In H&H Chiropractic Services, P.C. a/a/o Jesus Jimenez v. Metropolitan Property and Casualty Insurance Company[1], a Queens County Civil Court has chipped away at the Malella armor with which insurers have protected themselves since the State Farm Mut. Auto Ins. Co. v. Mallela [2] ruling. Specifically, using Malella, insurers have convinced courts time and again to disallow payments to medical providers or chiropractors who violate Mallela’s prohibition against fraudulent incorporation. Under Mallela, the New York Court of Appeals held that professional practices may not bill no-fault insurance carriers for services if the professional entity has been “fraudulently incorporated.” Traditionally, “fraudulent incorporation” has been held to include instances where non-professionals exercised ownership or control over the professional entity, thus rendering the professional license holder who owns the entity as a mere paper owner without actual control.
In H&H Chiropractic, Metropolitan Insurance argued that the billing contract that the chiropractic practice had with its billing company, SMG, violated New York’s fee-splitting prohibition. SMG’s contract stated, “The Practice will pay SMG 6% of all fees charged & ultimately collected by SMG….” Under New York Law, a chiropractor or a medical provider commits professional misconduct if she splits a fee with an unlicensed entity.[3]
Metropolitan alleged that H&H Chiropractic’s and SMG’s billing contract effectively made SMG, an unlicensed entity, a 6% owner of the P.C., and thus constituted a fraudulent incorporation prohibited under Mallela. The H&H Chiropractic Court held that in all prior decisions favoring insurers, the professional corporations committed other violations of the New York Business Corporation Law and the New York Education Law. No prior court had addressed whether a professional corporation is fraudulently incorporated based upon impermissible fee-splitting alone.
The H&H Court noted that illegal fee-splitting is addressed by New York State licensing boards, who may discipline the offending professionals. The court also held that H&H Chiropractic did not file any false documentation with New York State, nor did it permit non-licensed professionals to control any aspect of their practice. The Court held that illegal fee-splitting alone did not rise to the level of fraudulent incorporation encountered in Malella, and it could not serve as a basis to deny no-fault benefit payments to H&H Chiropractic.
Many billing companies charge on a percentage of collections basis, and providers have constantly had questions about the permissibility of the practice. State regulatory agencies have mixed guidance on the issue, and it appears the New York State Education Department still maintains the right to commence professional misconduct proceedings against licensed professionals who violate the fee-splitting prohibition. However, unless an appellate court overrules this case, providers now have precedent to justify receiving no-fault benefit payments from insurers if the only objection is the fee-splitting aspect of their billing contracts.
[1] [2015 N.Y. Slip Op. 25132 (Civil Court, Queens County)].
[2] [4 N.Y.3d 313 (2005)].
[3] [See, e.g. N.Y. Education Law §§ 6509-a, 6530(19), and 8 NYCRR 29.1(b)(4)].