Lawsuit: Metro Detroit medical clinics ran big no-fault insurance scam

Auto insurance giant Allstate claims in a new federal lawsuit that it fell victim to a racketeering conspiracy involving six metro Detroit patient treatment clinics, an MRI center and a medical transportation company that  Allstate says acted together and made millions by abusing Michigan's no-fault insurance system.

Some of the clinics received help, the lawsuit says, from tow truck drivers and auto repair shop workers, who were supposedly offered kickbacks by middlemen such as $500 per patient referral. Other patients were illegally solicited to visit clinics just days after their car crashes, according to Allstate, by individuals who called up and claimed to be with a Southfield-based law firm.

Allstate made these allegations in the civil racketeering lawsuit filed in late February in U.S. District Court in Detroit. It has not previously been reported.

The lawsuit is the latest attempt by an auto insurer in Michigan to use the federal Racketeer Influenced and Corrupt Organizations Act, known as RICO, to bring fraud allegations against groups of small and midsize medical clinics that frequently see car crash patients who pay using no-fault insurance.

State Farm and Allstate have filed more than a dozen such RICO lawsuits in Michigan since about 2012, alleging sham treatments, excessive billing, kickbacks and even the use of pain pill prescriptions to push patients toward unnecessary surgeries.

Some clinics have closed under the weight of the lawsuits, even as they professed innocence. Other cases ended in confidential settlements. So far, no case has gone all the way to trial.

The insurance companies contend that fraud is rampant in Michigan because of the state's unique no-fault system, which provides potentially unlimited medical and in-home benefits after an accident.

Many insurance experts cite no-fault as the reason why auto insurance premiums in Michigan rank among the highest in the country.

Lawyers for the clinics and doctors named in this latest Allstate lawsuit deny wrongdoing and say the insurance company is attempting to use the federal court to avoid paying legitimate claims and shut them down.

More:Tired of no-fault fraud in Michigan, insurers turn to racketeering suits

More:Mike Morse pushes back against State Farm auto insurance claims

'Predetermined protocol'

In the lawsuit, Allstate accuses the medical clinics of using "predetermined protocols" on patients that at times involved unnecessary physical or chiropractic therapy, MRIs scans and various procedures done to generate large insurance bills.

Some patients went along with the treatments because of offers of narcotic drug prescriptions, the hope of money from future lawsuits or the chance for family members or friends to get paid to be their in-home attendant care provider, the lawsuit claims.

One procedure involved small behind-the-ear pain relief devices called P-STIMs that typically take about 15 minutes to apply and which cost less than $300 apiece wholesale, yet some clinics billed insurance $8,600 for the full procedures — even $56,272 at times when a surgical suite was used, the suit says.

Some clinics frequently gave patients lumbar back braces that sell for less than $100 at Walmart but for which they billed Allstate $1,400. The braces were handed out regardless of patients' medical need for them, the lawsuit claims.

Along with the clinics, Allstate's 300-plus-page lawsuit names 11 doctors, chiropractors and businessmen affiliated with the clinics as additional defendants.

One defendant is Dr. James Padula, a Florida resident who purportedly owns three of the Michigan clinics in the lawsuit — Michigan Pain Management, Dearborn Pain Specialists and Sterling Heights Pain Management — and, according to Allstate, had roles at the other clinics and MRI center.

Rampant fraud

The high cost of auto insurance in Michigan is a hot political issue.

In testimony last month before the Michigan Senate Insurance and Banking Committee, representatives from State Farm said that no-fault's medical benefits attract a lot of fraudsters, leading to higher insurance premiums for all motorists. 

An estimated 10% of all auto accident claims nationwide contain some aspect of fraud. In Michigan, that figure is 16% to 18%, according to State Farm Claims Manager Michael Ouding.

"Those injured in automobile accidents are victimized and used as pawns by unscrupulous individuals and medical providers who treat them not as an individual patient requiring specialized medical care, but rather as a billing opportunity,” Ouding said at the March 20 committee hearing.

