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Managed Care Lawsuit Watch

Managed Care Lawsuit Watch - March 2011


This summary of key lawsuits affecting managed care is provided by the Health Care Group of Crowell & Moring LLP. If you have questions or need assistance on managed care law matters, please contact Chris Flynn, Peter Roan, or any member of the health law group.

Please click to view the full Crowell & Moring Managed Care Lawsuit Watch archive.

Cases in this issue:


Quality Infusion Care, Inc. v. Health Care Service Corporation
No. 09-20188 (5th Cir. Dec. 23, 2010)

Quality Infusion Care (QIC) is a non-contracted health care entity and thus obtains assignments from patients it treats in order to submit claims for payment to Blue Cross Blue Shield (BCBS).  BCBS determined it had overpaid several such claims and demanded that QIC reimburse the excess payments.  When QIC never refunded the money, BCBS set-off the overpaid amounts from subsequent payments to QIC, without regard to whether the subsequent claim was from the same patient or under the same insurance plan.  QIC sued, claiming it was entitled to the amounts BCBS had withheld and that the plan language at issue did not permit recovery for claims resulting from treating different patients under different plans.  BCBS argued that the language in the three plans at issue all permitted BCBS to withhold payment in this manner.  The district court granted summary judgment in favor of BCBS and the Fifth Circuit affirmed.

The court explained that QIC, as an assignee of the patients' rights to payment, was subject to any "setoffs" that could be asserted against the patients.  QIC argued that, because a given patient was only subject to setoffs for its own claims, BCBS could not deduct payment amounts associated with different patients with different plans. The Fifth Circuit disagreed, explaining that the plain language in the plan documents did not specify that overpayments must be offset against the same patient's future claim.  Instead, the language permitted BCBS to recover any overpayment it makes from the person to whom BCBS made the payment, regardless of whether it was the patient or the provider.  Thus, when the patients assigned their rights to payment under the plan to QIC, QIC thereby became subject to the broad overpayment recovery provisions in the plan documents at issue.  The court therefore concluded that BCBS was entitled to deduct the overpayments from future claims and affirmed summary judgment in favor of BCBS.

Florida, et al. v. United States Department of Health & Human Services, et al.
Case No. 3:10-cv-91-RV/EMT (N.D. Fla. Jan. 31, 2011)

The United States District Court for the Northern District of Florida ruled on a suit brought by the Florida Attorney General and joined by twenty-five other states, among others, challenging the constitutionality of PPACA.  While numerous challenges to the law's constitutionality were brought, the Court specifically ruled on Plaintiffs' claims alleging (1) that PPACA violates the Spending Clause and principles of federalism under the Ninth and Tenth Amendments to the extent that the law expands the Medicaid program to cover certain new classes of individuals and render the states responsible for the actual provision of health services thereunder, and (2) that Section 1501 of PPACA, commonly known as the Minimum Essential Coverage Provision or the Individual Mandate Provision, exceeds Congress's authority under the Commerce Clause.

After finding that the Medicaid expansion complained of by the Plaintiffs did not violate the Constitution, the Court declared the Individual Mandate provision unconstitutional as Congress lacked the authority to enact the provision under the Commerce clause.  The Court's conclusion is in align with the Eastern District of Virginia's ruling on December 13, 2010, but in conflict with the Eastern District of Michigan's and the Western District of Virginia's rulings in October and November of last year. 

However, unlike the Eastern District of Virginia, the Court here found that the Individual Mandate Provision was inextricably tied to the entire legislation, and therefore, could not be severed.  In particular, the Court concluded:

[N]otwithstanding the fact that many of the provisions in the Act can stand independently without the individual mandate (as a technical and practical matter), it is reasonably "evident"… that the individual mandate was an essential and indispensable part of the health reform efforts, and that Congress did not believe other parts of the Act could (or it would want them to) survive independently.  I must conclude that the individual mandate and the remaining provisions are all inextricably bound together in purpose and must stand or fall as a single unit.

