Zalma's Insurance Fraud Letter - November 15, 2024

Volume 28, Number 21

Barry Zalma

Nov 15, 2024

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Volume 28, Issue 21 – November 15, 2024

“Honor, justice, and humanity, forbid us tamely to surrender that freedom which we received from our gallant ancestors, and which our innocent posterity have a right to receive from us. We cannot endure the infamy and guilt of resigning succeeding generations to that wretchedness which inevitably awaits them if we basely entail hereditary bondage on them.”

Thomas Jefferson

Insurance Fraud Requires Doctor to Lose his License

Sexual Misconduct, Fraud, Bribery & Unnecessary Surgery Revokes License

Louis Quartararo appealed from an August 22, 2022 final agency decision of the State Board of Medical Examiners (Board), revoking his license to practice medicine and surgery in New Jersey. The Superior Court of New Jersey, in In The Matter Of The Suspension Or Revocation Of The License Of Louis Quartararo, M.D. License No. 25MA07137700 To Practice Medicine And Surgery In The State Of New Jersey, No. A-0425-22, Superior Court of New Jersey, Appellate Division (October 31, 2024) affirmed the revocation.

The Board charged Dr. Quartararo with engaging in sexual contact with patients; negligent acts by performing surgeries with co-surgeons who lacked the requisite privileges; and acts of fraud, deception and misrepresentation by miscoding procedures on patient operative reports and listing procedures in the reports he had not performed for the purpose of ensuring insurance coverage.

FACTS

Quartararo was a physician and Board-certified orthopedic surgeon licensed to practice medicine in New Jersey.

Approximately one week before K.D. was scheduled to meet with Board investigators, Quartararo gave K.D. $20,916, which K.D. told an investigator was “for school.” Later, Quartararo’s attorney offered her more money to retract the statement she had made to the Board about her relationship with Quartararo.

THE OAL HEARING

At a formal hearing, the Board’s expert, Dr. Ashraf addressed Quartararo’s treatment of patient Y.O. revealed that the surgical procedures Quartararo performed were not medically necessary. In reviewing the description of Quartararo’s procedure on Y.O.’s spine, Dr. Ashraf concluded that Quartararo’s surgery on Y.O.’s completely normal spine “is gross negligence.”

Regarding the fraud claims alleging that Quartararo had failed to properly code surgical procedures that he performed on E.S., D.C., Y.O., L.V., D.E., and V.C., Dr. Ashraf testified that the “whole function” of the “operations” section on the first page of the operative report was to list the procedures that were performed during the operation and he testified that, despite “laminotomy” appearing on the first page of V.C.’s and D.C.’s reports, their post-surgery MRIs revealed that laminotomies had not been performed.

THE ALJ’S DECISION

The Administrative Law Judge (ALJ) issued a comprehensive seventy-nine-page decision and concluded that Quartararo had “engaged in gross malpractice, professional misconduct, failure to comply with regulations administered by the Board, and failure to be of good moral character.”

On August 22, 2022, the Board filed its final decision, revoking Quartararo’s license for a minimum of seven years from the date of voluntary surrender, April 5, 2019. The Board concluded that Quartararo’s “misconduct warrants a serious penalty in excess of that recommended by [the ALJ]” and that he “flagrantly ignored, and in fact shattered professional norms when he engaged in sexual misconduct with patients Y.R. and K.D.” The Board found Quartararo’s conduct was “so egregious that the only appropriate discipline is a license revocation.”

The Board also imposed an aggregate monetary sanction of $343,909.75, comprised of a civil penalty of $90,000, $61,684.75 in costs, and $192,225 in attorney’s fees.

Quartararo Argued

The Board determined that revocation was warranted because he preyed on two vulnerable patients employed intimidation and coercion tactics to dissuade at least one of his victims-K.D.- from testifying about the true nature of their relation and resorted to making threats resulting in the issuance of a temporary restraining order against him.

Quartararo admitted he had not performed laminotomies and that he had used the laminotomy code to ensure that he would be paid by insurance carriers. He did so rather than correctly coding the procedures he actually performed because of the risk he would otherwise not be paid.

ZIFL OPINION

Quartararo admitted before the ALJ that he committed fraud by billing insurers for laminotomies that he did not perform. As such he admitted to committing a federal as well as a New Jersey felony that should be presented to the US Attorney and the local District Attorney for prosecution. He lost his license because he took advantage sexually of vulnerable patients, committed gross acts of malpractice and profited from knowing insurance fraud. The people of New Jersey are now safe from his criminal and unprofessional conduct for a few more years, and in my opinion he should be prosecuted and sentenced to prison for the fraud.

Wisdom

“Let each citizen remember at the moment he is offering his vote that he is not making a present or a compliment to please an individual — or at least that he ought not so to do; but that he is executing one of the most solemn trusts in human society for which he is accountable to God and his country.” — Samuel Adams

“National defense is one of the cardinal duties of a statesman.” — John Adams

“Before God we are all equally wise --- and equally foolish.” — Albert Einstein

"It was a wise man who said that there is no greater inequality than the equal treatment of unequals." — Felix Frankfurter

"The value of liberty was thus enhanced in our estimation by the difficulty of its attainment, and the worth of characters appreciated by the trial of adversity." — George Washington

“A vain person is always angry at the world, because people rarely accord him the honor he feels is his due. A humble soul, however, is generally at peace with the world, because he feels he has received more than his fair share.” — Rabbinic Teaching

“In your town, your reputation counts; in another, your clothes do.” — Talmud

“I always say it's easier to get where you're going if you know where you came from.” – Quincy Jones

IT PAYS INSURER DEFENDANTS TO INVESTIGATE INJURY CLAIMS

In Chris Kallco v. Melissa Lynn Pugh, Chris Kallco, and Precise Mri Of Michigan, LLC v. Citizens Insurance Company Of The Midwest and Melissa Lynn Pugh, No. 368156, Court of Appeals of Michigan (October 30, 2024) affirmed the trial court’s decision.

Plaintiff appealed from two orders granting summary disposition in favor of defendants even though he failed to respond to either motion.

FACTUAL BACKGROUND

This case arises out of a motor vehicle accident that occurred on March 9, 2020 involving plaintiff and Pugh. Plaintiff alleges that he sustained injuries from the accident. A year after the accident, plaintiff brought a negligence claim against Pugh, alleging that, because of Pugh’s negligence, plaintiff sustained “severe permanent and progressive personal injuries and serious impairment of a body function, including but not necessarily limited to: Head, Neck, Back, Shoulders ….” Plaintiff also brought a claim against Citizens for PIP benefits, including medical expenses, work loss, and replacement services.

Pugh and Citizens moved for summary disposition arguing that plaintiff could not meet his burden of showing that he sustained a threshold injury under the no-fault act and, therefore, he could not maintain his negligence claim against her. Pugh submitted the deposition testimony of the plaintiff and the report of an independent medical examination (IME) conducted by Dr. James Bragman on December 27, 2021. Dr. Bragman further observed that plaintiff had “near full range of motion” in his neck and that he was “eminently capable” of standing and touching his toes despite his refusal to do so. Dr. Bragman noted that plaintiff had “very little” medical treatment documented in his records and that he had been undergoing physical therapy for six months with no medical basis for doing so. An investigator’s report includes pictures of plaintiff walking, riding a child’s bicycle, squatting, bending over, lifting a bicycle out of a minivan unassisted, playing with a dog, driving a car, and twisting his neck.

Citizens’ motion argued that plaintiff made material misrepresentations to Citizens regarding the extent of his injuries, which rendered him ineligible for benefits.

The trial court found that, based upon the evidence presented, plaintiff failed to establish that he sustained a serious impairment of body function and therefore summary disposition in favor of Pugh was appropriate.

THRESHOLD INJURY

Plaintiff argued that the trial court erred by granting summary disposition in favor of Pugh.

Under the no fault statute, the threshold question of whether the person has suffered a serious impairment of body function should be determined by the court as a matter of law as long as there is no factual dispute regarding the nature and extent of the person’s injuries that is material to determining whether the threshold standards are met.

Plaintiff was obligated to respond to Pugh’s motion in order to meet his burden of demonstrating that a fact question existed as to whether he suffered a serious impairment of body function.

The parts of plaintiff’s deposition identified by Pugh do not establish a genuine issue of material fact as to whether he suffered a serious impairment of body function. The relevant portions of plaintiff’s deposition testimony fail to rebut the evidence and instead set forth, at best, mere subjective complaints of pain.

FRAUDULENT INSURANCE ACT

The fraud statute finds that a person who presents or causes or to be presented an oral or written statement knowing that the statement contains false information concerning a fact or thing material to the claim commits a fraudulent insurance act under that is subject to the penalties imposed under the statute. A claim that contains or is supported by a fraudulent insurance act as described in this subsection is ineligible for payment of PIP benefits.

An individual commits a “fraudulent insurance act” when: (1) the person presents or causes to be presented an oral or written statement, (2) the statement is part of or in support of a claim for no-fault benefits, and (3) the claim for benefits was submitted to the MAIPF. Further, (4) the person must have known that the statement contained false information, and (5) the statement concerned a fact or thing material to the claim.

ZIFL OPINION

The evidence presented by the defendants were damning since they established the injuries claimed were false. Plaintiff failed to respond to the motions to his detriment and sought reconsideration without any admissible evidence that he was truly injured. The defendants established that the Plaintiff committed fraud and he is lucky that this was a civil finding not a criminal proceeding that, in my opinion, should be presented by the prosecutor.

More McClenny Moseley & Associates Issues

This is ZIFL’s thirty seventh installment of the saga of McClenny, Moseley & Associates and its problems with the federal courts in the State of Louisiana and what appears to be an effort to profit from what some Magistrate and District judges may be criminal conduct to profit from insurance claims relating to hurricane damage to the public of the state of Louisiana.

November 8, 2024

TWO CASES PROVING THE INCOMPETENCE OF MMA

In Joseph Thibodeaux v. Allstate Vehicle And Property Insurance Company, Civil No. 6:22-cv-04104United States District Court, W.D. Louisiana, Lafayette Division, November 8, 2024 MAGISTRATE JUDGE CAROL B. WHITEHURST, DAVID C. JOSEPH UNITED STATES DISTRICT JUDGE ruled on a Motion For Summary Judgment filed by Allstate Vehicle and Property Insurance Company (hereinafter, “Allstate V&P”).

BACKGROUND

Claiming damages from Hurricanes Laura and Delta to Plaintiff's property in Eunice, Louisiana (the “Property”). Plaintiff alleges that his Property was damaged by two hurricanes. Plaintiff alleged that at the time these two storms made landfall in Louisiana, Allstate V&P maintained a policy of property insurance that covered the Property against the specific types of damages that were caused by the hurricanes.

Plaintiff retained McClenny, Moseley & Associates, PLLC (“MMA”), which filed suit on Plaintiff's behalf on August 25, 2022, in the Lake Charles Division of this Court, alleging that Allstate V&P wrongfully failed to pay the loss amounts due under the policy and that Allstate acted in bad faith under La. R.S. § 22:1892 and § 22:1973. [Doc. 1]. On October 31, 2023, Judge Cain terminated MMA's representation of hundreds of plaintiffs with claims arising from Hurricanes Laura, Delta, and Ida for attorney misconduct. By virtue of Judge Cain's Order, Plaintiff was designated pro se. Plaintiff retained his current counsel on November 30, 2023.

Allstate V&P filed a Motion asserting that no valid insurance policy covering the Plaintiff's Property existed between Plaintiff and Allstate V&P at the time of the subject incidents.

LAW AND ANALYSIS

In order to succeed on a breach of contract claim under Louisiana law, a plaintiff must prove the existence of a contract, a breach of the obligations therein, and damages. Since there was no evidence of an insurance contract between Plaintiff and Allstate V&P. Allstate V&P submitted the affidavit of George Hornik, a representative of Allstate V&P, who attested that he reviewed and analyzed Allstate V&P's records, and that Allstate V&P did not provide insurance coverage to the Plaintiff on the dates of occurrence of either Hurricane Laura or Hurricane Delta, or at any other time since Hurricane Laura occurred.

