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Allstate lodges RICO suit against alleged Michigan no-fault ring

April 23, 2019, Detroit, MI — Auto insurance giant Allstate claims in a new federal lawsuit that it fell victim to a racketeering conspiracy involving six metro Detroit patient treatment clinics, an MRI center and a medical transportation company that Allstate says acted together and made millions by abusing Michigan's no-fault insurance system.

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

"Advanced is confident that not only

Source: Detroit Free Press

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