Expansion of Mallela

Liberty Mut. Ins. Co. v Raia Med. Health, P.C., 2016 NY Slip Op 04916 (2d Dept. 2016)

As I wait every week for the results of one of my appeals, I see some interesting cases.  Pat McDonnell’s firm did a solid job on this from what I can tell.  This is an issue that has vexed me for years as you will see below.

The facts of this case appear straightforward.  Dr. Raia owns a diagnostic facility but admitted in connection with his Socrates venture in affidavit form that he cannot  read MRIs or perform MRIs .  Liberty Mutual is seeking to void out receivables under a Mallela theory, and although not cited in the opinion, I suspect the thrust of the brief was in accordance with the Appellate Term, Second Department matter of Quality Medical Care, P.C. v. New York Cent. Mut. Fire Ins. Co., 26 Misc.3d 139(A)(App. Term 2d Dept. 2010), which voiced out acupuncture billing when a physician was not certified in acupuncture.  The Quality Medical Court reasoned that one cannot bill for a service the owner is unable to perform.

Quality Medical came after  Healthmakers Medical Group, P.C. v. Travelers Indem. Co., 13 Misc.3d 136(A)(App. Term 1st Dept. 2006), which on similar facts to Quality Medical said a physician owned PC owned by a non-certified acupuncturist could bill for acupuncturist services that an LAC provided, as long as it was in accordance with the LAC’s rate.

I think Healthmakers from a policy standpoint makes sense because if a physician wishes to hire people that are legally competent to perform the service, why should the owner be ineligible to receive services because although he is a physician, he lacks the skill to perform the services?  Put a slight different way, if proper insurance and safeguards are in place, then is patient safety and accuracy of the machinery sacrificed because the owner of the facility who is legally liable for the practice cannot render the service?  Consider how Article 28’s and hospitals are run before you comment.  But that is just my opinion from a policy standpoint.  I also think medical providers should have to prove prima facie medical necessity.

Legally, the Second Department followed the Quality approach, and again, I am not saying the Appellate Division did anything legally incorrect.  The opinion is well supported and fosters the competing policy goal of making sure medical corporations are in business for the care of patients and not as a vehicle to launder money.

On balance, the Second Department found the competing policy goal to trump the policy of goal of fostering easier access and less regulatory hurdles to businesses that are presumptive otherwise capable to render quality care.

Here is the bolded part of the decision of which you should be aware:

“ere, the plaintiffs demonstrated a likelihood of success on the merits on their declaratory judgment causes of action. “Insurance Law § 5102 et seq. requires no-fault carriers to reimburse patients (or, as in this case, their medical provider assignees) for basic economic loss’” (State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d 313, 320). However, “ provider of health care services is not eligible for reimbursement under section 5102(a)(1) of the Insurance Law if the provider fails to meet any applicable New York State or local licensing requirement necessary to perform such service in New York” (11 NYCRR 65-3.16). “State law mandates that professional service corporations be owned and controlled only by licensed professionals” (One Beacon Ins. Group, LLC v Midland Med. Care, P.C., 54 AD3d 738, 740), and provides that a professional service corporation may issue shares only to individuals, inter alia, “who are or have been engaged in the practice of such profession in such corporation or a predecessor entity” (Business Corporation Law § 1507). In this case, the plaintiffs established that RMH provided only radiological services consisting of X rays, and MRI and CT scans, and produced an affidavit from Raia, in which he admitted that he had “no training or experience in the field of radiology, including the performance and/or interpretation of MRI studies and/or x-rays.” Raia also averred that he did not consider himself “competent either (i) interpreting MRI studies and/or x-ray studies that are performed on patients; or (ii) supervising the interpretations of MRI studies and/or x-ray studies.” The plaintiffs also submitted an affidavit from an investigator for the plaintiff Liberty Mutual Insurance Company within its Special Investigations Unit, who concluded that RMH was merely a “reincarnation” of Socrates Medical Health, P.C. (hereinafter Socrates), a predecessor professional corporation purportedly owned by Raia which was actually controlled by a nonphysician. The investigator indicated, among other things, that Socrates’s medical director, who was also RMH’s initial medical director, had previously faced “charges by the Attorney General of New Jersey that included being employed by unlicensed MRI facilities and negligently misreading MRI studies,” and had “agreed to pay $60,000.00 and be subject to monitoring for two years.” Thus, the plaintiffs’ submissions demonstrated a likelihood of success on the merits.

Further, under the circumstances of this case, the plaintiffs demonstrated the likelihood of irreparable injury absent the granting of the preliminary injunction, based on the multiplicity of actions and arbitrations, and the risk of inconsistent results

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Legal Update (February 2026): Since this post’s publication in 2016, there have been significant regulatory developments affecting diagnostic facility billing and physician supervision requirements under 11 NYCRR 65-3, particularly sections addressing provider qualification standards and billing authorization protocols. The intersection of Insurance Law § 5102 provisions with diagnostic imaging services has also been subject to regulatory refinement and case law evolution. Practitioners should verify current provisions of 11 NYCRR 65-3.16 and related billing authorization requirements, as enforcement standards and qualification criteria may have been modified through subsequent regulatory amendments.