Health Care Providers’ Liability for Insurance Fraud Upheld

by Mark Engstrom, Legal Editor, RICO BUSINESS DISPUTES GUIDE

Health care providers that were liable for RICO violations involving insurance fraud could not have their jury verdict overturned on appeal, the U.S. Court of Appeals in Philadelphia has ruled.

Joint and Several Liability

The jury did not err by allowing joint and several liability for RICO violations. The jury awarded an insurer (State Farm) $4 million in compensatory damages—to be trebled under RICO—after finding that the health care providers had engaged in racketeering schemes that defrauded State Farm by billing it for medical services that were provided unnecessarily or not at all. More specifically, the defendants prescribed unnecessary tests, treatments, and medical equipment for car accident victims and routinely billed State Farm for additional treatments that were never provided. Although cases that directly addressed the issue of joint and several liability under RICO were meager, numerous RICO criminal forfeiture cases indicated that the nature of a RICO offense mandated joint and several liability, according to the court.

Intracorporate Conspiracy Doctrine

One of the defendants—a medical doctor—challenged the district court’s failure to read the proposed jury instructions that the health care providers had offered on the intracorporate conspiracy doctrine. No defendant, however, objected to this omission at trial. Because an objection was not raised at that time, the appellate court could not review the trial court’s conduct for abuse of discretion. Moreover, the intracorporate conspiracy doctrine was not universally accepted and questions existed regarding the accuracy of the providers’ interpretation of the doctrine. Significantly, the Third Circuit had not determined whether the doctrine barred RICO conspiracy claims, the court explained, and a split existed among other federal appellate courts on the issue.

Enterprise v. Culpable Parties

The doctor waived or abandoned his right to argue that State Farm had failed to allege an association-in-fact enterprise that was distinct from the culpable parties. Because the doctor failed to argue the distinctiveness issue in post-trial briefs that he filed in support of his motion for judgment as a matter of law, the trial court’s waiver ruling was not legally incorrect, in the court’s view. Even if the trial court had erred, however, the physician’s contention regarding distinctiveness—that it was absent in this case because all of the defendants were members of the alleged association-in-fact enterprise and a complete identity existed between the enterprise and the defendant—was flawed when considered in light of the court’s prior decision in Jaguar Cars, Inc. v. Royal Oaks Motor Car Co., Inc. (RICO BUSINESS DISPUTES GUIDE ¶8,722) and the U.S. Supreme Court’s decision in Cedric Kushner Promotions, Ltd. v. King (RICO BUSINESS DISPUTES GUIDE ¶10,085). In Jaguar Cars, the court held that RICO’s distinctiveness requirement was fulfilled when officers and employees of a legitimate corporation have been shown to have operated and managed that corporation through a pattern of racketeering activity. The distinctiveness definition established in Jaguar Cars was subsequently adopted by the U.S. Supreme Court in Kushner.

State Farm Mutual Automobile Ins. Co., 3rd Cir., ¶12,112

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