Plaintiff provided no policy evidencing an insurance contract between the parties. The record showed that the Plaintiff has not attempted to amend the Complaint to add the proper Allstate entity as a defendant in this matter. And Allstate V&P argues that the Plaintiff has known that MMA filed suit against the wrong Allstate entity since October 11, 2023, the date Allstate V&P filed its Answer.

In the absence of any evidence that there is an “identity of interest” between Allstate V&P and Allstate Insurance Company, the undisputed facts show that there is no insurance contract between Plaintiff and Allstate V&P, which dooms the Plaintiff's breach of contract claim. As this is the only claim brought by the Plaintiff, the entire suit is subject to dismissal.

There was an identical decision in Leola Lee v. Allstate Vehicle & Property Insurance Co., Civil Action No. 22-4299, United States District Court, W.D. Louisiana, Alexandria Division, November 1, 2024.

Insurance Fraud Requires Doctor to Lose his License

Sexual Misconduct, Fraud, Bribery & Unnecessary Surgery Revokes License

Louis Quartararo appealed from an August 22, 2022 final agency decision of the State Board of Medical Examiners (Board), revoking his license to practice medicine and surgery in New Jersey. The Superior Court of New Jersey, in In The Matter Of The Suspension Or Revocation Of The License Of Louis Quartararo, M.D. License No. 25MA07137700 To Practice Medicine And Surgery In The State Of New Jersey, No. A-0425-22, Superior Court of New Jersey, Appellate Division (October 31, 2024) affirmed the revocation.

FACTS

Quartararo was a physician and Board-certified orthopedic surgeon licensed to practice medicine in New Jersey.

THE OAL HEARING

THE ALJ’S DECISION

The Board also imposed an aggregate monetary sanction of $343,909.75, comprised of a civil penalty of $90,000, $61,684.75 in costs, and $192,225 in attorney’s fees.

Quartararo Argued

ZIFL OPINION

Compact Book of Adjusting Property Claims Fourth Edition

In Kindle, paperback and hardback formats, The Compact Book of Adjusting Property Claims, Fourth Edition is now available for purchase here and here. The Fourth Edition contains updates and clarifications from the first three editions plus additional material for the working adjuster and the insurance coverage lawyer.

A Primer for the First Party Property Adjuster The insurance adjuster is seldom, if ever, mentioned in a policy of insurance. The strict wording of the first party property policy sets the obligation to investigate and prove a claim on the insured.

Standard first party property insurance policies, based upon the more than a century old New York Standard Fire Insurance policy, contain conditions that require the insured to, within sixty days of the loss, submit a sworn proof of loss to prove to the insurer the facts and amount of loss.

In general, failure to file the proof within the time limited by the policy is fatal to an action upon it (White v. Home Mutual Ins. Co., 128 Cal. 131, 60 P. 666 (1900); Beasley v. Pacific Indem. Co., 200 Cal.App.2d 207, 19 Cal.Rptr. 299 (Cal. App. 1962).

The California Supreme Court in 1900, when it was decided White v. Home Mutual concluded that the requirement of proof of loss by the insured within the 60-day limit provided by the standard form of policy is a condition precedent to the right of the insured to maintain suit.

Available as a hardcover here. Available as a Kindle Book here. Available as a paperback here

Free Insurance Videos

Barry Zalma, Esq., CFE has published five days a week videos on insurance claims, insurance claims law, insurance fraud and insurance coverage matters at https://www.rumble.com/zalma.https://rumble.com/c/c-262921.

He now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud equally for insurers and he practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 55 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 55 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals. See the more than 500 videos at https://www.rumble.com/zalma.

Health Insurance Fraud Convictions

Pharmacist and Brother Convicted of $15M Medicare, Medicaid, and Private Insurer Fraud Scheme

Raad Kouza, a pharmacist in Wayne County, Michigan, and his brother, Ramis Kouza, of Oakland County, Michigan, billed Medicare, Medicaid, and Blue Cross Blue Shield of Michigan for prescription medications that they did not dispense at pharmacies they owned or operated in Michigan. A federal jury convicted the pharmacy owner and his brother November 8, 2024 for conspiracy to commit health care fraud and wire fraud.

According to court documents and evidence presented at trial, The defendants collectively caused over $15 million of loss to Medicare, Medicaid, and Blue Cross Blue Shield of Michigan.

The Kouza brothers were convicted of conspiracy to commit health care fraud and wire fraud. Raad Kouza was also convicted of one count of health care fraud. Both defendants face a maximum penalty of 20 years in prison on the conspiracy count, and Raad Kouza faces a maximum penalty of 10 years in prison on the health care fraud count. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors. Sentencing hearings will be set at a later date.

Boise Nurse Practitioner Sentenced to 48 Months for Conspiracy to Distribute Controlled Substances

Angela Kathryn Hughes, 50, of Boise, was sentenced to 48 months in federal prison for conspiracy to distribute controlled substances, U.S. Attorney Josh Hurwit announced November 9, 2024

According to court records, Hughes was a nurse practitioner in Boise, Idaho. Between January 2022 and March 2023, Hughes issued illegitimate prescriptions for oxycodone, oxycodone acetaminophen, and hydrocodone acetaminophen. In exchange for prescriptions, she received cash, a portion of the pills from the prescription, and other controlled substances such as methamphetamine. Hughes conspired with her co-defendant Sydney Neal, 39, of Boise, and others, to knowingly and intentionally distribute Schedule II controlled substances outside the usual course of professional practice and without a legitimate medical purpose. The unlawful prescriptions Hughes issued as part of the conspiracy totaled approximately 4,358 pills of oxycodone acetaminophen, 2,854 pills of oxycodone, and 2,625 pills of hydrocodone acetaminophen.

Senior U.S. District Judge B. Lynn Winmill also ordered Hughes to be placed on supervised release for three years following her release from prison.

Neal was previously sentenced to five years of probation for her role in the conspiracy to distribute controlled substances. According to court records, Neal received cash from selling controlled substances and provided the proceeds to Hughes. In exchange, Neal continued to receive and distribute controlled substances.

Former Traveling Nurse Pleads Guilty to Tampering with Morphine

Loralie LaBroad, 54, of Hampton, N.H., pleaded guilty to one count of tampering with a consumer product. U.S. District Judge Julia E. Kobick scheduled sentencing for Feb. 21, 2025.

LaBroad, a former traveling nurse pleaded guilty November 6, 2024 in federal court in Boston to tampering with morphine at a local rehabilitation facility.

According to charging documents, while working as a traveling nurse assigned to a rehabilitation center, LaBroad tampered with two bottles of morphine on the medication cart she was assigned. LaBroad used a syringe to remove morphine from the bottles, injected another liquid substance into the bottles to replace the morphine she had removed, and returned the bottles to the medication cart. Investigators seized the bottles immediately after her shift and laboratory testing confirmed that the bottles each contained less than the declared concentration of morphine.

The charge of tampering with a consumer product provides a sentence of up to 10 years in prison, three years of supervised release and a fine of up to $250,000. Sentences are imposed by a federal district judge based upon the U.S. Sentencing Guidelines and statutes which govern the determination of a sentence in a criminal case.

Prison For Disclosing Healthcare Records And Trying To Cover Up His Crimes

Trent James Russell, 34. a former Arlington resident was sentenced November 7, 2024 to two years in prison for obtaining another person’s healthcare information and destroying evidence in a federal investigation.

A federal jury convicted Russell because, from 2017 to 2019, Russell was employed by an organ donation coordination entity, which allowed him access to certain electronic medical records. In January 2019, Russell remotely accessed the medical records of a federal official and took a screenshot of the official’s protected health information.

After Russell learned his access to the health records was disabled on February 10, 2019, he formatted his hard drive two days later to destroy and alter evidence and obstruct the investigation. When FBI agents interviewed Russell on February 21, 2019, Russell falsely stated that his cellphone had been stolen and provided agents with his secondary hard drive, rather than his primary operating system drive, in a further effort to obstruct the investigation.

Paroled Felon Sentenced To Six Years For Fraudulent Use Of Social Security Number And Theft Of Benefits

Kellis Dion Jackson (63, Pinellas Park), a/k/a Chandler Dante Alexander was sentenced to six years in federal prison by U.S. District Judge William F. Jung has for making a false statement to a federal agency, theft of government property, and fraudulent use of a Social Security number. As part of his sentence, the court also ordered Jackson to pay restitution in the amount of $46,695. A federal jury found Jackson guilty on August 13, 2024.

According to evidence presented at trial, Jackson stole Supplemental Security Income (SSI) disability benefits from the Social Security Administration while on federal supervision for prior federal offenses. Prior to applying for SSI, Jackson obtained a Social Security number (SSN) under the fictional identity of Chandler Dante Alexander by falsely reporting that he had never had an SSN and providing false information regarding his birthdate and parents. Jackson used the fraudulently obtained SSN to get a Commercial Driver’s License, work, file tax returns, get married, and open bank accounts.

Jackson then applied for SSI and Supplemental Nutrition Assistance (SNAP) benefits using his birth name and valid SSN. Jackson made false statements on the SSI application and related documents, including falsely stating he was not married, and his application was approved. Jackson’s SSI application would not have been approved had he reported his marriage and work activity under the fraudulently obtained SSN.

Former Licensed Counselor Sentenced for Defrauding Medicaid

Lucinda Perez, 57, a San Antonio woman, was sentenced in a federal court in San Antonio to five years of probation and six months of home confinement for health care fraud.

According to court documents Perez had been a licensed professional counselor since 2003 and worked as a sole practitioner performing home visits beginning in 2011. From no later than April 2015 through at least January 2023, she defrauded the Texas Medicaid program by submitting claims for child counseling services she did not perform. In some cases, Perez was out of town or in other states visiting various casinos during the time periods she had claimed in Medicaid filings. Billing records show Perez fraudulently received approximately $267,400 from service claims from Aug. 1, 2015 to July 31, 2019.

Perez was indicted for five counts of health care fraud and five counts of aggravated identity theft on Nov. 3, 2021. She was arrested Nov. 15, 2021. In addition to the probation, Perez was ordered to pay $267,402 in restitution.

Not only did this defendant defraud the government out of hundreds of thousands of dollars, but she also abused the trust of families to whom she provided services.

Macomb County Doctor And Pharmacist Agree To Pay $700,948 To Settle False Claims Act Allegations

Dr. Stephen Swetech, and Yasser Maisari and GMAJOS, LLC, have agreed to pay a total of $700,948.42 to the United States and the State of Michigan to resolve allegations that they violated the False Claims Act. Dr. Swetech has also agreed to rescind his DEA registration and never again prescribe, administer, or dispense controlled substances.

Dr. Swetech operated a medical practice in Clinton Township, Michigan. The practice was located in an office complex owned by his wife’s company, GMAJOS. The complex included separate office spaces for the medical practice, a physical therapy center, and a pharmacy. During all relevant times, Heartland Drugs, which was owned by Yasser Maisari and operated by Med Express Inc., occupied the pharmacy space. GMAJOS also had a lease with a medical laboratory to rent a room within Dr. Swetech’s medical practice.

The settlement resolves two sets of allegations.

First, from January 1, 2018, through January 1, 2020, Biolab indirectly paid above fair market value rent to Dr. Swetech for a room rented from GMAJOS in order to induce Dr. Swetech’s referrals to Biolab. These referrals are alleged to have violated the False Claims Act as improper inducements and/or self-referrals. Second, from January 1, 2016, through January 1, 2018, Dr. Swetech prescribed medically unnecessary opioid and attention-deficit/hyperactivity disorder medications, and Yasser Maisari’s Heartland Drugs filled those prescriptions, in violation of the False Claims Act.

