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MD/DC Clinics and “Fraudulent Incorporation”

MD/DC Clinics and “Fraudulent Incorporation”

It’s been some time since I’ve lasted written about MD/DC clinics and how they can turn into fraudulent operations. Here are two of my last couple of articles from Dynamic Chiropractic.

https://www.dynamicchiropractic.com/mpacms/dc/article.php?id=46387
https://www.dynamicchiropractic.com/mpacms/dc/article.php?id=46096

In the last few years, there has been an uptick in federal criminal prosecutions and insurance company lawsuits against medical clinics alleged to be controlled by someone other than the MD clinic owner. So it seems like time for an update by me. Having been involved in this field for almost thirty years, my take is that while some things have changed, the important things, in terms of the method of operation and the government and insurance companies’ response really haven’t changed in any legally significant sense.

For instance, in the old days, some chiro consultants found the MD to act as the MD professional corporation owner. In one well-known and egregious case, an MD was the paper owner of several dozen different clinics in several states. The carrier sued one of those clinics, the MD, the chiro consultant, and (gulp) the lawyer who taught the model and set it up. The case lasted almost twenty years, (ending just last year), and resulted in a large judgement against the consultant and attorney. I may give my take on that case in another post but here is the case:

https://law.justia.com/cases/new-jersey/appellate-division-unpublished/2015/a0636-12.html)

I think the days of one MD being the paper owner of so many clinics may be over. In the current illegal MD/DC iteration, the MD rubber stamp might only be involved in one medical practice. But, a rubber stamp, or a rose by any other name . . . .

In the old days, there was a lot of classic insurance fraud at some of these clinics, like unnecessary services, up coding, unbundling, and improper “incident to” billing. Maybe and hopefully that’s been cleaned-up, in some cases at least. However, the carriers still scrutinize MD/DC clinics and other alleged nominal physician controlled clinics because they have this crazy idea that the chiropractors or non-physicians are actually running them. The carriers have gone after some of these clinics based on a “fraudulent incorporation” theory, even if all the care provided is medically necessary and there is no specific fraudulent billing. (That’s a big Gulp!)

This fraudulent incorporation theory goes to the heart of the MD/DC model, the model being that through corporate interrelationships, management and other business service agreements, the money generated by the medical clinic finds its way to the chiropractor in the MD/DC venture (or to the non-MD business people who control the clinics).

In these clinics, the money needs to go first to the medical clinic (i.e., care is billed through the medical corporation) because of carrier imposed restrictive limitations on chiropractic, or because there are now entire areas of insurance reimbursed care which have to be provided by a physician-owned entity, like New York no-fault accident law medical care.

But that aside, the ultimately reality is that there’s a lot of money in medicine, and chiropractors (and regular business folk) try to get in on the action. The MD/DC clinic was largely originialy developed (in my opinion) to do just that, and business people created similar corporate structures to achieve that goal also. I’m not saying they all are illegal, but what I will say is that it is viewed as a problematic business model which sends up red flags to prosecutors and insurance companies.

It’s interesting to see how this fraudulent incorporation legal theory evolved and metastasized from the state civil insurance law to federal criminal law.

Follow me here:

In the early 2000’s, State Farm filed a federal civil action in New York seeking a ruling that it didn’t have to pay no-fault accident claims from a few related medical clinics because supposedly the medical clinics were fraudulently incorporated. The allegation was that two businessmen hired physicians to act as the nominal owner of the clinics, and that these two non-physicians actually ran the clinics. Of course similar allegations had been made against MD/DC clinics in criminal cases in which there had been classic insurance fraud as evidence of the overall fraudulent scheme.

Significantly and chillingly, State Farm didn’t claim that the care rendered was medically unnecessary or improper, and it didn’t even claim that the care was rendered by someone not authorized to provide the treatment. In short, there was no allegation that there was anything wrong with the care. Rather, the claim was that the medical corporation was a sham because the corporation’s medical business wasn’t run by the physician owner, but by the businessmen. Because of that, State Farm argued that it didn’t have to pay for any of the care. (It’s a very creative argument. You have to love these insurance companies. I know I do.)

The federal district court dismissed the case, holding that State Farm had to pay the claims so long as the providers who rendered the case acted within the scope of their licenses. Well that seems like a logical and pretty reasonable approach to me. However, State Farm appealed to the federal Second Circuit Court of Appeals.

The clinics argued that the formalities of the clinic ownership was all that mattered. The law requires that a physician-owned clinic had to provide the care, in fact a physician owned the corporation and the corporation provided the care, so that’s it, end-of-story.

