Group Health Inc. v Kofinas

[*1] Group Health Inc. v Kofinas 2009 NY Slip Op 52557(U) [25 Misc 3d 1243(A)] Decided on December 2, 2009 Supreme Court, New York County Ramos, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on December 2, 2009
Supreme Court, New York County

Group Health Inc., Plaintiff and Counterclaim, Defendant,

against

Alexander Kofinas, M.D. Defendant and Counterclaim Plaintiff.



603409/06



For Plaintiffs: VENABLE LLP

For Defendants: ABRAMS FENSTERMAN

Charles E. Ramos, J.

Plaintiff and counterclaim defendant Group Health Incorporated ("GHI") moves to amend the complaint pursuant to CPLR 3025(b) to include new facts and theories of liability under its original breach of contract cause of action and withdraw its cause of action for detrimental reliance.

Defendant and counterclaim plaintiff Alexander Kofinas, M.D. ("Kofinas") opposes the motion on the grounds that the proposed new facts and theories of liability are barred by the applicable statute of limitations and further that amending the complaint would cause significant prejudice to Kofinas.

Background

This action seeks to hold Kofinas liable for breach of contract and unjust enrichment. GHI is a not-for-profit corporation organized pursuant to Article 43 of the New York Insurance Law, and maintains its principal office in New York, NY. Kofinas is a medical doctor, licensed by the State of New York to practice medicine, and maintains his principal offices in Brooklyn, NY.

GHI alleges that Kofinas failed to perform his obligations under a 1997 contract in which Kofinas became a participating provider of medical services to GHI Preferred Provider Organization ("PPO") policyholders (the "Participating Provider Contract"). On August 17, 2005, GHI mailed to Kofinas a notice advising him of its intent to audit claims his office submitted for reimbursement to GHI's subscribers (Exhibit M, annexed to the Gilliam Aff.). This investigation was based upon GHI's determination that Kofinas' "practice was significantly aberrant from that of other PPO participating physicians who practice in [Kofinas'] area of medicine... Specifically, [Kofinas'] procedures-per-patient were significantly higher than those of his peer-group physicians" (Patel Aff., ¶6).

After the audit and review of Kofinas' medical records and corresponding claim submissions to GHI, GHI determined that Kofinas had been billing for "medically unnecessary procedures," and sent a letter dated August 29, 2006, seeking reimbursement of $7,280,538.52 from Kofinas (Exhibit N, annexed to the Gilliam Aff.). Kofinas refused to reimburse GHI, and this action was commenced.

Both parties performed extensive discovery over the course of three years — numerous depositions were taken — including of Kofinas himself. GHI claims to have recently learned, as a result of Kofinas' deposition, that he had been engaged in two different types of improper billing submissions. First, according to GHI, "global billing" incurring certain expenses — which GHI alleges Kofinas did not incur — allows the physician to be reimbursed at a higher rate than that to [*2]which he or she would otherwise be entitled (Mem. of L. in Support of Plaintiff GHI's Mot. to Amend the Compl., pgs. 6-7). Second, certain procedures for which Kofinas billed included "face-to-face" time that were supposedly unfulfilled by Kofinas (Id. at 6).

As a result of the revelations, in June 2009, GHI issued a subpoena duces tecum to non-party witness New York Methodist Hospital seeking information about Kofinas' billing practices with respect to that hospital. Kofinas moved to quash the subpoena, as it did not relate to the original complaint's "medically unnecessary" breach of contract claims. Oral argument was heard and Kofinas' motion to quash was granted, because under the original complaint the terms of the breach of contract cause of action did not support the subpoena of the non-party witness (Mot. to Quash Subp. Deuces Tecum, July 21, 2009, 14:4-13).

In addition to the depositions, the parties engaged in extensive document discovery including the review of over one thousand patient files and Kofinas' billing submissions to GHI. As a result of the voluminous review, GHI now seeks to allege the additional facts that Kofinas "actually billed for procedures not performed, and doubled-billed for a certain type of procedure that he apparently did perform" (Mem. of L. in Support of Plaintiff GHI's Mot. to Amend the Compl., pg. 1).

In all, GHI seeks to amend the original complaint to withdraw its third cause of action - detrimental reliance — and add, under the original breach of contract cause of action, additional facts which form the bases for the following four additional breaches by Kofinas: (1) improper global billing; (2) improper billing for procedures with face-time-requirements; (3) double-billing; and (4) billing for procedures not performed.

