Banerjee v. Superior Court (Oct. 5, 2021, E076291) __ Cal.App.5th __ [2021 WL 4551699]

Proper patient referral disclosures do not excuse noncompliance with worker’s compensation statute prohibiting a physician’s financially interested referrals 

Dr. Sanjoy Banerjee billed Berkshire Hathaway Homestate Companies (BHHC), a workers’ compensation insurer, for medical services provided through three entities he owns: Pacific Pain Care Consultants (PPCC), Kensington Diagnostics, and Rochester Imperial Surgical Center. Dr. Banerjee operated all three entities out of a single location consisting of a lobby, a toxicology testing room, and a surgical room. A BHHC investigator identified excessive billing by Dr. Banerjee, as well as his failure to disclose to patients his ownership interest in the three entities. Prosecutors charged Dr. Banerjee with two counts of insurance fraud (Pen. Code., § 550) for violating Labor Code section 139.3, subdivision (a), which prohibits physicians from referring worker’s compensation patients for certain specified services if the physician has a financial interest in the entity receiving the referral, and three counts of perjury (Pen. Code,§ 118) based on sworn reports Dr. Banerjee submitted to BHHC stating he had not violated section 139.3(a). At a preliminary hearing, the court denied Dr. Banerjee’s motion to dismiss the information and ruled that he must answer the charges. Dr. Banerjee petitioned for writ relief.

The Court of Appeal denied writ relief as to the insurance fraud charges, but granted writ relief as to the perjury charges. Section 139.3(e) requires physicians referring patients to any entity in which the physician has a financial interest to disclose that interest to the patient. Dr. Banerjee argued that his compliance with that disclosure statute excused his noncompliance with section 139.3(a). The court rejected this argument for three reasons. First, Dr. Banerjee presented no evidence that any patient had signed the disclosure form he showed the court. Second, the disclosure form was ineffective since it disclosed only that Dr. Banerjee may have a financial interest in the Kensington and Rochester entities, not that he had such an interest. Third, compliance with section 139.3(e) simply does not excuse noncompliance with section 139.3(a). The sections operate independently, and comprehensive disclosure helps patients understand when a physician has a conflict of interest and may be making a referral for financial reasons, rather than to improve the patient’s health. Moreover, section 139.31 lists exceptions to section 139.3, which do not include compliance with the section 139.3(e) disclosure provision. Next, the court held that these statutes are not unconstitutionally vague because they give physicians fair notice of what is required. 

Finally, the court ordered the perjury charges dismissed. Those charges were based on violations of section 139.3(a). But Dr. Banerjee did not violate that statute by referring patients to his other legal entities because the physician’s office exception (§ 139.31, subd. (e)) allows physicians to refer patients to different entities located in the same office despite the physician’s financial interest in those entities. In contrast, the insurance fraud charges were supported by a strong suspicion that Dr. Banerjee created Kensington and Rochester as sham entities for the purpose of defrauding BHHC based on evidence that (1) Dr. Banerjee used these entities to bill substantially higher amounts than he previously charged for the same services, (2) he failed to inform BHHC of his financial interest in the entities, (3) the bills were designed to create the illusion that the entities were unrelated, (4) there was no business reason for forming the separate entities, and (5) Dr. Banerjee double-billed BHHC for some services.

The bulletin describing this appellate decision was originally prepared for the California Society for Healthcare Attorneys (CSHA) by H. Thomas Watson and Peder K. Batalden, Horvitz & Levy LLP, and is republished with permission.

For more information regarding this bulletin, please contact H. Thomas Watson, Horvitz & Levy LLP, at 818-995-0800 or htwatson@horvitzlevy.com.