GEICO v. Fraudulent Health Care Providers

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The USDC for the Eastern District of New York dealt with GEICO’s motion to (1) stay all pending collection arbitrations; (2) enjoin Defendants from commencing any additional arbitration or state court collection proceedings until the resolution of this federal action; and (3) relieve Plaintiffs from their obligation to post security for the injunction. For the reasons stated below, In Government Employees Insurance Company, GEICO Indemnity Company, GEICO General Insurance Company, GEICO Casualty Company v. Liana Binns, N.P., et al, No. 22-CV-1553 (NGG) (PK), United States District Court, E.D. New York (September 28, 2022) the court dealt with a need to stop arbitration of billing for allegedly false medical treatment and claims under New York’s no fault law.

BACKGROUND

The Government Employees Insurance Company, together with certain related companies (collectively, “GEICO”), brought this action. GEICO alleges that it has been the target of a no-fault insurance fraud scheme carried out by the thirty-eight individuals and entities named in the Complaint and certain unidentified others. Most of the named Defendants are healthcare professionals and one professional limited liability company (the “Healthcare Defendants”). The remaining Defendants (the “Management Defendants”) are not healthcare professionals, but have “secretly and unlawfully owned, controlled, and derived economic benefit from” the services provided by the Healthcare Defendants “in contravention of New York law.”

New York’s No-Fault Insurance Scheme

In New York, an insurer is required provide certain no-fault insurance benefits (“Personal Injury Protection” or “PIP Benefits”) to the individuals that they insure. Under the no-fault insurance scheme, insurers must pay PIP Benefits within 30 days of the claimant’s provision of proof of the claim. In arbitration proceedings to recover no-fault benefits-which insurers must provide for in their contracts the process is an expedited, simplified affair meant to work as quickly and efficiently as possible.

Operation of the Alleged Scheme

According to GEICO, around June 2019, the Management Defendants recruited the Healthcare Defendants to “serve as the nominal or ‘paper’ owners of the professional healthcare practices operated in their names” in exchange for compensation. The Healthcare Defendants then worked in various clinics (the “Clinics”) throughout the New York area. The Healthcare Defendants treated patients who were referred to the Clinics by personal injury attorneys or “through a network of individuals… who were paid by the Management Defendants for each Insured that they delivered.”] The Healthcare Defendants treated the Insureds as if they had significant injuries and health problems in order to maximize reimbursements from insurance companies, despite the fact that most were involved in “relatively minor accidents, to the extent that they were involved in any actual accidents at all.” The no-fault claims were submitted through 34 different professional practices, all of which operated under the professional licenses belonging to the Healthcare Defendants. The claims were submitted through the 34 different entities, likely to reduce the amount of billing submitted through any single individual or entity or under any single tax identification number, thereby preventing GEICO from identifying the pattern of fraudulent charges In the course of this scheme, Defendants submitted bills seeking more than $6.4 million in no-fault benefits. There is more than $4.3 million in pending no-fault insurance claims that have been submitted to GEICO by Defendants.

Evidence of the Alleged Scheme

In support of its fraud claim, GEICO has submitted affidavits from two of the Healthcare Defendants, Julia Kay and Eyriney Azer, who have settled with the company, and a chart, totaling over 750 pages, of allegedly fraudulent no-fault claims submitted by Defendants, which are merely a “representative sample. The affidavits tell very similar stories of being hired by a woman named “Wilma,” presumably Wilma Tanglao, one of the Management Defendants. In their interviews, Wilma informed Kay and Azer that they would be providing dry-needling to motor vehicle accident patients in several Brooklyn clinics for an hourly wage. It was only after the fact that both affiants learned that the someone-presumably Wilma and the other Management Defendants-had been submitting no-fault claims to GEICO and other insurance companies for dry-needling and examinations under their social security numbers, had opened P.O. boxes and bank accounts in their names, and had been receiving checks issued to the affiants from GEICO and other insurance companies.

DISCUSSION

A movant must demonstrate (1) irreparable harm absent injunctive relief; and (2) either a likelihood of success on the merits, or a serious question going to the merits to make them a fair ground for trial, with a balance of hardships tipping decidedly in the plaintiffs favor.

Irreparable Harm

Courts in New York district have consistently found irreparable harm where there is concern with wasting time and resources in an arbitration with awards that might eventually be, at best, inconsistent with this Court’s ruling, and at worst, essentially ineffective. Thus, when “an insurer is required to waste time defending numerous no-fault actions when those same proceedings could be resolved globally in a single, pending declaratory judgment action,” courts regularly find irreparable harm. GEICO asserts that there are over 950 pending arbitration proceedings filed by Defendants, in addition to potentially hundreds more collection arbitrations and civil court collection suits. Since at least some of the pending arbitration proceedings and some of the potential arbitration and state court proceedings involve the Bu Defendants, there is a risk of inconsistent judgments between those other proceedings and this one. If Defendants are no longer in operation and permitted to prosecute ongoing collection proceedings, GEICO’s harm may not be limited to inconsistent judgments or the unnecessary expenditure of time and resources. Any dollar awarded to Defendants in a AAA or state court collection proceeding may be permanently unrecoverable, even if GEICO ultimately prevails in this case. Because GEICO has shown the irreparable harm of inconsistent judgments and of being potentially unable to collect damages, GEICO has shown irreparable harm.

Serious Question. Going to the Merits

For a court to issue a preliminary injunction, the moving party must show either a likelihood of success on the merits, or sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly in GEICO’s favor. GEICO has shown a serious question going to the merits. GEICO is seeking a declaratory judgment that the Defendants have no right to receive payment for any pending bills submitted to GEICO, an estimated $4.3 million in pending no-fault insurance claims.

The Complaint discusses at least fifty examples of fraudulent no-fault claims and explains precisely how it is able to ascertain that each claim is fraudulent. Given the extensive evidence of the overall scheme and of the Bu Defendant’s involvement, the court finds that there are serious questions going to the merits. Even if the defendants are rightfully owed the claim reimbursements, the reimbursements will merely be delayed, and they will be paid later with interest. Thus, the court dispensed with the bond requirement since the case implicates the enforcement of public interests, and the Bu Defendants have not established a likelihood of harm.

GEICO’s motion to (1) stay all pending collection arbitrations; (2) enjoin Defendants from commencing any additional arbitration or state court collection proceeding until the resolution of this federal action; and (3) relieve GEICO from its obligation to post security for the injunction,was GRANTED, as against the Bu Defendants.

The only way to defeat or deter insurance fraud is to take the profit out of the scheme since it is difficult, if not impossible, to get the state to prosecute. GEICO, in New York State, has decided to fight because it seems to have been the victim of multiple fraud perpetrators taking advantage of the patient favored no-fault law that requires immediate payment and no time to investigate. GEICO has found, by serious investigation and confessions by some of the fraudsters, a massive insurance fraud program that will allow it – if proved at trial – to get a judgment for serious damages from the fraudsters. The court, recognizing the high probability that GEICO is right, has stayed the hundreds of arbitration actions that are probably fictitious and gave GEICO the peace it needs to prove its claims at trial.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

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