What Every Provider Should Know About Mallela

State Farm Mut. Auto Ins. Co. v Mallela
4 N.Y.3d, 313 794 N.Y.S.2d 700 2005 (Mallela)
and Fraudulent Incorporation

Mallela was a decision by the Court of Appeals in answer to a question certified by the Second Circuit Court (Whether … insurance carriers may withhold payment for medical services provided by fraudulently incorporated enterprises to which patients have assigned their claims.

The Court of Appeals held that a fraudulently incorporated provider could not collect no-fault benefits. What the Court did not do was not define what a fraudulent incorporation means.

The Court of Appeals in dictum (dictum is a non-binding determination of the court which renders an opinion as to a question  not before the court) stated that a provider had to be in compliance with all laws, rules and regulations that apply to the provider, provided that the laws, rules and regulations are more than technical requirements.

The Insurance Industry under the guise of fighting fraud have sought to expand Mallela in ways I believe the Court of Appeals never contemplated when they answered the certified question in Mallela from the Second Circuit Federal Appellate Court.

The Insurance Industry has also sought to expand the effect of Mallela in two ways. It has sought to expand the definition of fraudulent incorporation beyond the events surrounding the incorporation of the provider.

The Insurance Industry has sought to expand the definition of fraudulent incorporation to include the following activities which are unrelated to the incorporation of the provider: (i) fee splitting which is the unauthorized sharing of fees earned by a licensed provider with an unlicensed person or entity; and (ii) the alleged control of a licensed practice by an unlicensed person.

It is the belief of this law office that the attempts by the insurance companies to expand Mallela are unwarranted.

Medical providers should realize once you capitulate to the insurance companies on the so called expanded Mallela, the provider may very well be permanently black balled from collecting insurance payments for the treatment of  no fault patients.

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