As a result, the Florida Court declared the entire Act unconstitutional and, therefore, void.

Subsequently, the Court stayed its order on condition that the government seek an expedited appeal.  The government has done so, seeking review in the 11th Circuit Court of Appeals.

Bryant, et al. v. Holder, et al.
Case No. 2:10-cv-00076-KS-MTP (S.D. Miss. Fla. Feb. 3, 2011)

The District Court for the Southern District of Mississippi dismissed a lawsuit brought by Mississippi's Lieutenant Governor along with ten individuals residing in Mississippi who do not have health insurance.  The lawsuit challenged the constitutionality of the "minimum essential coverage" provision, or individual mandate, in PPACA.  Specifically, Plaintiffs alleged that the minimum essential coverage provision: 1) exceeds the power granted to Congress by the Commerce Clause of Article I of the United States Constitution; 2) constitutes an unconstitutional taking pursuant to the Fifth Amendment to the United States Constitution; 3) violates substantive due process rights guaranteed by the Fifth and Fourteenth Amendments; and 4) violates the Tenth Amendment.  Additionally, the Plaintiffs further contended that the tax penalty is an unconstitutional capitation or direct tax.

The Plaintiffs argued, in part, that they had standing to bring the claims they asserted, and therefore the Court had jurisdiction to hear the lawsuit, because the minimum essential coverage provision (1) constitutes a concrete threat of injury insofar as it will force them to purchase health insurance or be subject to a financial penalty, and (2) the provision will force them to manage their financial affairs to prepare for the provision's requirements.  In response, the Defendants filed a motion to dismiss the lawsuit claiming that the Court did not have jurisdiction to hear the case, because the Plaintiffs did not have standing to bring the suit.

The Court agreed with the Defendants' jurisdictional challenge and found that the Plaintiffs' lacked standing to challenge the minimum essential coverage provision, because the allegations in the Plaintiffs' complaint were insufficient to show a "certainly impending" injury.  For example, the Court explained that the ten private individuals did not sufficiently allege that (1) the minimum coverage provision would apply to them and (2) that they would incur the tax penalty for non-compliance in the event the provision would apply to them.  However, because the Plaintiffs' complaint was dismissed without prejudice, the Plaintiffs may amend their complaint and file it again within 30 days from the date of the opinion.

Schoedinger v. United Healthcare of the Midwest, Inc.
No. 07-cv-904 (E.D. Mo. Jan. 12, 2011)

Plaintiffs, George Schoedinger and Signature Health Services, Inc., initiated this legal action in 2006, alleging that defendant United Healthcare of the Midwest, Inc. did not pay, underpaid, or wrongfully delayed payments for certain benefits claims.  In the present action—a continuation of the former—plaintiffs sought payment for medical services provided and benefits claims arising after the 2006 case was decided.  The U.S. District Court for the Eastern District of Missouri granted defendant United Healthcare's motion to dismiss certain counts included in plaintiff's first amended complaint.

The court first considered the plaintiffs RICO allegations, which it found were "identical in all respects to the alleged RICO violations" in the 2006 case.  Based on the theories of res judicata and collateral estoppel—which generally preclude the relitigation of settled matters or issues—the court dismissed the plaintiffs RICO allegations.  The court so held despite the plaintiffs' argument that the instant lawsuit involved benefit claims processed after the earlier action.

Plaintiffs also alleged tortious interference with a business expectancy against United Healthcare.  The claim was premised on the allegation that the defendants interfered with a contractual relationship with plaintiffs' patients for payment of services rendered (such that plaintiffs, as assignees of the patients, were due the amounts allegedly due under the patients' health care plans).  The court held that the claim must fail because a "claim for tortious interference . . . cannot lie against a party to a contract which creates the business expectancy."  In other words, the court found that "defendant is clearly a party to the business relationship which plaintiff contends defendant has interfered with."  Furthermore, the court found that ERISA preempts plaintiffs' tortious interference claim as to all benefit claims covered by ERISA.

