Florida House Insurance and Banking Subcommittee Hears Comprehensive Overview of Personal Injury Protection (PIP) Fraud-Related Issues

 

Today, January 26, 2011, the Florida House of Representatives Insurance and Banking Subcommittee (“Subcommittee”) met to review automobile-related insurance issues in Florida.  The discussion focused on Personal Injury Protection (“PIP”)-related issues, such as fraud and staged accidents.   To view the meeting packet, which contains the complete presentations of each speaker, click here.

Subcommittee Chairman Bryan Nelson called the meeting to order and recognized Florida Chief Financial Officer Jeff Atwater, who attended the meeting as part of the agenda.  In his remarks, CFO Atwater noted that automobile fraud is rampant in Florida and that, in his opinion, it is unacceptable for Florida to be the number one state for staged accidents.  

“This is a title we must give away,” he stated, closing his presentation by promising that his office will work with the Florida Legislature to address the State’s automobile insurance cost drivers.

Subcommittee Senior Attorney Bob Riley provided an overview of Florida-specific automobile-related insurance issues.  Florida mandates two automobile insurance coverages:  PIP and property damage.  It also has a financial responsibility law.  In order to achieve quick and efficient claims payment with the goal of limiting lawsuits, Florida adopted No-Fault automobile insurance in 1971. 

In a review of Florida’s PIP fraud history, Mr. Riley related that, after a grand jury found that PIP fraud was rampant throughout the State, the 2006 Legislature allowed the PIP/No-Fault statutes to sunset.  However, the laws were re-enacted in a 2007 Special Legislative Session. 

Mr. Riley outlined prominent issues that should be addressed by the 2011 Florida Legislature, such as fraud, reimbursement to medical providers, attorney fee multipliers and examinations under oath (“EUOs”).  Issues created by the Shaw v. State Farm decision should also bear consideration, he added, inasmuch as the Shaw court held that an insurer does not have the right to take an EUO of a health care provider. 

He also reviewed first and third-party actions, as well as bad faith lawsuits.  He explained that Florida is in the minority of states that allow third-party bad faith lawsuits. Further, Florida also allows the recovery of punitive damages in bad faith actions.

In addition, Mr. Riley felt that the recent holding in Custer Medical Center vs. United Automobile Insurance Company should be addressed with legislative fixes.  In Custer, the court held that a failure to attend an independent medical examination is not grounds for denial of benefits incurred prior to the scheduled examination.

National Insurance Crime Bureau (“NICB”) Director of Government Affairs Alan Haskins also addressed the Committee on PIP fraud and staged accidents.  He noted questionable claims are growing significantly in Florida, especially in the Tampa area.  In fact, Tampa and Orlando have surpassed Miami-Dade as the State’s top fraud areas.

Mr. Haskins recommended the following reforms to PIP legislation:

1.       Creation of a “loser pays” system
2.       Reinstitution of mandatory arbitration
3.       Clinic licensure reforms, tolling of time to pay claims
4.       Allocation of more money for prosecuting PIP fraud in Tampa and Orlando areas
5.       Legislative fixes for court decisions in Custer and Shaw

Subcommittee members questioned who is responsible for fraud.  It was noted that, overall, fraud is well-organized and includes the participation of attorneys and medical professionals.  The fraudulent activities are led by sophisticated individuals and not “mom and pop” actors.

Insurance Information Institute (“III”) representatives also discussed trends and challenges in PIP fraud, which is rising at 70 percent per year. The resulting cost, estimated at $49 per vehicle per year, was characterized as a “fraud tax.”

In response to a query from State Representative Evan Jenne, presenters from the III and NICB acknowledged that their organizations are subsidized by the insurance industry. 

State Representative John Wood asked about what the rates in Florida would be without the “fraud tax.” Although an exact figure was not provided, it was explained that rates would decrease. It was also noted that Florida’s high traffic density would keep rates higher than those in states with lower traffic density. 

Representatives from CFO Atwater’s office made additional presentations on PIP fraud, the cost of which is driven by solicitation and staged accidents.   

Often, uninjured persons are solicited and sent to clinics, which results in the Florida Division of Insurance Fraud (“Divisions”) receiving an exorbitant amount of PIP referrals. 

With the belief that the majority of litigated PIP claims are fraudulent, CFO Atwater has issued “marching orders” for the Division to pursue PIP fraud prosecution more aggressively.  His goal is to reach the organizers of fraud rings, not just those individuals perpetrating actual fraud incidents.  In order to accomplish the CFO’s mandate on more aggressive prosecution, the Division will need more fraud prosecutors.

Meanwhile, fraudulent clinics are owned and organized by medical and legal professionals for the sole purpose of committing insurance fraud.

Subcommittee Chairman Nelson asked what type of results have been realized from a 2010 legislative appropriation to fund additional prosecutors in the Tampa area.  The Division officials indicated that these prosecutors have not been in place long enough to secure any measurable impact, but that some good cases are in the pipeline.

State Representative Jim Boyd asked whether current criminal penalties are severe enough to deter this type of activity. The Division officials responded that they believed the penalties are severe enough.

Representative Wood asked whether fraud would be as rampant without the existence of PIP, to which the Division officials indicated that, even before the advent of PIP, auto insurance fraud was a problem.

State Representative Mack Bernard asked if the Internal Revenue Service (“IRS”) has assisted in related investigations of fraudsters’ unreported income. The Division officials indicated that, indeed, they have worked with the IRS and probably should work with them more often. They also believe that there could be tens of thousands of individuals participating in PIP fraud rings.

State Representative Daniel Davis asked whether capping fees for PIP claim-related services would deter fraud. The Division officials indicated that fee caps have had a positive impact as applicable to workers’ compensation, and that capping fees does remove the incentive to perpetrate fraud.

Ashley Mayer, the Legislative Affairs Director for the Florida Department of Financial Services (“DFS”), discussed PIP cost drivers and cost reduction solutions. She emphasized the need to improve monitoring of clinic ownership and said that it is imperative to reduce litigation costs to enable insurers to litigate potentially fraudulent claims.  The DFS also would like to see solicitation by PIP fraud rings reined in. 

Jeff Craig, Chief of Health Facility regulation at Florida’s Agency for Health Care Administration (“AHCA”), gave a presentation on health care facility licensure. In 2003, the Florida Legislature mandated that AHCA assist in fraud protection through clinic licensing.

Physician-owned healthcare clinics or other licensed healthcare clinics do not have to be licensed by AHCA. In Florida, there are about 3,500 licensed clinics and almost 8,000 license-exempt clinics.  The AHCA has very little information on the exempt clinics.

On-site surveys, license renewals and complaints are among the tools used by AHCA for investigations of clinics; however, they are not used for exempt clinics.  Often, clinic license information is used to assist other regulators in pursuing fraud cases.

Representative Wood questioned the public policy of exempting some clinics from licensing. Mr. Craig said the decision to do so was made because practitioners’ medical licenses could be jeopardized and, further, fraud is generally regarded as being committed by non-physicians.

Chairman Nelson asked how to tighten licensure exemptions. Mr. Craig indicated that forcing all exempt clinics to re-apply for exemptions would assist in gathering more needed information.

Due to time constraints, the Committee concluded its meeting prior to the conclusion of the discussions.

Debate on PIP-related issues is expected to continue up to, and throughout Florida’s 2011 Legislative Session. 

 

Should you have any questions or comments, please contact Colodny Fass.