RDK Med. P.C. v General Assur. Co. (2005 NY Slip Op 51281(U))

Reported in New York Official Reports at RDK Med. P.C. v General Assur. Co. (2005 NY Slip Op 51281(U))

Recitation in accordance with CPLR 2219(a) of the papers considered on Petitioner’s application for an order vacating a Master Arbitration Award:

Notice of Petition

Affirmation in Support

Exhibits 1-5

Affirmation in Opposition

Respondent’s Memorandum of Law

Exhibits A-F

The parties appeared as follows: Petitioner by Gary Tsirelman, Esq. of Gary Tsirelman, P.C. and Respondent by John J. Rossillo, Esq. of Rossillo & Licata, P.C.

Petitioner RDK Medical P.C. brings this special proceeding pursuant to CPLR 7511, seeking to vacate a Master Arbitration Award sustaining Respondent General Assurance Company’s refusal to pay Petitioner’s claims for first-party no-fault benefits. On the return date, Respondent expressly waived defective service, which was not properly made in accordance with CPLR 403(c), and Petitioner’s failure to serve a petition, as required by CPLR 402, serving instead an Affirmation in Support; Petitioner expressly waived Respondent’s failure to serve an answer, as also required by CPLR 402, serving instead an Affirmation in Opposition and Respondent’s Memorandum of Law. The Petitioner’s Affirmation in Support shall, therefore, be deemed the Petition, and Respondent’s Affirmation in Opposition shall be deemed its Answer. (See CPLR 405; CPLR 2001.)

The Arbitration Award dated April 13, 2004 upholds the insurer’s denial of claims for electrodiagnostic testing ($3,577.64) and physical therapy ($64.65). The claims were denied “based on a Peer Review”, presumably for lack of medical necessity, but the denial was “untimely”. Although the peer review report was not “considered” by the Arbitrator, she upholds the denial in part on the ground that the “reports submitted by the Applicant…fail to establish a prima facie case of medical necessity for the testing and treatment in dispute.”

The primary ground(s) on which the insurer’s denial is upheld, as characterized by the Arbitrator, are the Applicant’s lack of “credibility” and the insurer’s “fraud argument”. The Arbitrator finds, first, that “RDK Medical, P.C. is part of a larger entity, Parallel Management Company, organized solely to defraud insurance companies.” The Arbitrator notes that the insurer “submitted ample evidence supporting their position”, but does not describe any of it.

The Arbitrator also notes “evidence…[that] demonstrates a clear and convincing pattern or scheme to defraud insurance companies”, also not described, and, specifically, that “Applicant (along with several others) used templates for the test results and the reports submitted to insurance companies.” The Arbitrator concludes that “Applicant is not in the business of rendering medical care, but rather, merely generating generic and template-driven medical reports through its management company.”

The Master Arbitration Award dated July 7, 2004 concludes that “the lower arbitrator’s determination that applicant’s practices were fraudulent…was supported by sufficient evidence and was not arbitrary, irrational or incorrect as a matter of law.” The Master Arbitrator does not describe any of the evidence found sufficient to support the Arbitrator’s determination. The Master Arbitrator adds, however, to the Arbitrator’s determination by stating that “core issues such as fraud, coverage, standing and subject matter jurisdiction can be raised at any time during the pendency of the proceeding”, even if “not timely raised in a denial” (citing Central General Hospital v Chubb Group of Ins. Companies, 90 NY2d 195 [1997]).

It should be noted, first, that the Master Arbitrator sustains the Arbitrator solely on the finding of “fraudulent practices”, and makes no reference to the alternative ground of lack of medical necessity. It is clear, however, that the Arbitration Award and the Master Arbitration Award could not be sustained on the ground of lack of medical necessity in light of the Arbitrator’s finding that the insurer’s denial was untimely. (See Das/N.Y. Medical Rehab P.C. v Allstate Ins. Co., 297 AD2d 321 [2d Dept 2002]; Park Radiology P.C. v Allstate Ins. Co., 2 Misc 3d 621, 623-24 [Civ Ct, Richmond County 2003].) Ignoring the preclusion rule of Presbyterian Hospital in the City of New York v Maryland Casualty Co. (90 NY2d 274, 282 [1997]) in arbitration “would materially frustrate the purposes and retard the goals of the speedy pay objective of the No-Fault Law” (see id., at 283-84). “[A]n award which is violative of public policy will not be permitted to stand.” (Sprinzen v Nomberg, 46 NY2d 623, 630 [1979].) “[P]ublic policy considerations, embodied in statute or decisional law, prohibit, in an absolute sense, particular matters being decided or certain relief being granted by an arbitrator.” (Id., at 631; see also Buffalo Police Benevolent Association v City of Buffalo, 4 NY3d 660, 664 [2005].)