Then-Gov. Rick Snyder signed an executive order last September to set up an Anti-Fraud Unit within the Department of Insurance and Financial Services.

A retired Michigan State Police first lieutenant was appointed manager of the new unit this year and three of the six staff positions have been filled. So far, the unit has received 3,238 fraud complaints, the majority of them alleging no-fault insurance fraud, a department spokeswoman said.

Abusive lawsuits?

Critics counter that Allstate and State Farm have been abusing racketeering laws by trying to shut down legitimate clinics that simply treat a lot of no-fault patients.

The insurance companies failed to get legislative changes to Michigan's no-fault law, these critics say, so they turned to fighting the no-fault system through RICO cases to lower their payouts and boost their profits.

In the lawsuits, the insurers group hundreds of no-fault claims from clinics, rather than disputing individual claims on their merits in local courts. And once a RICO case is filed, insurers will typically refuse to pay the many outstanding claims from the clinics that they sue.

“They have hundreds of claims pending that they cannot win, and instead of litigating those hundreds of claims, they try to litigate them in one forum" with RICO suits, attorney Peter Joelson of Farmington Hills-based Joelson Rosenberg, who helps represent several clinics in the Allstate case, said in a phone interview last week.

“Neither of these companies, Allstate or State Farm, have obtained a judgment in any of these cases — not one," said fellow attorney Gary Blumberg, who also represents clinics in the lawsuit. 

“These (cases) are settled, and very frequently on terms favorable to the providers," Blumberg said, "including circumstances in which companies like Allstate have written checks."

Allstate's latest lawsuit runs more than 300 pages and seeks to recoup $3.5 million — plus triple damages — that the insurer says it paid out in bogus claims to the clinics and medical providers.

The six clinics are Royal Oak-based Michigan Pain Management and North Shore Injury Center; Dearborn Pain Specialists and Advanced Surgery Center in Dearborn; Southfield Pain Management and Sterling Heights Pain Management.

A spokesperson for Advanced Surgery Center denounced Allstate's lawsuit as a tactic to weasel out of paying money it owes.

"Advanced is confident that not only will it be completely vindicated, but that a jury will conclude that Allstate’s lawsuit was nothing more than a tactic to avoid, or delay, paying," the spokesperson said.

$4,900 MRIs

The lawsuit also names as defendants a Lathrup Village-based MRI center, Precise MRI of Michigan and a transportation company called Medi Transit.

Allstate accuses Precise of billing at excessive rates for medically unnecessary MRIs and alleges that a manager there offered kickbacks to doctors in exchange for patient referrals.

One medical provider told Allstate that he was offered a "marketing" agreement with Precise and given a $2,000 check as an initial payment in that scheme, the lawsuit says. 

The insurer also claims that Precise's $4,900-per-image charges were excessive. 

By comparison, Medicare paid medical providers in Macomb, Wayne and Oakland counties between $240 and $368 per image for similar MRIs in 2017, according to data cited by Allstate.

An attorney for Precise MRI said the center denies all of Allstate's allegations, including that it charged too much.

Precise MRI "does a market analysis every six months, and they maintain right around the median pricing for their MRIs," said attorney Paul Whiting of Whiting Law in Southfield.

"And just because that’s what they charge, does not mean that is what they get paid,” he added. "We have instances where Allstate pays 100% of the bill and other cases where they pay a fraction of it. And interesting enough, they never have any justification for what it is they pay.”

Patient solicitation?

Although not a defendant in the lawsuit, Allstate names Southfield-based law firm Elia & Ponto in connection with patient solicitation schemes involving two clinics. The lawsuit identified the firm to support Allstate's contention that it shouldn't have to pay medical bills for people who, according to Allstate, were illegally solicited as patients.

The lawsuit says that a North Shore patient, identified only by initials S.J., received a phone call the day after her auto accident from a man who claimed to be representing Elia & Ponto.

