Decided on May 1, 2015

SUPREME COURT, APPELLATE TERM, SECOND DEPARTMENT, 2d, 11th and 13th JUDICIAL DISTRICTS

70806/2005

Gary Tsirelman, PC
Attorney for Plaintiff
129 Livingston Street
Brooklyn, NY 11201
by Stefan Belinfanti, Esq.

Law Office of Deirdre J. Tobin & Assoc.
Attorney for Defendant
P.O. Box 9330
Garden City, NY 11530
by Janine Gentile, Esq.

Plaintiff brought this action to recover assigned first-party no-fault benefits in the amount of $3,960.57. Trial commenced on February 13, 2015, and was continued over several days. The issues presented were whether plaintiff may establish submission and receipt of its claim through the use of defendant’s witness and whether defendant insurer asserted a valid defense in denying payment.

At trial, instead of the customary method of establishing a prima facie case by calling a witness of the provider, plaintiff called defendant’s claims examiner, Ms. Dachs. Ms. Dachs testified that defendant received plaintiff’s bills for dates of service 11/17/03-1/19/04.

The denial, dated 7/26/04, indicated bills in the amount of $3,962.57, for dates of service 11/17/03-1/19/04, were received between 1/23/03 [sic] and 3/1/04. It also stated, “By the claimants [sic] own admission he allegedly was treated by a chiropractor and acupuncturist. [*2]However carrier received bills from an orthopedic [sic] and a physical therapist as well. Claimant stated that the receptionist at the chiropractors [sic] office gave him supplies, not an outside vendor as carrier was billed from. Carrier questions validity of claim/treatment.” Neither party presented the actual bills and defendant relied on these latter statements as the basis for the denial. Both parties rested and moved for a directed verdict. The court reserved decision and heard closing arguments.

In no-fault insurance cases, plaintiff’s prima facie burden requires establishing proof of submission to the defendant of the claim and that defendant failed to pay or deny the claim within thirty days or issued a denial that was vague, conclusory or without merit as a matter of law (see Insurance Law § 5106 [a]; Viviane Etienne Med. Care, P.C. v Country-Wide Ins. Co., 114 AD3d 33 [2d Dept 2013]; Ave T MPC Corp. v Auto One Ins. Co., 32 Misc 3d 128[A], 2011 NY Slip Op 51292[U], *1 [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2011]; see Westchester Med. Ctr. v Nationwide Mut. Ins. Co., 78 AD3d 1168 [2d Dept 2010]).

The Appellate Term reached a similar result in Prestige Med. & Surgical Supply, Inc. v Clarendon Natl. Ins. Co. (13 Misc 3d 127[A], 2006 NY Slip Op 51672[U], *1 [App Term, 2d Dept, 2d & 11th Jud Dists 2006]). There, the court, albeit in the context of a motion for summary judgment, found that although a “provider [ordinarily] establishes the submission’ of the claim form by demonstrating proof of proper mailing, which gives rise to the presumption that the claim form was received by the addressee,” where plaintiff’s proof was insufficient to establish mailing, the “deficiency was cured by defendant’s acknowledgment of receipt in its denial of claim forms [citations omitted] and by the admissions of the claims’ receipt in the affidavits by defendant’s claims adjusters” (id. at *2). As such, the court found plaintiff met its prima facie burden and the burden shifted to defendant to demonstrate triable issues of fact (id. [citations omitted]).

Thus, after the provider establishes submission of the bills, defendant’s burden is to prove that it paid or denied the claims within 30 days as required by statute (see Insurance Law § 5106 [a]; Insurance Department Regulations [11 NYCRR] § 65-3.8 [c]). Defendant may extend its time to pay or deny the claims by issuing timely requests for verification (11 NYCRR 65-3.5 [b]). However, it is well-established that delay letters that do not timely request verification will not serve to toll the time to pay or deny a claim (see 11 NYCRR 65-3.5 [a] [1]; Nyack Hosp. v Encompass Ins. Co., 23 AD3d 535 [2d Dept 2005] [citations omitted]).

