Allstate Corp. has become the nation's first auto insurer to sue doctors and clinics for fraudulently overbilling insurance companies for more expensive treatments than are performed.
Allstate, the nation's second-largest auto insurer, sued two Southern California clinics, their medical staffs and a billing supervisor for fraud and asked for damages of more than $25 million, according to lawsuits made public Monday.
The lawsuits continue Allstate's aggressive anti-fraud campaign and move the insurer into an area previously left to government law enforcement agencies. Earlier lawsuits involving overbilling were filed by the federal government against health maintenance organizations and hospitals that were accused of overcharging for Medicaid and Medicare services.
The insurance industry says all types of auto insurance fraud cost the average policyholder up to $200 a year in added premiums.
The suits come on the heels of a petition filed last week accusing the Northbrook, Ill.-based insurer of overcharging auto insurance customers between $100 million and $150 million. And the FBI is investigating whether the insurer encouraged engineers to falsify engineering reports after the 1994 Northridge earthquake in order to reduce homeowners insurance damage payments.
In Allstate's latest suit, the clinics are accused of seeing patients for two or three minutes after auto accidents but billing Allstate for hourlong treatments in a practice known as "upcoding," said Dennis B. Kass, a lawyer with Manning, Marder & Wolfe, the Los Angeles law firm that is representing Allstate. The patients typically were referred to the clinics by personal injury lawyers, Kass said. The lawyers were not charged in the lawsuits.
Allstate claims that the clinics and medical staffs would follow up with extensive and expensive treatments far in excess of the injuries. Demands for pain and suffering awards based on the inflated treatment costs would then follow, Kass said.
"It's like treating someone for an earache and then billing as if it were a cancer patient," Kass said.
Named in the suit are Faircare Medical Group, which has offices in Panorama City and Huntington Park, and Unity Medical Group, based in San Bernardino.
A receptionist at Faircare's Huntington Park office said its owner, physician Douglas S. Hodson, was on vacation and that no one else was authorized to comment on the lawsuit. A man who identified himself as a partner of Ian Mestman, owner of Unity Medical Group, said Mestman also was on vacation and was unable to comment. Both Hodson and Mestman are named in the suits, along with four other doctors, three chiropractors and a billing supervisor.
The lawsuits were filed two months ago under a California law that allows insurers to pursue civil fraud charges. The two-month waiting period is designed to allow law enforcement authorities time to decide whether to follow up with criminal enforcement action.
In this case, the state attorney general, the California Department of Insurance and the district attorneys in Los Angeles and San Bernardino counties all have declined to pursue charges against the clinics. An insurance department official said the four offices consulted with each other before deciding not to duplicate Allstate's efforts.
"There are many more cases than we have the resources to investigate," said Keith Newman, the insurance department's deputy commissioner in charge of fraud. "If we feel we need to intervene later, we have the option of doing that."
Insurers say that up to one-third of bodily injury claims from auto accidents involve some kind of fraud and that the average policyholder pays up to $200 extra per year because of fraud, said Candysse Miller, regional director of Western Insurance Information Service, a Los Angeles-based trade group.
Consumer advocates, trial attorneys and medical groups, however, say insurers have exaggerated the extent of fraud, and that companies often use fraud as an excuse to deny legitimate claims or to intimidate doctors from pushing for more treatment.
"We get just as many complaints from physicians that insurers are 'downcoding' inappropriately . . . refusing to pay, not paying on time," said Elizabeth McNeil, director of medical policy and economics for the California Medical Assn.
Allstate plans to file several more lawsuits over the practice in San Francisco, Chicago, Memphis, Tenn., Miami and Philadelphia, Kass said.
Allstate has become a leader in using lawsuits to accuse doctors, lawyers and others of fraud.
In February, Allstate filed a $107-million lawsuit against lawyers, doctors and others accused of staging accidents for profit. Last year, the company settled a lawsuit with doctors and lawyers accused of faking accidents. Terms of that settlement have not been disclosed.
Meanwhile, the insurer is the target of a class-action lawsuit and an FBI probe over whether it encouraged engineers to falsify earthquake damage reports in the wake of the 1994 Northridge temblor. The Times reported last year that a 25-year Allstate employee said in a court declaration that engineers were repeatedly instructed to change their reports to minimize potential damage payments. The declaration was part of a lawsuit filed by the consumer advocacy group Proposition 103 Enforcement Project. In April, FBI agents used search warrants to gather documents from Allstate offices in three states as part of an ongoing probe into the allegations.
Last week, the Proposition 103 Enforcement Project petitioned state Insurance Commissioner Chuck Quackenbush to force Allstate to lower its auto insurance rates by an additional 10% to 15%, saying the insurer was overcharging by $100 million to $150 million a year. Quackenbush approved Allstate's request for a 5.1% decrease in June.