A Twin Cities diagnostic imaging company and 46 chiropractors were accused in a federal lawsuit Monday of defrauding the state’s no-fault car insurance system with unnecessary medical procedures and kickbacks to practitioners who ordered them.

The $1.9 million action filed by Illinois Farmers Insurance Co. and some of its subsidiaries against Mobile Diagnostic Imaging Inc., its owner and the chiropractors, is the largest no-fault lawsuit since the law was put in place in 1974, according to the Insurance Federation of Minnesota.

The allegations reflect what local insurance representatives are saying is a growing trend of kickback schemes and staged accidents that aim to defraud auto insurers under the state’s no-fault law. The law requires insurance companies to pay up to $20,000 for medical expenses, regardless of who’s at fault in an accident.

“Today’s filing of a federal lawsuit reaffirms what our industry has been saying for several years now — that insurance fraud is rampant in Minnesota,” said Mark Kulda, the Insurance Federation’s vice president for public affairs.

Kulda said the law needs reform to stop that abuse. But some attorneys who represent accident victims say the no-fault law protects those that need help paying their medical bills.

In Monday’s lawsuit, Farmers alleges that Edina-based Mobile Diagnostic Imaging Inc. (MDI) and its owner, Michael Appleman, paid 46 chiropractors kickbacks for ordering MRIs, which Farmers claims were not always medically necessary.

Contacted Monday, Appleman refused to comment on the lawsuit.

The lawsuit claims that the kickbacks were disguised as fees for leasing phones, fax machines, copiers, Internet access and other services and equipment, even though “MDI conducts its scans in a self-sufficient MRI trailer,” according to the suit. From January through November 2011, MDI and Appleman allegedly paid $221,800 in kickbacks to the chiropractors, in payments between $700 and $15,400.

A “Chiro Roster” for 2011, obtained by the insurance companies, lists chiropractors who the insurance companies say were receiving kickbacks. There are more than 90 names on the list, but the insurance companies have redacted those not named in the suit.

The chiropractors would often order medically unnecessary scans, the lawsuit claims. For example, Dr. Assiat Boke, in Golden Valley, referred a patient to Mobile Diagnostic Imaging “even though the patient had essentially been discharged from any further chiropractic treatment,” the lawsuit said.

Four of the 46 chiropractors named in the lawsuit, including Boke, have previously been the subjects of corrective action from the Minnesota Board of Chiropractic Examiners related to payments made to them from a “mobile diagnostic imaging company,” according to the agreements.

Boke, Steve Poser, Richard Stoffels and Arlen Lieberman all signed corrective action agreements in April with the Chiropractic Board for violating a state law prohibiting “splitting fees, or promising to pay a portion of a fee or a commission, or accepting a rebate.”

Neither the Chiropractic Board nor the Minnesota Chiropractic Association could be reached for comment Monday.

Appleman is not a licensed medical professional. According to state records, in 2002 the Minnesota Board of Psychology revoked Appleman’s license for altering client records, billing for services not provided, inadequate documentation to substantiate billings and improperly releasing confidential information.

Mark Toohey, a senior vice president for Farmers Insurance, said the type of activity alleged in the lawsuit “harms all insurance consumers because of the adverse impact insurance fraud ultimately has on the insurance premiums that consumers pay.”

Blaming no-fault insurance

Kulda, with the Insurance Federation, estimates that Minnesotans pay $1,400 more in insurance premiums each year as a result of no-fault fraud.

“Our hope is that policyholders will begin to more fully comprehend the real cost to them when fraud happens because of our weak state laws,” Kulda said. “Lawmakers are already looking into the explosion in insurance fraud in recent years and we hope that the 2014 Minnesota Legislature makes combating insurance fraud a serious priority.”

Insurance companies have been attempting to reform no-fault insurance in the state since the early 2000s. In the last legislative session, the Senate Commerce Committee held several hearings at which insurance industry representatives presented data and examples of fraud, including schemes aimed at defrauding personal-injury insurers.

Pam Spaulding, an attorney with Meshbesher and Spence, a firm that represents accident victims making no-fault claims, said she does not think changing the law would lower premiums.

“I don’t think there will be that drastic of a change,” Spaulding said. “I don’t believe you will find that kind of response from the insurance industry.”

Spaulding said although the law may be susceptible to fraud, doing away with it is not a viable option when many people in the state still lack health insurance.

The next Senate committee hearing on potential changes to the no-fault insurance law is scheduled for Thursday.