State Farm argued that the business men’s actually running the medical practice violated the corporate practice of medicine doctrine (“CPM,” which prohibits anyone other than physicians from practicing medicine). According to State Farm , the CPM violation meant that all the claims were fraudulent and it didn’t’ have to pay anything. Because it was an unsettled issue of state law, the federal appellate court asked the highest state court in New York to decide (confusingly called the Court of Appeals, and just to make it more confusing, the trial courts in New York are called the “Supreme Court.”)

The question asked was whether an allegedly fraudulently incorporated medical corporation is entitled to be reimbursed by insurers. The Court of Appeals answered no. The Court of Appeals then ruled that the CPM doctrine prohibits a non-physician from owning or controlling a medical corporation, that technical ownership was not sufficient, and that the realities, not the formalities determine whether there has been a CPM violation, and if there was a violaiton, then the clinic is not entitled to be paid anything by the carrier.
That’s a tough decision, given that there was no allegation of improper billing or improper medical care.

Although the actual owners of the clinics were not chiropractors, the case still impacts them, because the operative legal point is that under a fraudulent incorporation theory, it doesn’t matter if the actual owner is a layman or a health care practitioner other than a medical doctor.

The problem is that the owner isn’t a medical doctor, and that care is billed under the medical corporation’s name which in reality is controlled by a non-physician. That is (or could be) illegal in states which have a CPM doctrine and limit certain kinds of care to physicians, And while the case only deals with New York no fault law, I think it would apply, at least to any case where care has to be or purports to be delivered by a medical practitioner, or so the government will argue.

So at least from the time of this case (State Farm v. Mallela, 794 N.Y.S. 2 700 (2005)), insurance companies have had this weapon against MD/DC clinics in New York, even if all the care was medically necessary and successful. And, for better or worse, this case has garnered respected and precedential status throughout the country, even though it only technically interprets and applies to New York law no- fault insurance law.

Therefore, in any state which has a CPM doctrine and limits or excludes chiropractors from some form of reimbursed care like no-fault, or limits chiropractic care, or reimburses at a lower level than physician reimbursement, this case is a possible weapon against an MD/DC clinic which provides care to classes of patients or injuries which have to be provided by a medical corporation. After this case, a number of other civil cases in New York were filed against similar run operations, many of which clinics specialized in no-fault.

The next big thing is what happened to a medical doctor who rented out her license to a couple of business folk for 1500 bucks a week. Two businessmen had set up a number of medical clinics to provide medical care to accident victims under New York no fault. They hired physicians for $1500 per week to be the nominal owners of the medical corporation providing the services. Eventually Allstate’s SIU (special investigative unit) zeroed in on these entities and had the medical doctor owner submit to an examination under oath about her role at the clinics. She falsely testified about her role, and claimed to have seen patients which Allstate knew she hadn’t.

The SIU turned the case over to the US Attorney’s office and several dozen people were indicted, including the physician. The doctor wanted the jury instructed that “ownership” is limited to who is the technical owner of the medical corporation’s stock. The district court rejected the request and gave the economic realities view in State Farm v Mallela. The physician (and all the others) were convicted of health care fraud and conspiracy to commit heath care fraud. The physician appealed, and her main argument was that her formality of ownership jury instruction was not given, and it was error for the judge to give the broader, economic realities instruction. Needless to say the Second Circuit rejected her argument and affirmed her conviction. The case is U.S. v. Gabinskaya, 829 F.3d 127 (2nd Cir. 2016).

Here is a pdf of the decision: United States v. Gabinskaya, 829 F.3d 127 (2nd Cir., 2016) (1)

Again, even though the case doesn’t involve chiropractors, and is limited to New York no-fault, it, and the cases it cites and cases cited by it will be used as guidance and precedent by federal prosecutors as they view MD/DC clinics, at least as a legal basis for rejecting the notion that corporate formalities offer some immunity or insulation against fraud prosecution against MD/DC clinics.

The basic lesson of these cases is that economic and business realities determine whether these type of operations are (or can ever be) legal. Some of the cases set forth 13 factors which establish substantial control over the medical corporation (which places the operation into federal felony land), but ultimately it’s going to come down to the facts and circumstance of each operation. My hunch is that not a lot of these operations will be on the good side of the law, but I’ll give my analysis of these factors another time.

Rick Jaffe, Esq.
www.rickjaffeesquire.com
rickjaffeesquire@gmail.com

A short, mostly first-hand history on insurance reimbursement for CAM

A short, mostly first-hand history on insurance reimbursement for CAM

In litigating criminal and civil CAM (Complementary and Alternative Medicine) cases for three plus decades, I’ve seen a lot, and I have the medals and battle scars to prove it (meaning good and bad court opinions, jury verdicts and prosecutorial decisions). The decades have also given me a perspective on how things have changed, and haven’t.

