Man Bites Dog & Dog Bites Back

Third Circuit Compels Arbitration of IFPA Qui Tam Claims

Barry Zalma

Apr 17, 2024

Transcript

BACKGROUND

GEICO sued defendants-appellants (collectively, the “Practices”) in separate actions in the District of New Jersey, alleging they defrauded GEICO of more than $10 million by abusing the personal injury protection (“PIP”) benefits offered by its auto policies. It alleges the Practices filed exaggerated claims for medical services (sometimes for treatments that were never provided), billed medically unnecessary care, and engaged in illegal kickback schemes. GEICO’s suits against the Practices each included a claim under the IFPA, which gives insurers a fraud claim.

The Medical Practices sought arbitration of GEICO’s IFPA claim, arguing both that a valid arbitration agreement covered the claim and that a different New Jersey insurance law allowed them to compel arbitration. But each District Court disagreed, ruling instead that IFPA claims cannot be arbitrated.

IFPA Claims Can Be Arbitrated.

The Practices’ effort to compel arbitration under a different New Jersey law could do the same for the Practices’ FAA-based request. GEICO bears the burden of persuading the Third Circuit that the IFPA prohibits arbitration. GEICO claims that every known decision has held IFPA claims inarbitrable. The Practices cite no case holding otherwise.

GEICO claims that the IFPA’s antifraud mission bars arbitration. But it does not explain why arbitrating IFPA claims frustrates that goal. The United States Supreme Court has made clear that claims arising from laws empowering private attorneys general can be arbitrated. The American Arbitration Association rules give the arbitrator broad discretion to “grant any remedy or relief[.]” Am. Arb. Ass’n, Commercial Arbitration Rules and Mediation Procedures 28 (2013) (Rule 47), https://perma.cc/4Y74- WZM8.

In addition, New Jersey has a strong policy in favor of arbitration. The Third Circuit, therefore, predicted that the New Jersey Supreme Court would allow arbitration of IFPA claims. Having concluded that IFPA claims are arbitrable, the Third Circuit then considered whether the IFPA claims before it should be compelled to arbitration.

New Jersey Insurance Law Compels Arbitration.

Each Practice sought arbitration of GEICO’s IFPA claim through N.J. Stat. Ann. § 39:6A-5.1(a) (the “Provision”). It allows “any party” to compel arbitration of “[a]ny dispute regarding the recovery of medical expense benefits or other benefits provided under [PIP] coverage . . . arising out of the operation, ownership, maintenance or use of an automobile”. As these suits are GEICO’s effort to recover medical expense claims paid through auto insurance PIP benefits, they fall under the Provision’s plain text.

GEICO asserts that the Provision does not apply to IFPA claims because they deal with fraud.

First, the Provision does not have an exception for fraud, and the Third Circuit may not carve a broad exclusion from a plain statute on the Third Circuit’s our own initiative.

Second, the list of claims specifically subject to the Provision suggests fraud falls under its umbrella. That group includes whether the disputed medical treatment was actually performed and whether the treatment performed is reasonable or necessary. That is the alleged fraud underpinning GEICO’s IFPA claims: billing for fictitious or unnecessary care. Because the Provision’s plain language is broad and does not carve out fraud, but rather explicitly includes fraud-like claims, GEICO’s argument failed to persuade the Third Circuit.

GEICO’s IFPA Claims Are Subject to an Arbitration Agreement.

In the alternative, the Third Circuit also concluded that GEICO’s IFPA claims must be compelled to arbitration under the FAA. That statute compels claims to arbitration once a movant shows both that an arbitration agreement was validly formed and that it covers the claims at issue. To establish that an agreement was formed when (as here) a motion to compel arbitration is based on a complaint standing alone, a defendant must show that the complaint and the documents on which s it relies facially suggest that the parties agreed to arbitrate.

GEICO does not contest the Practices’ reliance on two documents to suggest formation of an arbitration agreement. The first is GEICO’s Precertification and Decision Point Review Plan (the “Plan”). This document, required by New Jersey law and approved by the New Jersey insurance regulator, governs GEICO’s reimbursement of PIP claims. GEICO could force the Practices to prove more than a suggestion by submitting or pointing to additional facts sufficient to place the arbitration agreement in issue.

It would not have taken much for GEICO to put contract formation in play. To compel arbitration of GEICO’s IFPA claims, the Third Circuit concluded it must hold that the arbitration agreement in the Plan covers them.

Nothing in the amended complaint precludes arbitration of GEICO’s IFPA claims. Rather the law requires it. Therefore, Third Circuit concluded the District Court abused its discretion in denying the motion and the Third Circuit ordered arbitration.

ZALMA OPINION

Since local prosecutors failed to deal with health care providers who try to defraud insurers like GEICO, it used the qui tam provisions of the IFPA to sue the medical providers and thereby take the profit out of their crime. The health care providers compelled arbitration thereby requiring GEICO to prove fraud in each individual claim which will probably cost more than the amount of the fraud. What is needed is for the state to prosecute the fraud perpetrators or allow the fraud to continue since it may become self-defeating for GEICO to go through with hundreds of individual arbitrations. Regardless of the legal basis for the Third Circuit’s decision, its practical effect is to make PIP fraud profitable and the fraudsters should sing Hosannas for the Third Circuit’s decision. The criminal doctors need to be prosecuted as DOJ is prosecuting Medicare and Medicaid fraudsters.