Cadwalader Clients & Friends Memo: Important Court Decision For No-Fault Insurers: Federal Court Rejects Limitation on State Farm v. Mallela

We are pleased to inform you that our firm has obtained a very favorable and significant decision for no-fault insurers on an important issue of first impression. Specifically, on January 7, 2013, in the case of Allstate Ins. Co. v. Elzanaty, the United States District Court for the Eastern District of New York (Honorable Arthur D. Spatt) rejected the defendants' attempt to limit the ability of insurers to seek affirmative recovery for fraud and the verification of compliance with licensing requirements from health care providers licensed pursuant to Article 28 of the New York Public Health Law ("Article 28 Facilities"). The decision is significant because it is the first time a court has extended the reach of State Farm v. Mallela to health care providers other than professional medical corporations.

As you may recall, in Mallela, the New York Court of Appeals ruled that, as of April 5, 2002, fraudulently-incorporated providers, or providers that were violating core licensing requirements, were not entitled to reimbursement under New York's no-fault system. Since that time, many providers have sought, in the context of litigating actions against insurers or defending againstaffirmative recovery actions brought by insurers, to limit the scope and effect of Mallela. In Elzanaty, Allstate's Complaint alleged claims of fraud and violations under the Racketeer Influenced and Corrupt Organizations ("RICO") Act, asserting that the defendants, certain Article 28 Facilities, were improperly licensed and formed as conduits for the defendants' fraudulent no-fault billing. In particular, the Complaint asserted that the defendants were not entitled to no-fault benefits because they had actively participated in fraudulent practices and were established and/or operated in violation of New York's Public Health Law and the rules and regulations promulgated thereunder.

The defendants sought to dismiss the Complaint on various grounds, essentially arguing that certain anti-fraud regulations and Mallela were not applicable to Article 28 Facilities because their formation and structure had already been approved by the State through the Article 28 establishment approval process and subsequent State overview of such facilities. Specifically, they argued that (i) the Court should abstain from exercising jurisdiction under the "Burford abstention" doctrine because a determination of the issue of whether the defendants were properly licensed would reverse the decision of the Department of Health to license those facilities, subvert the Department of Health's jurisdiction over licensing matters and undermine the comprehensive state regulatory process and (ii) the defendants were properly licensed through the Department of Health's establishment process and regulatory overview, and thus eligible to receive no-fault reimbursement.

Burford Abstention: The Court concluded that Burford abstention was not warranted because Allstate was not challenging the "Article 28 regulatory framework" or challenging the "State's authority with regard to licensing determinations." Rather, Allstate's challenge was to the defendants' fraudulent conduct and their ability to receive no-fault reimbursement. The Court explained that a determination with respect to the providers' fraudulent conduct would not disrupt the State's purpose in establishing a coherent public policy with respect to licensing and would not disrupt New York's regulatory scheme.

Licensure: The Court concluded that Allstate properly pleaded its fraud and RICO claims. The Court framed the issue as whether Allstate could "claim that a medical facility did not comply with N.Y. DOH's Article 28 licensing requirements under the auspices of fraud, when the N.Y. DOH has previously confirmed its compliance." The Court answered this question in the affirmative, relying largely on the Mallela decision. The Court explained that Mallela stands for the proposition that an insurer may bring an action for fraud or unjust enrichment, based on fraudulent incorporation, to recover no-fault payments made to fraudulently incorporated providers. Although the defendants in Mallela were licensed as medical corporations and not Article 28 Facilities, the Court found this difference to be "irrelevant." Relying on the operative regulation, 11 N.Y.C.R.R. § 65-3.16(a)(12), the Court concluded that any provider of health services -- a medical corporation, Article 28 Facilities, or otherwise -- was not eligible for reimbursement under the Insurance Law if it failed to meet any New York State or local licensing requirements. In emphasizing this point, the Court expounded that any attempt to limit Mallela only to fraudulent activity of medical corporations, as opposed to other types of health service providers, would "be in direct conflict with the New York Court of Appeals advice that insurers may 'look behind the face of licensing documents to identify willful and material failure to abide by state and local law.'"

