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Should Courts Referee No-Fault Referrals? Part 1
By: Damin J. Toell, Esq.

FOR THE DEFENSE

Should Courts Referee No-Fault Referrals?
On the Propriety of Medical Necessity Defenses
Against Certain No-Fault Medical Providers.

PART 1

By: Damin J. Toell, Esq.
Bruno, Gerbino & Soriano, LLP
Melville, New York

In the last two years, a troubling question has developed in no-fault litigation, which may be summarized as follows. May an insurance carrier defend non-payment of a no-fault claim based on a lack of medical necessity where the medical provider treated the claimant by referral and did not itself verify the necessity of the treatment? This issue has mainly been presented in the situation of MRIs, but has wider implications across the spectrum of medical services.

West Tremont v. GEICO

In 2005, Civil Court, Richmond County answered the question in the negative. However, the Appellate Term, Second Department has recently overturned this holding. In the trial court opinion, Judge Judith R. McMahon held that “in a matter, such as the instant case, wherein the usual and customary medical procedure was utilized by the examining physician in referring a patient involved in a motor vehicle accident for radiological tests after a physical examination, and the patient assigned her rights to the diagnostic radiological establishment for reimbursement of No-Fault benefits, the affirmative defense of lack of medical necessity should not be available as the diagnostic center does not make an independent medical evaluation of the patient and the denial of benefits to the diagnostic establishment is in derogation of the intent of the Insurance Law 5106.” West Tremont Med. Diagnostic, P.C. v Geico Ins. Co., 8 Misc. 3d 423, 427 (Civ. Ct., Richmond Cty., 2005). In sum, a carrier cannot deny MRI bills based upon a lack of medical necessity. This conclusion was based the vague assertion that “the purpose and intent of the Insurance Law No-Fault Benefits statute…is expedient payment of benefits to automobile victims.” Id.

The App. Term\'s rationale for overruling the Civil Court\'s order is as follows:

Under the Comprehensive Motor Vehicle Insurance Reparations Act (Insurance Law art 51), more commonly known as the No-Fault Law, \"first party benefits\" are available to reimburse persons for \"basic economic loss\" resulting from injuries \"arising out of the use or operation of a motor vehicle\" (Insurance Law § 5102 [b]). Insurance Law § 5102 (a) (1) defines \"basic economic loss\" as including, inter alia, \"[a]ll necessary expenses incurred for: (i) medical, hospital . . ., surgical, nursing, dental, ambulance, x-ray, prescription drug and prosthetic services\" and \"(iv) any other professional health services.\" The Mandatory Personal Injury Protection Endorsement (11 NYCRR 65-1.1 [d]) defines \"medical expenses\" as consisting of \"necessary expenses\" for the services which are enumerated in the statute. Nowhere in the statutory or regulatory scheme is there any suggestion that services rendered by diagnostic centers or, for that matter, medical equipment suppliers, laboratories, or radiological facilities, all of which rely upon prescriptions or referrals from treating or examining medical providers, be exempt from the requirement that said services be \"medically necessary.\" While it may be argued that a diagnostic center is in no position to establish the medical necessity of a prescribed MRI, it is well settled that the assignee stands in no better position than its assignor, and has no more right or claim than the assignor (see Matter of International Ribbon Mills [Arjan Ribbons], 36 NY2d 121 [1975]). If a claim is not assigned, and is submitted to the insurer directly by the eligible injured person, the insurer may assert a defense of lack of medical necessity which, if established, will shift the burden to the eligible injured person to provide his or her own evidence of medical necessity. If the defense may be asserted against the eligible injured person, it follows that it may be asserted against the provider as well. Moreover, \"[t]o permit medical providers to receive reimbursement even when the insurer has proven that the service provided was not medically necessary would encourage fraud, rather than combat it . . . . In fact, the construction urged by plaintiff would require insurers to pay for MRIs of the entire spine when the insured suffered a broken toe, or for full body scans for broken arms\" (Precision Diagnostic Imaging, P.C. v Travelers Ins. Co., 8 Misc 3d 435, 439 [2005]). 2006 NY Slip Op 51871(U).

This makes sense for a number of reasons, not the least of which is that the limitation of basic economic loss in § 5102 to “necessary [medical] expenses” lacks a subsection containing an exemption for instances where it would cause difficulties for the provider. To be sure, courts never seem to want to write in a general exception to the laws and regulations when application of same cause difficulties for the carrier.

The end result of such a rule would be even worse than what the Appellate Term posed in their citation to Precision Diagnostic: a no-fault applicant could have a single examination by a physician at which a multitude of additional medical services are prescribed (e.g., physical therapy, chiropractic, acupuncture, neurological testing, massage, biofeedback, psychology, durable medical equipment, etc.), and then the resulting tens of thousands of dollars of no-fault claims would not be defensible on the basis of lack of necessity.

Indeed, the Court of Appeals has actually already decided the matter, anyway. The factual basis of Central General v. Chubb, 90 N.Y.2d 195 (1997) was as follows:

Central General Hospital provided medical treatment to Pamela Mandresh on four separate occasions for injuries allegedly sustained in an automobile accident. Chubb insured the automobile Mandresh was driving at the time she was allegedly injured. The hospital submitted standard requests for payment of no-fault billings totaling $ 2,403.50. Chubb rejected them on the grounds that the injuries were not related to the accident and the treatments were excessive. Chubb insists that Mandresh\'s injuries were sustained in a separate work-related accident about a year prior to the automobile accident. Id. at 198.

When a patient presents injuries and a given explanation to a physician, unless the injuries are somehow so blatantly unrelated that they cannot possibly have arisen as explained (e.g., the patient claims to have been involved in a motor vehicle loss while showing only symptoms of cancer), the physician is usually in no position to determine the causality of the injuries. Nevertheless, the Court of Appeals concluded that “an insurer...may assert a lack of coverage defense premised on the fact or founded belief that the alleged injury does not arise out of an insured incident.” If Judge McMahon\'s conclusion in the West Tremont trial decision was the correct rule, Central General should have held that carriers are precluded from raising the defense of lack of causality.

For now, the Appellate Term’s decision in West Tremont provides some solace to insurance carriers, although it is not binding on the Supreme Courts. Nonetheless, at least for the time being, and at least with regard to lower courts in the Second Department (e.g., Civil Courts, District Courts), it has been settled that an insurer may defend medical services rendered pursuant to a referral based upon an alleged lack of necessity.

Editors Note: Damin J. Toell is a graduate of Cardozo School of Law and an associate at Bruno, Gerbino & Soriano, LLP, located in Melville, New York.

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