Zax Not Lax When it Comes to Fighting Fraud
By Robert Warne - February 5, 2004Around March 2003 Zenith Insurance Company sensed a medical clinic was practicing bad medicine by upcoding and billing for treatments and examinations never rendered, so its investigation team was dispatched to Santa Ana to check things out.
A year later, after Zenith’s fraud team successfully documented what was originally suspected, the carrier announced today that it had begun serving summons and complaints upon the medical clinic, its owner and manager for taking part in a large-scale scheme designed to defraud the company's policyholders.
Much like a farmer would take a shot at a predator poaching his livestock, Zenith is guarding its interests and the interests of other carriers and policyholders by taking a legal shot at the crooked clinic in civil court.
The $8.5 million lawsuit sets Zenith up as the first carrier to utilize the California Insurance Fraud Prevention Act, Insurance Code s1871.7, which made the perpetrators of insurance fraud free game for carriers in the state’s civil courts.
The law allows for a penalty of $5,000-$10,000 per false claim, three times the false claim for compensation, all attorney fees, expenses and costs, as well as an injunction against further fraud.
Charges are also being filed against the clinic under Business and Professions Code s17200 for unfair business practices.
"Zenith has a zero tolerance for fraud," said Stanley R. Zax, Zenith's Chairman and President. "We will use every means available under the law to halt those who are taking advantage of a system that is designed to help injured workers. It is unfair for businesses and honest individuals to pay for the actions of a few dishonest people. Zenith has been committed for many years to taking the profit out of fraud."
Zenith is represented in this matter by Dennis B. Kass, Manning & Marder, Kass, Ellrod, Ramirez, LLP.
Zenith provided the following Q & A regarding the suit.
Q & A Regarding the Lawsuit
Q. Why has Zenith chosen to pursue a civil lawsuit?
A. Zenith is doing its part to fight workers' compensation fraud. As the Governor and Insurance Commissioner have made clear, we are facing a workers' compensation crisis in California. Insurance fraud harms every business in the State of California and unnecessarily causes premiums to rise. A successful fight against fraud requires a multifaceted approach. The efforts of the governor, the legislature, the Department of Insurance and the Local District Attorneys are necessary to fight fraud. Now insurance companies can join the fight, with laws that allow the carriers to recoup money, obtain other damages and get court orders preventing future fraud.
Q. Under what legal provisions are you filing this suit?
A. The lawsuit is filed under the California Insurance Fraud Prevention Act, Insurance Code s1871.7, as well as Business and Professions Code s17200 for unfair business practices. California has enacted a novel, anti-fraud law which was designed to help combat workers' compensation fraud. The law allows for a penalty of $5,000-$10,000 per false claim, three times the false claim for compensation, all attorney fees, expenses and costs, as well as an injunction against further fraud.
Q. How did the insurance fraud scheme operate?
A. This was a complex and sophisticated scheme that involved billing for services never rendered and using billing codes that describe far greater services than were actually provided. For example, using universally recognized billing codes, on over 750 occasions, the defendants billed Zenith using a code reserved for seriously ill or injured patients. In truth, the large majority of the workplace incidents involved minor accidents such as slips or falls, where the injuries were sprains or strains, not injuries that could lead to death or debilitating injuries, as defendants indicated. Further, in billing for over 10,000 therapy visits for the 137 patients noted in this lawsuit, it was learned that on over 8,600 occasions, the defendants tried to improperly bill for a service that was not performed.
Q. How much did the perpetrators take from Zenith?
A. Because the defendants took such great efforts to hide their fraud, it is difficult to know the precise amount. Zenith is presently aware of 137 claims, involving over 9,200 examinations, and over 10,000 treatments. Zenith has paid losses totaling over $830,000. Defendants have billed Zenith over $2.5 million. This scam operated from at least April, 1999 to present, though the volume of false billings increased dramatically beginning 2001.
Q. How long had the Zenith investigation been going on?
A. Zenith first suspected that the defendants were attempting to submit false and fraudulent claims in March, 2003. Zenith has a team which specializes in detecting insurance fraud and who began a detailed and comprehensive investigation. The investigation revealed that the defendants were attempting to pass off false claims to Zenith. Zenith's investigation is continuing at this time. More claims may be added to the lawsuit and the claim for damages may grow further.
Q. Will these defendants be prosecuted as criminals?
A. Zenith has offered its full cooperation to the California Department of Insurance and the Orange County District Attorney who have the authority to make these decisions.
Q. Is the Zenith investigation complete?
A. No. By its very nature, fraud is deceptive. Zenith has a statewide Healthcare Investigation Team which focuses on individuals who are attempting to submit fraudulent claims. Zenith's investigators are continuing to monitor claims submitted by the defendants and continue their investigation into other questionable claims submitted by the defendants. | 
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