Here, rather than the customary method of establishing submission and receipt of the claim through introduction of a witness of the assignee or its billing company, as was articulated in Viviane Etienne (114 AD3d at 45), plaintiff proved such through the testimony of defendant’s witness and the introduction of the denial into evidence, which referenced the bills at issue. The court finds plaintiff was not constrained to prove its case through the conventional method of producing its own witness, but was permitted to prove such through admissible evidence using the documents and witnesses of the defendant insurer (Prestige Med. & Surgical Supply, Inc., 13 Misc 3d 127[A], 2006 NY Slip Op 51672[U], at * 2; Optimal Well-Being Chiropractic, P.C., [*3]46 Misc 3d 129[A], 2014 NY Slip Op 51807[U], at *1-*2; East Acupuncture, P.C. v Electric Ins. Co., 16 Misc 3d 128[A], 2007 NY Slip Op 51281[U], *1 [App Term, 2d Dept, 2d & 11th Jud Dists 2007] [holding NF-10 claim denial forms and affidavits of defendant’s claims examiner cured deficiencies in plaintiff’s proof of mailing]).

Furthermore, it is well-settled that “a medical provider is not required, as part of its prima facie case, to demonstrate the admissibility of its billing records or the truth of their content under the business records exception to the hearsay rule” (New York Hosp. Med. Ctr. of Queens v QBE Ins. Corp., 114 AD3d 648 [2d Dept 2014], citing see CPLR 4518 [a]; Viviane Etienne Med. Care P.C., 114 AD3d at 45). Where the insurer fails to timely contest the adequacy of the claims forms at the claims stage, as here, it is precluded from relying on any deficiencies in those forms or raising evidentiary challenges to the admissibility of the contents of the billing forms under the business records exception at the litigation stage (New York Hosp. Med. Ctr. of Queens, 114 AD3d at 649 [citations omitted]).

Therefore, defendant’s attack on the validity of the bills at trial here will not suffice to defeat plaintiff’s proof of a prima facie case. The testimony of Ms. Dachs and the denials were accepted into evidence and treated as admissions of receipt of the bills and the amount billed and not as a testament to the truth of their content (see Viviane Etienne Med. Care, P.C., 114 AD3d at 45). This result is consistent with the regulatory scheme for the prompt payment and processing of no-fault claims (see id.). Thus, plaintiff sufficiently met its prima facie burden by eliciting the credible testimony of defendant’s witness and admission of defendant’s denials. By establishing submission and receipt of the bills, the plaintiff shifted the burden to defendant to establish a valid defense for its failure to timely issue payment (see Viviane Etienne Med. Care, P.C., 114 AD3d at 45, 47; see Westchester Med. Ctr., 78 AD3d at 1169).

Defendant failed to meet its burden of establishing a justiciable defense because it failed to pay or deny the claims within 30 days as required by statute (see Insurance Law § 5106 [a]; 11 NYCRR 65-3.8 [c]). Defendant also failed to extend its time to pay or deny the claims by issuing timely requests for verification (11 NYCRR 65-3.5 [b]). As defendant is sufficiently aware, delay letters, as here, that do not timely request verification will not suffice to toll the time to pay or deny a claim (see 11 NYCRR 65-3.5 [a] [1]; Nyack Hosp. v Encompass Ins. Co., 23 AD3d 535 [2d Dept 2005]). After the fact, only a non-precluded defense will suffice to prevent payment (see 11 NYCRR 65-3.8). Further, although defendant denied these claims based on alleged fraud, no fraud was demonstrated at trial and defendant failed to produce a competent witness or other evidence from which same could be adduced.

Accordingly, based on the credible testimony of Ms. Dachs and examination of the denial and other exhibits admitted into the record, the court finds plaintiff met its prima facie burden of establishing proof of submission of the bills to defendant, receipt of the bills, and that payment is overdue (see Viviane Etienne Med. Care, P.C., 114 AD3d 33; see Westchester Med. Ctr., 78 AD3d 1168; see Ave T MPC Corp., 32 Misc 3d 128[A]). Defendant failed to establish an adequate defense to payment (see 11 NYCRR 65-3.8; see Viviane Etienne Med. Care, P.C., 114 AD3d at 45-47; see Nyack Hosp. v Encompass Ins. Co., 23 AD3d at 536). Therefore, plaintiff is entitled to a judgment.

The Clerk of the Court shall enter judgment for the plaintiff in the amount of $3,960.57 plus statutory costs, interest, and attorney’s fees. The motions for directed verdict are denied as moot. This constitutes the Decision and Order of the Court.

_________________________

Hon. Reginald A. Boddie

Acting Supreme Court Justice

[*1]

Civil Court of the City of New York, Queens County, April 24, 2015

APPEARANCES OF COUNSEL

Bruno, Gerbino & Soriano, LLP, Melville (Lienne Pisano of counsel), for defendant.

The Odierno Law Firm, P.C., Melville (Paul Bargellini of counsel), for plaintiff.

