Allstate Sues over Alleged “Corporate Practice of Medicine” Scheme

On Wednesday in the Eastern District of New York, Allstate Insurance Company, Allstate Fire & Casualty Insurance Company, and Allstate Property & Casualty Insurance Company filed a complaint against 21 entities, alleging the defendants were operating a scheme to defraud Allstate through the illegal corporate practice of medicine.

The plaintiffs alleged that nonphysicians Peter Khaim, Aleksandr Gulkarov, and Roman Israilov (the manager defendants) teamed up with physicians Azu Ajudua and Rolando Jose Mendez Chumaceiro (the physician defendants) to operate several professional corporations, Hillcrest Medical Care PC and Smart Choice Medical PC (the PC defendants). In New York, the complaint says, it is illegal to represent a physician as the owner of a PC when the PC is actually owned by “laypersons” unauthorized to practice medicine; the plaintiffs purported the defendants have done just that.

“Layperson control over medical PCs is prohibited in New York because when physicians are beholden to non-physicians, the desire to generate profits is placed ahead of patient care, which creates an ethical conflict and undermines the quality of care,” according to the complaint.

As the owners of the PCs, the plaintiffs claimed, the manager defendants were able to “(a) direct patient care, (b) ensure the delivery of a high frequency of tests and treatments to patients of the PC Defendants, and (c) guide the referral of patients to other providers that were under their ownership and control,” allowing them to prescribe patients of the PC defendants — and then bill Allstate for — medications and treatments that were “medically unnecessary, excessive, and clinically worthless.” The manager defendants’ control over the PCs also gave them the ability to send the prescriptions to pharmacies of which they also purportedly had control: Rx For You Corp., Sutter Pharmacy Inc. (doing business as Rx For You), and Excellent Choice Pharmacy Corp. (the pharmacy defendants), according to the complaint.

In order to bill Allstate, the patient base consisted of those who “were allegedly injured in automobile accidents” and thus eligible for coverage of medical and pharmacy expenses related to the alleged car accidents under New York’s No-Fault laws, the complaint alleged. The plaintiffs claimed that the amount of payments they “wrongfully” made to the PCs and pharmacy defendants was more than $864,396.

“The No-Fault benefit claims involved in this scheme were false and fraudulent — and the Defendants knew it — because the records and bills contained material misrepresentations concerning the PC Defendants’ and the Pharmacy Defendants’ right to be paid under New York’s No-Fault laws,” the complaint said.

Also involved in the scheme, the plaintiffs claimed, were several shell companies that the defendants used to hide the fact that the profits gained through allegedly operating the PCs were going to the manager defendants and not the physicians.

The plaintiffs alleged that the actions by the defendants violated the federal Racketeer Influenced and Corrupt Organizations Act and committed common-law fraud and unjust enrichment. They requested damages of at least the amount they have already paid in No-Fault claims, with the actual amount to be determined at the requested trial, and a declaration by the court that they are not legally obligated to pay the pharmacy defendants for any pending or unpaid No-Fault benefit claims they have made to Allstate, among other relief.

The plaintiffs are represented by Smith & Brink PC.