Physicians and a surgery center in Florida are returning fire against a fraud lawsuit filed by State Farm, alleging that they have been improperly using a back pain procedure on car accident victims covered by the automotive liability insurer. In its lawsuit, filed in January 2011, State Farm complained it had paid $13 million to the physicians and surgery center for allegedly unnecessary discogram diagnostic tests and percutaneous discectomies. PDs, also known as percutaneous disc decompressions, are minimally invasive procedures that involve removing part of the spinal disc to reduce back pain.

State Farm is alleging federal racketeering and state fraud violations against orthopedic surgeon Jeffery Kugler, MD, 2 other Palm Beach physicians and the owner and former managers of Palm Beach Lakes Surgery Center. But in counterclaims filed in federal court in November, Dr. Kugler and 2 other defendants denied State Farm's charges and then charged the company with defamation, malicious prosecution and racketeering. The lawsuit said the company had "set out on a mission" to deny use for PDs to accident victims with soft-tissue injuries.

State Farm's lawsuit had alleged that Florida personal injury lawyers funneled accident victims to Dr. Kugler and others at the surgery center. They performed more than 1,550 discograms and PDs from 2005-2008, or almost 30% of all such procedures covered by the company nationwide, State Farm alleged. The insurer said the procedures cost more than $50,000 per patient were not medically unnecessary. It noted that many insurers, including Aetna and some Blues plans, had come to the same conclusion and won't cover PDs in most cases.

But Dr. Kugler's lawsuit claimed that the procedure has a documented efficacy rate of 80% and is covered by insurers such as AIG, Liberty Mutual and South Carolina State Accident. Before the new procedure became available, the suit said, patients with soft tissue injuries simply would not have surgery, and "medical costs would be relatively low" for State Farm. Then, with the help of a consultant, the company developed a strategy that "systematically denied benefits to those claimants who were suffering from soft tissue injuries," the lawsuit charged.

Dr. Kugler's lawsuit also charged that in 2008, State Farm maliciously submitted a complaint to the Florida Department of Health saying that the Florida surgeons and surgery center were part of an insurance fraud scheme. But after investigating the allegations for a year and a half, the department dismissed the complaint. Meanwhile, however, State Farm used the allegations to force plaintiffs' attorneys to drop claims for the procedure, the lawsuit claimed.

The State Farm lawsuit also named Florida podiatrist Jonathan Cutler, who founded both the surgery center and a company called DiscoCare, which originally distributed SpineWand, a device used for PDs at the surgery center. Dr. Cutler sold DiscoCare to ArthroCare for $25 million, State Farm reported. But Dr. Kugler's lawsuit charged that allies of State Farm spread false reports that AthroCare was involved in insurance fraud, which made its stock price fell.

The State Farm lawsuit is still in its fact-finding phase. In December, a federal judge denied motions to quash State Farm's subpoenas directing nine personal injury law firms to hand over information on claims for patients covered by State Farm. The judge said the information was not protected by the state's medical records privacy law. Attorneys for both sides said they could not comment on an ongoing lawsuit.

Leigh Page