Defendant’s motion for summary [*2]judgment is decided as follows:

This is an action to recover assigned no-fault benefits for chiropractic services allegedly rendered to plaintiff’s assignor on February 20, 2013 in the billed amount of $1,365.68. Defendant seeks an order dismissing this action based upon plaintiff’s alleged violation of Insurance Department Regulations Implementing the Comprehensive Motor Vehicle Insurance Reparations Act (11 NYCRR) § 65-3.16 [a] [12]), which states as follows:

“A provider of health care services is not eligible for reimbursement under section 5102(a)(1) of the Insurance Law if the provider fails to meet any applicable New York State or local licensing requirement necessary to perform such service in New York or meet any applicable licensing requirement necessary to perform such service in any other state in which such service is performed.”

On July 8, 2013, as established by Lori Mann, a claims representative employed by defendant, a timely denial of plaintiff’s bill was issued, based, inter alia, upon plaintiff’s alleged illegal fee-splitting. On February 10, 2014, defendant served a notice to admit, pursuant to CPLR 3123, upon the plaintiff, seeking to admit a copy of a contract purportedly entered into between plaintiff and its billing company, Systems Management Group, Inc. (SMG). The purported contract states that “[t]he Practice will pay SMG 6% of all fees charged & ultimately collected by SMG.” The court notes that the purported contract is not in admissible form as defendant has failed to lay a sufficient foundation for its admission (see Bajaj v General Assur., 18 Misc 3d 25 [App Term, 2d Dept, 2d & 11th Jud Dists 2007]). Defendant also submits the deposition transcript of Dr. Lucas Bottcher, DC, a member of the plaintiff’s practice. Therein, Dr. Bottcher admitted that plaintiff employs SMG and they are paid a fixed fee of five percent of collections. Defendant argues that since plaintiff allegedly pays six (or five) percent of its fees to its billing company, that its billing company owns six percent of plaintiff’s practice.

In opposition, plaintiff correctly argues that no court has found improper fee-splitting to be fraud nor a licensing requirement. Furthermore, defendant failed to present any case law{**47 Misc 3d at 1077} that improper fee-splitting is a defense in a no-fault action. Finally, plaintiff contends there is no support for the assertion that payment of six percent of receivables constitutes any form of ownership or control over the plaintiff. As such the parties have presented a case of first impression.

In State Farm Mut. Auto. Ins. Co. v Mallela (4 NY3d 313 [2005]), the Court of Appeals upheld the Insurance Department’s regulation and held that a medical corporation that was fraudulently incorporated under Business Corporation Law §§ 1507 and 1508, and Education Law § 6507 (4) (c) is not entitled to be reimbursed by insurers, under Insurance Law § 5101 et seq. Business Corporation Law §§ 1507 and 1508, as applied to this action, prohibit non-chiropractors from owning any shares of or serving on the board of a professional corporation authorized to provide chiropractic services. Mallela and its progeny (Metroscan Imaging, P.C. v GEICO Ins. Co., 13 Misc 3d 35 [App Term, 2d Dept, 2d & 11th Jud Dists 2006]; Andrew Carothers, M.D., P.C. v Progressive Ins. Co., 42 Misc 3d 30 [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2013]) have consistently held that ownership of a professional corporation by non-professionals renders that corporation ineligible to [*3]recover no-fault benefits and that a carrier may conduct an investigation and look beyond the licensing documents in order to identify improper ownership and control of a professional corporation.

Defendant alleges that plaintiff has violated a licensing requirement by engaging in impermissible fee-splitting, in violation of the Rules of the Board of Regents (8 NYCRR) § 29.1 (b) (4) and Education Law §§ 6509-a and 6530 (19), with its billing company, Systems Management Group, Inc. Pursuant to 8 NYCRR 29.1 (b) (4) and Education Law § 6530 (19), unprofessional conduct shall include:

“permitting any person to share in the fees for professional services, other than: a partner, employee, associate in a professional firm or corporation, professional subcontractor or consultant authorized to practice [the same profession], or a legally authorized trainee practicing under the supervision of a licensed practitioner. This prohibition shall include any arrangement or agreement whereby the amount received in payment for furnishing space, facilities, equipment or personnel services used by a professional licensee constitutes{**47 Misc 3d at 1078} a percentage of, or is otherwise dependent upon, the income or receipts of the licensee from such practice.”

