Allstate can move forward in its recovery of $4.7 million it paid to settle fraudulent medical claims with a Houston, Texas
medical facility, the U.S. Court of Appeals for the Fifth Circuit has ruled.
The federal appellate court reversed a lower court’s ruling that Allstate’s RICO claims failed because the insurer didn’t sufficiently allege that it relied on fraudulent bills w
hen settling the claims. Rather, the Fifth Circuit said that Allstate adequately showed it was the victim of a RICO scheme involving more than 600 claimants.
Beginning in 2018, Dr. Akash Bhagat and defendants enteredinto agreements with personal injury attorneys to refer client
s to Memorial Heights Emergency Center under letters of protection guaranteeing payment from future insurance settlem
ents, court proceedings say. Defendants charged car accident patients at emergency billing codes, rates nearly triple those normally charged.
Visits to Memorial Heights soon doubled, with some patients driving more than 90 miles and bypassing other medical cen
ters to reach the “inconspicuous facility in a modest shopping center far away from any major thoroughfares.”
Patients received expensive diagnostic tests, including CT scans, only to be discharged without further treatment, cour
t proceedings say. Memorial Heights would then forward bills to the personal injury attorneys, who then pre
sented the bills to Allstate as part of settlement agreements. By November 2022, Allstate had settled with 635 claimants.
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Allstate discovered the scheme and sued the defendants to recover $4.7 million plus treble damages and attorney fees.
A district court dismissed Allstate’s suit, arguing that Allstate did not adequately allege that it relied on the fraudulent bills whe
n settling the claims, and that the insurer did not adequately plead that the fraudulent bills directly or proximately caused injury.
The court held that Allstate was complicit because it knew about the fraud but continued to engage in settlement agreements.
On appeal, a three-judge panel from the Fifth Circuit ruled that the district court erred in dismissing Allstate’s RICO claims.
The appellate court ruled that Allstate satisfied federal and Texas common-law fraud claims by sufficiently alleging the Memorial Heights scheme caused it to pay for fraudulently billed
services. Significantly, Allstate met the but-for causation burden, in which a plaintiff must show only that the harm would not have occurred absent the defendant’s conduct.