Crackdown: State Handcuffs, No Fault Crooks, Locks up Scores of Conspirators in Major Bust Industry Praises DFS Effort
ALBANY, N.Y.—At the direction of Governor Andrew M. Cuomo, nofault insurance medical mills and insurance companies are facing a statewide investigation by Benjamin M. Lawsky, Superintendent of the Department of Financial Services (DFS). The regulation implements a 2005 law that gives DFS the power to regulate doctor participation in the no-fault system. Lawsky accepted this assignment immediately and sent out extensive questionnaires to 135 doctors, who had been red flagged for violating the no-fault insurance payment system.
“New York has the fourth highest auto insurance rates in the nation, and we have the second highest level of fraud in the entire country,” said Lawsky.
Governor Cuomo said, “The state has no tolerance for medical providers or doctors ripping off the system. This affects all New Yorkers because we all pay the consequences with higher insurance premiums, and that’s why I asked the Department of Financial Services to take this action.” “A DFS investigation has found evidence of doctors and other practitioners providing unnecessary treatment to car accident victims as well as doctors ‘renting’ their tax ID number to fraudulent medical practices that submit fake bills to insurance companies. Without the doctors, the scheme cannot work,” Governor Cuomo said.
“It will help us get to the bottom of whether they are providing legitimate medical services or whether they are just loaning out their licenses to medical mills—knowing what’s going on there—or potentially whether they are themselves involved in some bogus billing,” said Lawsky. “We did that and the two actions we took are related because secondarily, we put out a new regulation 68, which allows us to ban doctors from the no-fault system if we find they have engaged in the list of things for which they can be banned, and if they are doing anything improper to no-fault schemes, I am going to take them out of the system,” explained Lawsky.
“I guess my attitude is in the first instance, I am going to flex our administrative muscle as much as possible, take the existing laws, take the existing administrative powers under those laws and do everything I can to eliminate no-fault fraud. That keeps me in a swim lane that does not require me to get in the middle of any legislative fights. Those are things I can do expeditiously, as you saw, we got that regulation out in record time.”
“On the question of legislation, and again, trial lawyers are not bad people—I don’t want to enter that kind of fight, trial lawyers have their views of the world, and the insurance companies have their views of the world—my guess is, there are a number of different pieces of legislation, and if we all got in a room, we could start to make real strides.”
“I think trial lawyers are against fraud, they really are. They just don’t want to pass bills that are so broad that they eliminate people’s rights under the no-fault rules. That’s where you get into this. You have to all sit down and see what can be done. I am committed to trying to help facilitate passing legislation. I want to work with both the industry, and the trial lawyers, and law enforcement to do that. But at the same time, I don’t want to lie, that is a very difficult task.”
“I believe there are things we can get done all working together, but at the same time, I believe there is a lot we can do if we are smart, innovative, and creative about our administrative powers. And we can do that separate and apart from state legislation,” Lawsky said.
When asked if legislation was also being considered for no-fault, Lawsky said, “Well, we are taking it one step at a time. Various pieces of legislation have been floating around for years. There are a number of different reforms out there to make the nofault system tighter and to limit fraud. The problem is some of them, how do I put this delicately, would be hard to get passed.” Meanwhile, Senator James L. Seward (R-I, Oneonta), Chairman of the Senate Insurance Committee and Senator Joseph Griffo (R-C-I, Utica) have introduced legislation to clarify the existing law to conform to changes made by the Financial Services Law. The changes are non-substantive in nature and reflect the merger of the Banking and Insurance Departments, which are said to assist readers and facilitate legal research.
“Look, the no-fault system is intended to protect people who get injured in accidents. The typical question is when you start trying to tighten up the no-fault system, you also slow down people’s ability to get recoveries to pay for their injuries,” Superintendent Lawsky said. “There is a whole Trial Bar, trial lawyers, who very much oppose a lot of the reform proposals out there.”
Senator Seward said there was legislation enacted in 2005. “If we had had a single state agency at that time, we would have had the power to move forward, it would have been much better. In fact, that is one of the proposals for change going forward.” “In the meantime, of course, Superintendent Lawsky is willing to take the bull by the horns, and that is a very positive development. And I think Superintendent Lawsky is going to move forward without a bill under the authority of the bill that we did in 2005.”
Lawsky said, “What I am focused on right now is, what can I do administratively? One thing that we realized when we looked at it closely was: Wow! This 2005 law had passed. It gave the Department, working in conjunction with the Department of Health and the State Department of Education, the ability to issue regulations that would set forth how we could start banning doctors from the system.”