The payment of kickbacks in exchange for patient referrals can corrupt legitimate medical decision-making and lead to the delivery of fraudulent and unnecessary medical services.

The civil settlement includes the resolution of claims brought under a qui tam or whistleblower lawsuit under the False Claims Act: United States and the State of Michigan ex rel. Doe v. Med Express Inc., et al., Case No. 17-13162 (E.D. Mich.). Under the False Claims Act, a private party can file an action on behalf of the United States and receive a portion of any recovery.

North Texas Medical Center Pays $14.2 Million to Resolve Potential False Claims Act Liability

Horizon Medical Center of Denton, which is owned by Corinth Investor Holdings, L.L.C. operates a long-term acute care hospital with multiple Dallas County outpatient surgery centers, voluntarily self-disclosed its conduct to the Department of Justice. The local medical center has paid $14.2 million to settle potential violations of Medicare regulations and the physician self-referral law (commonly known as the Stark Law) related to four outpatient surgery centers located in Dallas County, announced U.S. Attorney for the Northern District of Texas Leigha Simonton. The United States contends that these potential violations resulted in liability under the False Claims Act.

Specifically, Horizon self-disclosed that when submitting claims for payment to Medicare, it failed to include a “PN” modifier and location to identify services that were provided at its non-excepted off-campus outpatient facilities in Dallas, Richardson, and Coppell. As part of its disclosure, Horizon provided an analysis from an independent third-party expert regarding the financial impact of omitting the “PN” modifier. It also disclosed the existence of Hospital Department Management Agreements at each facility by which Horizon contracted with certain third-party management companies that were affiliated with physicians performing surgery at the outpatient facilities, as well as Operating Lease Agreements by which Horizon contracted for the lease of certain equipment from companies directly or indirectly owned by a physician performing procedures at the surgery centers. These agreements created financial relationships between Horizon and the physician-owners.

The Horizon settlement is the latest in a string of three civil settlements announced by the U.S. Attorney’s Office for the Northern District of Texas over the last year in which the settling party received credit for making a self-disclosure under the Department of Justice’s Guidelines for Taking Disclosure, Cooperation, and Remediation into Account in False Claims Act Matters.

In another case, Oliver Street Dermatology Management (d/b/a U.S. Dermatology Partners) paid the United States $8.9 million after self-disclosing that credible evidence suggested that former senior managers had offered to increase the purchase price of 11 dermatology practices acquired by the company in return for an agreement by the practices’ providers to refer services to Oliver Street affiliated entities, in possible violation of the Stark Law and the Anti-Kickback Statute.

And in a third case, Consolidated Nuclear Security, L.L.C., which operates the Pantex Nuclear Weapons Plant in Amarillo, paid $18.4 million after self-disclosing that certain production technicians at the plant fraudulently recorded on their timesheets hours they did not work.

In all three cases noted above, the self-reported conduct was unknown to the United States at the time of the self-disclosure and was specific as to the nature of the potentially problematic transactions, the personnel involved, and the potential financial impact on the government. All three settlements credited the companies for their self-disclosure and collaboration with government investigators. The claims resolved by the settlement agreements are allegations only, and there has been no determination of liability.

These civil settlements come as the U.S. Attorney’s Office for the Northern District of Texas announced its implementation of the recent USAO-wide voluntary self-disclosure (VSD) policy, which aims to provide transparency and predictability to companies and the defense bar concerning the benefits and potential outcomes in cases where companies voluntarily self-disclose misconduct, fully cooperate, and timely and appropriately remediate. The goal of the policy is to standardize how voluntary self-disclosures are defined and credited by U.S. Attorney’s Offices nationwide. It is also intended to incentivize companies to maintain effective compliance programs capable of identifying misconduct, to expeditiously and voluntarily disclose and remediate misconduct, and to cooperate fully with the government in investigations.

New England Doctor Pleads Guilty to Drug Distribution Conspiracy

Adnan S. Khan, M.D., 48, of Grantham, New Hampshire, conspired with others to illegally distribute controlled substances through his business, New England Medicine and Counseling Associates (NEMCA), which operated a network of clinics in New England that purportedly provided clinical treatment services for persons suffering from substance use disorder. Khan, a New England doctor pleaded guilty November 4, 2024 to conspiring to illegally distribute controlled substances. This is the first joint prosecution of a doctor by the Justice Department’s New England Strike Force and U.S. Attorney’s Office for the District of Vermont.

According to court documents, Khan and a co-conspirator prescribed controlled substances to NEMCA patients despite knowing that their patients were diverting the prescriptions. Khan admitted that he and others required cash for purported office visits to received controlled substance prescriptions and falsified medical records to justify his illegal prescribing practices.

During the conspiracy, Khan emailed a co-conspirator a Justice Department press release announcing the creation of the New England Strike Force, a law enforcement partnership whose purpose is to identify and prosecute health care fraud and other criminal schemes impacting the New England region. In response, the co-conspirator stated that it is “clear that [references in the release to] ‘making profit off of patients’ is geared towards folks like us. Curious where this will lead.” Khan then emailed NEMCA staff and stated that “there is a new task force…[for the New England states] on the lookout for medical professionals who are prescribing scheduled meds irresponsib[ly], etc.” Khan warned his staff that “[i]t is not a matter of if someone from such a task force will visit NEMCA but rather a matter of time.” Khan then ordered his staff “NOT to engage or discuss anything [with the New England Strike Force] about NEMCA, what we do, what we offer, fees, etc.”

Rather than providing responsible addiction treatment to his patients, Khan ran his medical practice with the corruption and recklessness of a common drug dealer.

Khan and a co-conspirator required patients — many of whom were economically disadvantaged — to pay $250 cash in exchange for drug prescriptions, despite many of these patients’ having health care benefit coverage. If a patient could not afford the full cash payment, Khan would lower the dosage of that patient’s prescription. Khan then used funds that he earned from these patients to, among other things, purchase an airplane and multiple properties in New England. Khan would also personally deposit the cash that he received from patients, including deposits in excess of $10,000, at his bank.

Khan also admitted that he and a co-conspirator discussed their concern that, because pharmacies were no longer willing to fill the prescriptions, NEMCA might lose “dishonest” patients who were “selling their meds.” Khan said that their “honest patients” were “the smaller part of [NEMCA’s] clientele” and advised a co-conspirator that “it’s the diverters [of the drugs that] we need to try to figure out a way to retain.” A co-conspirator emailed Khan, suggesting that they give $100 “scholarships” to patients who owed them money. Khan responded he was “[s]tuck on ‘who’ should get them. S[******] patients owe me so much that $100 won’t even put a dent on their account and they probably won’t appreciate it. Maybe the borderline ones who are just over the $250 threshold? They would probably get on their knees in gratitude.”

Khan pleaded guilty to one count of conspiring to illegally distribute controlled substances. A sentencing hearing will be scheduled on a later date. Khan faces a maximum penalty of 10 years in prison. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

As a condition of Khan’s release, he is prohibited from writing prescriptions for controlled substances.

Multiple Convictions in Multi-Million Dollar Medicare and Medicaid Fraud Scheme

Eight Others Were Previously Convicted for Participating in the Same Conspiracy

Fadel Alshalabi, 57, of Waxhaw, North Carolina, and Samuel Harris, 30, of American Fork, Utah, after a seven-week trial, a jury yesterday found defendants, guilty of conspiracy to violate and violations of the Anti-Kickback Statute, arising out of a multi-million dollar, multi-state Medicare and Medicaid fraud scheme.

Alshalabi was the owner and Chief Executive Officer of a series of laboratories based in Spring Hill, Tennessee, called Crestar Labs, LLC (“Crestar Labs”). Harris was the owner of Flojo Recruiting d/b/a Secure Health, a Utah-based marketing company that contracted with Crestar Labs.

According to the evidence presented at trial, the co-conspirators entered into sham contracts and paid illegal kickbacks in exchange for laboratory genetic tests. This included targeting and recruiting elderly and low-income patients who were federal health care program beneficiaries in order to obtain their genetic material for conducting genetic tests. Marketers, who were not health care professionals, obtained buccal swabs of DNA from patients at senior health fairs, door-to-door marketing, low-income housing and elsewhere. The tests were then approved by purported telemedicine doctors who were paid kickbacks in exchange for signing off on the laboratory orders sent to Crestar Labs. Alshalabi and co-conspirators paid marketers kickbacks for the genetic testing samples and doctor orders. During the conspiracy, Alshalabi and his co-conspirators billed Medicare and Medicaid over $100 million for laboratory tests procured through the payment of these illegal kickbacks.

Alshalabi and Harris will be sentenced on March 5 and 6, 2025. At sentencing, Alshalabi and Harris each face up to 10 years in prison on the counts of violating the Anti-Kickback Statute and up to 5 years in prison on conspiracy to violate the Anti-Kickback Statute. Alshalabi also faces up to 10 years in prison on the money laundering counts. The defendants were acquitted on separate counts of health care fraud.

Six co-defendants previously pled guilty before trial, including Edward D. Klapp of Jupiter, Florida, the former Vice President of Sales for Crestar Labs; Melissa L. Chastain of Belton, South Carolina, the owner and Chief Executive Officer of Genetix LLC, a South Carolina marketing company that contracted with Crestar Labs; Roger Allison of Greenville, South Carolina, the President of Genetix; Dakota White of Easley, South Carolina, the former Director of Client Services and Vice President of Operations for Crestar Labs; Robert Alan Richardson of Silver Spring, Maryland, a principal of Maryland based Freedom Medical Labs, LLC, a marketing company that contracted with Crestar Labs; and Edward Burch of Rockville, Maryland, also a principal of Freedom Medical Labs, LLC. Each pled guilty to one count of violating the Anti-Kickback Statute and one count of conspiracy to commit health care fraud. They all face up to 10 years in prison on the conspiracy to commit health care fraud and up to 5 years on the conspiracy to violate the Anti-Kickback Statute. They will be sentenced at a later date to be set by the court.

Two other co-conspirators part of the same scheme were separately charged and convicted. Elizabeth H. Turner, of Glenview, Kentucky, the owner of Advanced Tele-Genetic Counseling, pled guilty to one count of conspiracy to offer, pay, solicit, and receive illegal kickbacks and to defraud the Medicare and Medicaid programs. She will be sentenced on January 6, 2025, and faces up to 5 years in prison. Dr. Benjamin Toh, of Chicago, Illinois, was convicted in September 2023, of conspiracy to violate the federal Anti-Kickback Statute after a two-week jury trial. He is scheduled to be sentenced on January 7, 2025 and faces up to 5 years in prison.

Compound Ingredient Supplier Medisca Inc., to Pay $21.75M to Resolve Allegations of False and Inflated Average Wholesale Prices for Ingredients Used in Compounded Prescriptions

Medisca Inc. (Medisca), has agreed to pay $21.75 million to resolve allegations concerning the establishment of false and inflated Average Wholesale Prices (AWPs) for two ingredients used in compound prescriptions. Medisca’s pricing scheme allegedly caused pharmacies that purchased those ingredients to submit false prescription claims to the Defense Health Agency, which administers the TRICARE Program for the Department of Defense and the Department of Labor’s Office of Workers’ Compensation Programs (federal health care programs).

Compounding pharmacies purchase ingredients or chemicals from ingredient suppliers, such as Medisca, to prepare and fill compound prescriptions for patients who require a specially made prescription that is not generally available in the marketplace. Medisca knew that compound prescription reimbursement under federal health care programs was based in part on the AWPs it reported to various price listing agencies. The United States alleged that Medisca knowingly inflated the AWPs for resveratrol (NDC No. 38779-2863) and mometasone furoate (NDC No. 38779-2413) in order to increase the reimbursement that its pharmacy customers received from the federal healthcare programs for using those Medisca ingredients.

