There seems to be no limit to the kinds of schemes that people create to defraud insurance companies and, by extension, the public, through higher premiums. Now, however, the New Jersey Supreme Court has issued a unanimous decision, Allstate Ins. Co. v. Northfield Medical Center, P.C., No. A-27 (N.J. May 4, 2017), that certainly will help to reduce insurance fraud in New Jersey—and that, if its reasoning is adopted by other jurisdictions, likely will have the same effect in states across the country.

In Northfield, the court adopted a broad interpretation of the knowledge requirement that a plaintiff must demonstrate to prove that a defendant has violated the state's Insurance Fraud Prevention Act (IFPA), N.J.S.A. 17:33A-1 to -30. The court's decision makes the IFPA a much stronger tool to use in the fight against insurance fraud.

Background

New Jersey—like New York and other states across the country—limits the corporate practice of medicine with various rules and requirements with respect to the ownership, control, and direction of a physician's practice. For example, a medical doctor with a plenary scope of practice may not be employed by a licensee with a more limited scope of practice. That means, among other things, that a physician with a plenary license may be employed by another plenary licensed physician, but a medical doctor (M.D.) or a doctor of osteopathic medicine (D.O.) may not be employed by a podiatrist (D.P.M.), chiropractor (D.C.), midwife, or certified nurse midwife (R.M., C.N.M.).

On Nov. 16, 1995, the executive director of the New Jersey State Board of Medical Examiners (the Board), Kevin B. Earle, issued an extensive opinion letter in response to a hypothetical scenario in which a professional association was divided between a chiropractor holding a 70 percent interest and a medical doctor holding a 30 percent interest. The letter found the proposed situation improper, reasoning that it had the potential to override the physician's professional judgment as well as the physician's decisions as to how the practice should be conducted. The letter acknowledged that the professional association was nominally the “employer,” rather than the chiropractor, but it found that to be a “distinction without a difference.” It added that for “quality control,” a multi-disciplinary practice could not employ physicians who were not themselves shareholders in the practice.