“What I am happy to say is: it happened now. We have this regulation and we are going to start using it, and I am going to use it aggressively.”
“Under the new regulation, 68, I can take doctors out of the no-fault system. That is separate and apart from the question of their medical license in general. I can’t take away their medical license. I can refer them to the Department of Health and the State Department of Education to have their licenses taken away, but that’s not up to me,” explained Lawsky.
“What I can do is get them out of the no-fault system, which is an improvement right off the bat. These doctors have due process rights, they deserve to be heard before I, if I, kick them out.”
“My intent is to look very closely at the conduct of these doctors, and that’s why those 135 questionnaires to the red flagged doctors are very important. They’re going to give us a lot more information, and if we find any doctors not acting properly within the no-fault system then I am going to kick them out and I am going to kick them out by the dozens,” Lawsky explained. Senator Seward said, “You know, 99.9% of our doctors are fine, upstanding citizens who render great service and lawful service to the people of New York. There is a very, very small minority unintentionally or in some cases perhaps intentionally lending their licenses.”
“I have heard stories where they retire to Florida, and they get contacted by some group that says well, we’d like to name you on our committee. I have heard cases where they are unintentional or unaware of what is going on.”
“You have to have a physician involved in order to set up one of these medical facilities as a head of it. When they say they lend their license, they provide the medical, professional license as the head of one of these so-called medical facilities and make it look legal,” Senator Seward said.
“If you start pulling bad-apple doctors out of the system, the fraud will naturally dry up because these medical mills can’t operate without a doctor’s license—someone’s doctor’s license. And, think about it,” said Lawsky, “and I used to prosecute these cases as a federal prosecutor, you can arrest twenty runners, who are the guys on the street getting the people in the accidents to the medical clinic; you can arrest twenty people who are involved in staging the accident, these are again, low-level people who perpetrate these accidents to then create fake accident victims to bill the system— you can go after all those people. If you do, and you get them off the street, they are entirely replaceable. The medical mill system will keep operating; they will just find new runners. There are people out there who think we need to increase the penalties for things like runners and people who stage accidents because you can have a much higher deterrent effect.”
“In the meantime, I want to go to the top of the pyramid and start knocking off the doctors. You know, they laughed at a cabinet meeting, but I was serious when I gave the octopus example. If there is a doctor, who is the head of the octopus, and you have eight tentacles—one is the runner, one is the stage accident guy, one is the people who do the administrative billing at the medical mill—you can cut off any one of those tentacles and it will grow back eventually, quickly. But if you take the doctor out, if you cut off the head of the octopus, the octopus is dead and all the tentacles dry up. And so I am trying to go to the top of the pyramid—sort of like a drug, kingpin strategy: take out the head of the mill,” Lawsky said.
Assemblyman Joseph D. Morelle (D-I, Rochester), chair of the Assemblyman Insurance Committee said, “We gave them the authority to decertify a doc so that he or she could not participate in no-fault even though their professional might not still be revoked.”
“There are two different questions,” said Morelle, “one, whether you have the right to practice; and two, whether or not you can bill for no-fault cases.”
“There is concern that one of two things may be happening. One, they are simply being referred because people know that there is a $50,000 amount for no-fault, and they will do whatever they have to do to continue to bill. And second, they may actually be colluding with people who stage accidents, knowing they are going to the mill, and even absent the real medical problems, they’ll bill $50,000 anyway. And that’s what drives up the costs.”
Lawsky said he had a good relationship with the Medical Society of New York and respected them. “I am keeping up a good line of communication with them, and my hope is that they will work with us because I am not hoping to tarnish doctors in general; I am not looking to deter medical care; I am just looking to take out the dirty doctors. I’ll be honest with you, I am a son of a doctor, retired doctor, and what I have been saying is I am trying to weed out the bad apples, and you have bad apples in any industry. I am a lawyer and you have dirty lawyers out there, and they should go to jail, too.”
“The reaction I get from the insurance companies is very positive. They do a lot of reporting and they obviously get the bills in the first instance with these medical mills. They have, as they are required to by law, pretty extensive fraud units in their companies, and our fraud unit works closely with their fraud units. And that’s where we get a lot of data on where to start drilling down, on where the bad doctors are, where the bad billing comes from, and things like that.” “The key to most no-fault insurance scams involves submitting phony claims for medical treatments,” explained Ellen Melchionni, President of the New York State Insurance Association and Co-chair of “Fraud Costs NY” regarding the need for no-fault auto insurance reform. “Costs are spiraling out of control because bogus medical mills and unscrupulous medical providers predominately in the New York City area are billing for treatments that were never performed, unnecessary or excessive.” “These criminals are stealing money out of the pockets of honest New Yorkers, and this ‘fraud-tax’ is imposed on law-abiding, hardworking New Yorkers. Fraudsters have created ‘big-business’ of fraud, so they can cash in,” Melchionni said.
