Antitrust Law Daily Wrap Up, RICO—E.D. Mich.: Claims of fraudulent insurance submissions, nonpayment for medical services alleged injury to business or property, (Feb 13, 2014)

By Linda O’Brien, J.D., LL.M.

In an action by an automobile insurance company against two physical therapy clinics, alleging the fraudulent submission of insurance claims, the insurer’s claims and the clinics’ counterclaims for the nonpayment of their medical services were injuries to business or property under federal RICO law, the federal district court in Detroit has decided (State Farm Mutual Automobile Insurance Co. v. Physiomatrix, Inc., February 12, 2014, O’Meara, J.).

State Farm Automobile Insurance Co. filed suit against physical therapy clinics—Physiomatrix, Inc. and Genex Physical Therapy, Inc.—alleging fraud, unjust enrichment, and RICO claims. State Farm claimed that the clinics engaged in a scheme to defraud State Farm through the submission of fraudulent claims for physical therapy services that were not medically necessary or not performed. The services were provided to patients who were involved in motor vehicle accidents and eligible for personal injury protection (PIP) benefits under State Farm policies. Physiomatrix and Genex filed a counterclaim against State Farm also alleging RICO violations by fraudulently issuing blanket denials of legitimate PIP claims. State Farm and the clinic defendants moved to dismiss.

The court found that the clinics’ claim for recovery of unpaid medical services was an injury to business or property under RICO. RICO provides that any person injured in his business or property may sue for damages sustained. The court noted that the ordinary meaning of the phrase “injured in his business or property” has been uniformly recognized as excluding personal injuries, including pecuniary losses arising therefrom. However, the clinics were not arguing that they suffered personal injury for which they sought compensation; rather, they were seeking compensation for medical services performed or lost income. Their claims that they provided services for which they were not being paid is properly characterized as a business injury rather than a personal injury.

Similarly, State Farm’s allegation of the fraudulent submission of claims by the clinics was an injury to business or property under RICO. State Farm’s injuries arise from the payment of alleged fraudulent claims submitted by the clinics which is an injury to State Farm’s business or property and is not personal, the court concluded. Accordingly, the motions to dismiss by State Farm and the clinic defendants were denied.

The case is No. 12-11500.

Attorneys: Eric T. Gortner (Katten Muchin Rosenman LLP) for State Farm Mutual Automobile Ins. Co. Bradley J. Shafer (Shafer & Associates PC) for Physiomatrix, Inc. and Genex Physical Therapy, Inc.

Companies: State Farm Mutual Automobile Insurance Co.; Physiomatrix, Inc.; Genex Physical Therapy, Inc.

Cases: RICO MichiganNews