Humana Med. Plan, Inc. v. Reale
Case No. 10-21493-Civ-COOKE/BANDSTRA (S.D. Cal. Jan. 31, 2011)

The District Court for the Southern District of California rejected Humana's argument that the court had federal question jurisdiction over Humana's claim for the benefits paid to a beneficiary who had subsequently won damages in a slip-and-fall suit related to her injury.

Humana, a Medicare Advantage organization, paid $19,155.41 to Reale in April 2009 for medical expenses to treat her injury from a fall.  Reale then filed a suit against the premises owner, who settled for an amount in excess of $19,155.41.  Humana sought to recover from Reale and her provider the benefits it had paid out under the Medicare Secondary Payer Act, 42 U.S.C. § 1395y(b)(2).

The court upheld the defendants' motion to dismiss after determining that Humana had been incorrect to interpret the Act and a related regulation as providing for a private right of action. Humana claimed it had, by regulation, the same authority to seek judicial remedies as the Secretary has under the Medicare statute.  However, according to the Court, Humana had misread the statute as authorizing the Secretary of the Department of Health and Human Services.  The court viewed the statute as authorizing only the United States, but not the Secretary, to bring such an action.

San Ramon Regional Medical Center Inc. v. Principal Life Insurance Co.
No. 4:10-CV-2258 (N.D. Cal. Jan. 11, 2011)

San Ramon Regional Medical Center (San Ramon) sued Principal Life Insurance Company (Principal), alleging that Principal breached their agreement by underpaying San Ramon for medical care provided to a patient.  Principal removed the action to federal court claiming that the state law claims were completely preempted by ERISA. Applying the Davila test, which requires preemption if (1) an individual could have brought a claim under ERISA and (2) there is no other independent legal duty implicated by the defendant's action, the U.S. District Court for the Northern District of California held that San Ramon's claims were not preempted by ERISA. 

With regard to the first prong of the Davila test, the Court concluded that San Ramon was suing under contractual rights allegedly granted by the agreement between them and not as the patient's assignee.  The Court noted that the patient's health plan document did not mention any of the patient's rights being assigned to a provider and there was no provision authorizing a provider to directly enforce the patient's rights.  Therefore, San Ramon could not bring a claim under ERISA. 

Addressing the second prong of the Davila test, the Court held that Principal's actions implicated a legal duty independent of the health plan, noting that San Ramon alleged that Principal's obligation derived from the agreement and not the health plan.  In doing so, the Court rejected Principal's argument that San Ramon's claim related to whether Principal was required to pay for non-covered services under the health plan.  According to the Court, the possibility that the claims may "relate to" the health plan was insufficient for purposes of establishing that the claims were preempted by ERISA.  The Court remanded the case to state court.

Farnsworth v. Harston
No. 2:10-cv-238 CW (D. Utah Jan. 27, 2011)

The U.S. District Court for the District of Utah denied removal to federal court, finding that FEHBA did not completely preempt a state law medical malpractice claim where injury allegedly resulted from a coverage denial.

LaVern Farnsworth, a federal employee, brought suit in state court against her health insurance benefit plan, Altius Health Plans, Inc., as well as a plan doctor, Dr. Dennis Harston, after coverage of her IVIG treatment for Guillain-Barre Syndrome was discontinued on the basis of its label as "experimental."  Though the coverage decision was eventually reversed, she claimed that the interruption of treatment resulted in permanent damage.

Both defendants sought to remove to federal court on the basis that Farnsworth's claims were mere challenges to the coverage denials masquerading as malpractice claims, and as such, were preempted by FEHBA.   Farnsworth filed a motion to remand and requested attorney's fees and costs incurred as a result of the removal issue.