New York State Insurance Law creates a two-year statute of limitations for overpayment of a physician which accrues from the time of payment (NY Ins. Law § 3224-b[b][2]). As such, GHI seeks pursuant to CPLR 203(f) to relate its proposed new facts and theories of liability back to the original complaint as would be required to maintain their meritoriousness under the applicable statute of limitations.

Kofinas argues that the amended pleading introduces different theories and facts from that of the original complaint, and thus does not relate back to the original complaint.

Discussion

"A party may amend his pleading or supplement it by setting forth additional or subsequent transactions or occurrences at any time by leave of court or by stipulation of all parties" (CPLR 3025[b]). And, leave to amend shall be freely granted absent prejudice or surprise resulting from the delay (Id.). But "in an effort to conserve judicial resources, an examination of the proposed amendment is warranted and leave to amend will be denied when the proposed pleading is palpably insufficient as a matter of law" (Davis & Davis, P.C. v Morson, 286 AD2d 584, 585 [1st Dept 2001]).

When evaluating a motion pursuant to CPLR 3025, there are three factors to consider: (1) the reason for delay and the length of delay in seeking the amendment; (2) the prejudice to the adversary in granting the application; and (3) the merits of the proposed amendment (5-3025 NY Civ. P.: CPLR 3025.14).

Improper Billing Claims

First, GHI contends that the reason for its delay in bringing its motion to amend is the fact that "[w]hen the action was commenced, GHI had only the billing records submitted to the company by [Kofinas]" (Mem. of L. in Support of Plaintiff GHI's Mot. to Amend the Compl., pg. 1). This claim, however, is untenable. To suggest that an insurance company with a full-time staff of claims submission representatives, and claims auditors could only discover Kofinas' billing improprieties upon disclosure of medical records is not credible. In fact, prior to the commencement of this suit, GHI had, through its Special Investigations Unit, completed a full audit of Kofinas' billing submissions for thirteen patients in the period from 2002-2005. See, Exhibit N, annexed to the Gilliam Aff. Although "lateness alone is not a barrier to the amendment of pleadings," (Barbour v Hosp. for Special Surgery, 169 AD2d 385, 386 [1st Dept 1991]), the fact that neither GHI's internal investigation nor the court-ordered discovery process [*3]timely [FN1] discovered what is alleged to be billing by Kofinas "contrary to accepted, standard medical-billing practices" (Mem. of L. in Support of Plaintiff GHI's Mot. to Amend the Compl., pg. 7), cannot be a valid reason for a nearly three year delay in seeking to amend the original complaint to include new facts and theories of liability.

The second consideration in evaluating a motion under CPLR 3025 is the prejudice to the adversary in granting the application. Prejudice is defined as "the loss of some special right, some change of position or some significant trouble or expense that could have been avoided had the original pleading contained what the amended pleading seeks to add" (Barbour at 386).

This court finds Panto v J & M Salvage Co., 157 AD2d 582 (1st Dept 1990), instructive. In that case, the Appellate Division held that the defendant had not proved it had been prejudiced because "the amended pleading only add[ed] a new theory of recovery based on the identical facts alleged in the original pleading." (Id. at 583 [emphasis added], see also, City of New York v Triborough Bridge & Tunnel Auth., 273 AD2d 157 [1st Dept 2000] [holding prejudice cannot be shown by the party opposing the motion to amend when "the claims sought to be added [are] based on facts and circumstances already alleged..."]). Here, however, according to GHI, "GHI now seeks to amend the [original] complaint to include further facts about Kofinas' billing that have recently been learned in discovery." (Mem. of L. in Support of Plaintiff GHI's Mot. to Amend the Compl., pg. 7).

Indeed, GHI objected to Kofinas' demand for discovery and inspection of all materials upon which GHI planned to rely for its breach of contract claim, and gave no notice of any intent to pursue a breach of contract claim for improper billing. (See, Transcript, July 21, 2009, at 7:24-8:25 [counsel for Kofinas explaining that "[w]e have reams of e-mail between the members of the Special Investigation Unit of GHI. None of it goes into any discussion regarding an allegation that [Kofinas] was [improperly billing globally]]"). Thus, if GHI's motion to amend were granted, substantial prejudice to Kofinas would result, as "[a]ll discovery that has taken place up until this point has been directed toward defending GHI's claim that the tests and treatments rendered by [Kofinas] were not medically necessary." (Aff. In Opp. to Plaintiff's Mot. to Amend. the Compl., 16).

