CareFirst should have seen alleged fraud 3 years earlier, defendants say

CareFirst should have noticed an alleged multimillion-dollar health insurance fraud scheme for at least three years before filing a lawsuit against them, defendants claim.

A memorandum filed in Maryland federal court argues that CareFirst’s claims against broker Avraham Rappaport and others are barred by statutes of limitations governing federal racketeering and state contract and tort claims.

Defendants included the memo in their motion to dismiss filed last week.

Defendants point to CareFirst’s own allegations and internal records as evidence that the insurer was aware of suspicious activity well before the relevant cutoff dates.

In its June lawsuit, CareFirst alleges that Olney, Md.-based insurance broker Avraham Rappaport and his brother, Eliezer Rappaport, enrolled hundreds of ineligible individuals in health insurance plans reserved for Maryland residents.

“CareFirst sets forth in excruciating detail the number of CareFirst subscribers that simultaneously or near-simultaneously shared specific residential addresses — facts that it was aware of prior to June, 2022,” the memo states.

A CareFirst spokesperson said the insurer does not comment on active litigation.

“Utilizing fraudulent identities, fake residences, an international network of referrals, and the assistance of individuals and numerous entities, the Rappaports coordinated an international insurance-fraud machine,” the lawsuit states.

The insurer is seeking damages under the federal Racketeer Influenced and Corrupt Organizations Act, commonly known as RICO, a law often used to pursue organized fraud and conspiracy cases. The lawsuit alleges the defendants engaged in a coordinated enterprise involving multiple individuals and entities over several years.

Investigation kicked off

CareFirst began investigating the rise in costs for its individual under-65 business in March 2022, with a focus on catastrophic claims, according to an internal CareFirst document cited in the filing.

Between March and May 2022, CareFirst’s enrollment team reviewed eligibility and demographic information and found that the affected members shared the same broker, Avraham Rappaport, the memorandum says.

CareFirst also extracted claims data for policies sold by Rappaport and identified a pattern involving dozens of members receiving care exclusively outside the area where they purportedly lived, according to the document.

An “extensive review” began in June 2022, and CareFirst was contacting members directly about eligibility and verification by July 1, 2022, the memorandum says.

CareFirst ultimately alleges in its complaint that it “conclusively identified” by late 2022 that unusual claims were being submitted largely by policies sold by the Rappaports.

The defendants argue those facts are enough to trigger the statute of limitations even if CareFirst did not yet have a complete understanding of the alleged fraud or the legal theories it would later pursue.

Federal civil RICO claims are subject to a four-year statute of limitations, the memorandum says. Under U.S. Supreme Court precedent, the clock begins when a plaintiff knows or should know of the injury underlying the claim, rather than when the plaintiff discovers all of the elements of an alleged racketeering scheme.

The defendants contend that CareFirst’s alleged injury was the financial loss associated with applications for policies containing false or fictitious information.

CareFirst: Years-long scheme

According to the complaint, the scheme operated from at least 2018 until it was uncovered by CareFirst in late 2022.

CareFirst alleges the brothers recruited clients from outside Maryland and from overseas who sought access to the insurer’s nationwide coverage network, particularly for expensive medical treatments available at specialty providers across the United States.

The company claims the defendants falsely represented those individuals as Maryland residents to obtain coverage.

The alleged scheme relied on properties in the Baltimore area owned or controlled by the defendants and their associates, which were listed as policyholders’ Maryland addresses on insurance applications. When residency questions arose, the defendants allegedly directed clients to submit falsified supporting documents.

The lawsuit further alleges that the operation depended on a broader network of individuals and organizations that provided referrals, transportation, lodging and other support services.

Defendant: Toss all claims

The Rappaports make a similar argument against CareFirst’s Maryland claims for breach of contract, tort and other state-law causes of action. Maryland generally imposes a three-year limitations period for civil actions, and the defendants argue that CareFirst’s own complaint establishes that it knew of the alleged wrongdoing by late 2022 — well before June 15, 2023.

The defendants therefore ask the court to dismiss the RICO claims and the Maryland state-law claims under Rule 12(b)(6), which permits dismissal when a complaint fails to state a claim upon which relief can be granted.

The filing does not resolve the underlying allegations of insurance fraud. Instead, it asks the court to determine whether CareFirst waited too long to bring the claims.

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