A New Federal Weapon Against Insurance Fraud

Fear of hard federal jail time should be rampant among fraud perpetrators in the United States who stage automobile accidents, fake trip-and-fall accidents, present or assist fraudulent workers' compensation claims, or abuse health insurance. Staged accident perpetrators who, in the past, understood that if they are caught they faced no more than an order of restitution and a few weeks in the county jail are now facing up to ten years in the federal penitentiary. The reason for the decision was stated in United States v. Lucien, No. 02-1228 (2d Cir. 10/14/2003) where the 2nd Circuit Court of Appeal, in a case of first impression, upheld the convictions of people involved in staging automobile accidents, for violation of Federal Health Care Fraud statutes.

The Second Circuit explained that because health care fraud drains billions of dollars from public and private payers annually, Congress has since 1992 sought a tool to combat the problem. [See Comm. on Gov't Reform and Oversight, Health Care Fraud All Public and Private Payers Need Federal Criminal Anti-Fraud Protections, H.R. Rep. No. 104-747 (1996)]. "In 1996 Congress enacted the latest in a series of health care fraud statutes making any fraud perpetrated against a public or private payer a federal criminal offense. See Health Insurance Portability and Accountability Act of 1996, Pub. L. No. 104-191, § 242(a)(1), 110 Stat. 1936, 2016 (1996)." [US v. Lucien, supra.]

All three defendants participated in staged automobile accidents and fabricated personal injury claims to take advantage of the operation of the New York Comprehensive Motor Vehicle Insurance Reparations Act. The government proved at trial that the Lucien defendants were recruited to participate in the charged health care fraud by three other conspirators. The trial in the Lucien case was one of six trials arising from related indictments charging numerous individuals with participating in an overarching scheme of health care fraud based on a series of deliberately staged automobile accidents in several boroughs of New York City. Following the accidents, the recruited passengers were referred, in exchange for a fee, to various medical clinics in New York City. The recruited passengers assigned their no-fault insurance benefits to the health care clinics (medical providers), which billed the insurance companies directly. The recruited passengers subsequently advanced their own civil causes of action for their feigned injuries. To receive no-fault reimbursements, the health care clinics generated fictitious treatment records for the passengers in the accidents. The accident participants used these fictitious medical records to support their claims of personal injury and to obtain settlements from insurance companies.

The Second Circuit concluded that the defendants were involved in a scheme "using medical clinics to defraud insurance companies under New York's no-fault law." The convicted fraud perpetrators challenged the application of the statute, 18 U.S.C. Section 1347 on the ground that no-fault automobile insurance program is not a "health care benefit program" under the law. The 2nd Circuit disagreed and concluded that private insurers -- bound by insurance contracts purchased by vehicle owners pursuant to the No-Fault Act's requirement that vehicle owners maintain a liability insurance policy that provides coverage for automobile accident injuries regardless of fault -- "reimbursed various medical providers for fraudulently billed medical expenses that were incurred on behalf of Yves Baptiste and the other two defendants. Because Yves Baptiste -- as well as Policia Baptiste and Guerline Dormetis -- received a medical benefit as a result of the vehicle owners' no-fault insurance contracts, a health care benefit program is, under the statutory definition of § 24(b), plainly implicated."

18 U.S.C. Section 1347 provides

As used in this title, the term "'health care benefit program' means any public or private plan or contract, affecting commerce, under which any medical benefit, item, or service is provided to any individual, and includes any individual or entity who is providing a medical benefit, item, or service for which payment may be made under the plan or contract.

The statute, 18 U.S.C. § 1347, as the 2nd Circuit explained directs that whoever "knowingly and willfully executes, or attempts to execute, a scheme or artifice . . . to defraud any health care benefit program . . . shall be fined under this title or imprisoned not more than 10 years, or both." The common meaning of the word "whoever" is "whatever person, any person at all, no matter who."

Fraud perpetrators who are involved in schemes to defraud insurers and their insureds by fake accidents, the swoop and squat type schemes, fraudulent schemes created by physicians, chiropractors and lawyers to defraud insurers by faking medical bills, inflating medical bills, up-coding (charging the wrong CPT Code for profit) face federal prosecution. It matters not whether the fraud involves a no-fault statute like that in New York or stand alone third-party liability insurance, automobile liability insurance, med-pay insurance or workers' compensation insurance, if fraud is attempted or succeeds, the fraud perpetrator can be prosecuted under the federal law.

Insurance adjusters, special investigation unit investigators, state fraud bureaus and state fraud divisions should seriously consider presenting their cases to the local US Attorney for prosecution under 18 U.S.C. 1347. The deterrent effect of the federal sentencing guidelines should be more effective than state fraud statutes that allow judges to continue to exercise their discretion and continue to sentence convicted fraud perpetrators to probation. This ruling of the 2nd Circuit and the involvement of federal prosecutors can put a serious dent in the insurance fraud problem.