Chief Assistant Daniel R. Alonso Testimony on Insurance Fraud Schemes Before the New York State Senate Insurance Committee

April 26, 2011 |

Thank you for the opportunity to present the views of the Manhattan District Attorney’s Office on combating no-fault insurance fraud in New York.  My name is Daniel Alonso, and I currently serve as the Chief Assistant District Attorney in Manhattan.  By way of background, I have been a prosecutor for 15 out of the 21 years that I have practiced law, including nine years as an Assistant United States Attorney in the Eastern District of New York, where I served for three of those years as Chief of the Criminal Division. In that capacity, I supervised the prosecution of a wide range of crimes including health care fraud, and I was the lead prosecutor in what was, at the time we announced the indictment in 2001, the largest staged accident case in New York’s history. My current office, under the leadership of District Attorney Cyrus R. Vance, Jr., just last year successfully prosecuted on Enterprise Corruption charges the members of a massive no-fault ring known as the St. Nicholas Group, which netted millions of dollars in fraudulent claims.

We in law enforcement are keenly aware that wherever there is a large pot of money, there are criminals looking to steal it. And one of the larger pots of money is that mandated by New York law and funded by ratepayers around the state who own cars: no-fault insurance. Unfortunately, no-fault has lent itself to massive fraud and abuse, which has contributed to our inordinately high auto insurance rates.

District Attorney Vance ran for office on a platform of crime prevention, and our Office very much operates under the principle that a crime prevented is worth more than a crime prosecuted. We are not waiting to react to crime – we have made it a point to come up with strategies to prevent serious crimes before they happen. This is true in the violent crime arena, and it is equally true with white collar crime and organized crime. With no-fault insurance fraud, this translates into a need for a strong, effective law criminalizing the unscrupulous “runners” who pay and are paid to bring patients into no-fault clinics. The purpose is simple: to prevent fraudulent claims.

This body and Congress have known for decades that sometimes it is necessary to criminalize certain behaviors in order to deter or prevent other, more costly behaviors. Thus, in New York we criminalize possession of guns as a way to prevent shootings, or switchblades to prevent stabbings. And the federal Medicare-Medicaid Anti-Kickback Act  makes it a crime to pay for patient referrals, because when you’re getting paid for every patient you send over, you quickly run out of legitimate patients, and that becomes the source of Medicare and Medicaid fraud.

So, too, in the no-fault insurance area, we need to prevent fraud by attacking the root of the problem, the runner. As you have heard, the typical scheme involves collaboration among not just unscrupulous medical clinics and lawyers, but also the runners who recruit and bring in patients and clients.  If I could stress one and only one point to you today it would be this:  without runners, the patient supply for fraudulent clinics would dry up, and New York’s ratepayers would save tens if not hundreds of millions of dollars.

The no-fault scam is like a 21st century “military-industrial complex” for the underworld, in that every participant works to make sure that every other participant makes money. The runner brings patients to the clinic and gets paid. The patient visits the clinic and gets paid. The lawyer, who has been helpfully provided by the clinic, signs up the patient and gets paid his one-third contingent fee for what is typically a nuisance-value pain and suffering claim. And of course, the clinic owners and other providers get paid for providing as many kinds of treatments as they can – neurology, psychological counseling, MRIs, X-rays, acupuncture, physical therapy, and durable medical equipment, to name a few. Everyone wins, except the insurance companies and their ratepayers, those of us who own cars. We lose.

In our experience, runners operate in four primary ways, all of which involve their steering passengers whose names are on the accident report – and who are willing to return for multiple visits – to the corrupt no-fault clinic in exchange for between $1,000 and $2,000 per head. Those passengers are typically given services that are based not on need, but rather on how much they generate in insurance billings for the clinic.

In the first typical scenario, runners use their street connections to find people who were in real car accidents — whether actually injured or not — and send them to the clinics for services. Second, they may stage the accidents by fitting as many people as possible into at least two cars, and plotting a low impact collision. Third, in a dangerous variation on the staged accident, some runners may actually have their recruits cause an accident with an innocent victim, usually targeting expensive cars on the theory that these cars are better insured. And finally, although this is rare, I have personally prosecuted a runner for bribing a corrupt Brooklyn police officer to draft bogus accident reports.

The common theme is the runner – typically a shady middleman who does not care one whit about injuries, patients, or taxpayers, only money in his pocket. As I mentioned earlier, during my tenure at the U.S. Attorney’s Office, we prosecuted a large-scale staged accident ring known as the Hawkins organization, named for Quentin “Flint” Hawkins, who at the time we called the “king of the runners” in Brooklyn. Until Judge Jack Weinstein sent him to federal prison, he had spent more than 20 years staging hundreds of car accidents, each generating on average between $100,000 and $200,000 in fraudulent billings by no-fault clinics.

Despite the many successes of my office and our sister offices in New York, we also encounter common setbacks. The entire enterprise is premised on the understanding that its participants will stick to a simple plan if questioned by police. The patients know to say they were really injured, the doctors say they merely treated a patient who complained of injuries, the lawyers say they filed a claim for a client who had an accident report and medical records, and the runners run away. It is thus exceedingly difficult under existing law, without years of investigation, to prove that the various participants acted with knowledge of fraudulent claims.

Instead, in order for state prosecutors to prevent no-fault insurance fraud schemes effectively, we need to be able to take runners off the streets, put them out of business, and put them in prison. For that reason, the Manhattan DA’s Office proposes that you make it illegal either to act as a runner or to hire a runner, and that for certain thresholds – either monetary or based on the number of patients referred – you make hiring or acting as a runner a felony subject to the provisions of New York’s Organized Crime Control Act.

I do have one caution, which I offer most respectfully. We propose a law that criminalizes paying for patients and clients, as a means to prevent fraud. But fraud itself is already a crime, and the concept of fraudulent intent or knowledge is, as I suggested a moment ago, better left to our anti-fraud laws. The runner law that I propose is a prophylactic measure against fraud. We look forward to working with Senate staff and interested groups to produce a bill, or amend existing proposals, to truly fulfill the purpose that we propose today.

Once you dry up the supply of patients, you’ll take away the incentive to defraud insurance companies.  This is simply being smart about crime prevention.  We commend the leadership of the Committee, especially its Chair and Senator Golden, as well as Senator Skelos, and urge the Senate and Assembly to pass an effective runner law with all due haste.

Thank you again for providing us with the opportunity to share our views today.