Finally, when evaluating a motion to amend pursuant to CPLR 3025, "in order to conserve judicial resources, an examination of the proposed cause of action is warranted, and leave to amend will be denied where the proposed pleading fails to state a cause of action or is palpably insufficient as a matter of law" (Davis & Davis, P.C. at 585). A motion to amend a complaint to include new facts and theories of liability which would otherwise be barred by an applicable statute of limitations (or the movant's own laches), and are therefore palpably insufficient as a matter of law, must be denied. (See Boakya-Yiadom v Roosevelt Union Free School Dist., 57 AD3d 929, 931 [2d Dept 2008] [finding that "inasmuch as the plaintiff may not maintain causes of action for which he failed to serve a timely notice of claim...the amendment of the complaint with respect to them, or the addition of new claims similarly barred... would be palpably insufficient... [and] motion for leave to amend... [is] properly denied."]).

According to the applicable statute of limitations, GHI's new facts and theories of liability would necessarily be time barred if interposed now. However, a "claim asserted in an amended pleading is deemed to have been interposed at the time the claims in the original pleading were interposed, unless the original pleading does not give notice of the transactions, occurrences, or series of transactions or occurrences, to be proved pursuant to the amended pleading" (CPLR 203[f]). In the case at hand, GHI seeks to include its new — and otherwise time barred — theory of Kofinas' liability for improper billing under its original breach of contract claim. However, according to CPLR 3013, "[s]tatements in a pleading shall be sufficiently particular to give the [*4]court and parties notice of the transactions, occurrences, or series of transactions or occurrences, intended to be proved and the material elements of each cause of action..."

Here, the applicable complaint lacks the requisite particularity to give notice of a claim for improper billing by Kofinas. Instead, the original complaint focuses on the medical necessity of Kofinas' claims submitted for reimbursement. Even according to GHI "this case is simply about a breach of contract between [Kofinas], ... in essence GHI is here alleging some of the services performed by [Kofinas] were not medically necessary." Transcript, Apr. 22, 2008, at 2:9-13.

In Buran v Coupal, 87 NY2d 173 (1995), the Court of Appeals gave a clear explanation of the policy purpose of CPLR 203(f), and the appropriate application thereof.

[The relation back] doctrine enables a plaintiff to correct a pleading error — by adding a new claim or a new party — after the statutory limitations period has expired. That doctrine thus gives courts "sound judicial discretion" (Duffy v. Horton Mem'l Hosp., 66 NY2d 473, 477 [1985]) to identify cases "that justify relaxation of limitations strictures to facilitate decisions on the merits if the correction will not cause undue prejudice to the plaintiff's adversary." (Harold S. Lewis, The Excessive History of Fed. R. 15(c) and its Lessons for Civ. R. Revision, 85 Mich. L. Rev. 1507, 1512 [1987]).

In light of: (1) the unreasonable reason for delay in interposing the improper billing theories of liability based upon new facts; (2) the obvious and substantial prejudice to Kofinas caused by the delay in bringing the proposed improper billing theories of liability; and (3) the unambiguous particularity of the original complaint directed toward GHI's allegations of Kofinas' reimbursement claims for medically unnecessary procedures this Court will deny GHI's motion pursuant to CPLR 3205 for leave to amend the pleadings to include improper billing as a basis for liability under the original breach of contract cause of action.

Procedures Not Performed or Double-Billed

With respect to GHI's proposed amended theories of liability for Kofinas' breach of contract for allegedly billing GHI for procedures he never performed, or billed twice, this Court finds that they were properly interposed by the facts set forth in the original complaint (see Complaint, ¶s 15-20), to give notice to Kofinas of the "conduct, transactions, or occurrences" which form the basis for the rights sought to be enforced (CPLR 203[f]).

Accordingly, it is

ORDERED, that the plaintiff GHI's motion bearing sequence number 004 for leave to amend the complaint is denied to the extent that it seeks to interpose theories of liability based on improper billing, and is granted to the extent that it seeks to interpose theories of liability for procedures allegedly not performed, or billed twice, and to this extent the second amended verified complaint in the form proposed as annexed to the moving papers shall be deemed served upon service of a copy of this order with notice of entry, and it is further

ORDERED that the defendant Kofinas shall answer the second amended complaint within twenty (20) days of said service.

This shall constitute the decision and order of this Court.

Dated: December 2, 2009

_________________________

J.S.C. Footnotes

Footnote 1: Timely in that the action for recovery would not be barred by the applicable statute of limitations imposed by New York State Insurance Law § 3224-b(b)(2).