Quality Psychological Servs., P.C. a/a/o Donald Burton et al. v GEICO Ins. Co.
2010 NY Slip Op 51423(U)
Decided on August 16, 2010
Civil Court Of The City Of New York, Kings County
Edwards, J.

Edited by Lawrence N. Rogak

Two years ago, the Court of Appeals held in Fair Price Medical v. Travelers Insurance Corp. that a medical provider which submits fraudulent billing to a no-fault insurer is entitled to be paid, even for services it never actually provided, unless the no-fault insurer discovers the fraud within 30 days of submission of the bill and issues a denial based on that fraud.  In the case reported here, that principle -- that no-fault fraud is basically legal in New York -- is once again applied.  This case stands for the principle that the no-fault insurer cannot even amend its Answer to include a counterclaim for unjust enrichment because it did not assert the fraud defense in its denials.

"In an action to recover assigned first party no-fault benefits, defendant seeks leave to amend its answers, strike the notices of trial, and compel discovery, including a deposition. It also seeks to consolidate all nineteen (19) captioned actions. Plaintiff opposes the order to show cause."

"Defendant argues that plaintiff fraudulently billed for medical services it allegedly rendered to its assignors.[FN1] Though defendant admits that it did not deny plaintiff's bills on the basis of fraudulent billing, it maintains that it has a cause of action to recover benefits paid under a theory of fraud or unjust enrichment.[FN2] Defendant therefore seeks leave to amend its answers to interpose counterclaims for fraud and unjust enrichment."

"Upon such amendment, defendant argues that the notices of trial and certificates of readiness for the captioned actions must be vacated, and the matters stricken from the trial calendar because discovery, including a deposition is warranted with respect to plaintiff's billing practices. Defendant also seeks consolidation of the captioned actions, arguing that discovery on its counterclaims for fraud and unjust enrichment involve common questions of law and fact."

"In opposition, plaintiff asserts that it responded to defendant's discovery demands and defendant fails to indicate how depositions would provide more relevant information than the responses and documentation previously provided. Plaintiff further alleges that leave to amend the answers must be denied because defendant did not submit an affidavit from a qualified individual with personal knowledge of the subject claim. It argues that the affidavit from Ellen Dargie, a supervisor in defendant's medical billing unit, who prepared a spreadsheet of the bills plaintiff submitted to defendant for the years 2007 and 2008, does not affirmatively state that plaintiff engaged in fraudulent billing. Finally, plaintiff contends that defendant is attempting to set forth a defense that it is precluded from asserting."

"Pursuant to CPLR § 3025(b), a party may amend its pleading at any time by leave of the Court. See NY CPLR § 3025(b)....   Leave shall be freely given provided the proposed amendment is not palpably insufficient or patently devoid of merit....  Where a proposed defense plainly lacks merit, however, amendment of a pleading would serve no purpose but needlessly to complicate discovery and trial, and the motion to amend is therefore properly denied.  Kuslansky v. Kuslansky, Robbins, Stechel and Cunningham, LLP, 50 AD3d 1101, 858 NYS2d 212 (2d Dept. 2008); Lucido v. Mancuso, 49 AD3d 220, 851 NYS2d 238 (2d Dept. 2008).  Where the proposed amended pleading is palpably insufficient or patently devoid of merit, or where the delay in seeking the amendment would cause prejudice or surprise, the motion should be denied.  Uptodate Med. Servs, P.C. v. State Farm Mut. Auto. Ins. Co., 23 Misc 3d 42, 879 NYS2d 695 (App. Term, 2d, 11th & 13th Jud. Dists. 2009) The court must examine the merits of the cause of action or defense to be asserted in the proposed amendment since leave to amend should not be granted where the cause of action or defense to be asserted is totally without merit or is palpably insufficient as a matter of law."

"In the no-fault context, a healthcare provider shall receive payment for services rendered to patients whose injuries arise from covered motor vehicle accidents. The insurance carrier has 30 days from the date of receipt of the claim to pay or deny it in whole or in part. See 11 NYCRR 65-3.4; New York & Presbyterian Hosp. v. Progressive Casualty Ins. Co., 5 AD3d 568, 774 NYS2d 72 (2d Dept. 2004); Jesa Medical Supply, Inc. v. American Transit Ins. Co., —- NYS2d —-, 2010 NY Slip Op. 20231 (Civ Ct. Kings County 2010). The law requires a claim for no-fault benefits to be timely and properly denied. See Careplus Med. Supply, Inc. v. Selective Ins. Co. of Am., 25 Misc 3d 48, 890 NYS2d 258 (App. Term, 2d Dept. 2009). In other words, all bases that an insurer has for denying a no-fault claim, except for specific and limited exceptions, must be raised in a timely denial.  Lincoln General Ins. Co. v. Alev Medical Supply, Inc., 25 Misc 3d 1019, 887 NYS2d 490 (Dist. Ct., Nassau County 2009). See also Fair Price Medical Supply Corp. v. Travelers Indem. Co., 10 NY3d 556, 860 NYS2d 71 (2008); PDG Psychological P.C. v. Utica Mut. Ins. Co., 11 Misc 3d 128(A), 815 NYS2d 496 (App. Term, 2d & 11th Jud. Dists. 2006).  An untimely denial precludes an insurance carrier from raising most defenses at the trial.   Devonshire Surgical Facility v. GEICO, 14 Misc 3d 1208(A), 836 NYS2d 484 (Civ. Ct., NY County 2006); Alev Medical Supply, Inc. v. Progressive Ins. Co., 27 Misc 3d 1220, 2010 NY Slip Op. 50813(U) (Dist. Ct., Nassau County 2010).   An insurance carrier is precluded from asserting any 'precludable' defense not asserted in a timely denial."