"(He) mentioned that he heard I was in an accident and our law firm can help with your ... case ... and he told me we can send you to our location for relief of pain, and they can help you for as far as making sure you get your insurance payment," the patient, who was treated at North Shore in 2017, recalled in the lawsuit.

It is a misdemeanor offense in Michigan to solicit an accident victim for commercial purposes within 30 days of a car crash, with possible jail time and $60,000 fine for repeated offenses. In addition, medical bills or attorney fees that are linked to accident-victim solicitation can be tossed out.

The caller arranged for a transportation service to pick up and drop off the patient at North Shore Injury Center in Royal Oak, the lawsuit says.

Later on, the patient received a voice mail from someone they identified as an Elia & Ponto representative who, the patient said, claimed to have received all of the patent's information from North Shore, "evidencing Elia & Ponto’s ongoing participation in patient treatment after the initial unlawful solicitation," the lawsuit says.

In another instance outlined in the lawsuit, a caller who claimed to be with Elia & Ponto contacted an accident victim just two days after her April 2016 crash. The caller told the woman they had "checked her policy" and she could receive $2,000 for filing an insurance claim to be handled by their firm.

Later, a transportation vehicle was sent to pick up the woman and bring her to Michigan Pain Management, which is inside the same Royal Oak building as North Shore.

Another patient with the initials M.A. told Allstate that the day after his November 2017  accident he received a call from a person named "Carlos." Carlos told the patient that he wanted to send him to North Shore for treatment, the lawsuit says.

An unmarked van arrived at the man's home that day and dropped him off at North Shore. The patient told Allstate that he thought Elia & Ponto were "working alongside" North Shore and had a "middle man" inside the clinic, who directed him to seek representation with the law firm.

Elia & Ponto did not respond to repeated Free Press requests for comment last week left by phone, email and in person with staff in the firm's eighth floor office in Southfield's Maccabees Center tower.

$500 for referrals?

Allstate's lawsuit says several patients were approached after accidents by tow truck drivers and repair shop workers who referred them to some of the medical clinics.

The owner of one Detroit repair shop claimed that an individual named Mark came to his shop and offered $500 for every person referred to North Shore Injury Center for treatment.

The owner — whom the lawsuit doesn't identify — said that many other repair shops in the area have Mark's business cards and refer accident victims to him.

Allstate claims that it shouldn't have to pay for medical treatment that was directed by tow truck drivers or repair shops.

The Free Press could not reach Mark for comment.

The lawsuit says that one patient, identified by initials P.A., had his car towed from the scene of a February 2016 accident and dropped off at a repair shop called "Somerset Auto." The patient was evaluated at a local hospital's emergency room and discharged with instructions to take Motrin.

The next day the patient visited Somerset Auto to check on his car. He said he was told by "someone in charge" that he should seek a second medical opinion from "their doctor," the lawsuit says.

The patient was then driven from Somerset Auto to Michigan Pain Management in Royal Oak, where he received "unnecessary" treatment for the next four months, the suit claims.

A sales manager for Somerset Auto Collision on John R in Detroit told the Free Press that the repair shop is not involved in any kickback schemes.

Attorneys for Michigan Pain Management, North Shore, Medi Transit as well as the Dearborn and Sterling Heights clinics said Allstate's allegations are untrue and will be rebutted in their formal response to the lawsuit. Southfield Pain Management did not return calls for comment.

“This particular group of clients that we represent vehemently denies these allegations," Blumberg said. "There are many inaccurate conclusions that they (Allstate) make."

Blumberg is also defending Padula, the Florida doctor who owns several clinics in the case.

"They’ve sued a board-certified pain management doctor who I wouldn’t hesitate to go to myself if I needed medical treatment," Blumberg said. The doctor "practices here in Michigan, these are his clinics, he’s in charge of these clinics, he’s here every week. He’s licensed in multiple states — and there is nothing improper with that."

An Allstate spokeswoman said the company doesn't comment on pending litigation.

ContactJC Reindl: 313-222-6631 or jcreindl@freepress.com. Follow him on Twitter @jcreindl. Read more on business and sign up for our business newsletter.