Medisca acquired resveratrol from manufacturers for approximately $0.37 per gram. It repackaged and sold resveratrol for under $2 per gram. Medisca reported an AWP for resveratrol at $777 per gram, creating a spread of over $775 for each gram of resveratrol used by a pharmacy customer in a compound prescription reimbursed by the federal healthcare programs. Medisca acquired mometasone furoate from manufacturers for under $8 per gram. It repackaged and sold that ingredient to compound pharmacies for over $1,000 per gram. Medisca reported an AWP for mometasone furoate at over $7,300 per gram, thereby creating a spread of approximately $6,300 for each gram of the ingredient used by a pharmacy customer in a compound prescription reimbursed by the federal healthcare programs.

Medisca allegedly used the high AWPs it reported and the resulting profit potential created for its customers as an inducement to its compound pharmacy customers to purchase those ingredients. Medisca’s alleged fraudulent pricing scheme enabled its pharmacy customers to bill federal healthcare programs inflated amounts – often thousands of dollars per prescription – for compound formulations containing those ingredients.

The settlement resolves claims brought under the whistleblower or qui tam provisions of the FCA by Doug McMakin against Medisca. Mr. McMakin is a pharmacist who owned and operated a compounding pharmacy that dispensed compounded prescriptions. Under the FCA, private parties may sue on behalf of the government for false claims for government funds and receive a share of any recovery. Mr. McMakin will receive $3,425,625 from the proceeds of the settlement. The lawsuit is captioned United States ex rel. McMakin v. Medisca Inc. (EDTX).

Former Sioux City Plastic Surgeon Agrees to Pay Nearly $200,000 to Settle Allegations He Submitted False Claims

Adam B. Smith, M.D., also known as “Adam Bryant,” has agreed to pay $198,755.42 to the United States and the State of Iowa to resolve allegations that he billed government health insurance programs, including Medicare and Medicaid, for medically unnecessary procedures and for procedures more complicated than those he performed. The settlement resolves allegations brought by the United States and the State of Iowa in a Civil Complaint filed last May in the United States District Court for the Northern District of Iowa. The settlement amount was based on Smith’s ability to pay.

In its Complaint, the government alleged that, from August 2014 until August 2019, Smith was practicing as a plastic surgeon in Sioux City in association with Tri-State Specialists, L.L.P. During that time, the government alleged Smith engaged in a scheme to overcharge government health care programs by falsely claiming that cosmetic procedures he performed were medically necessary and that the medically necessary procedures he billed for were more complicated (and more highly compensated) than what he performed. Cosmetic procedures are generally not covered by Medicare or Medicaid. To obtain federal payment for procedures that would not otherwise be covered, the government alleged Dr. Smith claimed he performed complicated hernia repair or tissue transfer procedures when he actually performed body contouring, tummy tucks, and cosmetic procedures to remove excess skin and fat.

The Complaint also contended that Smith submitted claims for more expensive wound repair procedures and office visits by claiming the wounds he repaired were larger, the procedures he performed were more complex, and the office visits were more thorough, than they actually were. This practice, known as “upcoding,” occurs when medical providers fraudulently overcharge insurers for more significant (and more expensive) procedures than they perform.

In February 2021, Smith pleaded guilty to one count of making a false statement relating to a healthcare matter, in violation of Title 18, United States Code, Section 1035(a), in the United States District Court for the Western District of Michigan. As part of his plea, Smith acknowledged that he had falsely described a cosmetic procedure as medically necessary and reimbursable by Medicare while he was practicing medicine in Traverse City, Michigan from May 2011 to January 2014. Smith voluntarily surrendered his South Dakota medical license in 2019 and his Iowa medical license in 2021.

The United States entered into a settlement agreement with Smith’s employer, Tri-State Specialists, LLP, in December 2021, resolving the same allegations for $612,501.44.

This civil matter arose from an action brought under the whistleblower provisions of the False Claims Act.

The claims asserted against Smith are allegations only; there was no determination or admission of liability.

Columbus Doctor, His Clinic Convicted of $1.5 Million Medicaid Scheme

Dr. Robert Florea and his company, Buckeye Health and Research Columbus physician and his medical clinic were found guilty of overbilling Medicaid by $1.5 million.

A Franklin County, Ohio, jury convicted, each of one count of Medicaid fraud, a third-degree felony. Both defendants were indicted in December 2022.

Florea, through his clinic at 65 Highview Blvd., billed the Ohio Department of Medicaid for medical equipment – including braces for joints and back pain – that he never purchased.

Florea claimed reimbursement for more than 5,100 pieces of equipment over a three-year period, but records show he bought only 460 of the items. The fraudulent claims caused a $1.5 million loss to the Medicaid program.

Quincy. Massachusetts Based Physician Group To Pay $650,000 To Resolve Allegations of False Billing to MassHealth

Evolve Health Allegedly Billed MassHealth for Services Not Provided

Evolve Health, P.C. (Evolve), a Quincy-based physician group practice specializing in substance abuse treatment. The settlement resolves allegations that the organization submitted false claims to MassHealth and MassHealth managed care entities (MCEs) by billing MassHealth for services that were not provided and billing for more expensive levels of service than actually provided.

As part of the settlement, Evolve will pay $650,000 in restitution to the Commonwealth and will implement a three-year independent compliance monitoring program at its own expense. The compliance program will result in updated policies and procedures to ensure compliance with MassHealth and MCE requirements, along with trainings for staff on the updated policies and procedures, and annual record and on-site audits.

Since at least January 2018, Evolve routinely submitted claims to MassHealth and MCEs for confirmatory urine tests that it did not provide. The AGO’s investigation indicated that Evolve did not own the equipment necessary to conduct the confirmatory urine tests that it billed to MassHealth and the MCEs. Additionally, the AGO alleges that Evolve “upcoded” some of its Evaluation and Management (E&M) office visits, billing for longer or more complex office visits than were actually provided. The AGO asserts that Evolve’s alleged conduct constituted the submission of false claims in violation of the Massachusetts False Claims Act and the Medicaid False Claims Statute.

This matter is representative of the AGO’s ongoing efforts to hold accountable those who misuse roles of authority or public trust, including through abuse of the MassHealth program. Earlier this year, the AGO reached a $1.6 million settlement with two North Dartmouth ambulance companies to resolve similar allegations of fraudulent MassHealth billing, including for submitting “upcoded” claims.

Massachusetts Reaches Settlement With Swampscott-Based Medical Transportation Company To Resolve False Billing Allegations

RM Transportation Allegedly Billed MassHealth for Services Not Provided; Will Pay $380,000 and Implement Compliance Program

RM Transportation, Inc. (RM Transport), a Swampscott-based medical services transportation provider, ) has reached a settlement with the state to resolve allegations that the company billed MassHealth for transportation services that it did not provide.

As part of the settlement, RM Transport will pay $380,000 to the Commonwealth and will implement a three-year independent compliance monitoring program at its own expense. The compliance program will result in updated policies and procedures to ensure compliance with MassHealth requirements, along with trainings for staff on the updated policies and procedures, and annual record and on-site audits.

RM Transport provides non-emergency transportation services, brokered through the Montachusett Regional Transit Authority (MART), for MassHealth members travelling to MassHealth-covered services, including substance abuse treatment centers.

The AGO alleged that RM Transport knowingly submitted false claims to MART for services it did not provide to MassHealth members, including submitting claims for instances when relevant medical facilities were closed, when the members had take-home Methadone doses and were not going to the Methadone clinic, and when medical services for MassHealth members had concluded. The AGO asserts that the alleged conduct constituted violations of the Massachusetts False Claims Act and the Medicaid False Claims Statute.

Three Defendants Sentenced to Two to Six Years in State Prison and Required to Pay More Than $2.1 Million to Medicaid

DYD Universe, Inc. (DYD), a New York Medicaid-enrolled transportation company, have pleaded guilty for their roles in a scheme that stole more than $2.1 million from Medicaid and paid illegal kickbacks to Medicaid recipients. Damir Yuldashev, 64, his son Daler Yuldashev, 38, and Daler’s mother Nigina Iskandarova, 60, all of Monroe, New York, admitted that from April 2018 to March 2023, they stole more than $2.1 million from Medicaid by submitting fraudulent claims for services that they knowingly did not provide and toll charges that they knew were not incurred. The owners also admitted to paying illegal kickbacks to Medicaid recipients in exchange for providing DYD with their confidential Medicaid identification in order to carry out the scheme. As a result of the pleas, Damir Yuldashev will be sentenced to two to six years in prison and, along with Daler Yuldashev, must pay back over $2.1 million to Medicaid. Daler Yuldashev and Nigina Iskandarova will be sentenced to probation, and all three defendants will be permanently banned from being providers in all government-funded health programs.

Medicaid recipients who lack access to transportation can use approved transportation providers to travel to and from covered medical services. These providers receive reimbursements from Medicaid for the rides they provide. From April 2018 to March 2023, Daler and Damir Yuldashev billed Medicaid for fictitious trips and added fake tolls to their trips to inflate their costs. DYD’s claims often added toll charges from $15 to as much as $50 when the trip did not actually incur any tolls at all. As a result of their scheme, DYD illegally overcharged Medicaid more than $2.1 million.

To carry out their scheme, the defendants paid Medicaid recipients to sign up with DYD and use fake addresses or drive themselves to their appointments, allowing DYD to either inflate or submit entirely false claims for transportation to Medicaid. These payments were illegal and undermined the businesses of other transportation providers in the Hudson Valley. Some passengers were paid thousands of dollars each to take rides that allowed DYD to collect tens of thousands of dollars in fees per passenger.

All three defendants pleaded guilty in Orange County Court in front of Judge Richard Guertin. Damir Yuldashev pleaded guilty to Grand Larceny in the First Degree, a class B felony. Daler Yuldashev pleaded guilty to Grand Larceny in the Third Degree, a class D felony. Nigina Iskandarova pleaded guilty to violating New York’s anti-kickback statute, Social Services Law section 366-d, a class E felony. DYD also pleaded guilty to Grand Larceny in the First Degree.

Damir Yuldashev faces a sentence of two to six years in state prison. Daler Yuldashev and Nigina Iskandarova, both of whom played lesser roles in the scheme, will be sentenced to probation, with Daler Yuldashev required to perform at least 1,200 hours of community service. As part of their sentence, Damir and Daler Yuldashev must pay $2,127,624 to Medicaid in restitution for their crimes. If they fail to pay restitution as ordered by the Court at sentencing, Damir and Daler Yuldashev will be required to serve additional time in state prison. As a result of their convictions, each defendant is also permanently excluded from being a provider in all government-funded health programs, including Medicaid and Medicare.

Court Awards State $425,940.54 Against Komfort & Kare LLC

Komfort & Kare LLC, its former owner and manager LaShera White, its former

alternate manager and administrator LaSharn Angelita Brown, and related entities were found responsible for submitting

fraudulent claims to the state’s Medicaid program. The Circuit Court for Baltimore County has awarded the State of Maryland $425,940.54 in damages against Komfort & Kare LLC, LaShera White, and LaSharn Angelita Brown,

Komfort & Kare was an assisted living program that was licensed by the state to provide housing and related services to individuals on Medicaid. After a referral from the Maryland Department of Health, the Office of the Attorney General’s Medicaid Fraud and Vulnerable Victims Unit (MFVVU) conducted an investigation into Komfort & Kare. The MFVVU found that Komfort & Kare had housed four Medicaid recipients at locations that had not been inspected, approved, or licensed by the state from at least January 10, 2020, through February 17, 2022, putting the residents’ health and safety at risk. The Medicaid program had paid Komfort & Kare nearly $142,000 for these services.

