Source: http://jtnylaw.com/category/mallela-issues/
Timestamp: 2019-04-20 21:18:05+00:00

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For some reason, I missed this decision and order. I read the Court of Appeals order stating that the court was without jurisdiction to grant leave. Some of you may be unaware that the Court of Appeals may not grant leave to hear a civil cause that starts in the Civil Court, District Court, City Court, Justice Court, County Court (first or second departments), Town Court or Village Court. On the criminal side, an appeal from one of the above Courts to the Appellate Term or County Court (upstate) bypasses the Appellate Division and goes to the Court of Appeals (if leave is granted).
I was unaware that following the Court of Appeals order, Carothers went back to the Second Department and sought leave to appeal. Furthermore, I also was unaware that leave was actually granted. This will mean that this matter will result in four published opinions. Judge Sweeney, Appellate Term (it was not a U cite), Appellate Division (signed opinion) and now the Court of Appeals.
“ORDERED that the motion is granted, and the following question is certified to the Court of Appeals: Was the opinion and order of this Court dated April 5, 2017, properly made?
It is interesting that the regulation (65-3.16[a]) is limited to the situation where the medical provider is “controlled” by an ineligible professional. The evidence, which various arbitrators, master arbitrators and the First Department have ruled upon, does not conclusively support this showing.
Contrary to plaintiff’s argument, a “Mallela defense” need not be preserved in a timely denial (see Matter of Acuhealth Acupuncture, P.C. v Country-Wide Ins. Co., 149 AD3d 828 ; All Boro Psychological Servs., P.C., 39 Misc 3d 9; First Help Acupuncture P.C. v State Farm Ins. Co., 12 Misc 3d 130[A], 2006 NY Slip Op 51043[U] [App Term, 2d Dept, 2d & 11th Jud Dists 2006]).
We previously discussed that the poor man’s DJ that did not go over too well. This is the sad man’s DJ. I read the papers last weekend. Justice Bluth, who is not afraid to call out fraud (V.S. Med. Servs., P.C. v. Allstate Ins. Co., 11 Misc. 3d 334, 335 [Civ. Ct. 2006], was not impressed either.
The allegations are far reaching and serious. And to be honest, I would not be surprised if they may be true. It pleads common law fraud and Mallela causes of action at its base. Following that, it pleads causes of action based upon “self referral” and “independent contractor actions”. The former is never actionable on a no-fault claim (Allstate Prop. & Cas. Ins. Co. v. New Way Massage Therapy P.C., 134 A.D.3d 495 [1st Dept 2015], leave to appeal denied, 28 N.Y.3d 909 ). The latter is only actionable if the claim is timely denied on that basis.
Thus, this is a Mallela and fraud case.
The evidence is the DOH admonishing Dr. Arguilles, SIU investigators discussing matters (some of which is clearly outside their expertise) and an expert who says the billing is fraudulent. Missing was what you need to prove this type of case: EUO testimony and claims specific evidence to back up the allegations. An expert who opines on matters without a factual basis is guilty of promoting junk science. I learned that – in all places- at matrimonial CLE.
For instance, I just read a Rico on an Allstate case. Putting aside the substantive issue in that case of whether pattern act mail fraud was committed, presented was EUO testimony to attempt to prove some of the allegations presented in the complaint.
This DJ is based upon information and belief and innuendo. So, while I give myself the title for the poor man’s DJ, this should get the award for the sad man’s DJ.
As a stay was not granted and discovery (should the matter survive a 3211[a] motion and appeal) will be ongoing, this looks to be an exercise in something.
(1) “To incorporate, the licensed individual must obtain a “certificate . . . issued by the [New York State Department of Education (DOE)] certifying that each of the proposed shareholders, [*4]directors and officers is authorized by law to practice a profession which the corporation is being organized to practice” (Business Corporation Law § 1503[b]). The DOE may not issue a certificate of authority to a professional service corporation that does not meet these qualifications (see Education Law § 6507[c][i]). Once the professional corporation is formed, shareholders may not transfer their voting power to any person who is not a licensed professional in the field (see Business Corporation Law § 1507[a])” Any agreement by a shareholder transferring the voting power of his/her share to individuals who are not authorized by law to practice the profession is void (see Business Corporation Law § 1507[a]).
The Court discussed harmless error, and found the 5th Amendment issue insufficient to overturn the jury verdict.
What did I take out of the case? First, the Court punted on clear and convincing versus preponderance. Second, individual violations of the BCL and Education law are not separately actionable to deny a provider his/her no-fault benefits. We learned this in Allstate v. New Way Massage Therapy, P.C. Third, we have a non-exhaustive list of factors that could be cited to discern whether a cause of action or triable issue of fact exists as to a Mallela defense.
On a side note, you have to wonder how any of this can be used to shape or reshape Rico actions. The predicate acts are usually mail/wire fraud and based upon Mallela issues. Can the smart provider attorney reshape the central inquiry? Contrariwise, can an insurance carrier attorney reformulate the Mallela factors to fit a pattern act from Federal criminal law? There is a lot to digest here – the intuitive practitioner can play with this case and draft a crafty memorandum of law.
Of course, most cases are just not this egregious.