"Fraudulent billing is precluded as a defense unless it is raised in a timely denial. See Fair Price Med. Supply Corp., 10 NY3d at 564-565; Careplus Med. Supply, Inc., 25 Misc 3d at 49.  The defense of provider fraud is precluded if not timely and properly asserted.  M. G. M. Psychiatry Care, P.C. v. Utica Mut. Ins. Co., 12 Misc 3d 137(A), 824 NYS2d 763 (App. Term, 2d & 11th Jud. Dists. 2006).  Fraud defense whether premised on fraudulent billing, excessive medical treatment or otherwise is subject to the preclusion sanction."

"Herein, defendant's counterclaims for fraud and unjust enrichment are palpably insufficient and patently devoid of merit because the claims were not denied on the grounds of fraudulent billing. They were paid in part and denied in part based upon medical necessity and the charges not being in accordance with the fee schedule. Further, the denials were submitted for the first time in defendant's reply papers, without an affidavit attesting that the denials were timely mailed to plaintiff pursuant to a standard office practice or procedure. See Rengifo v. City of New York, 7 AD3d 773, 776 NYS2d 865 (2d Dept. 2004) (Defendant cannot rely on documents submitted for the first time in its reply papers.); Fair Price Med. Supply v. Liberty Ins. Co., 12 Misc 3d 145(A), 824 NYS2d 762 (App. Term, 2d & 11th Jud. Dists. 2006) (Defendant failed to establish a timely denial via an affidavit by one with personal knowledge that the denial of claim form was timely mailed or an affidavit containing a sufficiently detailed description of standard office mailing procedure to give rise to the presumption of timely mailing.). As all evidence indicates that the counterclaims pertain to a precluded defense, defendant may not assert them in an amended answer. See Cornell Med., P.C., 24 Misc 3d at 60 (App. Term, 2d Dept. 2009) ('In our opinion, since defendant's proposed counterclaim [for unjust enrichment] pertains to a defense which is precluded due to defendant's untimely denials, the Civil Court properly denied the branch of defendant's motion seeking leave to amend the answer to assert the counterclaim.')."

"In reading Judge Engoron's decision in, Quality Psychological Services, P.C. v. GEICO Ins. Co., Index No.47851/08, Civil Court, Bronx County, dated July 22, 2010, published in the New York Law Journal, August 3, 2010, in conjunction with other decisions discussing no-fault law, this Court is persuaded that the instant matters smack of fraud and unjust enrichment considering the compilation of plaintiff's bills annexed to Ms. Dargie's affidavit. However, this Court must follow the law set forth by the Court of Appeals. See Fair Price Medical Supply Corp., 10 NY3d at 564-565. To be quite frank, the buck stops at the insurance carriers upon the receipt of claims for no-fault benefits. Insurance carriers concerned about fraudulent claims must use the verification process to obtain additional information. It behooves GEICO and all other insurance companies to diligently investigate the claims and submit well-thought out denials within the time allotted by the Legislature,[FN3] until such time as the law is amended."

"Accordingly, defendant's application to amend the answers is denied. Thus, the remaining parts of the order to show cause to strike the notices of trial, compel discovery[FN4] including a deposition, and to consolidate[FN5] all nineteen (19) captioned actions are denied as moot. The order to show cause is denied in its entirety."

Footnotes

Footnote 1: Specifically, defendant alleges that in one day plaintiff's treating psychologists performed medical services that amounted to more than 24 hours of testing.

Footnote 2: Defendant paid-in-part and denied-in-part plaintiff's claims for no-fault benefits. Thus, the counterclaims are based upon plaintiff having obtained partial payments for services rendered.

Footnote 3: "While the 30-day period plus any applicable tolls for paying or denying a claim may be too short a time frame in which to detect billing fraud, any change is up to the Legislature.'" Lincoln General Ins. Co. v. Alev Medical Supply, Inc., 25 Misc 3d at 1022 (quoting Fair Price Med. Supply Corp.,10 NY3d at 565.).

Footnote 4: Discovery may not be obtained regarding matters that are not in issue at trial. See Alev Medical Supply, Inc. v. Progressive Ins. Co., 27 Misc 3d 1220, 2010 NY Slip Op. 50813(U) (Dist. Ct., Nassau County 2010).

Footnote 5: Pursuant to CPLR § 602(a), the Court may consolidate actions involving common questions of law or fact. See Whiteman v. Parsons Transp. Group of New York, Inc., 72 AD3d 677, 900 NYS2d 87 (2d Dept. 2010). Consolidation is usually granted where the issues in the action sought to be consolidated are identical or essentially the same or if it will result in a complete disposition of all claims arising out of the same transaction or incident in one action. Defendant sought consolidation to obtain discovery on its counterclaims for fraud and unjust enrichment. Since leave to amend the answer to interpose the counterclaims was denied, defendant may not obtain consolidation. Moreover, without the amendment defendant cannot consolidate the nineteen captioned actions because the evidence demonstrates that although the actions were brought by a single assignee, the causes of action arose from different automobile accidents on various dates in which unrelated assignors suffered diverse injuries and required different medical treatment. See Poole v. Allstate Ins. Co., 20 AD3d 158, 799 NYS2d 247 (2d Dept. 2005).
 

Larry Rogak