“Doc-in-the-Box” Scheme Defeated
Insurance fraud appears in many different schemes. When a chiropractor wishes to increase his practice and the fees charged in order to defraud insurers who compensate people injured in accidents, creates a “Doc-in-the-Box” scheme where the physician merely sells his or her name and license to a chiropractor for a fee, the action is a fraudulent violation of state law.
Plaintiff Allstate Insurance Company (Allstate) sued a group of doctors and lawyers who created what Allstate believed was a scheme to commit insurance fraud against defendants Robert P. Borsody, Esq., a New York attorney, and Daniel H. Dahan, a California chiropractor (collectively, defendants). After a bench trial, defendants were found to have violated the Insurance Fraud Prevention Act (IFPA), N.J.S.A. 17:33A-1 to 30, by assisting a New Jersey chiropractor in the late 1990s in the creation of an unlawful multi-disciplinary practice, which submitted medical insurance claims to Allstate.
The trial court determined that Borsody and Dahan violated the IFPA to the extent they promoted and assisted in the creation of a practice structure that was designed to circumvent regulatory requirements with respect to the control, ownership, and direction of a medical practice.
In Allstate Insurance Company v. Northfield Medical Center, P.C. (A-27-15), Supreme Court of New Jersey (076069), 2017 WL 1739692 (May 4, 2017 ), the Appellate Division reversed because it held Allstate had not established that defendants knew that a violation of those regulatory requirements could constitute insurance fraud under the provision of the IFPA that creates liability for one who “knowingly assists, conspires with, or urges any person or practitioner to violate any of the provisions of [the IFPA].”
Defendants extensively promoted a professional practice structure that a fact-finder could reasonably conclude was little more than a sham intended to evade well-established prohibitions and restrictions governing ownership and control of a medical practice by a non-doctor.
State of New Jersey Rules for Medical Practices
The Board of Medical Examiners established limits on the corporate practice of medicine. Section 6.16(f) lists the appropriate types of private practices—for example, solo practice, partnership, and medical corporation—and explicitly provides that a medical doctor with a plenary scope of practice may not be employed by a licensee with a more limited scope of practice, such as a chiropractor.
A New Jersey-licensed chiropractor, John Scott Neuner testified in the trial of the IFPA complaint filed by Allstate against the multi-disciplinary practice that he had incorporated as Northfield Medical Center (Northfield), as well as the various other professional entities and persons named as defendants. In the 1990s, Dahan, a chiropractor licensed in California, began organizing a series of lectures throughout the country through his company, “Practice Perfect.” Practice Perfect lectures were marketed toward chiropractors and focused on the creation of multi-disciplinary practices in which chiropractors work with physicians and other medical professionals. Borsody, a New York-based healthcare attorney, made presentations at Practice Perfect lectures on the legal issues arising from such multi-disciplinary practices.
On March 28, 1997, after attending the Practice Perfect seminar Neuner signed a contract with Dahan to become a client of Practice Perfect. Neuner spoke with Borsody about establishing a medical corporation and management company as had been described.
In late 1998, Allstate, which had been receiving insurance claims for treatment provided at Northfield, began investigating the legality of Northfield’s practice structure and ceased paying claims to the practice. Neuner retained Borsody to represent him with respect to the investigation. On January 28, 1999, Borsody wrote to Neuner, informing him that because the doctors hired to work at Northfield did not own stock in the medical practice, Neuner’s employment of those doctors likely violated existing guidance from the Board.
As a result of its investigation, Allstate refused payment on approximately $330,000 in claims of patients treated by Northfield.
For present purposes, the salient charges of the complaint allege that Borsody and Dahan violated the IFPA by knowingly assisting Neuner in the creation and operation of a multi-disciplinary practice whose insurance claims were fraudulent under the IFPA.
Based on the record presented, the trial court found that Borsody and Dahan violated the IFPA when they “knowingly assisted, conspired with and urged Neuner to operate in a fashion that violated the law.” The trial judge rejected defendants’ argument that, because the law was unclear the evidence did not establish a knowing violation of the Act.
In a Statement of Reasons, the trial court set forth the essence of its determination: “Borsody and Dahan promoted what they knew was essentially a lie. The business model they promoted was intended to appear to be one way and yet, in reality, be another way. They both were motivated to provide to the chiropractor the ability to manage a practice which included medical doctors. Dahan knew that a chiropractor could not own a majority interest of a multi-disciplinary practice since his California corporation was established so that he was a minority shareholder himself. Borsody knew that he was placing in the hands of the chiropractor the control that was lacking in his first experience in New York. The simple fact that the practice was intended to look as though a medical doctor was in control yet, with various side agreements, he was not, constitutes a sufficient basis for the Court to conclude that Borsody knew what he was doing was not proper.”
This is not a criminal case. And the Legislature did not incorporate the criminal definition of a “knowing” mens rea in its adoption of a knowing violation for IFPA civil liability, as is applicable in criminal insurance fraud prosecutions. There is no need for contortions in understanding the word “knowing.” It is well understood to be an awareness or knowledge of the illegality of one’s act.
There is ample precedent supporting the proposition that a party’s knowledge as to the falsity or illegality of his conduct may be inferred from the surrounding factual circumstances. As has been stated often, circumstantial evidence is not only sufficient but may also be more certain, satisfying and persuasive than direct evidence.
The failure of a healthcare provider or service to adhere to the statutory requirements or any other significant state statute or agency regulation, renders that provider or service ineligible for reimbursement under the statute. In New Jersey a practice entity must comply with all statutes and regulations governing the permissible structures for control, ownership, and direction of a medical practice, including the use of professional services interconnected with a medical practice.
Borsody, as well as Dahan, knew of the regulatory requirements at issue, promoted a practice scheme specifically designed to circumvent those requirements while appearing compliant, and therefore knowingly assisted in the provision of services, the foreseeable result of which was the submission of invalid and misleading claims under the IFPA.
The documents and structure promoted and designed by defendants accomplished what the regulations sought to avoid. They placed control over the medical practice in the hands of a chiropractor, subjecting plenary licensees to his effective control through interconnected contracts and the imposition of the threat of substantial monetary penalties. Importantly, the plan sought to conceal those features to appear compliant.
The scheme vested bare legal title in a physician. However, the physician, besides being subject to direction and financial control by a chiropractor-owner of a management company, in reality was a stranger to the medical practice and was not operationally in control, having been demonstrated to have “sold” her license to multiple practices utilizing the so-called “Doc-in-the-Box” structure in New Jersey and many other states.
There was an abundance of proof that the contracts and penalties—imposed on the doctor named as nominal owner in title of this practice—placed control of the medical practice in the hands of a chiropractor. The lengths that defendants went to in shielding the true controller of this practice from view undermine any basis for interfering with the trial court’s assessment of the mixed question of fact and law that was presented to the court.
Considering all of the circumstances involved in defendants’ interactions with Neuner, the trial court reasonably concluded that defendants knowingly assisted Neuner in violating the Board’s rules and submitting ineligible and fraudulent medical claims for reimbursement through that practice structure, contrary to law.
Knowledge or a “knowing” state of mind for purposes of a statutory civil violation under the IFPA was inferred by the Supreme Court and, as a result, reversed the judgment in favor of Allstate.
The type of scheme defeated by this case was designed for the sole purpose of profiting from fraudulent claims made to insurers whose insureds had allegedly injured third parties. Allstate, and its persistent and effective counsel, defeated an insurance fraud scheme and may have deterred other chiropractors from entering into the scheme. The Supreme Court was careful to note this was not a criminal case, but should have referred the parties to the Attorney General to prosecute the criminal provisions of the IFPA.