Maryland sued Komfort & Kare, White, and Brown in January 2024, claiming that they had violated the Maryland False Health Claims Act (FHCA) by falsely billing Medicaid for the housing that had been provided in the unlicensed locations. The FHCA prohibits billing

Medicaid for false claims – such as when an assisted living program bills Medicaid for services that bypassed laws and regulations, including those that require assisted living programs to house Medicaid recipients in licensed locations. The FHCA allows the courts to award up to three times the amount of the fraudulent claims. The Court granted a default judgment against Komfort & Kare, White, and Brown and ordered a payment of $425,940.54, which is triple the amount of damages sustained by the state.

Precision Toxicology Agrees to Pay $27 Million to Resolve Allegations of Unnecessary Drug Testing and Illegal Kickbacks to Physicians

Precision Toxicology has agreed to settle with the state for $27 million to resolve allegations that it billed government health programs for medically unnecessary urine drug tests and kickbacks to physicians in exchange for laboratory testing referrals.

Precision, headquartered in San Diego, California, is one of the nation’s largest urine drug testing laboratories. The case originated with a Baltimore-area whistleblower complaint that prompted a complex state and federal investigation into a scheme operating within the drug testing industry, in which profits—and fraud—have increased as the opioid epidemic has spread nationwide.

In the settlement agreement, Maryland and numerous other states, as well as the federal government, alleged that Precision billed government health care programs for excessive and unnecessary urine drug testing from January 1, 2013, through December 31, 2022. In particular, the government plaintiffs contended that Precision caused physicians to order excessive numbers of urine drug tests, in part through use of blanket orders that caused physicians to order a large number of tests without an individualized assessment of each patient’s needs. Under federal and state laws, government health care programs only pay for services that are reasonable and medically necessary.

The government plaintiffs also alleged that Precision providing free point-of-care urine drug test cups to physicians—on the condition the physicians agree to return the urine specimens to Precision for additional testing—violated anti-kickback laws. These laws prohibit laboratories from giving physicians anything of value in exchange for referrals of tests.

In addition to the monetary settlement, Precision has agreed to enter into a five-year Corporate Integrity Agreement with the Department of Health and Human Services Office of Inspector General (HHS-OIG), which will allow the federal government to monitor Precision’s operations over that period, and mandate reforms and corrections as needed.

Of the settlement amount, $18.2 million will be paid to the federal government. Maryland will receive $5.7 million. Other impacted states will also receive a share, including Illinois, Minnesota, Virginia, Georgia and Colorado. The original whistleblower, Bryce Hudak, who was a clinical director of a Baltimore treatment center that referred patients to Precision for testing, will receive $2.7 million as part of the settlement.

The allegations resolved by this settlement were originally brought in three lawsuits filed by whistleblowers under the federal and state False Claims Act, which allow private parties to bring suit on behalf of the government and to share in any recovery. Two of the cases are United States and Maryland ex rel. Hudak v. Precision Toxicology LLC, and United States, Illinois and Minnesota ex rel. Buonauro v. Precision Diagnostics LLC et al., both filed in the U.S. District Court for the District of Maryland. The third case against Precision, brought in the District of Colorado, remains partially sealed.

Silver Spring Woman Sentenced for Defrauding Maryland Medicaid of over $1 Million

Elia Torres, 44, of Silver Spring, Maryland, pleaded guilty and was sentenced on charges of Medicaid Fraud. On September 30, 2024, Ms. Torres pleaded guilty to defrauding the Maryland Medicaid program of more than $1,000,000 by billing for speech language therapy for juvenile Medicaid recipients that were never provided. Medicaid is a joint federal-state program that provides healthcare benefits to low-income individuals.

Judge Mary Beth McCormick of the Circuit Court for Montgomery County sentenced Elia Torres to five years’ incarceration with all but 18 months suspended, to be served on home detention, a three-year term of probation, and $10,000 suspended fine. The defendant is liable for restitution in the amount of $1,019,719.71, with $225,000 paid at the time of sentencing. The defendant is also prohibited from providing healthcare services that are either partially or wholly funded by state or federal governments.

Medicaid Fraud Control Unit Secures More Than $700,000 Through Multistate Action from Toxicology Laboratory

Florida’s Medicaid Fraud Control Unit secured more than $700,000 in a multistate action against Precision Toxicology, LLC d/b/a Precision Diagnostics, Inc. The action comes after allegations that Precision knowingly submitted or caused false claims to be submitted to federal healthcare programs related to urine drug testing that was not medically necessary or tainted by kickbacks.

The multistate action alleged that claims Precision submitted to Medicaid were not medically reasonable and necessary for the diagnosis or treatment of an illness or injury or to improve the functioning of a malformed body member.

Specifically, Precision allegedly developed and implemented a policy and practice of utilizing non-allowable blanket orders for UDT without any physician making an individualized determination that the UDT was medically necessary or reasonable for the particular patients for whom the tests were ordered. It was also alleged that Precision provided free point-of-care UDT cups to physicians in exchange for UDT referrals, in violation of the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b).

Florida Ophthalmology Practice Agrees to Pay $1.3M to Resolve Allegations

Brandon Eye Associates P.A. (Brandon Eye), an ophthalmology practice with offices in Brandon, Sun City and Plant City, Florida, has agreed to pay $1.3 million to resolve alleged violations of the False Claims Act and an analogous Florida statute arising from its billing for trans-cranial doppler ultrasounds (TCDs) provided through a kickback arrangement with a third party. Brandon Eye has agreed to cooperate with the Justice Department’s investigations of other participants in the alleged scheme.

The settlement announced November 12, 2024 resolves allegations that Brandon Eye knowingly submitted and caused the submission of false claims for medically unnecessary TCDs performed on Brandon Eye’s patients. Brandon Eye and a third-party provider of turnkey mobile TCD services, through an agreement, performed TCDs on Brandon Eye patients who had been diagnosed with common health conditions such as diabetes, hypertension and glaucoma. Before the patient received the TCD result, Brandon Eye and the third-party provider identified the patients as having received a serious diagnosis — most commonly of occlusion and stenosis of their cerebral arteries — that could qualify the patient for reimbursement of a TCD by Medicare or Medicaid. However, nearly all patients who received TCDs never had occlusion and stenosis of cerebral arteries, and that diagnosis was accordingly not reflected in the patient’s medical history or in the TCD results. For each TCD ordered for each Medicare Part B patient, Brandon Eye claimed reimbursement for the technical component of the test, paid the third-party TCD provider based on the volume or value of tests ordered, and referred the patient to the TCD provider’s preferred radiology group for the TCD’s professional component.

The United States alleged that as a result of this scheme, Brandon Eye submitted, or caused the submission of, false claims to Medicare and Medicaid for TCDs that were medically unnecessary, that were premised on false diagnoses, and that resulted from violations of the Anti-Kickback Statute and the Stark Law. Of the $1.3 million total settlement amount, $1,210,245.70 is to be paid to the United States, and $89,754.30 is to be paid to the State of Florida for its share of Medicaid, which is a jointly funded federal and state program.

Kickback arrangements meant to boost company profits can corrupt the legitimate medical decision-making process and undermine the integrity of federal healthcare programs.

The claims resolved by the settlement are allegations only. There has been no determination of liability.

UCHealth Agrees to Pay $23M to Resolve Allegations of Fraudulent Billing for Emergency Department Visits

University of Colorado Health, known as UCHealth and headquartered in Aurora, Colorado, has agreed to pay $23 million to resolve allegations that it violated the False Claims Act in seeking and receiving payment from federal health care programs for visits to its emergency departments, by falsely coding certain Evaluation & Management (E&M) claims submitted to the Medicare and TRICARE programs.

E&M claims relate to medical visits that involve evaluating and managing a patient’s health and medical conditions, including qualifying visits to a hospital’s emergency department. In submitting an E&M claim to Medicare or TRICARE, a hospital may use one of five Current Procedural Terminology (CPT) codes (CPT 99281 through CPT 99285), depending on the hospital resources associated with the visit. An E&M facility claim coded with CPT 99285 represents the highest hospital resource usage.

The United States alleged that, from November 1, 2017, through March 31, 2021, UCHealth hospitals automatically coded certain claims for emergency room visits using CPT 99285. UCHealth used this code whenever its health care providers had checked a patient’s set of vital signs more times than the total number of hours that the patient was present in the emergency department, excepting patients who were in the emergency department for fewer than 60 minutes, despite the severity of the patient’s medical condition or the hospital resources used to manage the patient’s health and treatment. The United States alleged that UCHealth knew that its automatic coding rule associated with monitoring of vital signs did not satisfy the requirements for billing to Medicare and TRICARE because it did not reasonably reflect the facility resources used by the UCHealth hospitals.

The civil settlement includes the resolution of claims brought under the qui tam or whistleblower provisions of the False Claims Act by a private individual, Timothy Sanders. Under those provisions, a private party can file an action on behalf of the United States and receive a portion of any recovery. The qui tam case is captioned United States, et al. ex rel. Sanders v. University of Colorado Health et al., No. 21-cv-1164 (D. Colo.). As part of today’s resolution, Mr. Sanders will receive $3.91 million of the proceeds from the settlement.

The resolution obtained in this matter was the result of a coordinated effort between the Civil Division’s Commercial Litigation Branch, Fraud Section, and the U.S. Attorney’s Office for the District of Colorado, with assistance from HHS-OIG and the Defense Criminal Investigative Service.

The claims resolved by the settlement are allegations only. There has been no determination of liability.

Hartford Substance Abuse Counselor Pleads Guilty to Health Care Fraud

THELMA “WENDY” EPPS, 59, of Hartford, waived her right to be indicted and pleaded guilty November 8, 2024 before U.S. District Judge Kari A. Dooley in Bridgeport to health care fraud.

According to court documents and statements made in court, Epps was a Licensed Alcohol and Drug Abuse Counselor (LADC) with an office located at 330 Main Street in Hartford. In April 2013, she enrolled as a participating provider in the Connecticut Medicaid program along with an entity affiliated with Epps called Miracles to Destiny LLC. In July 2018, the Medicaid program suspended Epps from participating as a provider in the program based on a finding of a credible allegation of fraud. Medicaid told Epps that any attempt to circumvent her suspension by submitting claims for services performed by Epps or Miracles to Destiny LLC through other agencies or other billing numbers would result in termination of her provider agreement.

In 2019, Epps entered into an agreement with Dennis Tomczak, a Connecticut LADC who was a participating provider in Medicaid. Epps and Tomczak agreed that Tomczak would bill Medicaid using his Medicaid provider number for psychotherapy counseling services purportedly provided by Epps. These claims falsely represented that Tomczak had personally provided the services. In return for Tomczak billing the services, Epps agreed to pay Tomczak 25 percent of the amount Medicaid paid Tomczak. Between approximately April 2019 and November 2022, Medicaid paid Tomczak $330,547.71 for fraudulent claims for services purportedly provided by Epps that were billed under Tomczak’s provider number.

At some point during their scheme, Tomczak expressed concerns to Epps about the number and frequency of services that Epps told Tomczak she was providing. At about this time, Epps entered into a similar agreement with Shawn Tyson, a LADC in Connecticut, whereby Tyson would use his Medicaid provider number to submit claims to Medicaid for services Epps purportedly provided to Medicaid clients.

In November 2019, Epps assisted Tyson with the process of enrolling Tyson as a participating provider in Medicaid. Tyson’s provider application listed the location at which Tyson would provide services as 330 Main Street, Third Floor, in Hartford, the location of the Epps’s and Miracles to Destiny LLC’s office. Once Tyson was enrolled as a Medicaid provider, Tyson provided Epps with his login information to the online portal for submitting claims to Medicaid, which Epps then used to submit claims. For a brief period before Tyson was enrolled as a Medicaid provider, unbeknownst to Tomczak, Epps submitted claims through Tomczak’s provider number for services purportedly provided by Tyson, by representing to Tomczak that she had performed these services. Medicaid paid Tomczak a total of $7,879.40 for these services.

