Fifth Circuit Allows Allstate to Move Forward with Texas RICO Case Recovery

Allstate is set to advance in its recovery of $4.7 million, which it paid to settle fraudulent medical claims linked to a Houston, Texas medical facility, following a ruling by the Fifth Circuit. This federal appellate court overturned a previous decision that dismissed Allstate’s RICO claims, asserting that the insurer had not sufficiently demonstrated reliance on fraudulent bills when settling the claims. The Fifth Circuit found that Allstate had adequately established itself as a victim of a RICO scheme involving over 600 claimants.

The fraudulent activities began in 2018, when Dr. Akash Bhagat and other defendants entered into agreements with personal injury attorneys to refer clients to Memorial Heights Emergency Center. These agreements were under letters of protection, which guaranteed payment from future insurance settlements. Court documents reveal that the defendants charged car accident patients using emergency billing codes at rates nearly three times higher than standard charges.

As a result, visits to Memorial Heights Emergency Center surged, with some patients traveling over 90 miles, bypassing other medical facilities to reach this “inconspicuous facility in a modest shopping center,” far from major thoroughfares. Patients were subjected to costly diagnostic tests, including CT scans, yet were often discharged without any further treatment. Subsequently, Memorial Heights would send the bills to the personal injury attorneys, who then presented these inflated charges to Allstate as part of settlement agreements. By November 2022, Allstate had settled with 635 claimants.

Upon discovering the fraudulent scheme, Allstate initiated legal action against the defendants, seeking to recover the $4.7 million plus treble damages and attorney fees. However, a district court dismissed Allstate’s lawsuit, arguing that the insurer failed to adequately allege reliance on the fraudulent bills during the settlement process and did not sufficiently demonstrate that these fraudulent bills directly or proximately caused injury.

The district court concluded that Allstate was complicit in the fraud, as it was aware of the fraudulent activities yet continued to engage in settlement agreements. On appeal, a three-judge panel from the Fifth Circuit determined that the district court had erred in dismissing Allstate’s RICO claims.

The appellate court ruled that Allstate had satisfied both federal and Texas common-law fraud claims by adequately alleging that the Memorial Heights scheme led to payments for fraudulently billed services. Importantly, Allstate met the “but-for” causation standard, which requires a plaintiff to show that the harm would not have occurred without the defendant’s actions.

The court noted, “It pled that but for the allegedly fraudulent bills, it would not have paid money to settle the claims for those bills.” Following this ruling, the Fifth Circuit remanded the case for further proceedings consistent with its opinion.

Topics
Texas

Allstate is set to advance in its recovery of $4.7 million, which it paid to settle fraudulent medical claims linked to a Houston, Texas medical facility, following a ruling by the Fifth Circuit. This federal appellate court overturned a previous decision that dismissed Allstate’s RICO claims, asserting that the insurer had not sufficiently demonstrated reliance on fraudulent bills when settling the claims. The Fifth Circuit found that Allstate had adequately established itself as a victim of a RICO scheme involving over 600 claimants.

The fraudulent activities began in 2018, when Dr. Akash Bhagat and other defendants entered into agreements with personal injury attorneys to refer clients to Memorial Heights Emergency Center. These agreements were under letters of protection, which guaranteed payment from future insurance settlements. Court documents reveal that the defendants charged car accident patients using emergency billing codes at rates nearly three times higher than standard charges.

As a result, visits to Memorial Heights Emergency Center surged, with some patients traveling over 90 miles, bypassing other medical facilities to reach this “inconspicuous facility in a modest shopping center,” far from major thoroughfares. Patients were subjected to costly diagnostic tests, including CT scans, yet were often discharged without any further treatment. Subsequently, Memorial Heights would send the bills to the personal injury attorneys, who then presented these inflated charges to Allstate as part of settlement agreements. By November 2022, Allstate had settled with 635 claimants.

Upon discovering the fraudulent scheme, Allstate initiated legal action against the defendants, seeking to recover the $4.7 million plus treble damages and attorney fees. However, a district court dismissed Allstate’s lawsuit, arguing that the insurer failed to adequately allege reliance on the fraudulent bills during the settlement process and did not sufficiently demonstrate that these fraudulent bills directly or proximately caused injury.

The district court concluded that Allstate was complicit in the fraud, as it was aware of the fraudulent activities yet continued to engage in settlement agreements. On appeal, a three-judge panel from the Fifth Circuit determined that the district court had erred in dismissing Allstate’s RICO claims.

The appellate court ruled that Allstate had satisfied both federal and Texas common-law fraud claims by adequately alleging that the Memorial Heights scheme led to payments for fraudulently billed services. Importantly, Allstate met the “but-for” causation standard, which requires a plaintiff to show that the harm would not have occurred without the defendant’s actions.

The court noted, “It pled that but for the allegedly fraudulent bills, it would not have paid money to settle the claims for those bills.” Following this ruling, the Fifth Circuit remanded the case for further proceedings consistent with its opinion.

Topics
Texas