Kristina Baldwin, also Co-chair of “Fraud Costs NY,” is Assistant Vice President Property Casualty Insurers Association of America. “Superintendent Lawsky is the most aggressive regulator we have seen in a number of years on this issue, showing real leadership that will reduce fraud and lead to long lasting reform. We look forward to continuing to work with him and the Legislature on further efforts to reduce fraud, including getting laws enacted that will give insurers the tools that they need to put the medical mills and the others making money off the flaws in the current system out of business once and for all.”
Several prominent business members in New York have also joined “Fraud Costs NY” arguing that rampant fraud has pushed insurance premiums beyond the reach of many small business owners who are consequently forced to pass on the ensuing costs to their customers by way of increased prices for goods and services.
Queens Chamber of Commerce Director, Jack Friedman, said “Targeting fraudulent medical clinics is a positive first step towards cutting the unnecessary costs, which many small businesses are forced to shoulder as a result of this criminal activity.” “Efforts to curb auto insurance costs are beginning to take shape here in New York,” said Senator Marty Golden (R-C-I, Brooklyn). “We must make these reforms of going after corrupt medical providers at the top of these sophisticated fraud schemes one of our priorities this year, and we can finally begin to reform our state’s broken no-fault auto insurance system.”
A recent study of personal injury protection claims performed by the Insurance Research Council showed that claimed losses for medical expenses, lost wages, and other expenses related to injuries from auto accidents in the New York City area have risen 70 percent over the past decade, surpassing the 49 percent increase in medical care inflation over the same period. The average claimed loss per personal injury protection in the New York City area was more than double the average loss among claimants from the rest of the state at $15,086 compared with $6,870.
Claims from the New York City area were more than four times as likely to involve apparent abuse, 35 percent compared with 8 percent in the rest of the state. The study identified Brooklyn and Queens as particular hotspots for abuse.
Lawsky said, “I think the insurance companies wanted the new regulation 68 for a long time. And I think they are starting to see that the Cuomo administration is very serious about cracking down on this kind of fraud and that the Cuomo administration is going to act.”
Michael Barrett, Legislative Representative for the Independent Insurance Agents & Brokers of New York, said, “The average amount charged by health care providers down state is almost three times greater than the average amount charged by health care providers in upstate New York. Illegal corporate structures flourish allowing dishonest people to open and run no-fault medical clinics that operate solely to bill insurance companies and do not provide legitimate medical care.” “For the most part, the perpetrators of this type of fraud are located in the Downstate areas, like New York City and Nassau, Suffolk and Westchester Counties,” Barrett said. “However, all drivers are penalized by paying significantly higher auto insurance rates due to no-fault fraud.”
Lawsky explained while several no-fault proceedings are going on in the Southern District, “We are not prosecutors here. I am a former prosecutor from that office. We are sort of operating on parallel tracks. They are going to keep building their cases and prosecuting their cases, and we will try to work closely with them and be supportive of them. At the same time, as a regulator, there is more we can do to try and eliminate this fraud and prevent the fraud.”
“There is a list of penalties if you get charged Federally. We, the state, don’t have those kinds of penalties. But if we billed cases and referred them to the U. S. Attorney’s office, those kinds of penalties come into play. We don’t have the power as the DFS to prosecute ourselves. I don’t have indictment power. I can build the case and then bring it to the U. S. Attorney. I could also bring cases, and sometimes do, to Attorney General Eric Schneiderman. Where you bring it depends on the nature of the case and the nature of the crime.”
“The one thing I think is clear is that the Federal prosecutors have much tougher penalties, so whenever possible we want to bring them to Federal indictments because the bigger penalties will serve as a deterrent to this type of crime. But, you can’t bring every case Federally, they don’t have the capacity.”
