In response, the doctors and outpatient medical facility filed a defamation lawsuit against State Farm that alleges the insurer is trying to “destroy these doctors’ reputations in the medical and civilian communities they serve.”

State Farm and the surgery center have a legal history dating back to late 2008 when Palm Beach Lakes Surgery Center filed a suit looking to recover damages allegedly caused by State Farm’s previous “campaign to defame” the center and doctors. The insurer had threatened the center with federal and state prosecution and filed a complaint with Florida’s Department of Health, court documents say. The DOH concluded there was no evidence to initiate a probable cause finding.

The new litigation centers on the use of PDs for back pain. A medical device called the SpineWand, manufactured by ArthroCare, is used during the procedure (pictured at right).

State Farm claims the diagnostic tests and PDs are not needed, and the close relationships between the center, attorneys, and ArthroCare is unethical and have resulted in each profiting from “fraudulent charges” related to the procedure. What State Farm describes as a scheme began at least as early as 2004, the company alleges.

In October 2010, ArthroCare agreed to pay Farmers Insurance $1.2 million as part of a settlement regarding the use of the SpineWand, according to a filing with the U.S. Securities Exchange Commission. ArthroCare admits no liability or wrongdoing as part of the settlement.

In its 2010 second quarter filing, ArthroCare said it entered into $4.8 million in settlement agreements “with certain private insurers” related to cases in which letters of protection were held by its DiscoCare subsidiary. ArthroCare acquired DiscoCare, a third-party billing company, in late 2007. The company’s first quarter filing reveals it entered into settlement agreements worth $3.2 million February and March 2010 with certain private insurers related to letters of protection.