U.S. v. Zemlyansky et al. - Federal Prosecutors Indict 36 Under RICO in NYS No-Fault Fraud Scheme

Health Law Bulletin

U.S. v. Zemlyansky et al. - 36 Charged Criminally with RICO Violations in a No-Fault Insurance Fraud Scheme in Brooklyn, NY - Federal Prosecutors Allege Excessive and Unnecessary Medical Services are Furnished by Fraudulently Incorporated Medical Clinics

March 29, 2012

Late in February, federal and New York City law enforcement officials moved to arrest 36 individuals (including doctors, lawyers, and patients who were coached to fake injuries) primarily of Russian descent who are alleged to have participated in a no-fault insurance medical fraud mill.  The scheme was intended to defraud automobile insurers out of more than $279 million in accident benefits.  The case, U.S. v. Zemlyansky et al, U.S. District Court, Southern District of New York, No. 12-cr-00171, authorities called the largest involving no-fault auto insurance fraud and the first of its kind to allege violations of the federal Racketeer Influenced and Corrupt Organizations Act (\"RICO\"), a federal law often used to fight organized crime.  The attorneys named in the indictment, who were said to have aided the conspirators, face charges of conspiracy to commit health care fraud, mail fraud and money laundering, while one attorney also faces a racketeering charge.

Scheme Initiated by Non-Physician Owners of Fraudulently Incorporated No-Fault Clinics

The prosecutor alleges that the medical clinics were created ostensibly to provide medical services to those seriously injured in automobile accidents (\"No-Fault Clinics\").  But, the indictment stated, although \"all medical clinics in New York State must have been incorporated, owned, operated and/or controlled by a licensed medical practitioner (,) ...instead, the actual owners, operators, and controllers...were individuals who were not licensed medical practitioners and who were not identified on documents filed with New York State authorities...\" (\"Clinic Controllers\"). Under these arrangements, it is alleged that licensed medical professionals were paid a fee so that they would 1) incorporate a professional corporation (\"P.C.\") to bill no-fault claims to insurance companies; 2) open a bank account in the P.C.\'s name; 3) sign a premises lease for the clinics; 4) sign the clinic\'s bills for health care services under the no-fault law; and 5) make excessive and unnecessary prescriptions and referrals for additional services and medical supplies to other fraudulent medical clinics.  The Clinic Controllers were alleged to have controlled all of the above plus provided start-up capital, chosen locations for clinics, arranged for patients to receive treatments, and received most of the net proceeds from the No-Fault Clinics.

This elaborate structure, according to the indictment, flagrantly violates New York law as established by the New York Court of Appeals, New York State\'s highest court, under State Farm v. Mallela, where a fraudulently incorporated professional medical practice was held to be precluded from receiving reimbursement from no-fault insurance companies solely as a result of the undo influence a non-physician held over a no-fault medical practice.

Unnecessary and Fictitious Medical Services

Here, as a result of the de facto ownership and control of the No-Fault Clinics by non-physicians who intended to bilk the no-fault insurance system, investigators said doctors were paid by Clinic Controllers to set up fake bank accounts and prescribe unnecessary procedures or treatment, such as MRIs, neck and back braces, and five-day-a-week physical therapy sessions.  In other cases, it is alleged that medical services were billed where no treatments or procedures were ever provided. Patients were referred from one No-Fault Clinic to a second \"Modality Clinic\" so patients could be given ancillary services such as MRI\'s, physical therapy, range of motion evaluations, outcome assessments, pain management, audiology, manipulation under anesthesia (\"MUA\"), and durable medical equipment (\"DME\").  In return for the referrals, the fraudulently owned No-Fault Clinics that referred patients for these items and services were paid cash kickbacks for each referral.

To further increase medical treatments and procedures, the No-Fault Clinics would engage \"runners\" to recruit patients to the clinics for $2,000 to $3,000 per patient referral (depending on the quality of the police accident reports and the ease of reimbursement from the insurance company) and to coach patients on how to fake injuries, the investigators said.  No-fault lawyers were also paid approximately $1,000 by Clinic Controllers for each patient referral to a No-Fault Clinic.

Money Laundering

The Clinic Controllers used check cashiers to conceal the source of proceeds and to reinvest proceeds into the scheme.  These cash proceeds were used to pay for referrals; the proceeds of insurance checks were also used for personal items, including jewelry, limousines, and luxury goods. Other monies were paid by No-Fault Clinics to shell companies controlled by the same Clinic Controllers and would then be used to pay for other personal expenses, such as car payments, credit card bills, and lavish vacations.

* * *

Charges against those alleged to have participated in this criminal enterprise include: participation in a racketeering conspiracy (in violation of the federal mail fraud statute); execution of a scheme to defraud a health care benefit program; utilization of the U.S. postal service to commit mail fraud; and implementation of financial transactions involving the proceeds of unlawful activity.

This and other recent developments inform that no-fault medical practice structures and operations should be reviewed to ensure compliance with current interpretation of law.  Please call Gary Fields, Esq. if you would like to discuss the implications of these developments.
Powered by Perigee Global Disclaimer Privacy policy © 2019 Law Offices of Gary I Fields