By: Mathew J. Levy, Esq. & Stacey Lipitz Marder, Esq.
Weiss Zarett Brofman Sonnenklar & Levy, P.C.
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Providers rendering services under No-Fault are probably familiar with Examinations Under Oath (EUOs). As per applicable No-Fault regulations, by accepting a patient’s assignment of benefits, an insurance company may demand that a provider appear before an EUO in order to verify the No-Fault claims.  Accordingly, if a provider fails to comply with an insurer’s timely and valid request for an EUO, so long as the request strictly complies with the governing regulations, the insurer is entitled to not pay for services rendered under No-Fault. 

The scope of an EUO often involves a provider’s billing practices, determination of treatment, as well as the corporate structure of the provider. However, insurance companies can ask about anything during an EUO. Therefore, it is imperative that providers seek advice from an attorney prior to attending an EUO in order to limit potential exposure.

As noted above, the scope of an EUO may involve an inquiry as to a provider’s corporate structure. As per the corporate practice of medicine doctrine in New York State, a professional practice must be owned by an individual authorized by law to practice the profession the entity is organized to practice. Therefore, a medical practice, for instance, cannot be owned or controlled by non-physicians. This concept was incorporated into No-Fault law, whereby a healthcare provider is not eligible for reimbursement under No-Fault if it fails to meet a licensing requirement or is “fraudulently incorporated”.  This issue was raised in the New York Court of Appeals decision in the landmark case of State Farm Mut. Auto. Ins. Co. v. Mallella.

This issue has further been addressed in a recent Appellate Division case known as Carothers v. Progressive Ins. Co.  In this case, the Appellate Division upheld the lower court’s decision in favor of the insurers who claimed that the physician owner of the medical practice was the nominal owner and that the medical practice was actually owned and controlled by non-physicians, and therefore should not be compensated for services billed and rendered under No-Fault. In making its decision, the Appellate Division upheld a list of factors that the jury was instructed to consider when determining whether the non-physician owners were in fact de-facto owners or exercised substantial control of the medical practice and its assets. It is important to note that the court clearly indicated that the totality of the circumstances must be evaluated when determining whether a medical practice is “fraudulently incorporated”, and therefore a decision cannot be made based upon 1 factor alone. The 13 factors as noted by the court to be evaluated included the following: Whether the non-physicians’ dealings with the medical practice were arms’ length or were instead designed to give the non-physicians substantial control over the medical practice and channel profits to the non- physicians; whether the non-physicians exercised dominion and control over the medical practice’s assets, including bank accounts; whether and to what extent the medical practice’s funds were used by the non-physicians for personal rather than corporate purposes; whether the non-physicians were responsible for the hiring, firing, and payment of salaries of the medical practice’s employees; whether the day-to-do formalities of corporate existence were followed, including the issuance of stock, elections of directors, holding of corporate meetings, keeping books and records, and filing tax returns; whether the medical practice shared common office space and employees with the non-physicians’ companies; and whether the physician played a substantial role in the day-to-day and overall operation and management of the medical practice. 

 

In sum, all providers, including but not limited to those who render No-Fault services, should review their corporate structure with an experienced healthcare attorney in order to ensure that they are structured appropriately. This is extremely important as being “fraudulently incorporated” can result in not only the inability to be paid by insurers, but also actions involving licensure and violations under the federal and state Stark and Anti-Kickback Statutes. Should you have any questions relating to your corporate structure or you are requested to appear for an EUO, please do not hesitate to contact Mathew Levy at 516-926-3320 or mlevy@weisszarett.com.

About the Authors:

Mathew J. Levy, Esq. is a partner at Weiss Zarett Brofman Sonnenklar & Levy, PC. Mr. Levy is nationally recognized as having extensive experience representing healthcare clients in transactional and regulatory matters. Mr. Levy has particular expertise in advising health care clients with respect to contract issues, business transactions, practice formation, regulatory compliance, mergers & acquisitions, professional discipline, criminal law, healthcare fraud & billing fraud, insurance carrier audits, litigation & arbitration, EUOs and asset protection-estate planning. 

Stacey Lipitz Marder is an associate at Weiss Zarett Brofman Sonnenklar & Levy, PC with experience representing healthcare providers in connection with transactional and regulatory matters including the formation and structure of business entities, negotiating and drafting contracts and commercial real estate leases, stock and asset acquisitions and general corporate counseling.  Ms. Marder also has experience advising healthcare clients on a wide range of regulatory issues including Stark, the Anti-Kickback Statute, fraud and abuse regulations, HIPAA, reimbursement and licensing matters.