For CAM insurance reimbursement (including chiropractic), I see one constant dynamic: Insurance carriers don’t like to pay for CAM services, so (some in) the CAM community come up with workarounds to get insurance companies to open-up their wallets. These workarounds work for a while, then they don’t, then there are new workarounds which work until they don’t, and so the dynamic goes.

Let me flush this out, largely based on my experience working on some of the big CAM insurance civil and criminal cases, investigations and medical board actions. Many of these matters were characterized by the government and/or carriers as “insurance fraud.” Fortunately, more often than not, the judge or fact finders didn’t agree, or at least didn’t think the government or carrier met its burden of proof.

CAM doesn’t get insurance reimbursement

In the 80’s, when CAM really started to take off, the carriers had short and vague exclusions in their policies about not paying for experimental or unconventional treatments/services. Even without specific definitions, those general policy exclusions were usually enough to stop most practitioners from filing claims or receiving reimbursement. Since most CAM treatments do not involve big money, individual patients and clinics did not litigate denials of claims for CAM treatments.

CAM figures out how to open the carriers’ wallets

A couple things happened in mid to late 80’s up until the early to mid-90’s which changed the CAM insurance payment landscape.

First, a few creative billing companies developed coding techniques to create some confusion about the nature of the services provided by CAM practitioners. One highly successful company made tens of millions of dollars for CAM clinics, and even obtained insurance payments for patients treated at Mexican CAM cancer clinics. They did this by creating chemo sounding acronyms for the treatments, and established a California based foundation for billing purposes which disguised the fact that the treatments were given in Mexico.

On the chiropractic front, a few chiropractor-turned consultants popularized the MD/DC business model, whereby chiropractic services were magically transformed into medical care. This regulatory alchemy was based on an obscure Medicare concept called “incident to” billing, the effect of which was to circumvent the severe limitations which most carriers placed of chiropractic care. These rules were also used to bill services of unlicensed people giving advice about “activities of daily living” as incident to services rendered by or under the MD’s provider number. Because of the efforts of these billing companies and consultants, tens of thousands of patients received care paid for by carriers which would have otherwise been denied by the greedy and heartless insurers. (I might not be unbiased.)
From the government’s and carriers’ point of view, it was all insurance fraud. It was relatively hard to prosecute insurance fraud back then, federally at least. Most of the victims were private carriers. There wasn’t much of a federal budget for these prosecutions, except for the most high profile or unlucky cases. (I worked on one of the big cases involving an unlucky and high profile doc.)

In addition, there were some impressive legal victories wherein carriers were forced to pay-out big judgments (including punitive damage awards) for denying expensive investigational or CAM cancer treatments. These judgement caused some shock waves in the health insurance industry and led to some very significant changes in the legal/regulatory/enforcement landscape.

The carriers and feds fight back hard

The carriers figured out that they were not paying for reimbursable conventional care, but rather, excluded CAM care. They were not happy and some started filing lawsuits against the practitioners and even the consultants and billing companies. The carriers also got the feds involved.
Federal prosecutions of insurance fraud became easier and more frequent because of a provision in the 1996 HIPAA law which made health care fraud against a private carrier a federal crime. (18 USC 1347, for those who care). The new law even made medically unnecessary testing and services prosecutable under the federal insurance fraud statute. With the change in the law came some significant federal money to fund federal insurance fraud prosecutions.

I worked on some of the major health insurance civil and criminal health care fraud cases in the 90’s. Mostly the results for my clients were good, but even so, as they say in criminal defense, “You can beat the rap, but you can’t beat the ride.” These cases were brutal and draining for the docs. And when the doc loses, he loses big; his/her medical license and freedom for a time. So the stakes in these cases are huge.

Civil lawsuits against health insurance carriers for non-payment of arguably experimental or unapproved care virtually ended in the 90’s once the carriers figured out that they could use ERISA (employment law) to make these cases unattractive and almost unwinnable by plaintiffs’ attorneys. (In short, ERISA law makes the carriers’ payment decision judicially reviewed under an extremely high abuse of discretion standard. Also, there are no punitive damages in ERISA, thereby removing a big incentive for the plaintiffs’ bar to file these cases.)
On the MD/DC front, the carriers and the feds fought back hard. Aetna went after one of the main MD/DC consultants and the MD/rubber stamp of 50 of the MD/DC clinics in the northeast.

