By: Mathew J. Levy, Esq.
Kern Augustine Conroy & Schoppmann, P.C.


The State of New York Supreme Court, County of Otsego, ruled in favor of nearly one-hundred health care practitioners from the New York metropolitan area who had been sued by an insurer seeking millions of dollars, dismissing the complaint in its entirety. In New York Central Mutual Fire Insurance Company v. 563 Grand Medical, P.C., et al., decided on August 24, 2004, the Buffalo-based No-Fault Insurance carrier insurer targeted medical corporations billing for the services rendered by licensed acupuncturists. The insurer contended that it was illegal for physicians to employ acupuncturists, and alleged causes of action for fraud and unjust enrichment. If the insurance company had prevailed on the fraud claim, it stood to recover as much as three times the amounts paid, an amount in excess of four million dollars.

Kern Augustine Conroy and Schoppmann, joined by other firms, mounted a defense against the insurer. The Supreme Court adopted the position that the insurer had “done no more than pay claims it was required to pay by law”. The Supreme Court rejected the insurer’s argument that it was illegal for physicians to employ acupuncturists, and ruled that the State Attorney General, on behalf of the people, had exclusive authority to challenge the manner in which the medical corporation was structured. The Supreme Court also ruled that since the services rendered were medically necessary, selected by covered persons for covered accidents, and competently provided by licensed health care providers, the insurer’s complaint failed to state a compensable claim.

Over a year ago, we at Kern, Augustine, Conroy and Schoppmann saw the precedent sought by New York Central Mutual Fire Insurance Company would have deleterious consequences to physicians. New York Central Mutual Fire Insurance Company sought a Supreme Court determination that physicians cannot employ acupuncturists and those that have done so must reimburse insurers for all monies paid for services rendered by acupuncturists. New York Central Mutual Fire Insurance Company petitioned the Supreme Court to rule that it was entitled to the reimbursements under No Fault Law even if the services rendered were medically necessary, provided to covered persons for covered accidents, and competently administered by licensed health care acupuncturists. Once the precedent was set, insurers statewide would seek the recoupment of similar payments from physicians statewide, providing a windfall in the millions to insurers, directly out of the pockets of physicians.

While similar claims have been defeated in federal courts, this is the first decision by New York's Supreme Court on the issues involved. We knew that while New York State’s highest court had not yet ruled on the issues involved, similar cases have been defeated in the Federal Courts. For example, in the Federal case of State Farm v. Mallela, an automobile insurer sued a number of health care providers, alleging that the providers were not entitled to payments because of defects in their business structure. In interpreting New York’s laws, the Judge in the Mallela case held that the alleged fraud committed by the health care providers did not relieve the insurance carrier of its obligation under the no-fault law to pay for services rendered to their insureds, where the insureds had assigned their rights to the health care providers and where there was no allegation that the services were provided by unlicensed professionals. We concluded that a similar result would be reached in a state action.

As promised, we at Kern, Augustine, Conroy and Schoppmann mounted a substantial defense on behalf of our clients based on what we concluded were the insurance company’s incorrect interpretations of the law and the Federal case precedents. For our client’s named-defendants in this action, participation was unfortunately mandatory. However, we saw our participation as an opportunity to address this latest abuse by the insurance industry, and we pursued a strenuous, pro-active approach to the defense of this case rather than simply opting for an early settlement. We knew that the insurance company had crossed the line when trying to avoid paying for services rendered to its members, and we believed that the Supreme Court would agree with us.

In addition to defending lawsuits, we, as a full service firm, provide guidance to our clients regarding potential professional misconduct consequences of their business relationships. Specifically, employment agreements between health care providers are highly regulated by state and federal law, and may be deemed illegal, triggering investigations by licensing agencies such as the Office of Professional Medical Conduct or the Office of Professional Discipline.

Kern Augustine Conroy and Schoppmann is dedicated to counseling health professionals regarding every aspect of their business. We have over twenty years’ experience representing physicians in business planning, contracting, insurance reimbursement and hospital relations, as well as in every type of administrative forum. If you have any questions regarding the above or any our services, please do not hesitate to contact Mathew J. Levy, Esq. at (516) 294-5432.