We also need not tarry with the Arbitrator’s finding that Petitioner “is part of a larger entity, Parallel Management Company, organized solely to defraud insurance companies.” The finding could be read as a determination that Petitioner is the type of “fraudulently incorporated enterprise” that is ineligible to receive payment of assigned no-fault benefits. (See State Farm Mutual Automobile Ins. Co. v Mallela, 4 NY3d 313, 319 [2005].) In those enterprises, the [*2]“actual profits…[are] channeled to…non-physicians”, in violation of Business Corporation Law §1507, rendering the “unlicensed provider” ineligible for reimbursement under the insurance regulations. (See id., at 319-20; 11 NYCRR §65-3.6[a][12].) In this case, however, there is nothing in the record before the Arbitrator that would support a factual finding that Petitioner is the type of enterprise that is ineligible to receive no-fault payments, and, as will appear, the Master Arbitration Award could not be upheld on that basis.

“Where arbitration is compulsory, our decisional law imposes closer judicial scrutiny of the arbitrator’s determination under CPLR 7511(b).” (Motor Vehicle Accident Indemnification Corp. v Aetna Casualty & Surety Co., 89 NY2d 214, 223 [1996].) “To be upheld, an award in a compulsory arbitration proceeding must have evidentiary support and cannot be arbitrary and capricious.” (Id.) “Closer scrutiny” is warranted in first-party benefits arbitration even if the insured / provider, who had the option to institute a plenary action, submitted the claim to arbitration. (See Shand v Aetna Ins. Co., 74 AD2d 442, 445 [2d Dept 1980].)

As to matters of law, the arbitrator’s decision will be upheld if there is “any reasonable hypothesis” to support it, such as where the issue is “unsettled and subject to conflicting court decisions.” (See Motor Vehicle Accident Indemnification Corp. v Aetna Casualty & Surety Co., 89 NY2d at 224; see also Shand v Aetna Ins. Co., 74 AD2d at 454.) But the award cannot be “contrary to what could be fairly described as settled law.” (See State Farm Mutual Automobile Ins. Co. v. Lumbermens Mutual Casualty Co., 18 AD3d 762, 763 [2d Dept 2005].) It is “arbitrary and capricious not to follow clear precedent”. (See State Ins. Fund v Country-Wide Ins. Co., 276 AD2d 432, 432 [1st Dept 2000].)

As to factual matters, although there must be “evidentiary support” in the record, “an arbitrator is not bound by technical rules of evidence”. (See Nyack Hospital v Government Employees Ins. Co.,139 AD2d 515, 516 [2d Dept 1988].) “[T]he admission of evidence that might well be precluded in a court of law is not sufficient cause for vitiating an award unless the mistake or error of law is so gross or palpable as to amount to fraud, misconduct or breach of authority.” (Id.; see also State Farm Mutual Automobile Ins. Co. v Arabov, 2 AD3d 531, 533 [2d Dept 2003].) The arbitrator’s award will be vacated, however, when “[a]side from th[e] inadmissible evidence, no other evidence or basis in reason appears in the record to support the arbitrator’s finding.” (See Nyack Hospital v Government Employees Ins. Co.,139 AD2d at 516.)

The petitioner has the burden of establishing that the award should be vacated. (See Hegarty v Board of Education of the City of New York, 5 AD3d 771, 773 [2d Dept 2004]; Travelers Ins. Co. v Job, 239 AD2d 289, 293 [1st Dept 1997].) When the petitioner is challenging the “evidentiary support” in the record, the record should be provided with the petition. (See State Farm Mut. Auto. Ins. Co. v Mutual Service Casualty Ins. Co., 5 Misc 3d 130[A], 2004 NY Slip Op 51293[U][App Term, 2d and 11th Jud Dists].)

