Antitrust Law Daily Wrap Up, RICO—E.D. Mich.: State Farm’s fraudulent billing claims against chiropractic clinic can proceed, (Aug 13, 2015)

By Linda O’Brien, J.D., LL.M.

State Farm Mutual Automobile Insurance Co. alleged sufficient Racketeer Influenced and Corrupt Organizations Act (RICO) claims against an affiliated group of physicians, chiropractic facility, and medical transportation service for allegedly conspiring to submit false bills and documentation for payment of services and treatment provided to patients involved in motor vehicle accidents that were medically unnecessary, the federal district court in Detroit has ruled (State Farm Mutual Automobile Insurance Company v. Warren Chiropractic & Rehab Clinic P.C., August 10, 2015, Goldsmith, M.).

Background. In April 2014, State Farm filed suit against an affiliated group of physicians, chiropractic facility, and medical transportation service, alleging that the group conspired to submit false documentation for payment of benefits to patients involved in motor vehicle accidents that were medically unnecessary or not performed at all, in violation of RICO. Specifically, State Farm alleged that the defendants submitted hundreds of bills for claimed services that were not performed or were performed pursuant to a “fraudulent predetermined protocol of treatment” which subject patients to predetermined diagnoses and consistently ordered unnecessary tests regardless of patient need. Additionally, the defendants issued pre-signed disability certificates to support insurance claims for transportation. The defendants moved for dismissal.

Enterprise. The court found that State Farm sufficiently alleged the existence of an enterprise. State Farm claimed that the enterprise’s purpose was to defraud the State Farm and obtain unwarranted payments through the submission of false claims; described the relationships among those associated with the enterprise; described how each defendant made decisions on behalf of the enterprise; and sets forth that the scheme had been in place continuously since at least 2005.

State Farm also sufficiently alleged, as required by Federal Rule of Civil Procedure 9(b), the underlying racketeering activity — the purported mail fraud. According to the court, State Farm attached to its complaint two spreadsheets which detailed the purported fraudulent mailings by the defendants. The exhibits reflected the claim number, dates of service, length of service, and dates of mailing. Such documentation sufficiently put the defendants on notice of the claims against them.

The defendants’ argument that State Farm failed to allege a continuing activity rather at most alleged a single, fraudulent scheme to accomplish a single objective was rejected. The court noted that State Farm alleged that the fraudulent scheme was in place from at least 2005 and continued to submit fraudulent bills for payments as their normal way of doing business.

Injury. RICO provides for damages to a plaintiff who was injured in its business or property. In rejecting the defendants’ contention that the alleged damages arose from the patients’ personal injuries, the court found that State Farm was seeking compensation for payment of purportedly fraudulent claims for unnecessary or unperformed services and not for any personal injuries. Such injury was “clearly” not personal and was instead an injury to the insurer’s business or property, the court concluded.

The case is No. 4:14-CV-11521.

Attorneys: Amelia M. Chapple (Katten Muching & Rosenman LLP) for State Farm Mutual Automobile Insurance Co. Ben M. Gonek (Law Offices of Ben M. Gonek, PLLC) for Warren Chiropractic & Rehab Clinic P.C. Troy C. Otto (Fischer, Franklin & Ford) for Priority Patient Transport LLC.

Companies: State Farm Mutual Automobile Insurance Co.; Warren Chiropractic & Rehab Clinic P.C; Priority Patient Transport LLC

Cases: RICO MichiganNews