The district court held that the case was governed by the Supreme Court's ruling in Empire Healthchoice Assurance, Inc. v. McVeigh, 547 U.S. 677 (2006).  There, the Supreme Court held that FEHBA does not result in complete preemption of "any and all state laws that in some way bear on federal employee-benefit plans" (emphasis in original).  547 U.S. at 698.  Buttressed by several other federal cases in which the McVeigh decision was interpreted so as not to apply complete preemption to a variety of state law claims, the district court found that Farnsworth's medical malpractice claims, too, deserved to move forward in state court.

The district court noted that its decision on removal was unaffected by defendants' potentially viable claim of conflict preemption under FEHBA.  Citing prior Tenth Circuit precedent, it held that, barring complete preemption, "a complaint asserting only state law causes of action should be remanded to state court."  Because the court found that FEHBA did not completely preempt Farnsworth's state law medical malpractice claims, the district court granted the motion for remand.

The district court also granted Farnsworth's request for attorney's fees and costs in fighting the motion to remove.  In doing so, the district court made much of the fact that the defendants failed to offer any justification for removal that took into account the McVeigh decision.

College of Dental Surgeons of Puerto Rico v. Triple S Management, Inc.
Civil No. 09-1209 (D.P.R. Feb. 8, 2011)

Plaintiff, the College of Dental Surgeons of Puerto Rico, sued several health insurance companies (the "Defendants") in Puerto Rico state court for allegedly denying, delaying and decreasing payments owed to dentists.  Defendants removed the case to federal court, utilizing the grant of diversity jurisdiction provided by the Class Action Fairness Act of 2005 ("CAFA"). 

Under CAFA, diversity jurisdiction for class action suits was expanded to create federal subject matter jurisdiction as long as a single party is diverse from any of the opposing parties and the amount-in-controversy is at least five million dollars.  However, a case can be remanded if the plaintiffs can prove that either the "Local Controversy" or "Home State" exception applies.  The Local Controversy exception applies if, in addition to other required elements, the "principal injuries resulting from the alleged conduct or any related conduct of each defendant incurred in the State in which the action was originally filed." 

Defendants argued that this exception did not apply based on the disputed meaning of "principal injuries," which is not defined anywhere in the statute.  Under Defendants' interpretation, federal jurisdiction is required if a defendant's alleged conduct could have injured people in multiple jurisdictions, whereas Plaintiff argued that the "principal injuries" were limited to those based on the breach of contracts governed by Puerto Rico law. 

Using various methods of statutory interpretation, including looking at the plain meaning of the text and a review of the legislative history, the Court agreed with Defendants and concluded that "principal injuries" include injuries to any individual harmed by defendants' alleged or related conduct and that Defendants' alleged conduct potentially injured people in other states.

The Court also ruled that the "Home State" exception did not apply because there was no basis to distinguish Defendants as being secondary to any other defendant.  Under the Home State exception, two-thirds of the proposed plaintiff class and all "primary defendants" must be citizens of the state where the action was first filed.

Kovach v. Coventry Health Care, Inc.
No. 10-cv-536 (W.D. Pa. Jan. 25, 2011)

Maryann Kovach, the surviving spouse and executrix of the estate of Richard S. Kovach, was enrolled with her husband in a Medicare Advantage plan offered by Coventry Health Care, Inc.  Mr. Kovach received a cardiac catheterization procedure, which was accompanied by significant medical complications, and ultimately needed the care of a long term acute care facility ("LTAC").  Mrs. Kovach alleged that Coventry refused to cover her husband's treatment at a LTAC facility, and following Mr. Kovach's death, she brought claims alleging violation of due process under the Constitution of the United States and four state law claims, including statutory bad faith under the state Insurance Practices Act.  The plaintiff did not seek recovery of Medicare benefits or assert wrongful denial of benefits.

