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In 2020, Allstate Insurance Company and several of its affiliates filed two qui tam actions alleging insurance fraud in violation of the California Insurance Frauds Prevention Act (IFPA) (Ins. Code, § 1871 et seq.) and the Unfair Competition Law (UCL) (Bus. & Prof. Code, § 17000 et seq.) against three medical corporations, a medical management company and its parent company, four physicians, and Sattar Mir, an individual.

The first action was filed against Discovery Radiology Physicians, P.C., a professional medical corporation; Mir; and radiologists Drs. Safvi and Feske.

The second action was filed against Mir; OneSource Medical Diagnostics, LLC, a medical management company owned by Mir; 1st Source Capital, LLC, OneSource’s parent company; Safvi Medical Corporation and Expert MRI, P.C., professional medical corporations; and radiologists Drs. Safvi, Mazhar, and Khan.

The complaints alleged that the three medical corporations – Discovery Radiology, Expert MRI, and Safvi Medical – were formed and controlled by Mir, who is not a physician, to broker radiology services. The medical corporations solicited patients, referred the patients to MRI facilities and radiologists with whom Mir had contracted, and then billed Allstate for the MRIs. The bills represented that the MRIs had been performed by the defendant medical corporations, but the MRIs actually were performed at MRI facilities whose identities were not disclosed, and were read by radiologists under contract with the medical corporations. The resulting bills falsely identified the technical and professional services as having been provided by one of the three defendant medical corporations and grossly inflated the fees for the services provided.

Demurrers were filed to amended complaints by the defendants in both actions. The trial court sustained the demurrers without leave to amend. It found, first, that Allstate did not comply with the court’s prior order because it did not identify the dates of each allegedly false bill, the persons or entities who prepared the bills, the persons or entities who transmitted the bills to Allstate, or which defendants made each alleged false statement. Second, the court found the complaints “woefully lacking in the required specificity.”

The trial court also said it was insufficient for Allstate to “invoke the mantra of ‘structural fraud.’ Importantly, Allstate makes no claim here that: (1) MRIs were not administered; (2) MRIs were not medically necessary; or (3) qualified radiologists did not read the MRIs. . . . [¶] . . . [Instead, Allstate argues] that this case involves the unlawful corporate practice of medicine and that ‘Mir engaged in the unlawful practice of medicine.”

The Court of Appeal reversed in the Published case of P. ex rel. Allstate Ins. Co. v. Discovery Radiology etc. -B315264 (August 2023).

This appeal presents four basic issues: (1) Are the business models alleged in the amended complaints unlawful? (2) If the alleged business models are unlawful, do they give rise to causes of action under the IFPA and the UCL? (3) Do the amended complaints plead fraud with sufficient particularity? (4) Does the Discovery action adequately allege delayed discovery to survive demurrer on statute of limitations grounds?

The answer to each of these questions was “yes.” First, the operative complaints allege the unlicensed practice of medicine in violation of the Medical Practice Act (§ 2000 et seq.) and related statutes. Second, claims submitted to an insurer for medical services rendered in violation of the Medical Practice Act may give rise to causes of action under the IFPA and the UCL. Third, Allstate’s claims are pled with adequate specificity. Finally, as alleged, the claims asserted in the Discovery action are not time-barred as a matter of law.

Defendants asserted , that the business practices alleged in the complaints were lawful because Mir and OneSource allegedly provided only managerial and/or administrative services, not medical care, and thus did not engage in the unlicensed practice of medicine.

The Court of Appeal was not aware of any appellate decisions that have discussed the unlicensed practice of medicine in the specific context of referrals for radiology services. However, the Attorney General has twice opined that selecting a radiology provider involves the practice of medicine. In an opinion issued in 2000, the Attorney General stated that a management services organization may not, for a fee, select, schedule, secure, and pay for radiology diagnostic services ordered by a physician because that would constitute the unlicensed practice of medicine.

Subsequently, in a 2009 opinion the Attorney General “reiterate[d] [its] view that professional radiology services – specifically including the selection of a suitable radiologist, and the selection of a suitable radiology facility with appropriate equipment and personnel, as well as preparing and interpreting radiological images – involve the exercise of professional judgment as part of the practice of medicine.” (92 Ops.Cal.Atty.Gen. 56 (2009).)

“The amended complaints state claims against each defendant for engaging in or assisting in the unlicensed practice of medicine because they allege an unlawful degree of control by non-physicians over the medical corporations’ provision of diagnostic radiology services.”