People ex rel. Allstate Ins. Co. v. Discovery Radiology Physicians, P.C.

94 Cal.App.5th 521

311 Cal.Rptr.3d 901

The PEOPLE EX REL. ALLSTATE INSURANCE COMPANY et al., Plaintiffs and Appellants,

v.DISCOVERY RADIOLOGY PHYSICIANS, P.C., et al., Defendants and Respondents.

The People ex rel. Allstate Insurance Company et al., Plaintiffs and Appellants,

v.OneSource Medical Diagnostics, LLC, et al., Defendants and Respondents.

B315264

Court of Appeal, Second District, Division 3, California.

Filed August 15, 2023

Knox Ricksen, Thomas E. Fraysse, Oakland, and Maisie C. Sokolove, Oakland, for Plaintiffs and Appellants.

Katten Muchin Rosenman, Ryan M. Fawaz, Irvine, and Christopher B. Maciel, Irvine, for The Coalition Against Insurance Fraud as Amicus Curiae on behalf of Plaintiffs and Appellants.

Hanson Bridgett, Katherine A. Bowles, Los Angeles, and Adam Hoffman, Los Angeles, for Defendant and Respondent Discovery Radiology Physicians, P.C.

Proskauer Rose, Vinay Kohli, Los Angeles, and Mark D. Harris, for Defendants and Respondents Sattar Mir, 1st Source Capital, LLC, and OneSource Medical Diagnostics, LLC.

Law Offices of Vatche Chorbajian and Vatche Chorbajian, Glendale, for Defendants and Respondents Expert MRI, P.C., Sana Khan, M.D., and Adil Mazhar, M.D.

EDMON, P. J.

Allstate Insurance Company and several of its affiliates (collectively, Allstate) brought qui tam actions on behalf of the State of California alleging insurance fraud under the California Insurance Frauds Prevention Act (IFPA) ( Ins. Code, § 1871 et seq. ) and the Unfair Competition Law (UCL) ( Bus. & Prof. Code, § 17000 et seq. )¹ against three medical corporations, a medical management company and its parent company, four physicians, and Sattar Mir, an individual. The operative complaints allege that while the medical corporations hold themselves out as providers of radiology services, they in fact act as radiology "brokers," sending patients to radiology facilities and radiologists with which the purported medical corporations have contracted. The complaints further allege that although the medical corporations appear to be owned and controlled by licensed physicians, as state law requires, they are in fact controlled by Mir, who is not a physician, and/or by his medical management company. Finally, the complaints allege that these facts were not disclosed on bills submitted to Allstate under contracts of insurance, and Allstate would not have paid the claims submitted by the medical corporations had it known the true facts.

The trial court found the complaints failed to state causes of action under the IFPA and the UCL because they were not pled with requisite specificity, the business models alleged were lawful, and one of the actions was time-barred. We conclude that the operative complaints adequately plead causes of action under both statutes, and thus we will reverse the orders sustaining the demurrers and judgments of dismissal.²

FACTUAL AND PROCEDURAL BACKGROUND

I. Allstate's fraud actions; the initial demurrers.

Allstate Insurance Company is an insurance company licensed to issue automobile insurance policies in California. In 2020, Allstate filed two qui tam actions alleging insurance fraud in violation of the IFPA and the UCL. The first action (the Discovery action) was filed against Discovery Radiology Physicians, P.C. (Discovery Radiology), a professional medical corporation; Mir; and radiologists Drs. Safvi and Feske. The second action (the OneSource action) was filed against Mir; OneSource Medical Diagnostics, LLC (OneSource), a medical management company owned by Mir; 1st Source Capital, LLC (1st Source), OneSource's parent company; Safvi Medical Corporation (Safvi Medical) and Expert MRI, P.C. (Expert MRI), professional medical corporations; and radiologists Drs. Safvi, Mazhar, and Khan.³ In brief, 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. Allstate alleged it would not have paid the claims for services purportedly rendered by the three professional corporations had it known of the false statements and fraudulent markups.

Defendants demurred to Allstate's initial complaint in the Discovery action, and Allstate then filed a first amended complaint, to which defendants again demurred. Separately, defendants demurred to the complaint in the OneSource action.