In Necula v Glass (231 AD2d 457 [1st Dept 1996]), the Appellate Division found that the Department of Social Services had properly found that petitioner had engaged in illegal fee-splitting pursuant to 8 NYCRR 29.1 (b) (4) where petitioner had entered into contracts with management companies under which the management companies were to provide facilities, supplies, equipment and staff necessary to operate his professional practice and petitioner was to pay the companies a percentage of his receipts. In Sachs v Saloshin (138 AD2d 586, 587 [2d Dept 1988]), the Appellate Division found that “by tendering a percentage of his patient fees to the plaintiffs, [defendant] violated the public policy of this State as reflected in Education Law § 6509-a [and] the rules for professional conduct established by the Board of Regents (8 NYCRR 29.1 [b] [4]).” A common thread throughout all of the cases cited by defendant is that while courts will refuse to enforce a contract which violates 8 NYCRR 29.1 (b) (4) and the Education Law, any punishment for unprofessional misconduct as defined by those sections is imposed by the State Board for Professional Medical Conduct. In cases where the State Board has imposed punishments, the role of the courts has been to review those punishments in the context of a CPLR article 78 proceeding.

In Mallela (4 NY3d at 322), the Court found that in the licensing context, carriers will be unable to show “good cause” unless they can demonstrate behavior tantamount to fraud and that technical violations will not do. In every case where 11 NYCRR 65-3.16 (a) (12) has been successfully used as a complete and non-precludible defense in a no-fault action, the provider has been found to have committed violations of Business Corporation Law §§ 1507 and 1508 and Education Law § 6507 (4) (c) and appears to have never been based upon impermissible fee-splitting alone. The issue in this case is the definition of the term “licensing requirement.” The Court in Mallela (at 321) highlighted that the medical service corporation in that case “exists to receive payment only because of its willfully and materially false filings with state regulators.” Furthermore, the Court noted in footnote 2 that the Superintendent of Insurance promulgated 11 NYCRR 65-3.16 (a) (12) “to combat rapidly growing incidences of fraud in the no-fault regime, fraud that he has identified as correlative with the corporate practice of medicine by nonphysicians” (Mallela at 320 n 2).

{**47 Misc 3d at 1079}In this case, plaintiff has not been shown to have filed any fraudulent documents with the State and has not allowed non-physicians to control any aspect of their practice. As such, it is the conclusion of this court that impermissible fee-splitting, standing alone, is not a violation of a licensing requirement, does not constitute an available defense to a no-fault action and, as such, any action is solely within the purview of the appropriate state licensing board.

For the foregoing reasons, defendant’s motion is hereby denied in its entirety.

[*1]

The Rybak Firm, PLLC, Brooklyn, N.Y. (Damin J. Toell of counsel), for appellant.

McCormack & Mattei, P.C., Garden City, N.Y. (John E. McCormack and Kevin Mattei of counsel), for respondents.

In an action for a judgment declaring that the plaintiffs are not obligated to provide insurance coverage for any of the no-fault claims submitted to it by the defendant, the defendant appeals from an order of the Supreme Court, Nassau County (Marber, J.), entered May 8, 2013, which granted the plaintiffs’ motion for summary judgment on the complaint.

Ordered that the order is reversed, on the law, with costs, and the plaintiffs’ motion for summary judgment on the complaint is denied.

The defendant allegedly provides durable medical equipment (hereinafter DME) and supplies to persons who are involved in motor vehicle accidents in New York State. The defendant, upon the assignment by the injured persons of no-fault insurance benefits, submitted bills to the plaintiffs seeking reimbursement for the DME provided to the injured persons. State regulation 11 NYCRR 65-1.1 and the applicable insurance policies provided that, for each of the claims submitted by the defendant for reimbursement, upon the plaintiffs’ request, the eligible insured person or that person’s assignee or representative shall: (1) execute, under oath, written proof of the claim, and (2), as may reasonably be required, submit to examinations under oath (hereinafter EUOs) by any person named by the plaintiffs.

The plaintiffs launched an investigation into the defendant’s billing practices in an attempt to verify the documented cost of the DME. The plaintiffs alleged that their investigation could not confirm the defendant’s existence at the claimed location provided on its billing statements. Furthermore, the plaintiffs alleged that the defendant routinely billed under miscellaneous codes for DME despite the fact that all such DME items had legitimate codes that should have been utilized for billing purposes, and that the defendant failed to submit any wholesale supply invoices or any documentation identifying the wholesale company it utilized so as to substantiate its documented costs.