During the scheme involving Epps and Tyson, Tyson would provide Epps the names of Medicaid patients and dates that Tyson purportedly provided psychotherapy counseling services to the patients, and Epps would then bill Medicaid for these services using Tyson’s provider number. Epps would also submit claims using Tyson’s provider number for services she purportedly provided to Medicaid patients. These claims falsely represented that Tyson had personally provided the services to the patients.

Epps and Tyson submitted and caused to be submitted claims for hundreds of thousands of dollars of psychotherapy services that neither Epps nor Tyson had actually provided to Medicaid clients. When Epps warned Tyson that he should not bill Medicaid for having provided psychotherapy to patients on holidays, such as July 4 and Thanksgiving, Tyson would typically change the dates of services and resubmit the list of services to Epps.

Medicaid paid Tyson $663,081.32 for claims that falsely represented that Tyson had personally provided services, or falsely represented that services had been provided when, in fact, they were not provided at all.

Epps has agreed to pay $1,001,058.43 in restitution to the Connecticut Medicaid program.

Judge Dooley scheduled sentencing for January 31, at which time Epps faces a maximum term of imprisonment of 10 years. She is released on a $50,000 bond pending sentencing.

Tomczak and Tyson have pleaded guilty to related charges and await sentencing.

Property Investigation Checklists: Uncovering Insurance Fraud, 14th Edition

Property Investigation Checklists: Uncovering Insurance Fraud, 14th Edition provides detailed guidance and practical information on the four primary areas of any investigation of suspicious claims. The book also examines recent developments in areas such as arson investigation procedures, bad faith, extracontractual damages, The fake burglary, and Lawyers Deceiving Insurers, Courts & Their Clients During, Catastrophes—A New Type Of Fraud and the appendices includes the NAIC Insurance Information and Privacy Protection Model Act and usable forms for everyone involved in claims and will provide necessary information to the claims adjuster, SIU fraud investigator, claims manager, or coverage lawyer so he or she can be capable of excellence.

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Indicators of Bad Faith Set Up

Some of the more common red flags of a bad faith set-up include the following:

1. The claimant makes a policy limits settlement demand quickly after an accident, thereby depriving the insurer of the ability to conduct a full investigation.

2. Quick demands that are combined with a limited amount of time to accept, again, in the hopes that records cannot be obtained and the investigation cannot be completed within that limited time period, and the settlement will be refused.

3. The claimant makes a settlement offer with one or more unusual acceptance conditions.

4. The involvement of the claimant’s counsel pre-dates certain medical or psychiatric care (e.g., testing and treatment for alleged mild traumatic brain injury).

5. The claimant seeks treatment from doctors with whom the claimant’s counsel has a pre-existing relationship.

6. The level of pain or disability reported “post-lawyer involvement” is greater than indicated by the medical records existing “pre- lawyer involvement”.

7. Adequate proof of lost income is not forthcoming.

8. Where there are multiple plaintiffs in a single accident and the all retain the same lawyer and are treated by the same chiropractor or physician.

9. Multiple plaintiffs in a low impact auto accident all claiming similar injuries.

10. The correspondence from the claimant’s counsel is peppered with self-serving rhetoric, designed to impress the jury – and establish themes – for use in the bad faith follow-on lawsuit.

Manufactured Litigation

Some courts recognize “set-up” or manufactured bad faith situations where claimants make settlement demands with unrealistic time limitations or otherwise force the insurance company to make a settlement decision without full access to information bearing on liability and damages. Where the court recognizes these factors, the insurance company may not be liable for failure to accept the settlement because the excess judgment or settlement was not due to the insurance company’s “unreasonable” conduct but was driven by the motives of the plaintiff. [Wade v. Emcasco Ins. Co., 483 F.3d 657 (10th Cir. 2007)]

Before a court will strike a pleading as sham, premised upon a finding that a pleading is a “mere pretense set up in bad faith and without color of fact,” and thus “plain fiction,” an evidentiary hearing must be convened. [Rhea v. Hackney, 117 Fla. 62, 157 So. 190, 193-94 (1934); see also Fla. R. Civ. P. 1.150; and Brito v. Fid. Prop. & Cas., Inc., 271 So.3d 85 (Fla. App. 2019)]

That plaintiffs’ delay in providing promised medical records and manipulation of settlement deadlines was found to be for the purpose of setting up a bad faith claim in Glenn v. Fleming, 799 P.2d 79 (Kan. 1990) and Miel v. State Farm Mutual Auto. Ins. Co., 912 P.2d 1333, 1339 (Ariz. App. 1995).

The emergence of the bad faith set-up has not gone unnoticed by the courts. One of the lead opinions articulating concerns with the conduct of claimant’s counsel in the context of the set-up case is Wade v. Emcaso Ins. Co., 483 F.3d 657 (10th Cir. 2007) (applying Kansas law). After reviewing some of the central historical decisions, the Tenth Circuit summarized its concern over what it referred to as “manufactured” litigation as follows:

In light of these decisions, we agree with the district court’s observation that courts should exercise caution ‘when the gravamen of the complaint is not that the insurer has refused a settlement offer, but that it has delayed in accepting one.’ Mem. Op. 14 (citing Adduci, 53 Ill. Dec. 854, 424 N.E.2d at 649; Pavia v. State Farm Mut. Auto. Ins. Co., 82 N.Y.2d 445, 605 N.Y.S.2d 208, 626 N.E.2d 24, 28-29 (1993)). This caution ‘arises from the desire to avoid creating the incentive to manufacture bad faith claims by shortening the length of the settlement offer, while starving the insurer of the information needed to make a fair appraisal of the case.’ Id. at 15. As the First Circuit commented in Peckham v. Continental Casualty Insurance Co., 895 F.2d 830, 835 (1st Cir. 1990): [T]he doctrinal impetus for insurance bad faith claims derives from the idea that the insured must be treated fairly and his legitimate interests protected.

Courts should exercise caution when the gravamen of the complaint is not that the insurer has refused a settlement offer, but that it has delayed in accepting one. This caution arises from the desire to avoid creating the incentive to manufacture bad faith claims by shortening the length of the settlement offer, while starving the insurer of the information needed to make a fair appraisal of the case. [Wade v. Emcasco Ins. Co., 483 F.3d 657 (10th Cir., 2007)].

The doctrinal impetus for insurance bad faith claims derives from the idea that the insured must be treated fairly and his legitimate interests protected. The justification for bad faith jurisprudence is as a shield for insureds. The tort of bad faith should not, although it often is, be used as a sword for claimants. Courts should not permit bad faith in the insurance milieu to become a game of cat-and-mouse between claimants and insurer, letting claimants induce damages that they then seek to recover, while relegating the insured to the sidelines as if only a mildly curious spectator.

Permitting an injured plaintiff's chosen timetable for settlement to govern the bad-faith inquiry promotes the customary manufacturing of bad-faith claims, especially in cases where an insured of meager means is covered by a policy of insurance which could finance only a fraction of the damages in a serious personal injury case. Insurers would be, and usually are, bombarded with settlement offers imposing arbitrary deadlines. Fear of bad faith suits would, therefore, be encouraged to prematurely settle their insureds' claims at the earliest possible opportunity in contravention of their contractual right and obligation of thorough investigation.

The cause of action for failure to settle is meant to protect the interests of the insured by requiring the insurer to conduct the litigation, including settlement negotiations, as if the insurance contract had no policy limits. It is not meant to create an artificial incentive for third-party claimants to reject otherwise reasonable settlement offers that are within the policy limits. A court should never turn the cause of action on its head by holding an insurance company liable where it eventually offered to settle the claim for the policy limits only to find that the claimant/plaintiff rejected the offer precisely in order to manufacture a lawsuit against the insurer for bad-faith refusal to settle.

For example, in DeLaune v. Liberty Mut. Ins. Co., 314 So. 2d 601 (Fla. 4th DCA. 1975), plaintiffs made an offer to settle their claim stemming from an automobile accident for the $10,000 policy limit, attaching a 10-day deadline for the defense to accept the offer. Defense counsel, believing that settlement for the policy limits was possible, but not yet authorized to approve the settlement, contacted the plaintiffs’ counsel on the last day of the deadline and asked for an extension of the offer until the following Monday after the Friday deadline. The plaintiffs refused and initiated a common law bad faith action for the excess judgment.

In affirming the judgment in the insurer’s favor on the bad faith claim, the Fourth District recognized the plaintiffs’ attempt to set up a bad faith claim, and stated:

[T]he evidence fails to prove any negligence, much less negligence rising to the level of bad faith. The accident happened December 27, 1971. In less than a month suit was filed. Defense counsel received the file to defend eleven days later. Eight days after that plaintiffs’ counsel offered to settle for the policy limits but limited the time for acceptance to ten days. It is the latter aspect of the offer which we find totally unreasonable under these circumstances. In view of the short space of time between the accident and the institution of suit, the provision of the offer to settle limiting acceptance to ten days made it virtually impossible to make an intelligent acceptance. Nor does the enclosure of an affidavit from a doctor stating that the injured plaintiff would be totally disabled warrant a different conclusion. Since when does one party to a lawsuit have to accept at face value the medical information furnished by the other party without even any inquiry? The evidence here shows that appellee, its adjusters, and its counsel proceeded with all due haste to determine and evaluate their position, and they almost made plaintiffs’ unreasonable deadline. It should be noted that the personal injury case went to trial ten months after the deadline, so the time limitation was not invoked because the trial was imminent. Finally, to demonstrate that this whole charade might have been a “set up” for just such a suit as we are considering (as argued by appellee) when Monday came, after the Friday deadline, and the home office authorized settlement, plaintiffs’ counsel refused it.

When there is no good faith reason why a settlement must be accomplished by a unilaterally set deadline, rather than mere days later, there should be, as the DeLaune court recognized, no claim for bad faith based on the insurer’s acceptance shortly after the specified deadline. Instead, the insurer’s efforts to settle should bar such a claim.

Not all bad faith suits for failure to settle are set ups. Some, like the Massachusetts Court of Appeals in Gore v. Arbella Mutual Insurance Co. 932 N.E.2d 837 (Mass. App. Ct. 2010) affirmed an award of over $1 million on a policy with limits of only $20,000/$40,000. The appellate court, holding that the trial court was entitled to award multiple damages on a $450,000 consent judgment entered against the insured under the Massachusetts claims handling statute the appeals court remanded for the trial court to decide whether to award double or treble damages on the consent judgment. The trial court doubled the consent judgment, based on its conclusion that Arbella’s conduct was willfully reckless but “probably not malicious.” [Dattilo v. Arbella Mut. Ins. Co., No. 20024510, 2010 WL 4071754, at *1 (Mass. Super. Ct. Sept. 3, 2010), review denied, 458 Mass. 1111 (2010).]

The Gore dispute arose out of an accident that occurred when Anthony Caban struck a car driven by Angelina Dattilo. Arbella insured Caban under a policy with liability limits of $20,000 per person and $40,000 per accident. Shortly after the accident, Dattilo’s attorney sent Arbella a letter detailing Caban’s liability and Dattilo’s injuries, enclosing medical records totaling over $25,000, and demanding that Arbella tender the $20,000-per-person policy limits within 30 days. The demand letter offered to fully release Caban and Arbella in exchange for the $20,000 limit.

Rejecting Arbella’s contention that the plaintiff’s demand letter constituted an attempt to “manufacture a bad faith insurance claim,” the appeals court held that the plaintiff’s alleged tactics, even if established, would not “as a matter of law, relieve Arbella of its duty to respond to a demand when liability was clear and damages exceeded the policy limits.” The court reaffirmed that a “claimant’s conduct is not relevant to the insurer’s duty” to attempt to effectuate a settlement when liability and damages are reasonably clear.

Gore is not an unusual finding an insured/claimant who retracts or rejects a settlement offer based on arbitrary deadlines or mere technicalities may have objectives other than settlement on his or her mind and may not be acting in good faith to try to reach a settlement. The insured’s effort to create a bad faith claim may thwart the settlement of claims that otherwise could have been settled. When that occurs, the insured is forced into an adversarial relationship with the insurer. There also may be additional litigation that could have been avoided.

