In the largest-ever civil insurance fraud case filed in the state of New York, Allstate Insurance Co., Encompass Insurance and Nationwide Mutual Insurance Co. last month filed a RICO (Racketeer Influenced and Corrupt Organization Act) lawsuit in the Supreme Court of New York.After 21 months of investigation, Allstate filed the complaint against 74 individuals whom the Northbrook, Ill.-based carrier alleges were either principals or employees of-or otherwise involved with-a group of companies established for the sole purpose of generating hundreds of millions of dollars in fraudulent insurance claims.

The insurance carriers are seeking to recoup more than $100 million in compensatory and treble damages for thousands of no-fault claims-averaging $8,000 per patient-which the insurers paid as a result of the alleged fraud scam.

According to the lawsuit, the defendants conspired in a vast insurance fraud scheme, paying "runners" to stage accidents and bribe police personnel for fictitious police reports; laundering money; paying kickbacks for patient referrals; and billing for medical services and diagnostic tests that never took place.

"This is a clearly organized criminal operation," says William Mellander, an Allstate spokesperson. "This is not an amateur staging act." In fact, the majority of these accidents never existed anywhere but on paper, he says.

For nearly six years, the principals in the case operated sham corporations and dummy shell management companies, and enlisted an expansive staff using sophisticated computer programs and corrupt no-fault collection attorneys, to launder money, the complaint alleges.

New York's Com-prehensive Motor Ve-hicle Insurance Repara-tions Act (known as the "No-Fault Law"), which took effect in 1973, enables licensed healthcare providers to accept assignments from their patients who sustained injuries in automobile accidents, and the providers bill insurers directly for their services.

According to the complaint, the principals created their organization to exploit the no-fault system by obtaining such assignments and billing insurers for fake or unnecessary services supplied by fictitious entities.

Sham operations

A company called Parallel Management Group, in Brooklyn, N.Y., served as the hub around which the principals conducted their fraudulent activities, the complaint states. The shell company operated as the center for laundering the proceeds from the illegal medical and management corporations.

Allegedly, the principals bought the use of doctors' names and medical licenses, which they then used to establish medical corporations that operated as medical practices.

Through the sham medical facilities, the complaint states that the principals forged relationships with "runners" who were paid between $1,200 and $3,000 for staging auto accidents in New York City and neighboring counties and who bribed police administrative aides to obtain bogus accident reports.

The runners also received kickbacks of at least $600 for sending people involved in fake accidents-or accidents in which they were uninjured-to the fictitious medical facilities, according to the complaint.

The defendants allegedly used these medical facilities to generate bogus bills for physical exams, medical tests and treatments, physical therapy and expensive diagnostic testing that were either unnecessary or never rendered.

According to the lawsuit, the illegal medical practices forged medical narratives and falsely billed for medical products and services including chiropractic treatment, MRIs, X-rays and psychological evaluations.

An organized scheme

"This enterprise was organized enough and smart enough to obtain New York city accident report forms, fill them out, and then have police administrator aides on their payroll who then input the fake forms into the New York city accident database-giving these accidents, which never occurred, a sense of legitimacy," says Allstate's Mellander.

"And from that, they were able to build an almost endless series of fraudulent claims," he says.

But the billing scheme turned out to be predictable in its randomness, according to the complaint. Individual symptoms varied slightly from patient to patient, but by the end of treatment, each patient received virtually identical examinations, self-referrals and referrals for expensive tests, such as NCVs, EMGs, nerve block injections and MRIs.

In addition, in many instances, defendants submitted NCV studies which they interpreted to be within normal limits. However, the data they used for these interpretations was well outside normal limits, the lawsuit states.

In fact, the abnormal data for those patients suggests an underlying serious neuropathy, but the defendants never ordered further appropriate follow-up tests.

Technology's role

"In not seeking to determine the cause of the abnormal data values, the defendant doctors either committed gross criminal negligence . . . and reckless disregard for their patients' health, or else they fabricated the medical and electrodiagnostic findings to justify further . . . tests, and, in doing so, committed countless acts of insurance fraud," the complaint states.

The Allstate investigation involved "good, old-fashioned hard work of reviewing claims, police reports and billings," says Steve Englert, Allstate special investigations manager in New York. "But the use of specialized billing codes and technology played a role in detecting patterns of fraud in this case."

Englert declined to describe Allstate's investigative techniques any further, saying, "We don't want to give away our fraud indicators or processes because we don't want them to be circumvented."

The more sophisticated technology, unfortunately, is coming from the defendants in this case, according to Vince Coyne, special investigative unit director at Columbus, Ohio-based Nationwide.

"These are well-organized and conducted enterprises that have the technology to template billing for all their people regardless of injuries, as well as the ability to set the same pattern of billing for each one," Coyne says.

"Their level of sophistication of software has to be pretty good in order to accomplish this amount of files and billings to our companies in a very organized and chronological manner." he says.

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