identical course of treatments for every Insured. (Id. ¶ ¶ 45-64.) Allstate further alleges that the Insured " did not report any medical problems that legitimately could be traced to an underlying automobile accident." (Id.¶ 63.)
3. Follow-Up Examinations
After the initial examination, the Individual Defendants " typically purported to subject Insured to two or more fraudulent follow-up Examinations." (Id.¶ 65.) As with the initial examinations, the defaulting defendants misrepresented the nature and extent of the follow-up examinations by exaggerating the time, complexity, and depth of the examination. (Id. ¶ ¶ 65-78.) The Individual Defendants used boilerplate language to support the continuation of their predetermined, non-tailored treatment and billing protocol. (Id.¶ 78.) The Individual Defendants would instruct each Insured to return for " medically useless ROM/Muscle Tests." (Id.¶ 86.) The bills submitted for ROM/Muscle Tests were duplicative, medically unnecessary, and the charges would be unbundled in order to maximize the fraudulent billing through double-billing. (See id. ¶ ¶ 93, 99-108.) In addition, the results of those tests were medically implausible--showing that the Insured were either too weak to support their own body weight or that they possessed superhuman strength. (Id. ¶ ¶ 109-15.) The Individual Defendants also submitted claims under CPT billing codes that represented that a written report interpreting the test data was prepared; however, written reports were " almost never" prepared. (Id. ¶ ¶ 116-20.)
4. EDX Testing
Based upon the fraudulent, predetermined diagnoses and treatment regiments, Insureds were referred to independent contractors for EDX Testing consultations. (Id.¶ 177.) As with the initial examinations, the consultations were fraudulent because they: (1) misrepresented the nature and extent of the Insureds' injuries; (2) exaggerated the depth and time of the examination; and (3) resulted in predetermined diagnoses requiring EDX testing. (Id. ¶ ¶ 178-80.) The Individual Defendants " required that Tsirlin, Kim, and other physicians who purposed to provide the Consultations arrive at these pre-determined conclusions in order to fraudulently maximize the charges that could be submitted for each individual Insured." (Id.¶ 181.) The independent contractors were " part of and amenable to this scheme because of the financial remuneration provided by the [Individual] Defendants." (Id.)
The subsequent EDX tests were fraudulent as well because: (1) they were not tailored to the unique circumstances of the Insured; (2) the Individual Defendants frequently unbundled the charges so as to double bill Allstate; (3) data submitted in testing reports was duplicated across patients who purportedly received treatment months apart; and (4) some tests conducted by the independent contractors resulted in statistically impossible findings. (Id. at 50-60.)
B. Claims Specific to Williams and Targee
Against billing protocol, Williams and Targee billed for outcome assessment tests and examinations separately, thereby double billing for duplicative work that both assessed the patient's history and physical condition. (Id. ¶ ¶ 80-83.) Williams further instructed each Insured to return for one or more rounds of ROM/Muscle Tests, which were medically useless and duplicative of tests conducted during prior examinations. (Id.¶ 77.)
Williams and Targee inappropriately used FCE Tests on Insureds who did not meet the FCE eligibility requirements and knowing that such testing was medically useless and duplicative of the manual ROM/Muscle tests. (Id. ¶ ¶ 131, 138.) Moreover, although the applicable fee schedule required that FCE Testing be performed only by a certain licensed providers, the technicians who performed the tests at Targee were unlicensed and not supervised by Williams or any other licensed provider associated with Targee. (Id. ¶ ¶ 139-40.) Additionally, Williams and Targee, on numerous occasions, purported to provide two FCE Tests to a single Insured following a single accident, with the first and second FCE Tests inappropriately performed less than three months following the respective Insureds' accidents, in violation of the usual protocol for FCE tests. (Id. ¶ ¶ 149-50.) To conceal that the FCE Tests were inappropriately administered and therefore not reimburseable, Williams and Targee routinely omitted any information regarding the Insureds' recovery status from the FCE Test reports that Williams and Targee submitted or caused to be submitted. (Id.¶ 152.) Williams and Targee used catch-all CPT codes in an effort to conceal un-reimbursable FCE testing. (Id. ¶ ¶ 157-60.)
Finally, Williams and Targee exaggerated the time spent with each Insured and falsified the existence of test-interpreting written ...