A recent case published in the New York Law Journal neatly manages to get close to being on both sides of one issue. The issue is the legitimacy of a no-fault insurance carrier’s request for documentation, technically called a Verification Request. The resulting decision has a few idiosyncrasies of the particular case, by does a good job of laying out the issues present in the “investigation” of medical practices by no-fault insurance carriers.
Arthur Avenue Medical Services v. Geico, 2021 Slip. Op. 21108 (2021) discussed a number of issues relating to a motion to reargue, as well as issues related to post-EUO document requests. In this case the carrier was concerned that the medical practice was being operated and controlled by non-medically licensed personnel, a violation of NY State licensing requirements, which if true, would mean the practice was not eligible for No-Fault insurance payments.
The doctor appeared at their EUO, and the carrier alleged that the testimony gave rise to more concerns over licensing and corporate structure. Of course that brought up the critical Court of Appeals case State Farm v. Mallela, 4 N.Y.3d 313 (2005). In Malella, the highest court in New York State ruled that an improperly structured medical practice is not eligible for no-fault payments. This lead to the uptick in verification requests for corporate structure documents. Often called a “corporate practice of medicine” defense or a “Malella” defense for the carriers, these issues permeate many large-scale multi-patient verification campaigns or investigations.
These “investigations” are hemmed in by requiring “good cause” for the carrier to pursue the documentation that was requested in Malella. Such good cause is often described as behavior “tantamount to fraud”. The Court of Appeals went on in Malella to say that “we expect, and the Legislature surely intended, vigorous enforcement action by the Superintendent against any carrier that uses the licensing-requirement regulation to withhold or obstruct reimbursements to nonfradulent health care providers.” That would leave some to believe that insurance carriers would have some evidence of fraud before pursuing large scale delays in payment that can create significant financial hardship for providers.
The court in Arthur Ave. then cited to the Malella follow-up case Carothers v. Progressive, 33 N.Y.3d 389 (2019). In Carothers, the Court of Appeals made clear that willful and material failure to abide by licensing requirements would also render a practice ineligible for no-fault benefits.
Thus, there were two viable and distinct avenues for denying payment, broadly described as the “corporate practice of medicine”, and the “improper licensing or corporate structure”. One might think that these bases were valid justifications for verification requests, however, the Arthur Avenue court made clear –
“In cases involving Mallela-type concerns, courts of competent jurisdiction have reviewed the reasonableness of verification requests similar to those at issue. In Island Chiropractic Testing, P.C. v. Nationwide Ins. Co., the court held that “verification requests, seeking inter alia, copies of ‘sale of shares or transfer of ownership (and) lease agreements’ are impermissible and improper requests, and cannot support the finding of a denial ‘toll’ which would permit an award of summary judgment to defendant” (Island Chiropractic Testing, P.C. v. Nationwide Ins. Co., 35 Misc. 3d 1235[A], 2012 WL 2031347 [N.Y. Dist. Ct. 2012]). “Permitting an insurer to obtain written documents such as tax returns, incorporation agreements or leases, regarding a potential fraudulent incorporation ‘Mallela’ defense as part of the verification process defeats the stated policy and purpose of the no-fault law and carries with it the potential for abuse” (Island Chiropractic Testing, P.C. v. Nationwide Ins. Co., 35 Misc. 3d 1235[A], 2012 WL 2031347). In underlining that denying use of such requests does not prejudice the carrier, the court noted that as “the defense of ‘fraudulent incorporation’ is not subject to the preclusion rule, the defendant may raise this defense in its answer, even if not asserted in the claim denial” (Island Chiropractic Testing, P.C. v. Nationwide Ins. Co., 35 Misc. 3d 1235[A], 2012 WL 2031347).
Similarly, the court in Concourse Chiropractic, PLLC v. State Farm Mut. Ins. Co., ruled that “Mallela type material cannot be obtained as verification of the claim. Requesting an [sic] provider to produce voluminous corporate records in order to obtain payment of a no-fault claim is an abuse of the EUO and the entire verification process” (Concourse Chiropractic, PLLC v. State Farm Mut. Ins. Co., 35 Misc 3d 1213[A], 2012 WL 1352923 [Dist. Ct. Nassau Co. 2012], mod 42 Misc. 3d 131[A], 2013 WL 6840321 [App. Term, 2d Dept. 2d, 9th & 10th Jud. Dists. 2013]). This court notes that on appeal, the Appellate Term dismissed the plaintiff’s case based on an EUO no-show and therefore did not rule on the issue of the verification request content and reasonableness (Concourse Chiropractic, PLLC v. State Farm Mut. Ins. Co., 42 Misc. 3d 131[A], 2013 WL 6840281).”
That was a long block quote, my apologies-
The court did conclude that the carrier had good cause to begin their investigation, and to conduct the EUO, but the legitimacy of the post-EUO document requests remained an issue to be resolved at trial.