Jury Awards Aetna $37.4M in Medical Billing Fraud Case

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A California jury in Aetna Life Insurance Company v. Bay Area Surgical Management LLC, et al., 1-12-CV-217943 (Superior Court of Santa Clara County), unanimously awarded Aetna Inc. over $37.4 million in damages, finding that a network of surgical centers overbilled Aetna, Inc. for out-of-network procedures by,  among other things, recruiting patients by approving waivers of co-pays and other fees. Those co-pays and fees, however, were not truly waived, in that, they were bundled into already inflated medical bills and charged to Aetna, Inc. As part of this “scheme,” the surgical centers were offering shares in facilities to referring physicians who received a sizable return on their investment on top of money paid for the medical services. In fact, the ownership interest was offered on the condition that the physicians would refer a sufficient number of patients needing procedures carrying a grossly inflated price tag.

Aetna’s complaint alleged that patients never questioned the surgery referrals at issue because physician investors fraudulently waived the patients’ co-payments (a fact not disclosed to Aetna). Aetna further alleged that the physician investors were motivated to make the out-of-network referrals by profit rather than by medical considerations since the surgery centers based their compensation on the volume of billings/referrals generated. According to Aetna, since it maintains no contractual control over the fees charged by out-of-network providers, Aetna claims it was billed excessive amounts for procedures that could have been controlled if the services were provided by in-network physicians.

While California law permits physician investment in medical clinics and referrals to them, Aetna claimed that those laws, among others, require disclosure of financial interests to patients, prohibit fees for referrals, and require the billing of “reasonable and customary” charges. 

This case has significant implications. Insurers are likely to more closely scrutinize the services and practices of all nonparticipating or noncontracted providers, including those that are providing legitimate services and properly billing at reasonable and customary rates. The pressure of the heightened review, along with the administrative burden and expense of audits, may force those providers to enter into contracts at rates that are far below that to which the providers would otherwise be legally entitled. In other words, this case may lead to the unfortunate situation where “one bad apple spoils the bunch.”

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