The Court dismissed Mrs. Kovach's first allegation regarding due process.  The Court held that an allegation under Section 1983 must include a deprivation of rights "under color of state law" – thus eliminating actions based on private conduct.  The court found that, though Coventry is licensed by the state and is subject to regulation with respect to the Medicare Advantage program, Coventry was not a state actor for purposes of the U.S. Constitution.  As a result, the court dismissed the plaintiff's due process claim.

The Court found that Mrs. Kovach's claims did not arise under the Medicare Act, but were instead grounded independently in state law.  Therefore, the court remanded plaintiff's state law claims to state court in Pennsylvania.

Colicchio v. Office of Personnel Management
No. DKC 10-0015 (D. Md. Feb. 3, 2011)

After breaking her ankle, the plaintiff continued to have issues and sought medical advice.  Her first two doctors recommended a more traditional ankle fusion rather than a riskier procedure (called an "allograft"), but a third doctor agreed that an allograft was a viable option.  However, when the plaintiff sought precertification, Carefirst BCBS, the plaintiff's insurer, denied on the basis that an allograft was not "medically necessary" because it offered no advantage over conventional surgical options.  The plaintiff sought reconsideration, but two independent physicians from whom BCBS sought medical reviews agreed that the allograft was still experimental and "not standard," and thus BCBS upheld its initial denial. 

The plaintiff appealed to the Office of Personnel and Management (OPM), but OPM also concluded that the allograft was not medically necessary.  The plaintiff went through with the surgery anyway and brought suit to recover her costs.

After reviewing the record pursuant to the Administrative Procedure Act, the court granted OPM's motion for summary judgment. The plaintiff argued that (1) the record did not support OPM's determination that an allograft procedure was unlikely to be effective given her condition; and (2) OPM overlooked literature supporting the usefulness of the allograft procedure. The court rejected both arguments, holding that "OPM based its decision on relevant factors, and there is a rational connection between the facts found and the final decision that the treatment is not medically necessary."  Not only did two of the plaintiff's own doctors "seem hesitant" to recommend an allograft, but all of the medical reviewers also recommended against the procedure.  The court further determined that OPM did not overlook relevant medical literature because the record contained numerous articles stating that the allograft procedure was still experimental.  Thus, the court concluded that OPM's decision to uphold the denial of benefits was not arbitrary and capricious, or otherwise contrary to law.

Consumer Watchdog v. California Department of Managed Health Care
No. BS121397 (Cal. App. Dep't Super Ct. Jan 3, 2011)

The Superior Court of California for the County of Los Angeles denied in part Consumer Watchdog's petition for writ of mandate, leaving within California agency's discretion decisions on managed care plan denials of coverage for ABA treatment, even when "medically necessary," in cases where treatment had been provided by unlicensed specialists.

Consumer Watchdog brought an action against the California Department of Managed Health Care ("Department") seeking a writ of mandate, as well as injunctive and declaratory relief.  All three causes of action stemmed from the plaintiff's objections to the Department having declined to require managed care plan coverage of ABA, a treatment for autism, from unlicensed providers.  In addition to seeking a court mandate on the coverage issue, Consumer Watchdog sought both to cease implementation of a Department memorandum alleged to unlawfully "regulate" ABA coverage, and also to force production of certain Department records.  The court denied the petition as to the coverage issue and found the records production issue to be moot, while granting the petition as to the issue of the ABA memorandum's application alone.

After first dispensing with the records production issue, the court next addressed the extent to which its earlier decision on demurrer would bear on the case.  Earlier, when overruling the Department's demurrer, the court had agreed with Consumer Watchdog's claim that nothing in the California Mental Health Parity Act ("MHPA") or its implementing regulations permitted coverage limitations on the basis of state licensure; in fact, the court viewed plan coverage of ABA for the treatment of autism as likely necessary to satisfy the MHPA's overriding purpose "to provide services for mental health, including ABA services for autism, on an equal footing with services for physical conditions."  Despite these previous admonishments against the Department's practices as to ABA coverage, the court in the instant action held that its findings in the demurrer decision were not binding and, thus, not dispositive.