The feds started prosecuting many of the chiropractor owners of the MD/DC clinics and their MD and DC employees. In the early 2000’s, the feds went after the most visible MD/DC consultant and one of his client-clinics in northern West Virginia. The chiro clinic owner got wind of the investigation and fled the country, but the MD, the two employee chiropractors, the office manager and the consultant who set the operation and told them how to bill the carriers were all indicted for insurance fraud.

The MD and office manager plead-out and did some time. The two chiros and the consultant went to trial, but all were convicted. The consultant was also convicted on money laundering charges, which is a very nasty crime because it imposes an unusually harsh sentence, far greater than mere insurance fraud. Despite three appeals, the consultant received a very lengthy prison sentence, and there’s no parole in federal time. This was the worst result I ever received in a case. The government would say that this person was responsible for many millions of dollars of insurance fraud and that he was fairly punished. (The chiro clinic owner who fled the country beat the government’s extradition efforts and continues to live in Ireland.)

This and the other prosecutions reduced the popularity of that MD/DC clinic model. One of the big CAM billing companies was eventually indicted, but the case was ultimately settled and charges dropped. A few docs were eventually indicted and there were some convictions, but nothing like in the MD/DC field.
In the mid 2000’s, there were still some MD/DC clinics but most were operating below the radar screen, and didn’t engaged in the most controversial forms of billing that the prior chiropractic consultants advocated.
Some CAM physicians continued to engage in the obfuscation techniques taught by the CAM billing consultants, but for whatever reason, there wasn’t much activity on the federal criminal front. I worked on an investigation of an autism clinic which used a billing technique to circumvent the carriers’ pathway edits for unconventional autism treatment. Eventually, the carries figured it out and contacted the feds which opened up a grand jury investigation. All I’ll say is that it’s a case you’ve never heard of because there was no indictment. But the clinic did close its doors once the carriers figured out what it was up to.

Also, starting in the mid- 2000’s there began to be a movement in the CAM community to produce specific codes for CAM services. It was called ABC billing (Alternative Billing Concepts). The idea was to create HCPCS type codes which could be used in billing insurance companies for CAM services. My take is that it’s had some success, but not for the primary therapy types of CAM like chelation therapy, environmental therapy treatments, and such.
The problem with the ABC endeavor is that it misunderstands the main reason why CAM practitioners aren’t getting paid for the CAM primary therapy. It’s not because, there is not a specific enough CPT or HCPCS code which is what the ABC codes try to solve. Rather, it’s because most carriers have a policy against paying for treatments not generally accepted by the conventional medical community.

To be fair, carriers do pay for some CAM therapies like acupuncture, chiropractic and even nutrition counseling (given by a properly credentialed provider), but 1. The reimbursement rates for these services are low and 2. That doesn’t help the integrative practitioner who uses a wide variety of primary therapeutic CAM modalities which are not payable under the plans.
So however laudable the ABC coding effort is, it won’t solve the CAM practitioners’ main problem, which is insurance policy exclusion of most or all primary CAM treatment modalities.

What comes around and goes, comes around again

In the last few years, a new billing and coding model has been promoted to the CAM community by various CAM coding companies. It involves use of an arcane Medicare concept, the “incident to” rules, which turn services of NPP (non physician practitioners) and chiropractors into physician services in order to 1. Obtain 100% physician reimbursement rates, rather than the 85% rate of NPP’s, 2. To circumvent the limitations of chiropratic in Medicare and third party pay plans, and 3. To bill people without any health care license or certification under as services of the MD provider. What a novel approach!
In the old days, Medicare had more rigorous and restrictive payment practices than all private carriers, so following Medicare’s rules was in effect, a safe-harbor or guaranty of compliance with the rules of the private pay carriers. However, those days are gone. Some private health insurance have stricter rules than Medicare and/or don’t follow all of Medicare’s rules. So the Medicare safe harbor concept doesn’t necessarily work anymore.
These new CAM billing companies also have some novel interpretations of various other codes, which, it is claimed, obtains insurance reimbursement for primary CAM therapies such as chelation therapy for heart conditions and even detox. You can probably guess some of the ways they achieve these results.

IN SHORT
If you are following the advice of one these billing companies, keep this in mind; just because the carriers’ payment computer programs are spitting-out checks to you for CAM treatments doesn’t mean the carriers actually know what they are paying for, or that they won’t ask for their money back, if and when they ever figure out what’s going on.
And on it goes.

Rick Jaffe, Esq.
rickjaffeesquire@gmail.com
www.rickjaffe.com