(Allegations That Medical Corporations Falsely Held Themselves Out As Radiology Services Providers In Bills Submitted To Insurer Were Sufficient To Show Violations of Insurance Frauds Prevention Act and UCL, Regardless Of Whether Defendants Interfered With Physicians' Decisions or Whether Maltreatment, Overtreatment or Overbilling Occurred)
(September 2023) - In People v. Discovery Radiology, 94 Cal.App.5th 521 (Aug. 15, 2023), the California Second District Court of Appeal reversed the trial court's orders sustaining demurrers of the defendant medical corporations in a case alleging insurance fraud under the Insurance Frauds Prevention Act ("IFPA") and unfair competition law ("UCL").
Allstate Insurance Company and several of its affiliates (collectively "Allstate") brought qui tam actions on behalf of the State of California under the IFPA (Ins. Code, § 1871 et seq.) and the UCL (Bus. & Prof. Code, § 17000 et seq.), alleging that the defendants held themselves out as providers of radiology services but in fact acted as radiology "brokers" soliciting patients from personal injury lawyers and sending them to contracted radiologists. Allstate further alleged the defendants were controlled by an individual defendant who was not a physician, and/or by his medical management company, and that these facts were not disclosed on bills submitted to Allstate under contracts of insurance. Los Angeles Superior Court Judge William F. Fahey, sustained Allstate's demurrers without leave and dismissed the complaints.
The defendants asserted below, and the trial court concluded, that the business practices alleged in the complaints were lawful because the defendants allegedly provided only managerial and/or administrative services, not medical care, and thus did not engage in the unlicensed practice of medicine. The Court of Appeal disagreed.
First, the operative complaint alleged the unlicensed practice of medicine under the Medical Practice Act because they alleged that a non-physician owned a medical corporation and exercised undue control over a medical practice. Relying on Attorney General opinions, the Court of Appeal further held that the defendants' alleged radiology referrals could constitute an unlicensed practice of medicine. That the complaint failed to allege that non-physicians ordered or interpreted MRIs, or otherwise interfered with physicians' practice by dictating diagnosis or treatment, did not foreclose recovery. The Court of Appeal held that a non-physician's full or partial ownership of the practice and control over its operations by, among other things, selecting the physicians who would perform medical services, setting the physician's hours, and soliciting and scheduling patients, sufficed to establish the unlicensed practice of medicine.
Second, the alleged unlicensed practice of medicine gave rise to claims under the IFPA and UCL. The Court of Appeal found that, even without any allegation of overtreating or overbilling, case law supports the proposition that claims submitted by a corporation engaging in the unlicensed practice of medicine may, without more, give rise to IFPA claims. Because the complaints adequately plead violations of the IFPA, moreover, they also adequately plead violations of the UCL, since the UCL claims were derivative of the IFPA claims.
Third, Allstate pled the fraud allegations with adequate specificity. The operative complaints identified the role each defendant allegedly played in the fraudulent scheme and showed the claims were deceitful because a non-physician allegedly controlled the defendant medical corporations on whose behalf the claims were submitted, and because the claims falsely represented that the MRIs were performed and read by the defendant medical corporations, rather than by third parties with whom the medical corporations contracted. That spreadsheets attached to the complaint did not allege the date of each alleged false bill or the person or entity who prepared the bill did not change the outcome because the complaint provided the dates of service and claim numbers, and also identified both the providers on whose behalf the bills were sent and the attorneys through whom they were sent.
Finally, the defendants' contention that the action was not timely could not be decided on demurrer. While Allstate filed the case more than three years after the bills were submitted, it first discovered the unlicensed practice of medicine within the limitations period and the allegations did not compel the conclusion that Allstate should have discovered it sooner.
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