Bad faith claims have been manufactured as noted in Berges v. Infinity Ins. Co., 896 So.2d 665, 686 (Fla.2004) (Wells, J., dissenting) where the court noted that it should recognize that it has the responsibility to reserve bad faith damages, which is limitless, court-created insurance, to egregious circumstances of delay and bad faith acts. The Court likewise has a responsibility to not allow contrived bad faith claims that are the product of sophisticated legal strategies and not the product of actual bad faith. [United Auto. Ins. Co. v. Estate of Levine, 87 So.3d 782, 788 (Fla. 3d DCA 2011); and Safeway Ins. Co., Inc. v. Guerrero, 83 P.3d 560, 207 Ariz. 82 (Ariz. App., 2004)]

In Kemp v. Hudgins, 133 F.Supp.3d 1271 (D. Kan., 2015) the District Court concluded that the uncontroverted evidence establishes that Kemp rejected each policy limit settlement proposal after the lawsuit was filed because he did not believe that the policy limits sufficiently covered his claim. The fee agreement with plaintiff’s counsel provided that Copeland would only be paid if he recovered more than the policy limits on behalf of Kemp. And Kemp's multi-million-dollar stipulated judgment offer made clear that Kemp was not interested in settling the claim for the policy limit. While Kemp's circumstances changed in terms of his litigation expenses after January 2010, he would not have incurred attorneys' fees had he accepted Dairyland's March or July policy limit offers. Kemp never offered a policy limits settlement after January 2010, and Dairyland repeatedly offered to settle for its policy limit. Kemp's settlement proposals establish that even if Dairyland accepted his offers, an excess judgment would have been entered in this case and Kemp would have pursued a bad faith claim against Dairyland to recover that amount.

Bad faith cases that are manufactured to avoid a settlement expand the concept of “bad faith” beyond what the case law and statutes require for “good faith.” An offer of settlement made only for the purpose of setting up a bad faith lawsuit is the obverse of the requirement that insurers act fairly and in good faith. Ultimately, bad faith claims have become so common that the stringent standard actually needed to prove the tort of bad faith appears to have been ignored and bad faith claims allowed based on mere technical failures in reaching a settlement.

Mistakes, negligence, and miscues do not meet the standard required for a bad faith claim. Rather, the insurer must have wrongfully refused to settle the claim when it should have done so if it had been acting fairly and honestly toward the insured. Submitting settlement payment a few days after an arbitrary deadline and disagreeing over the specific release language contained in a settlement proposal may be negligent, but that does not satisfy the high standard of deliberately wrongful conduct that should be required to support a bad faith action.

As a result of the absence of any clearly defined statutory guidelines for determining bad faith, the tactics used to set up bad faith claims are actually distorting the meaning of the bad faith statutes and case law and are slowly whittling away at its purpose altogether. The desire for punitive damages and profiting from a bad faith suit overcomes the true purpose of the covenant of good faith and fair dealing that neither party do anything to deprive the other of the benefits of the policy.

For that reason, the USDC for the District of Kansas held that the uncontroverted evidence established that the plaintiff rejected each policy limit settlement proposal after the lawsuit was filed because he did not believe that the policy limits sufficiently covered his claim. Moreover, the fee agreement made clear that he sought to recover under a bad faith theory. The fee agreement provided that the claimant would only be paid if he recovered more than the policy limits. The multi-million-dollar stipulated judgment offer made clear that no one was interested in settling the claim for the policy limit. [Kemp v. Hudgins, 133 F.Supp.3d 1271 (D. Kan. 2015)]

Although there undoubtedly may be situations in which an insurer engages in bad faith in the handling of claims, the duty of good faith should be precisely and carefully defined, so that only legitimate bad faith conduct results in bad faith judgments. A bad faith claim should exist only for egregious conduct. State legislatures should create and define exact guidelines and limitations to these actions.

The Fair Claims Settlement Practices statutes and Regulations attempt to do so. However, a close review of the statutes and Regulations created to enforce the statutes requiring insurers to deal fairly and in good faith in all claims handling, indicate a clear bias in favor of policyholders and against insurers so that any apparent violation of the statutes or regulations is often sufficient to allow a policyholder to establish a bad faith suit with ease.

The obligation to seek to settle insurance claims in good faith should be a two-way street. Parties should not be trying to evade an insurer’s efforts to settle in order to expand policy limits. The claim for “bad faith” failure to settle should be exactly that — only for situations in which the insurer truly is refusing in bad faith to settle, not when it is in fact attempting to settle the claim. The statutory scheme has been abused in many instances and should be amended to balance the scales and ensure it carries out the intended purpose of achieving settlements of disputed insurance claims.

Courts should recognize that they have the responsibility to reserve bad faith damages, which are limitless, court-created insurance, to egregious circumstances of delay and bad faith acts. The Court likewise has a responsibility to not allow contrived bad faith claims that are the product of sophisticated legal strategies and not the product of actual bad faith.

Understanding how disruptive and costly it can be to defend against a bad faith lawsuit, prudent insurers strive to adhere to a range of best practices to lessen their exposure to, and strengthen their defenses against, bad faith claims.

To avoid the bad faith set up and avoid overzealous plaintiffs’ counsel from causing a bad faith suit insurers must:

• Maintain ongoing training to help claims handlers, claims supervisors and Home Office claims examiners spot and respond to “red flags” that evidence efforts to establish or set up bad faith claims;

• Create specialized teams to handle potential bad faith claims;

• Carefully supervise claims staff to ensure that claims are handled in a timely and professional manner;

• Split files between defense and coverage matters and between multiple insureds or claimants in appropriate circumstances;

• Closely monitor claims in “problem” jurisdictions where bad faith suits bring about insupportable gigantic punitive damages claims against insurers.

Adapted from my book It’s Time to Abolish the Tort of Bad Faith: The Law of Unintended Consequences Has Overruled the Purpose for Which the Tort Was Created Available as a paperback here. Available as a Kindle book here.

Convictions of Other Than Health Insurance Fraud

Star in Reality TV Series Pleads Guilty Crop Insurance Fraud

Steve A. McBee, 52, waived his right to a grand jury and pleaded guilty to a federal information that charges him with one count of federal crop insurance fraud. McBee, a Missouri farmer who appears in a reality TV show about his family’s farming operation pleaded guilty this week to a multi-million dollar fraud scheme involving federal crop insurance benefits.

Under the terms of the plea agreement, McBee must pay restitution as determined by the court. The total loss claimed by the government is $4,022,123. Additionally, McBee must forfeit to the government $3,158,923.

McBee is the owner of McBee Farming Operations, which is the setting reality TV series “The McBee Dynasty: Real American Cowboys” streaming on Peacock and Bravo.

The series depicts a Missouri family farming dynasty that is on the verge of becoming a billion-dollar business. McBee shared on his Instagram account this week that the series was recently renewed for a second season.

McBee admitted to submitting fraudulent documents to Rain and Hail, a company reinsured by the Federal Crop Insurance Corporation.

McBee underreported his total 2018 corn crop by approximately 674,812 bushels and underreported his total 2018 soybean crop by approximately 155,833 bushels. McBee received $2,606,000 in federal crop insurance benefits to which he was not entitled, as well as $553,000 in federal crop insurance premium subsidies to which he was not entitled, for a total of $3,159,000.

McBee also provided false information when he obtained crop insurance through NAU Country Insurance in 2020. McBee’s farming operation planted corn after the last planting date in 2020, which made the crop ineligible for insurance. McBee provided false plant dates on crop insurance documents to NAU Country Insurance. As a result, McBee received federal crop insurance benefits to which he was not entitled.

McBee is subject to a sentence of up to 30 years without parole.

Targeting Drivers in Parking Lot Insurance Fraud Scheme Perpetrator Gets 18 Months in Prison

Cornelius Jones, 44, of Lake City, South Carolina was sentenced to 18 months in prison after he pleaded guilty to an auto insurance fraud scheme that targeted elderly drivers in parking lots.

In 2020 through 2022, Jones would drive into or walk into cars as they backed out of parking spots in the Florence area, the South Carolina Department of Insurance (DOI) reported in a bulletin. Jones targeted at least 15 drivers. He would scratch his own vehicle or pretend to be injured and collected more than $14,000 in insurance payments.

He also caused another $1,770 in damage to the victims’ vehicles, according to the DOI statement. A judge ordered Jones to pay $15,983 in restitution and face at least three years of probation after his release from prison.

The department did not explain what led to the arrest of the man. He turned himself in to police in 2021 but apparently went missing after that while continuing his scheme, according to a police posting on Facebook. Jones was later apprehended and pleaded guilty.

Prison Sentence For Crash For Cash Fraudster

With the assistance of The Cotswold Group Claims Validation and Intelligence teams, LV= were able to gather significant evidence to begin proceedings against the Claimant resulting in a prison sentence and savings in excess of £250,000.

Balraj Singh Thumber, aged 41 from Wolverhampton, claimed that on 21 January 2011 he was involved in a car accident with Viktor Sivak. Mr. Thumber said he was his Audi A4 driving past Mr. Sivak’s property when Sivak pulled out in his BMW 320 and crashed into the side of his car.

Crash for cash fraud is when one or more individuals involve themselves willingly in a road traffic accident in an attempt to gain financially, often claiming for injuries such as whiplash, with additional pay-outs to compensate for loss of car or lost earnings.

Mr. Sivak was insured by LV= and had the claim been genuine, LV= would have paid out in excess of £250,000. Thumber alleged that he was injured in the accident and was claiming compensation for whiplash and shoulder injuries, as well as for the damage to his car, use of a hire vehicle and legal fees.

The case was investigated by LV=’s claims crime prevention team as there were a number of factors that made it suspicious. The alleged accident happened just two days after the policy was taken out and there was no police involvement. Several different people called LV= claiming to be one of Sivak’s friends to arrange an inspection of the vehicle; yet when LV= tried to arrange an inspection, Sivak would not confirm the location of the vehicle and just gave a mobile number for the inspection engineer to call.

Further investigation revealed that Thumber and Sivak knew each other. Both parties denied this but further investigation revealed that Sivak’s BMW was previously owned by an acquaintance of Thumber, Mr. Saman Johwar. When Mr. Johwar owned the BMW, he listed Thumber as a named driver on the insurance policy.

Johwar later transferred the BMW to Mr. Sivak and used the same credit card to pay for Sivak’s insurance policy. Two days after buying the policy, Sivak alleged he accidentally collided with Thumber but had no connection to him before the accident. And when a forensic engineer examined the two vehicles, he concluded that the damage was inconsistent with the alleged circumstances.

After the investigation, LV= turned down the claim on the grounds that the accident had been deliberately staged. At this point, Mr. Thumber began proceedings against LV= for not paying his claim and pursued his case right up until the point of the trial starting before asking to withdraw his claim at the last minute. LV= then began proceedings against Mr. Thumber for contempt of court and on 15 July, at the Royal Courts of Justice, Mr. Thumber was sentenced to twelve months in prison.

In addition to staged accidents, LV= has seen a marked increase in fraudsters exaggerating the circumstances of an accident in an attempt to gain a higher pay out. For example, fraudsters may exaggerate or even invent an injury in order to claim compensation or try to claim for vehicle damage that is unrelated to the accident. One in three (32%) drivers who have been involved in an accident in the past two years say the other party tried to claim compensation for injuries to passengers who weren’t in the vehicle at the time or say the other party exaggerated the circumstances of the accident in order to inflate their claim.

Iowa Couple Pleads Guilty to Insurance Fraud

Lance Seastrand, age 52, and his wife, Staci Seastrand, age 56, of Davenport, were sentenced on October 31, 2024, after pleading guilty to felony charges stemming from an investigation by the Clinton County Sheriff’s Office and the Iowa Insurance Fraud Bureau.

