An insurance fraud case currently on appeal in the state of New York pits a major insurance company against a medical practice.

The insurance company is defending its stance of nonpayment to the medical practice on the grounds of “fraudulent incorporation.”

Fraud comes in many forms

There are many types of fraud, from credit card and check fraud to internet and mail fraud. Insurance fraud relative to the medical field costs the public billions of dollars annually. The penalties depend on the severity of the crime and may involve fines and restitution, community service and even prison time. A medical professional may lose their license as the result of a conviction.

What the law states

Under New York law, only licensed professionals may provide medical services, which means that the corporate practice of medicine is prohibited. In addition, licensed professionals do not have permission to split fees or share their profits with nonlicensed professionals. Under the same law, there are no requirements for no-fault insurance carriers to reimburse fraudulently licensed medical services providers for “basic economic loss.”

About the case

In Andrew Carothers, M.D., P.C. v. Progressive Insurance Company, the Second Judicial Department upheld a judgment by the Richmond County Civil Court in favor of the insurance carrier. Although the corporation filing was in the name of Dr. Carothers as sole owner, director and shareholder, two non-physicians controlled the medical practice. Progressive had withheld or delayed payments to the medical provider stating that the corporation was in violation of New York law.

Between 2005 and 2006, the two non-physicians who managed the medical practice received payment in the amount of $12.2 million, and the doctor received $133,000. Not only did Dr. Carothers split profits with nonprofessionals, but he was also found to have had little involvement in the operation of the practice.

More to come

The decision in the case of Andrew Carothers, M.D., P.C. v. Progressive Insurance Company is now under appeal at the New York Court of Appeals where arguments are to commence sometime this year.