Third, the court looked to the state Business and Professions Code for guidance on statutory licensure requirements pertaining to various medical fields.  It concluded that the section in question "does not prohibit non-licensed ABA specialists from practicing."

Fourth, the court examined whether California law imposed any ministerial duty on the Department to compel managed plan coverage of ABA treatment from unlicensed providers.  The court did not find any duty requiring the Department to act one way or the other as to coverage decisions involving unlicensed providers.  Rather, the court considered the Department's preference for state-licensed ABA providers to be consistent with the Department's statutory mandate to "insure that plans provide quality health care services in order to protect the interests of the enrollees."

Last, the court addressed Consumer Watchdog's argument that a March 9, 2009 Department Memorandum concerning ABA coverage amounted to an "illegal underground regulation."  According to the Memorandum, the Department would evaluate appeals of enrollee grievances by first determining whether the desired autism treatment is covered by the plan, and only refer the appeal for Independent Medical Review ("IMR") on questions about the treatment's qualification as "medically necessary" if the coverage question had been decided in favor of the enrollee. 

The court found that Memorandum's approach was "not the only legally tenable interpretation" of relevant state law.  Thus, the Memorandum constituted a regulation, but one that failed to comply with the state Administrative Procedures Act.  Even so, the court held that its grant of the petition as to the unenforceability of the Memorandum as a regulation was not dispositive as to either the coverage issue (above) or the order of decision-making the Memorandum sought to implement.  The Department retains its discretion in these areas.

United States ex rel. Laura Rupert and Robin Herzog v. Caresource Management Group, Co.
Civil Action No. 2:06 CV 961 (S.D. Ohio Jan. 31, 2011)

The District Court for the Southern District of Ohio signed off on CareSource's settlement with the United States and the state of Ohio, releasing CareSource from liability for its false Medicaid claims in trade for a payment of $26 million.

The suit was begun by two CareSource employees, who brought a qui tam action against the company, alleging that CareSource had billed Medicaid while knowingly failing to provide Medicaid enrollees various services. The whistleblowers alleged that from 2001 to 2006, CareSource had received reimbursements from Medicaid for the provision of screening, assessment, and case management services, as well as data submissions and data reconciliations.

AmeriHealth Mercy
(settlement agreement announced Jan. 26, 2011)

AmeriHealth Mercy (AMHP) agreed to pay $2,032,758 to resolve allegations by the Kentucky Attorney General that as third party administrator for the Commonwealth's Passport Health Plan under the Kentucky Medicaid Program it improperly received contracted bonus payments by falsely reporting  to the Department of Medicaid Services its 2009 Health Effectiveness Data and Information Set (HEDIS) score for Cervical Cancer Screening (CCS). 

In 2009, AMHP was under contract with University Health Care, Inc. (UHC) to manage the Passport Health Plan, the state's Medicaid managed care plan that serves Medicaid recipients in a 16-county area in and around Louisville.  The contract provided for a bonus payment to AMHP if it achieved certain HEDIS score goals.   For CCS, the HEDIS score is measured by determining how many eligible females received a Pap smear.   Members may also be excluded if they have received a full hysterectomy.  The Commonwealth alleged that for the 2009 CCS HEDIS measure, AMHP excluded members as having a full hysterectomy where there was no medical evidence of a full hysterectomy.   AMHP also allegedly counted members as having received a Pap smear where there was no medical evidence of a Pap smear.  These actions increased AMHP's HEDIS score, allegedly enabling it to receive more than $677,000 from UHC in Medicaid funds.

According to the Attorney General, the more than $2 million in the judgment constitutes treble damages, or triple the amount of the actual damages.  In addition, the settlement agreement requires that AMHP put procedures and personnel in place to ensure that all reports sent to both the Commonwealth and UHC, including HEDIS scores, are fully and completely accurate. 

The Consent Judgment and Assurance of Voluntary Compliance were filed in Franklin Circuit Court.





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