Recent Court Decision Places At Risk No-Fault Reimbursement To Physician Practices With Management Company Arrangements

June 11, 2019

The New York Court of Appeals issued its decision in Andrew Carothers, M.D., P.C. v. Progressive Insurance Company.  In that case, the Court held that no-fault carriers in New York can recoup or withhold payments made to a professional medical corporation (“P.C.”) if the carriers can show that P.C. was improperly controlled by persons who are not licensed physicians. The Court rejected the P.C.’s contention that the carriers could only recoup reimbursement payments upon a showing that the corporation engaged in fraudulent conduct directed at the no-fault carriers. Under the Court’s holding, improper control by unlicensed persons – without fraudulent conduct – is enough to permit recoupment or withholding.

In reaching its decision, the Court of Appeals discussed the types of business arrangements that would indicate improper control of a P.C. by unlicensed persons. Improper control exists, for example, where the physician-owner was not actively involved in the operations or financial aspects of the corporation, the corporation’s core business assets were owned and controlled by the unlicensed persons, these unlicensed persons received compensation from the P.C. far in excess of market value and in excess of that received by the physician-owner, and the corporation entered into leases and other business transactions with the unlicensed persons under terms that significantly exceeded what would be fair market value or commercially reasonable.

Accordingly, the Carothers decision provides an important warning to New York-based health care providers who enter into management arrangements with unlicensed persons or entities. Care must be taken to ensure that the unlicensed persons or entities cannot be said to have improper control over the provider entity. If they do, then the provider’s past and future no-fault reimbursement is at risk, regardless of whether the services were actually provided medically necessary. It is also possible that payers outside of the no-fault arena – such as managed care companies – will add language to their contracts and plans enabling them to recoup and deny reimbursement for medically necessary services on the basis that the provider entity is improperly controlled by unlicensed persons or entities.

Further, the physician participating in such an arrangement could be viewed as aiding in the unlicensed practice of medicine and committing improper fee splitting.

If you have relationships that you would like reviewed to ensure they comply with the Carothers decision, please call the GW attorney that you normally deal with for advice.