Here, Petitioner has provided, as attachments to its “Petition”, the Arbitration Award and the Master Arbitration Award, its submissions to the insurer and the insurer’s denial, and copies [*3]of various judicial decisions. These attachments do not comprise the entire record in the arbitration, in that they do not include the insurer’s submission to the Arbitrator, which is attached to Respondent’s Memorandum of law. (See Exhibit A.) The insurer’s submission was apparently not rebutted by any submission of Petitioner to the Arbitrator, and is not rebutted on this Petition. Rather, Petitioner merely characterizes the “allegation of fraud” as “baseless”, and states that “there was no admissible evidence presented” to support fraud. (See Affirmation in Support, ¶¶ 43, 45.)

The insurer’s submission is comprised of documents that purportedly describe or evidence the results of an investigation conducted by the National Insurance Crime Bureau (“NICB”) and the Kings County District Attorney’s Office that is known as “Operation Gateway”. According to Respondent, “[t]his investigation revealed 15 templates for diagnostic testing that were supplied by Parallel Management Company and that were generically being utilized by [Petitioner] and other medical facilities located at 563 Grand Street”. (Respondent’s Memorandum of Law, at 5.)

Specifically, the submission is comprised of a letter dated January 15, 2004 from Respondent’s counsel to the Arbitrator; a “Case Alert” dated September 15, 2003, authored by NICB Sr. Special Agent Cony O’Keeffe, describing Operation Gateway, and attaching “templates” for reports of an Initial Comprehensive Examination and for electrodiagnostic testing, none of which show Petitioner’s name, but several of which show the name of its apparent principal, Dr. Robert A. Kronenberg; a list of Persons Arrested in Operation Gateway, which does not contain Dr. Kronenberg’s name or the name of anyone else shown to be connected to Petitioner; and an article from the New York Post dated September 29, 2003 that requires no further comment.

The “templates” and other documents attached to the NICB report were purportedly obtained upon execution of search warrants on Parallel Management Company, and the “templates were and are utilized by all of the companies managed by ‘Parallel’, including [Petitioner] herein.” (Respondent’s Memorandum of Law, at 22.) Based upon counsel’s review of the “medical reports and EMG / NCV test results, findings, diagnosis, impressions, recommendations” that Petitioner submitted to the insurer on the subject claim, counsel “concluded that they match many of the generic templates seized pursuant to the search warrant”. (See id., at 23.) Counsel argues that this correspondence is apparently at least evidence that the medical services billed for by Petitioner “were never performed.” (See id., at 16.)

Beginning with the legal issue, the question is whether the insurer may refuse payment because the services billed for “were never performed”, if that ground for nonpayment is not asserted in a timely denial. Petitioner contended before the Master Arbitrator that “the lower arbitrator should not have considered respondent’s fraud argument because it was not timely raised in a denial”, but the Master Arbitrator rejected the contention, stating that “core issues such as fraud…can be raised at any time.” [*4]

But, as of this writing, no appellate court has articulated a general “fraud” defense that is not subject to the preclusion rule. (See Utica Mutual Ins. Co. v Timms, 293 AD2d 669, 670-71 [2d Dept 2002].) Within the past several months, the Court of Appeals was given the opportunity to do so in the “fraudulently incorporated enterprises” case, but declined to do so, relying instead on a governing regulation. (See State Farm Mutual Automobile Ins. Co. v Mallela, 4 NY3d at 322.) Appellate Term for the Second and Eleventh Judicial Districts has stated that a “defense of provider fraud” is subject to the preclusion rule, without describing the nature of the fraud at issue. (See A.B. Medical Services PLLC v State-Wide Ins. Co., 7 Misc 3d 136[A], 2005 NY Slip Op 50785[U], *2 [2d and 11th Jud Dists].)

In General Central Hospital v Chubb Group of Ins. Companies (90 NY2d 195), the Court of Appeals held that “[t]he preclusion remedy does not apply to a defense of no coverage at all” (id., at 202.) And so, when a collision is “an intentional act, not an accident”, there is no coverage. (Westchester Medical Center v Travelers Property Casualty Ins. Co., 309 AD2d 927, 928 [2d Dept 2003].) By the same, rather simple, reasoning, where there are no services, there can be no coverage.