*     *     *     *

This decision constitutes the first judicial ruling addressing the scope of available relief under Mallela against health service providers other than professional medical corporations. The decision is critical to no-fault insurers because entities that have attempted to shield their fraudulent activity through professional corporations will have no incentive to shift such fraudulent conduct to an Article 28 structure. This decision helps provide insurers with another tool to fight the proliferation of no-fault fraud.

If you have any questions concerning the decision, or require assistance in no-fault or other health care/insurance issues generally, please do not hesitate to contact an attorney from the Health Care and Not-for-Profit Group at Cadwalader.

William J. Natbony        +1 212 504 6351            bill.natbony@cwt.com

Jared L. Facher             +1 212 504 6494            jared.facher@cwt.com

For more information about LexisNexis products and solutions, connect with us through our corporate site.

View the original article here

McGuireWoods on the Supreme Court's Federal Health Care Reform Law Decision

   

By Stephanie A. Kennan, Brian Looser, Vincent A. Dongarra and R. Brent Rawlings

Intro:

On June 28, 2012, the Supreme Court of the United States issued its opinion in the case of National Federation of Independent Business et al. v. Sebelius, Secretary of Health and Human Services, et al. [enhanced version available to lexis.com subscribers], ruling on the constitutional challenges to the federal health reform law, the Patient Protection and Affordable Care Act, Pub. L. No. 111-148 (the ACA).  The Court upheld the controversial "individual mandate" as constitutional under Congress's tax power and permitted the ACA's Medicaid expansion to continue, but only on a voluntary basis by the states.

The Anti-Injunction Act Does Not Bar a Decision

Question before the Court:  Does the Supreme Court have the authority to consider the constitutionality of the individual mandate given the penalties for non-compliance do not take effect and would not have been paid until 2015?   The Anti-Injunction Act (AIA) provides that the taxpayer must pay the tax before being able to challenge it. So is the penalty a tax?   

Decision:  The Court held that the AIA did not bar a decision because-for purposes of the AIA only-the penalty for failing to obtain health insurance under the individual mandate is not a tax.  Chief Justice Roberts, writing the only portion of the opinion in which all the justices joined, disagreed stating that the AIA and ACA "are creatures of Congress's own creation. How they relate to each other is up to Congress, and the best evidence of Congress's intent is the statutory text." Opinion of Roberts, C.J. at 13. In other words, when analyzing the individual mandate under the rules of the congressionally-created AIA, it is more important that Congress referred to it as a "penalty" instead of a "tax," even though it effectively functions as a tax.   

Policy Perspective of Decision: The Court's ruling on this question does not cause a change in policy or implementation. 

The Individual Mandate is Constitutional as a Tax

Question before the Court:   Can the federal government require Americans to obtain health insurance by January 1, 2014 or pay a penalty?  The Court reviewed Congress's power to institute the individual mandate under the Commerce Clause, Necessary and Proper Clause, and the Taxing and Spending Clause. 

Decision:  The Court upheld the individual mandate, not under the Commerce Clause or the Necessary and Proper Clause, but as a valid exercise of Congress's enumerated power to collect taxes under the Taxing and Spending Clause.   

The Court held that the individual mandate could not be sustained as a valid exercise of Congress's authority under the Commerce Clause because a necessary precursor of that authority is some existing activity that affects interstate commerce.  The Court reasoned that the individual mandate does not regulate an existing activity; rather, it compels individuals to become involved in an activity and that "[C]onstruing the Commerce Clause to permit Congress to regulate individuals precisely because they are doing nothing would open a new and potentially vast domain to congressional authority."  Opinion of Roberts, C.J. at 13.   

The Court also dismissed arguments that the individual mandate could be sustained as a valid exercise of the Necessary and Proper Clause.  The Court reasoned that, while the individual mandate may be "necessary" to the guaranteed-issue and community-rating provisions, it is not "proper" because the necessity is based upon the guaranteed-issue and community rating provisions themselves.

Click here to read more of McGuireWoods on the Supreme Court's Federal Health Care Reform Law Decision.

View the original article here

Cambridge Consultants help with investment decision

Sorry, I could not read the content fromt this page.

View the original article here