“Superintendent Lawsky can do things administratively where he has been given the statutory authorization to do things by statute,” said Assemblyman Morelle. “When you look at the insurance laws, and many of the laws, over the years, the Legislature has granted pretty extensive powers to the Superintendent of Insurance, now DFS. So, they have a fair amount of latitude, but having said that, the Department can only do things that are within their statutory authorization. If there are places where he or the Department oversteps their legal or statutory authority, we will obviously hear about it, and we will monitor it, as well.” On whether the jurisdiction for prosecuting should come from the U.S. Attorney’s Office rather than the New York State Attorney General, Assemblyman Morelle said, “From our point of view, the law enforcement issues are outside the purview of the Legislature. We obviously stipulate what violates the constitution of the insurance law, what constitutes felonies, misdemeanors, etc. Who tries them and how it’s done once it gets the enforcement; then it isn’t our responsibility.”
“Staging an accident in New York is not a crime in New York right now, and I have been working with Senator Seward and a number of others to try to create penalties or increase penalties on staging of accidents,” said Morelle. “But you know, there is not a consensus yet to do it. I think people who would oppose this or have concerns about it are just concerned that you actually know how to define what a staged accident is. What are the necessary factors that have to come into play before you can charge a staged accident? It’s probably not an easy law to enforce or an easy crime to prosecute, but I think it should be done because it’s happening.”
Senator Seward agreed with Assemblyman Morelle, saying he would like to make staging an accident a crime in New York State, as well. “In the post-budget part of our session, I certainly want to do more to give Superintendent Lawsky and others more tools to work with. What approach I think we are going to take in the post-budget part of our session is, I want to have some stakeholder sessions, small group discussions, to identify a handful of priorities for the various stakeholders: the insurance companies, auto companies, Trial Bar, and the Medical Society. My plan going forward is to identify their priorities in this discussion, what we could do more to help fight this fraud, and try to come to some terms.” “I do think there are some common interests and there are some things that can bring people together. I think the Trial Bar is concerned about the definition of a serious injury and the issue of going to courts because you have a serious injury,” explained Assemblyman Morelle. “If you have a serious injury in no-fault, you can go and litigate. The courts determine whether this is a serious injury because there is a definition in the statute, a serious injury is defined in law. For instance, if you fracture a bone, that is automatically deemed to be a serious injury; if you lose a certain number of days or certain activities for a certain period of time—those are defined as serious injury.”
“There is a difference between fraud and whether are not people are able to litigate serious injury and other issues in the court. Without a doctor, the mills can’t operate,” said Assemblyman Morelle.
“There have been rumors around that there is another bust coming, but I haven’t heard any details. You never know what to take seriously, but it’s clear that the DFS has stepped up its efforts, is taking it very seriously, and is being very aggressive,” Assemblyman Morelle said.
“We are looking at increasing penalties and creating the crime of stage of staging an accident—so, those are things we are working on. But in addition, we are talking about other things that affect the rates and that’s the system itself unrelated to fraud. So, that’s the question of how much arbitration there is, whether arbitration would bring down the cost of going to court, or whether or not definitions of serious injuries can be tightened up. What the Superintendent is doing is, I think, working within his statutory authority; the question is whether or not there are other things to be done. In my view, there are other things we can do and should do. And submitting the letters to the docs is the first part of it.” Assemblyman Morelle said, “I think the DFS is trying to determine whether it can identify some of the culprits of medical fraud. But obviously we have been working with our counterparts in the Senate, with insurance carriers, with the doctors, and with the Trial Bar to try to identify solutions to what has been a vexing issue of not only allegations of fraud in the system, but also high premiums, particularly in certain boroughs of the state.”
Superintendent Lawsky said that most of the fraud hotspots are in the five boroughs. “No question, the vast majority are downstate in the five boroughs. I want to really think about, apart from passing legislation, the smart things we can do. When you know a particular crime is repeatedly being committed in a hotspot area, there are a number of different law enforcements one can employ or deploy to try and deal with this because you can focus on that area.”
“There are areas in Brighton Beach, Queens, Brooklyn, Long Island, and Manhattan. And I think we need to think very creatively, and I don’t want to say what we are going to do yet, when you know that particular area is a breeding ground for a certain type of crime. We are going to take creative, innovative, and I believe smart actions in the coming months to try to tackle those areas.”
Lawsky said there are hotspots in Upstate New York in Buffalo, Rochester and Syracuse, and he plans to spend some time in Buffalo this spring and summer. “This fraud costs the insurance companies tens of millions of dollars a year, maybe hundreds of millions. When you spread that out, it brings rates down. The success of bringing down the rates depends on how successful we are at bringing down the fraud. Let’s say we eliminate 20% of the fraud, that would be nice to say that that will bring down rates however many points.” The Insurance Research Council estimates no-fault fraud costs $385 million a year in bogus claims in New York.