In order to investigate these issues, the plaintiffs requested that the defendant submit [*2]to EUOs and advised that compliance was a condition precedent to coverage. They also made verification requests for purchase receipts, cancelled checks, wholesale invoices, information regarding the name, model, manufacture, serial number, and age of the DME, and the physician referral for the DME. The plaintiffs alleged that none of the information requested for purposes of claim verification was received, and the defendant did not appear for the scheduled EUOs. As a result, the plaintiffs issued denials of the defendant’s claims on the ground that the defendant violated policy conditions, i.e., the defendant failed to provide the requested information and to appear for the EUOs.

The plaintiffs commenced this action for a judgment declaring that they are not obligated to provide insurance coverage for any of the no-fault claims submitted to it by the defendant on the ground that the defendant failed to comply with conditions precedent to reimbursement under the no-fault laws and regulations and insurance laws of this state. After the defendant interposed its answer, the plaintiffs successfully moved for summary judgment on the complaint declaring that they are not obligated to provide insurance coverage for any of the defendant’s claims.

The defendant contends that the plaintiffs failed to establish, prima facie, that the denials of claims were timely and properly mailed to it. Generally, “proof that an item was properly mailed gives rise to a rebuttable presumption that the item was received by the addressee” (Viviane Etienne Med. Care, P.C. v Country-Wide Ins. Co., 114 AD3d 33, 46 [2013] [internal quotation marks omitted]; see Matter of Rodriguez v Wing, 251 AD2d 335, 336 [1998]). “ ’The presumption may be created by either proof of actual mailing or proof of a standard office practice or procedure designed to ensure that items are properly addressed and mailed’ ” (New York & Presbyt. Hosp. v Allstate Ins. Co., 29 AD3d 547, 547 [2006], quoting Residential Holding Corp. v Scottsdale Ins. Co., 286 AD2d 679, 680 [2001]). However, in order for the presumption to arise, office practice must be geared so as to ensure the likelihood that a denial of claim is always properly addressed and mailed (see Nassau Ins. Co. v Murray, 46 NY2d 828, 830 [1978]). “Denial of receipt by the insured[ ], standing alone, is insufficient to rebut the presumption” (id. at 829-830).

Here, the plaintiffs failed to establish, prima facie, that they timely and properly mailed the denial of claim forms to the defendant. The affidavit of Joseph M. Andre, the Medical Claims Representative assigned to this matter, asserted that for denials mailed after August 17, 2010, as is relevant herein, all items were mailed through an automated system, and explained how documents were identified. However, Andre did not state, in his affidavit, how the envelopes were addressed so as to ensure that the address was correct or whether the envelope was addressed by the automated system or by an employee. He also did not state how and when the envelopes, once sealed, weighed, and affixed with postage using the automated system, were transferred to the care and custody of the United States Postal Service or some other carrier or messenger service to be delivered. Therefore, Andre’s affidavit was insufficient to establish, as a matter of law, that the denial of claim forms were timely and properly mailed to the defendant (see Westchester Med. Ctr. v Countrywide Ins. Co., 45 AD3d 676, 676-677 [2007]; Matter of Government Empls. Ins. Co. [Hartford Ins. Co.], 112 AD2d 226, 228 [1985]; cf. Hospital for Joint Diseases v Nationwide Mut. Ins. Co., 284 AD2d 374 [2001]). Since the plaintiffs failed to establish their prima facie entitlement to judgment as a matter of law on the issue of their timely and proper denial of coverage, summary judgment should have been denied regardless of the sufficiency of the defendant’s opposition (see Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853 [1985]; Stephen Fogel Psychological, P.C. v Progressive Cas. Ins. Co., 35 AD3d 720, 721 [2006]). Accordingly, the Supreme Court erred in granting the plaintiffs’ motion for summary judgment on the complaint declaring that they are not obligated to provide insurance coverage for any of the defendant’s claims.

In light of our determination, the defendant’s remaining contentions have been rendered academic. Mastro, J.P., Chambers, Austin and Miller, JJ., concur.

Decided on April 21, 2015

Decided on April 16, 2015

SUPREME COURT, APPELLATE TERM, SECOND DEPARTMENT, 2d, 11th and 13th JUDICIAL DISTRICTS

Decided on April 16, 2015

SUPREME COURT, APPELLATE TERM, SECOND DEPARTMENT, 2d, 11th and 13th JUDICIAL DISTRICTS

Decided on April 16, 2015

SUPREME COURT, APPELLATE TERM, SECOND DEPARTMENT, 2d, 11th and 13th JUDICIAL DISTRICTS

Decided on April 16, 2015

SUPREME COURT, APPELLATE TERM, SECOND DEPARTMENT, 2d, 11th and 13th JUDICIAL DISTRICTS

Decided on April 16, 2015