Trial-level courts have disagreed on whether a defense that billed-for services were not rendered is subject to preclusion. (Compare PDG Psychological P.C. v State Farm Mutual Ins. Co., 6 Misc 3d 1022[A], 2005 NY Slip Op 50150[U], *3 [Civ Ct, Kings County] with PSG Psychological, P.C. v State Farm Ins. Co., 6 Misc 3d 1002[A], 2004 NY Slip Op 51701[U], *2 [Civ Ct, Kings County] and Carepluss Medical Supply Inc. v State Farm Mutual Automobile Ins. Co., 5 Misc 3d 1014[A], 2004 NY Slip Op 51373[U], *2-*3 [Civ Ct, Kings County].)

Although this Court disagrees with the Master Arbitrator’s statement that “fraud…can be raised at any time”, it is clear that the Master Arbitrator considered the defense raised here, that the services billed for were not rendered, to be a coverage defense. In light of the conflicting court decisions on the question, the Master Arbitrator’s conclusion is supported by a “reasonable hypothesis” and must be upheld. (See Motor Vehicle Accident Indemnification Corp. v Aetna Casualty & Surety Co., 89 NY2d at 224.)

A more serious problem, however, is identifying “evidentiary support” in the record for the factual finding that the services billed for were not rendered to Petitioner’s assignor. Had the information contained in Respondent’s submission to the Arbitrator been competent and in admissible form, buttressed by the failure of the assignor or any representative of Petitioner to testify (see People v Savinon, 100 NY2d 192, 197 [2003]), this Court might not find the Arbitrator’s factual finding that the services were not rendered to be “arbitrary and capricious.” (See Motor Vehicle Accident Indemnification Corp. v Aetna Casualty & Surety Co., 89 NY2d at 223.) But virtually none of the information contained in Respondent’s submission is both competent and in admissible form. Except for information that Petitioner itself submitted, Respondent’s showing consists of multiple layers of hearsay, and of the statements and opinions of counsel who would not have personal knowledge or, presumably, any expertise in the subject matter. [*5]

On the other hand, none of the information submitted by Petitioner to the Arbitrator in support of the claim, attached to the Petition as Exhibit 4, is in admissible form. Under these circumstances, the Court might conclude that, to the extent that inadmissibility is a function of formal deficiency or lack of explicit foundation elements, reliance by the Arbitrator would not be error “so gross or palpable”(see State Farm Mutual Automobile Ins. Co. v Arabov, 2 AD3d at 533) as to warrant vacatur of the award.

Not so easily disregarded, however, is the lack of any expert opinion in any form to support a conclusion from the information provided that the services billed for were not actually rendered. There is no basis for counsel’s expertise in comparing the “templates” recovered in Operation Gateway to the reports and test results submitted with the bills, or for his opinion that the reports and test results were in part copied from the templates, or, most importantly, his opinion that the services billed for were not actually rendered. (See Medwide Medical Supply Inc. v Country Wide Ins. Co., 8 Misc 3d 131[A], 2005 NY Slip Op 51078[U], *3 [App Term, 2d and 11th Jud Dists].) There is no foundation in Respondent’s submission for an inference, with any degree of probability, that false reports or test results mean the services were not rendered. Nor is there any independent evidence in the record for example, as assignor’s testimony at an examination before trial, or an admission during a medical examination that the services were not rendered.

Even ignoring, therefore, the inadmissibility of the underlying information, there is no competent evidence in the record that would support a factual finding that the services billed for were not rendered. In the preclusion / lack of coverage regime of no-fault, to recognize a defense to payment in such circumstances is without evidentiary support, contrary to settled law, and undermines important public policy.

This Court remains willing to deny payment to a provider who comes forward with no testimony or other evidence to rebut an insurer’s threshold showing that there is no coverage for the claim. (See A.B. Medical Services, PLLC v State Farm Mutual Automobile Ins. Co., 7 Misc 3d 822 [Civ Ct, Kings County 2005].) But, unless the rhetoric of fraud is to overcome the fundamentals of legal process, the insurer that fails to comply with the statutory deadline must meet that threshold. It is not easy to describe the threshold in all circumstances in which there may be attempts to defraud, but neither is it necessary. In this case, the affirmation of one of the doctors found among the insurer’s peer reviewers or medical examiners, articulating a rationale for inferring that the services billed for were not rendered, may have been sufficient.

Judgment is awarded to Petitioner, vacating the Master Arbitration Award dated July 7, 2004.

August 12, 2005

Judge, Civil Court