(1) In connection with one such claim, at an examination under oath (EUO) held on March 31, 2014, Nicholas testified that he and his brother, Scott, solely owned and controlled Branch, that their compensation was tied to company profits, and that defendant Mark Levitan served as Branch’s “administrative executive,” overseeing company staff, marketing, bookkeeping, and internal HIPAA procedures, with online access to Branch’s bank account. He was not a physician. When questioned further about Levitan, Nicholas was instructed by counsel not to answer questions about Levitan’s compensation relative to his and Scott’s, nor whether Levitan had been involved in any business owned by Nicholas before Branch.
This one is interesting. I never liked the whole directing not to answer thing. The questions were relevant regarding compensation of the administrator of the practice. Ultimately, the amount of his compensation relative to his bona-fide verifiable job duties would lead to legitimate verification requests for financial documents. The Court got that wrong, simple.
As to the Court applying District Court decisions disallowing verification of financial documentation, the regulations prefer that these document exchanges take place pre-suit. Remember the case where Supreme Court was reversed when the Court granted discovery in the form of financials during arbitration? The Court cited 65-3.5 and 65-3.6.
I think the decision is wrong and should be appealed. Unless, I am missing something?
By the way, I do not disagree that a practice manager could or maybe should make more than the principals. But, the insurance carrier should have been entitled to ask more questions at the EUO and, only if the answers to the questions raise legitimate concerns, should further documentary discovery be required.
An unincorporated solo practitioner using his own social security number.
A billing provider seeking to recover no-fault benefits for services rendered to an assignor must provide, at the bottom of the claim form, a taxpayer identification number either in the form of a social security number or an employer identification number. Social security numbers are used to identify individual persons, while employer identification numbers are used to identify employers (see 26 CFR 301.6109-1 [a]  [ii]). “An individual … who is an employer or who is engaged in a trade or business as a sole proprietor should use an employer identification number” (26 CFR 301.6109-1 [a]  [ii] [b]), since an employer identification number is required if the taxpayer “[p]ay[s] wages to one or more employees” (IRS Publication No. 334 [Tax Guide for Small Business]). Thus, it is permissible for a billing provider operating as a sole proprietor to use his or her own social security number on the claim form if it is the billing provider who rendered the services in question. However, where, as here, a doctor bills for services rendered by a treating provider in that doctor’s employ, it is impermissible for the doctor to bill using his or her own social security number.
I am not sold this is a defense, but you do not have to sell me on it. I am not the court.
Respondent commenced an arbitration against petitioner insurance company for reimbursement of bills for alleged health care services rendered by respondent to Alexander Oneal. Petitioner, relying on State Farm Mut. Auto Ins. Co. v Mallela (4 NY3d 313), asserted that it could withhold payment because respondent was fraudulently incorporated. After a hearing, an arbitrator awarded respondent full reimbursement, and found that petitioner failed to meet its burden of providing clear and convincing evidence showing that respondent was fraudulently incorporated. On appeal, the master arbitrator affirmed the arbitration award and rejected petitioner’s argument that its burden of proof on its Mallela defense should have been preponderance of the evidence.
The problem here as I see it as that the arbitrator made a factual finding. As with all factual findings, if they have some record support, the Courts will not disturb the award. I am not completely sold on the Court’s reasoning that it did not matter if the arbitrator applied the wrong burden of proof. My belief is that if the correct fact pattern came before the Court, this could have been dispositive.
The problem for Countrywide – besides Article 75’ing and appealing the wrong cases because the hate to pay anything- is that the underlying award had factual support. Since the analysis began and ended there, everything else is “dichta”. My words would be wasted verbiage.
This would probably be characterized as one of the largest cases of the year on the Mallela side of the equation. Aside from what could be characterized as the true doctor in the box scheme, the following defenses or perhaps even reasons to conduct EUOs or provider discovery viz verification include: (1) Self referrals, (2) Use of runners [this one was always a stretch], (3) Improper ownership, i.e., MD not certified in acupuncture owning an LAC clinic, (4) Improper Fee splitting (among other grounds). These reasons don’t exist anymore.
This is what I have to say: an overzealous defendant stripped Mallela of all its adornments. Thank you Allstate and to the people who told you to appeal this. The real benefactors of this decision will be the medical practices who do all of the above, refuse EUOS in writing because the above “[are] solely a matter for the appropriate state licensing board” and beat out the insurance carriers in arbitration.
By the way, I invite you all to read Master Arbitrator Dachs decision in this case. Go to the electronic filed cases; it is an exhibit on the Petition. After I read that decision, I thought it was lunacy on this record to seek judicial and appellate intervention. Norman Dachs made sense. Many know that some of his decisions prior to his death were akin to lunacy. This one made a lot of sense, and there was no way a Supreme Court or an Appellate Division was going to reverse him.
Anyway, I made a bet with two regular readers of this blog (an attorney and a claims manager somewhere) that this appeal would result in a disaster for us. I was sadly correct. Also, my bet (and I cannot bet on this now) is that C&C Chiropractic (the cited to case) would have been reversed by the Appellate Term because the Appellate Term would have followed precedent re: self-referrals and found a violation of the Education law would be sufficient to deny compensation to a medical provider. I cannot make this bet because under stare decisis, this issue is done. I hope Metropolitan in the Civil Court action concedes the issue and moves on, as opposed to perfecting a wasteful appeal.
As always, it is the other players on the block that endure the wrath of a less than intelligent appeal.

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