Swindlers who game Minnesota’s no-fault auto insurance system by soliciting accident “victims” for bogus yet profitable medical treatments are the target of legislators teaming up with the industry to fight costly fraud.

“This is organized crime.” said Mark Kulda, vice president of public affairs for the Insurance Federation of Minnesota. “These are people who do it as their full-time job and have moved out of drugs and guns and into insurance fraud because it’s easy and lucrative and hard to catch.”

Minnesota is one of nine no-fault insurance states. That means insured drivers involved in an accident, along with their passengers, receive up to $20,000 in medical benefits and lost wages, regardless of who caused the accident. The fraud works often like this: Victims involved in an accident are bombarded with solicitations from chiropractors, trial lawyers or other businesses with offers for free evaluations or services, or in some cases, promises of cash payouts. If a victim comes in, the perpetrator will obtain insurance information and provide a minor service, then start billing providers for multiple times. Under no-fault insurance, consumers don’t receive an explanation of benefits and may never know how much the provider billed.

On Thursday, a bipartisan group of senators, backed by industry officials and law enforcement, released a nine-point plan that would tighten state regulations and begin closing loopholes that make the state attractive to migrating grifters, they said.

‘Grim statistics’

In October, a Twin Cities diagnostic imaging company and 46 chiropractors were accused in a federal lawsuit of defrauding the no-fault system with overpriced medical procedures and kickbacks to the practitioners who ordered them.

Kulda said changes could reverse “grim statistics” for the state. Auto insurance fraud costs Minnesota families an average of $1,400 per year, not just in premiums but other costs driven up by the loss.

The recommendations stem from an effort headed by Sens. Vicki Jensen, DFL-Owatonna, and Paul Gazelka, R-Nisswa, both insurance agents, along with Jim Metzen, DFL-South St. Paul. Following the lead of such states as New York and Florida, the proposals include capping insurance reimbursement for prescription drugs and banning the sale of accident reports to the general public to prevent criminals from access to potential marks.

Legislators hope to address the reforms in several bills. The first would enable information to be shared between insurance companies and law enforcement about suspicious billers, a practice now limited by antitrust laws. Another bill would allow the state Commerce Department to provide administrative enforcement rather than relying solely on expensive and time-consuming criminal prosecutions.

Gazelka said the effort reflects years of attempted reforms to no-fault insurance. When no-fault insurance took off in the 1970s, about half the states hopped on the trend. Since then, many have changed their policies when they found that fraud drove up premiums. Gazelka said the proposed changes are about reforming no-fault insurance, not repealing it. He added that the vast majority of treatment providers are above board and the new proposals are intent on flushing out a minority of “bad apples.”

“We think there are a number of reasons why it’s good,” he said. “Ambulance charges are immediately covered, there’s no question whether medical bills will be paid if there’s a car accident. So there are some real benefits.”

Kulda, who said he’s seen billings for treatments that include aromatherapy and horseback riding, said bogus billing often falls into two categories. “Soft fraud” practices include doctors who treat unnecessarily to rack up more billings to insurance companies. “Hard fraud” is more overt, with perpetrators obtaining accident reports and paying “runners” to knock on a victim’s door. The runner typically offers the victim money to come into the office and fill out paperwork, so the billing process may begin in exchange for little or no treatment.

Kulda recently heard Minneapolis’ Lake Street was a hotbed of activity. He drove a 2-mile stretch, where he said he saw offices for about a dozen chiropractic offices and five personal injury attorneys.

“You look at it and say ‘That’s a chiropractor?’ If that was a dive bar, I wouldn’t go in that place,” he said. “It’s clear that it’s not a clinic set up to have patients, it’s just an office and they’re doing it right under our nose.”