New York Law Journal: A RICO Surge Is Underway: Here's How the Allstate Push Might Play Out

By: Emily Cousins

Allstate Insurance Co. filed a slew of insurance fraud cases against local or small pharmacies based in New York under the Racketeer Influenced and Corrupt Organizations Act.

The RICO claims are powerful, but the defendants could overcome them with the proper paper trail, one insurance litigator suggests.

According to a litigation surge detected by Law.com Radar, major property and casualty insurance companies filed 26 cases within a week—with 19 coming from Allstate.

This spike in litigation was five times the weekly average, or a 408% increase, according to Law.com Radar.

The federal actions allege pharmacies participated in a conspiracy to provide kickbacks to doctors at no-fault clinics to obtain prescriptions. This allegedly created inflated reimbursement requests for Allstate and other insurers.

The pharmacy defendants allegedly violated New York's Comprehensive Motor Vehicle Reparations Act, known as the "No-Fault Law," according to lawsuits.

This law allows policyholders injured after a car accident to use payments for needed medical care ordered or prescribed by the individual's provider. However, the pharmacies allegedly used this law to prescribe topical pain creams, oral pain medication and muscle relaxers instead of the lower-cost, over-the-counter version of the drugs, the complaints claim.

'These RICO Claims Aren't Going Away'

Kristen Swift, a partner at Kaufman Dolowich, is experienced in guiding clients with insurance coverage litigation, but does not represent any of the parties in these lawsuits.

Swift said RICO claims in insurance fraud actions are a "powerful tool."

"These RICO claims aren't going away," Swift said. "It'll be interesting to see how they wind through the litigation process, and where they end up."

To prove the claims fall under RICO, Swift said Allstate must show "there were at least two acts that amounted to a pattern of illegal activities that they maintained interest in or participated in, and that there was an impact on interstate or international commerce."

Allstate is also going to have to show at least two actions that amounted to a pattern of illegal activities, and an impact on interstate or international commerce.

In its complaints, Allstate claimed the fraud was systemic and carefully orchestrated.

"Every facet of defendants' operations, from the creation of fraudulent [no-fault verification], to the formation of kickback arrangements with the prescribing no-fault clinics, to the illegal bulk dispensing of the fraudulent pharmaceuticals, to the fraudulent billing, and to the extent anything was dispensed at all, dispensing of [durable medical equipment] and/or orthotic devices, to record keeping to billing, was carried out for the purpose of committing fraud," the insurer alleged.

Manning Kass is representing Allstate in the federal actions. Robert Stern of Manning Kass declined to comment on pending litigation.

But meanwhile, Swift said if proved to be true, Allstate's allegations are "particularly egregious" because they involve charges to policyholders' no-fault benefits.

"You have a finite, or limited amount of benefit available when you're injured," Swift said. "To have this fraudulent, inflated billing … what that means is that they're overcharging and using up that benefit by not sticking to what would be considered medically necessary prescriptions or care, and also not sticking to a reasonable fee schedule to use up these benefits more quickly than they should be. The end result is the person who has the benefit is not receiving the maximum benefit that they could because it's being exploited."

(SUBSCRIPTION REQUIRED TO READ MORE)