The Iowa couple pleaded guilty to insurance fraud, forgery and theft; the Iowa Insurance Division announced.

The investigation by the Clinton County Sheriff’s Office began in December 2021 when a disabled victim reported that family members Lance and Staci Seastrand had fraudulently withdrawn over $200,000 from the victim’s bank account and IRA. Detective Scott Wainwright of the Clinton County Sheriff’s Office, along with Certified Fraud Examiner Kathy Barkalow at Schnurr Barkalow, investigated the case.

In March 2024, the Iowa Insurance Fraud Bureau began an investigation after receiving information that Lance Seastrand fraudulently withdrew $170,416.66 from the victim’s insurance annuity. The investigation concluded that Lance Seastrand submitted forged documents to the insurance company to effectuate the withdrawals.

Lance and Staci Seastrand used the fraudulently obtained funds for their own personal benefit, in the form of cash withdrawals, casino withdrawals, and payments to creditors.

On August 16, 2024, Lance Seastrand pleaded guilty to three counts of Theft in the 2nd Degree (Class D felony), one count of Fraudulent Submission to an Insurer (Class D felony), and one count of Forgery (Class D felony). Staci Seastrand pleaded guilty to three counts of Theft in the 2nd Degree (Class D felony).

The Clinton County Attorney’s Office prosecuted the case.

Lance and Staci Seastrand were each sentenced to five years of prison (suspended), three years of supervised probation, and a $1,025 fine. The Seastrands were ordered to pay a joint sum of $150,000 restitution to the victim.

A No Contact Order is in effect for five years, prohibiting Lance and Staci Seastrand from having contact with the victim.

Insurance Fraud is a Violent Crime

NYC Man Gets Life In Prison For Killing, Dismembering Woman For Life Insurance Benefits

Cory Martin, 37, was also sentenced by a federal judge in Brooklyn to a concurrent sentence of 20 years in prison for wire fraud conspiracy and a consecutive term of two years for aggravated identity theft.

Martin, a New York man was sentenced to life in prison for a scheme that involved killing and dismembering a woman after fraudulently taking out a life insurance policy in her name to collect the benefits, federal prosecutors said.

Brandy Odom, 26, had been a sex worker Martin managed and lived with in an apartment in Queens. Prosecutors said Martin and a co-conspirator fraudulently obtained two life insurance policies in Odom’s name the year before Martin strangled her in her bedroom.

The two purchased cleaning supplies and dismembered Odom’s body in 2018 and dumped the parts in a Brooklyn park. They then made several unsuccessful attempts to claim benefits under Odom’s life insurance policies before being apprehended in 2020.

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Chutzpah – STOLI Fraudster Claims Hardship

Felon Seeks Release from Home Confinement in Luxury Apartment in New York City

Insurance Fraud is a serious crime, especially when it takes advantage of the elderly to defraud insurers in a Stranger Originated Life Insurance (STOLI) scheme. In United States Of America v. Michael Binday, No. 12 CR 152 (CM), United States District Court, S.D. New York (November 4, 2024) the defendant continued to use the wealth he gained from his fraud to impose on the courts of the United States with frivolous and unfounded motions.

BACKGROUND

Michael Binday was sentenced to 144 months’ imprisonment after being found guilty of conspiracy to commit mail and wire fraud, as well as actual mail and wire fraud. The evidence at trial established that Binday led his codefendants in a scheme designed to procure “stranger-originated life insurance” (or “STOLI”) policies-policies on the lives of seniors for the benefit of investors who were strangers to them- by means of fraudulent applications.

Binday spent the first five years of his sentence at FCI Otisville. But in September 2021, during the height of the COVID-19 Pandemic, the Bureau of Prisons released Binday to serve his sentence on home confinement. Thus, Binday has spent the last three-plus years serving his sentence in his luxury apartment on the upper westside of Manhattan. His sentence is scheduled to end on September 20, 2025.

Binday filed: (1) a motion for compassionate release and (2) a motion pursuant to Rule 60(b) of the Federal Rules of Civil Procedure seeking to vacate the judgement of this Court dated May 23, 2018, denying his first petition.

Michael Binday and his two codefendants, James Kergil and Mark Resnick, were found guilty of conspiracy to commit mail and wire fraud; mail fraud; and wire fraud in connection with a scheme to defraud insurance companies which the defendants purported to serve as agents. Binday led his codefendants in a scheme designed to procure “stranger-originated life insurance” (or “STOLI”) policies-policies on the lives of seniors for the benefit of investors who were strangers to them- by means of fraudulent applications. Over the course of their scheme, the defendants submitted at least 92 fraudulent applications, resulting in the issuance of 74 policies with a total face value of over $100 million. These policies generated roughly $11.7 million in commissions to the defendants. Binday was sentenced to 144 months’ imprisonment.

BINDAY SURRENDERS

Binday surrendered on July 1,2016, to FCI Otisville to commence his term of imprisonment and immediately filed motions for compassionate release, reversal of his convictions, and multiple other motions.

On July 1, 2024, Binday-who is serving his sentence in his Manhattan apartment- filed a renewed motion for compassionate release.

Binday Failed to Demonstrate Extraordinary and Compelling Circumstances

As a threshold matter, it is worth emphasizing that Binday is not asking to be released from prison, but rather to be relieved of the inconveniences associated with the rules of home confinement. He has served the last 38 months in his apartment on the upper west side of Manhattan (not at all what the Court intended when he was sentenced). How much more inconvenient it would be if he were back at Otisville- where the Court intended that he would serve his sentence.

Binday’s crimes were serious. As the court explained when he was sentenced to 144 months in prison: Venality, rampant mendacity, the creation of false documents, obstruction of efforts by the victims to ascertain the truth, obstruction of regulators and the government’s efforts to learn the truth, Binday’s actions were precisely the sort of criminality that has left large segments of our society convince that all businessmen are crooks.

Insurance fraud may not qualify as a crime of violence within the meaning of the federal sentencing system and that, unfortunately, is why it is all too often punished not with the severity that it deserves. As it is, Binday’s home confinement means that he is subject to far less stringent conditions than he would be otherwise. In that regard, he got more of a break than he deserves.

The motion for compassionate release was denied.

ZIFL OPINION

STOLI fraud is a type of fraud on insurers that effects the straw buyers, usually older men and women who have no need for life insurance, is a truly venal act that deserves serious punishment. Binday stole millions from insurers, owns a luxury apartment in the Upper West Side of New York, and wants to be released from the confinement when he should have stayed in federal prison. He has abused the courts with his multiple motions and appeals and will serve out the remainder of his sentence and the DOJ and FBI should look into his current conduct since there is, in my opinion, the possibility that he is funding his attorneys fees with more fraud.

Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com. Over the last 55 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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Zalma's Insurance Fraud Letter - November 15, 2024

Volume 28, Number 21

Zalma’s Insurance Fraud Letter

A ClaimSchool™ Publication © 2024 Barry Zalma & ClaimSchool, Inc.

Insurance Fraud Requires Doctor to Lose his License

Sexual Misconduct, Fraud, Bribery & Unnecessary Surgery Revokes License

FACTS

THE OAL HEARING

THE ALJ’S DECISION

Quartararo Argued

ZIFL OPINION

Wisdom

IT PAYS INSURER DEFENDANTS TO INVESTIGATE INJURY CLAIMS

FACTUAL BACKGROUND

THRESHOLD INJURY

FRAUDULENT INSURANCE ACT

ZIFL OPINION

More McClenny Moseley & Associates Issues

November 8, 2024

TWO CASES PROVING THE INCOMPETENCE OF MMA

BACKGROUND

LAW AND ANALYSIS

Insurance Fraud Requires Doctor to Lose his License

Sexual Misconduct, Fraud, Bribery & Unnecessary Surgery Revokes License

FACTS

THE OAL HEARING

THE ALJ’S DECISION

Quartararo Argued

ZIFL OPINION

Compact Book of Adjusting Property Claims Fourth Edition

Available as a hardcover here. Available as a Kindle Book here. Available as a paperback here

Free Insurance Videos

Health Insurance Fraud Convictions

Pharmacist and Brother Convicted of $15M Medicare, Medicaid, and Private Insurer Fraud Scheme

Boise Nurse Practitioner Sentenced to 48 Months for Conspiracy to Distribute Controlled Substances

Former Traveling Nurse Pleads Guilty to Tampering with Morphine

Prison For Disclosing Healthcare Records And Trying To Cover Up His Crimes

Paroled Felon Sentenced To Six Years For Fraudulent Use Of Social Security Number And Theft Of Benefits

Former Licensed Counselor Sentenced for Defrauding Medicaid

Macomb County Doctor And Pharmacist Agree To Pay $700,948 To Settle False Claims Act Allegations

North Texas Medical Center Pays $14.2 Million to Resolve Potential False Claims Act Liability

New England Doctor Pleads Guilty to Drug Distribution Conspiracy

Multiple Convictions in Multi-Million Dollar Medicare and Medicaid Fraud Scheme

Eight Others Were Previously Convicted for Participating in the Same Conspiracy

Compound Ingredient Supplier Medisca Inc., to Pay $21.75M to Resolve Allegations of False and Inflated Average Wholesale Prices for Ingredients Used in Compounded Prescriptions

Former Sioux City Plastic Surgeon Agrees to Pay Nearly $200,000 to Settle Allegations He Submitted False Claims

Columbus Doctor, His Clinic Convicted of $1.5 Million Medicaid Scheme

Quincy. Massachusetts Based Physician Group To Pay $650,000 To Resolve Allegations of False Billing to MassHealth

Evolve Health Allegedly Billed MassHealth for Services Not Provided

Massachusetts Reaches Settlement With Swampscott-Based Medical Transportation Company To Resolve False Billing Allegations

RM Transportation Allegedly Billed MassHealth for Services Not Provided; Will Pay $380,000 and Implement Compliance Program

Three Defendants Sentenced to Two to Six Years in State Prison and Required to Pay More Than $2.1 Million to Medicaid

Court Awards State $425,940.54 Against Komfort & Kare LLC

Precision Toxicology Agrees to Pay $27 Million to Resolve Allegations of Unnecessary Drug Testing and Illegal Kickbacks to Physicians

Silver Spring Woman Sentenced for Defrauding Maryland Medicaid of over $1 Million

Medicaid Fraud Control Unit Secures More Than $700,000 Through Multistate Action from Toxicology Laboratory

Florida Ophthalmology Practice Agrees to Pay $1.3M to Resolve Allegations

UCHealth Agrees to Pay $23M to Resolve Allegations of Fraudulent Billing for Emergency Department Visits

Hartford Substance Abuse Counselor Pleads Guilty to Health Care Fraud

Property Investigation Checklists: Uncovering Insurance Fraud, 14th Edition

Indicators of Bad Faith Set Up

Manufactured Litigation

Convictions of Other Than Health Insurance Fraud

Star in Reality TV Series Pleads Guilty Crop Insurance Fraud

Targeting Drivers in Parking Lot Insurance Fraud Scheme Perpetrator Gets 18 Months in Prison

Prison Sentence For Crash For Cash Fraudster

With the assistance of The Cotswold Group Claims Validation and Intelligence teams, LV= were able to gather significant evidence to begin proceedings against the Claimant resulting in a prison sentence and savings in excess of £250,000.

Iowa Couple Pleads Guilty to Insurance Fraud

Insurance Fraud is a Violent Crime

NYC Man Gets Life In Prison For Killing, Dismembering Woman For Life Insurance Benefits

It’s Time to Subscribe to My Substack

Chutzpah – STOLI Fraudster Claims Hardship

Felon Seeks Release from Home Confinement in Luxury Apartment in New York City

BACKGROUND

BINDAY SURRENDERS

Binday Failed to Demonstrate Extraordinary and Compelling Circumstances

ZIFL OPINION

Barry Zalma

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