The trial court sustained the demurrer in the OneSource action, finding that the complaint did not plead fraud with sufficient specificity. The court granted Allstate "one opportunity" to amend its complaint, ordering that as to all named defendants, the amended complaint "shall allege specific facts as to how each of the 2,300 billing statements was fraudulent. These allegations shall be backed up by an attached spreadsheet exhibit which contains seven columns listing: (1) the dates, in chronological order, of each alleged false bill; (2) the corresponding billing or claim number; (3) the person or entity who prepared the bill; (4) the name of the MRI facility involved; (5) the total charge on each bill; (6) the person or entity transmitting the billing statement to Allstate; and (7) the alleged false statement made on that bill."

On May 17, 2021, the court ordered the Discovery action and the OneSource action related and sustained the demurrer to the first amended complaint in the Discovery action for the same reasons set forth in its order sustaining the demurrer in the OneSource action.

II. The amended complaints.

A. The Discovery action.

Allstate filed a second amended complaint in the Discovery action on June 1, 2021. It alleged as follows:

In about May 2015, Mir created Discovery Radiology as a professional medical corporation. Fictitious name permits filed with the Medical Board of California described Dr. Feske, and later Dr. Safvi, as the president and sole shareholder of Discovery Radiology. In fact, however, Discovery Radiology was owned, operated, and controlled by Mir, who is not a doctor and has no medical training. Further, although documents filed with the California Secretary of State and the Medical Board of California represented that Discovery Radiology was a diagnostic radiology practice, Discovery Radiology did not administer or interpret MRIs. Instead, Mir, through Discovery Radiology, solicited and accepted referrals of individuals with personal injury claims, entered into contracts with diagnostic radiology facilities to administer the MRIs and with radiologists to interpret the MRI images, referred patients to contract facilities and radiologists in exchange for kickbacks or a fee-split, and then prepared false, fraudulent or misleading bills that significantly marked up the costs of medical services for submission to insurers, including Allstate. Had Allstate known of these facts, it would not have paid the claims.

Allstate alleged that these referral and billing practices gave rise to causes of action for violations of the IFPA because Mir steered patients to diagnostic radiology facilities and radiologists, and presented or caused to be presented insurance claims containing false or fraudulent statements, including that radiology services had been provided by Discovery Radiology, in violation of Insurance Code section 1871.7, subdivisions (a) and (b) of the IFPA. Allstate further alleged that these actions constituted unlawful, unfair, or fraudulent business acts or practices within the meaning of the UCL.

Attached to the complaint was a spreadsheet identifying 238 allegedly false claims submitted to Allstate by Discovery Radiology. For each claim, the spreadsheet identified the treatment date, claim number, provider name, billed amount, and name of the attorney who submitted the claim.

B. The OneSource action.

Allstate filed a first amended complaint in the OneSource action on May 14, 2021. It alleged as follows:

Mir is not a doctor and has no medical training. In about January 2017, Mir formed OneSource (initially called Injury MRI Network, LLC), which was owned, operated, and controlled solely by Mir through 1st Source, another LLC he owns, operates, and controls. OneSource holds itself out as providing management services for medical practices, but in fact OneSource enters into written contracts with diagnostic radiology facilities and radiologists to refer patients for radiology services. These contracts give Mir complete control over the selection of diagnostic radiology facilities to which patients are sent, the selection of physicians to read and interpret MRIs, the preparation of billing statements, including determining the amount billed for the services rendered and the billing codes used, and the distribution of profits. By selecting radiology sites and radiologists, and controlling billing and collection, Mir and his management company engage in the unlawful practice of medicine.

Additionally, Mir incorporated two purported professional medical corporations, Expert MRI and Safvi Medical. On paper, it appears that Drs. Mazhar and Khan own, operate and control Expert MRI, which holds itself out to the public as a diagnostic radiology practice that performs and interprets MRIs at 18 locations in Southern California. Likewise, it appears that Dr. Safvi owns, operates, and controls Safvi Medical, which holds itself out as performing MRI...