Discovery Radiology Lawsuit Explained

In November 2023, the Court of Appeal covering Los Angeles and other parts of Southern California made a significant ruling in the case People ex rel. Allstate Ins. Co. v. Discovery Radiology Physicians, P.C. (2023) 94 Cal.App.5th 521.

We believe that Allstate Insurance is suing a legitimate medical provider in order to deprive car accident victims of needed medical care.

Discovery is a company that provides medical services for car accident cases and similar incidents in advance, without full immediate payment. They recoup their money without charging interest once the case settles. They offer a vital service that ensures insurance companies are held accountable for the injuries people suffer. Although Discovery has a business side to ensure financial survival, the medical side operates independently. Despite this, they have faced lawsuits that could threaten their existence.

The Court of Appeal decided to let a predatory lawsuit proceed because:

1. Business models involving non-physician ownership and participation in medical corporations constituted unlicensed practice of medicine.

2. The unlicensed practice of medicine could form the basis of a qui tam suit under the Insurance Frauds Prevention Act (IFPA) and California's Unfair Competition Law (UCL).

In simpler terms, when a non-physician corporation takes control of a medical practice, it may be a potential criminal violation, opening the door for public interest lawsuits against both the corporation and the individual doctors involved.

In this case, the defendants in Discovery Radiology used a management company that played a significant role in managing the physician's practice. There was no evidence that the management company formed the physician's medical corporation, submitted filings on the physician's behalf, solicited patients, or determined patient referrals. However, the court found that the non-physician's involvement in owning and operating medical corporations providing radiology services constituted unlicensed practice of medicine.

In Discovery Radiology, the non-physician did not order or interpret MRI scans, and the radiology services were neither excessive nor medically unnecessary. The work was deemed excellent. The issue was that the non-physician allegedly owned, operated, or controlled medical corporations either directly or through his company, recruited physicians to appear as paper owners, recruited and referred patients, entered into contracts as brokers with diagnostic radiology facilities and radiologists, and controlled billing, collection, and profit distribution.

The court did not find any wrongdoing by Discovery. However, imagine the economic impact of an insurance company using state law to challenge not just a single MRI reading or billing, but an entire business and the right to practice medicine.

Insurance Code § 1871.7, titled "Runners, cappers, and steerers; unlawful employment to procure clients; penalties; civil actions by district attorney, commissioner, or interested persons," states that:

1. It is unlawful to knowingly employ runners, cappers, steerers, or other persons to procure clients or patients to perform or obtain services or benefits pursuant to Division 4 (commencing with Section 3200) of the Labor Code or to procure clients or patients to perform or obtain services or benefits under a contract of insurance or that will be the basis for a claim against an insured individual or their insurer.

This, along with California's Unfair Competition Law (UCL), which prohibits unfair, deceptive, or fraudulent business practices, gives insurance companies significant power to challenge and potentially destroy medical practices.

Lawsuits by private companies and individuals against plaintiff-oriented medical practices are not new. The Horowitz office has successfully defended these actions for many years. However, insurance companies are becoming more emboldened, and attacks on medical practitioners who treat patients “on liens” are expected to increase.