NY Anti-Fraud Law Gets Delayed Start, Following Big Federal Bust

Governor Andrew Cuomo’s office says it will make good on an anti-fraud law that was passed in 2005 but never enforced until now.

The law was supposed to make it easier for the state to go after doctors involved in fraudulent schemes that take advantage of New York’s no-fault auto insurance system. That system requires insurers pay victims of car accidents up to $50,000 with relatively little scrutiny — and that has made it an easy target for fraud.

Last week, federal prosecutors alleged a group comprised mostly of Russian immigrants defrauded private auto insurers out of $113 million dollars, using an elaborate network of fictional medical clinics staffed by real doctors.

WNYC Health Reporter Fred Mogul talked to Benjamin Lawsky, the superintendent of the state’s Department of Financial Services, about what this new set of regulations would do, why it took so long to enact and whether insurance companies are doing enough to fight fraud.

What is this new regulatory step, and what do you think it will do to stop schemes like the one alleged last week?

We focused on the source of the fraud and decided it was the doctors. There are many different schemes, but if you don’t have a doctor to authorize the billing to the insurance companies, you can’t have the fraud. The regulation we’re issuing today specifically enables us, when we identify a doctor engaged in these fraudulent practices, we can take them out of the auto insurance billing industry.

We need a new law to do this? Isn’t fraud already grounds for de-licensing doctors?

It’s very rare when doctors get convicted and go to jail, that’s a very rare circumstance. It requires a lot of investigation and the whole criminal proceeding. When that happens, they’re de-licensed, and they’re off the street. What we’re talking about here is an administrative level we can now use, so if a doctor refuses to provide information to us about what they’re doing, we don’t have to go through a whole criminal proceeding. We’ll hold a hearing and we can remove those doctors from the [no-fault] system right away.

This law would kick them out of the no-fault auto insurance system but they could still practice medicine? I would think if they’re proven to be defrauding Geico and Allstate and State Farm, we’d want to make sure they can’t also defraud Oxford and United and Aetna and Medicaid and Medicare.

Under the regulation, we have the power to refer the doctor, if they’re found to have committed any number of different acts, to the Department of Health or the State Education Department [for de-licensing]. Removing them from the no-fault system is a first step.

FM: Why is this happening now?

Amazingly enough, in 2005 the legislature passed a bill giving the power to take these dirty doctors out of the no-fault system. Unfortunately, the agencies never got around to passing the needed regulations to implement that law. Until today, if a doctor was engaging in these practices, there was no mechanism by which they could be taken out of the no-fault system. We can now do that.

Are auto insurers doing enough to protect themselves from fraud?

My perception is that they’ve been doing a good job and that there fraud prevention has been robust. But before this regulation, they would bring information to us with data that they mine — and they do it all the time — previously, the option was to build a criminal case. I’m a former federal prosecutor, and it takes a long time to build a strong case, and you can only do so many clinics at once, when you’re building a criminal prosecution.

The idea of the no-fault system is to pay accident victims for health treatments relatively quickly, with minimum red tape, but is it a little too no-fault?

Obviously, it’s got a good motive: to help people in accidents. But also it’s subject to a lot of abuse. I’d like to see what kind of impact we can have with these regulatory cases. The challenge is not to throw the baby out with the bath water. But long-term, there could be some legislative fixes, and we should keep every option on the table.