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Managed Care Lawsuit Watch

Managed Care Lawsuit Watch - April 2012


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:


Kaiser Foundation Health Plan, Inc. v. Superior Court
No. B233759 (Cal. 2d DCA, Feb. 15, 2012)

Plaintiffs, Anna Rahm (a cancer patient) and her parents, filed a complaint against Kaiser Foundation Health Plan and two Kaiser health care providers ("Defendants") alleging that Defendants operated "a system of withholding benefits from insureds." Plaintiffs alleged that this system had caused Kaiser's providers to improperly delay an MRI for Anna, which delayed her diagnosis and led to a worse prognosis. Their complaint sought punitive damages for breach of the implied covenant of good faith and fair dealing and for intentional infliction of emotional distress.

Defendants moved the trial court to strike Plaintiffs' punitive damages claims on the ground that Plaintiffs had not satisfied the requirements of California's Code of Civil Procedure § 425.13 before entering a punitive damages claim against a health care provider. That law permits a plaintiff to enter punitive claims against a provider only after the court has been satisfied of the plaintiff's "substantial probability" of prevailing on the merits and entered an order granting the plaintiff leave to file a claim for punitive damages. When the trial court denied Defendants' motion, Defendants filed a petition for writ of mandate with the Court of Appeal, seeking an order that would direct the trial court to grant the motion to strike. When the Court of Appeal denied that petition, Defendants sought review of the question by the California Supreme Court, which granted review and directed the Court of Appeal to issue an order to show cause. While the petition for review by the California Supreme Court was pending, plaintiffs dismissed their punitive claims against the Kaiser providers, and so maintained a punitive claim against only one defendant: Kaiser Foundation Health Plan.

Thus, the question put to the Second District Court of Appeal in response to the Supreme Court's order to show cause was whether § 425.13 applied to Plaintiffs' claims against Kaiser Foundation Health Plan. Finding the statutory language unclear as to the scope of § 425.13's effect, the court found clarification in the legislative history, which it read as indicating that the legislature intended for § 425.13 to apply only to health care providers acting as such. Noting that "health care service plans are not health care providers" under California law, the court concluded that §425.13 did not apply to punitive claims brought against Kaiser Foundation Health Plan, which was registered as a health care service plan in California.

The court also rejected Defendant's argument that § 425.13 applied to Plaintiffs' claim because those claims derived entirely from decisions made by Kaiser providers. The court offered two grounds for this rejection, in addition to the legislative history already noted: first, California law immunizes health care service plans from liability for acts committed by providers, reflecting the mutual exclusivity of their liabilities in such cases; and second, Plaintiffs addressed their claims against Defendant in its capacity as a health care service plan, and not against Defendant on a theory of vicarious liability.

Markey, M.D. v. Aetna Health Inc.
No. SA-11-CA-1075-XR (W.D. Tex. Feb. 29, 2012)

Aetna removed to federal court Plaintiff's action for breach of contract and violation of the Texas Prompt Pay Act, arguing that some of Plaintiff's claims were completely preempted by ERISA. The court found that as long as "at least one of Plaintiff's claims involves a coverage determination" or "right of payment," federal law completely preempts state prompt pay laws and all breach of PPO contract claims. Here, Aetna asserted that one of Plaintiff's claims was denied in its entirety because the procedure involved the use of an assistant surgeon, which was not covered under the patient's plan. The court held that since this claim involved a "right of payment" determination, it was preempted by ERISA. The court further concluded that even though Plaintiff pled his claim under state law, the claim was "necessarily federal in character," granting the court jurisdiction to resolve this federal question.

Plaintiff also argued that Defendant's removal was untimely because Aetna did not remove the action within thirty days of receiving the initial pleading setting forth the claim for relief. However, the court recognized that a defendant need only remove within thirty days of receiving "an amended pleading, motion, order or other paper from which it may first be ascertained that the case is . . . removable." Even though the plaintiff in this case provided spreadsheets detailing the specific claims at issue months before the petition was filed in state court, the court held that in order to trigger the thirty-day time limit, an "other paper" must be received by a defendant after that defendant has already received the initial pleading. Accordingly, the court held Aetna's motion was timely.

Messner v. Northshore University Healthsystem
No. 10-2514 (Mar. 7, 2012 7th Cir.)

Northshore University Healthsystem and other Chicago-area hospitals ("Defendants") merged in 2000, but the FTC successfully challenged their merger under § 7 of the Clayton Act and only permitted the merger to survive on the condition that the various entities continue to negotiate their contracts with third party payors on an individual basis. In 2008, private plaintiffs, including Messner and others, brought suit against Defendants in federal district court for damages arising from the merger.

When Plaintiffs moved for class certification, the district court determined that while they met all four requirements of Rule 23(a), because Plaintiffs' injuries were not uniform, their motion did not meet Rule 23(b)(3)'s requirement that questions of fact and law common to the class predominate over questions particular to individual class members. In particular, the court noted that Plaintiffs' expert, who used a difference-in-difference methodology to isolate price effects arising from the merger, was unable to show that Defendant raised prices at uniform rates that affected all class members to a similar degree. Plaintiffs filed an interlocutory appeal with the Seventh Circuit.

The Seventh Circuit panel, reviewing for abuse of discretion, rejected the district court's denial of class certification on the basis of two reversible errors, one procedural and one substantive. According to the panel, the trial court erred procedurally by failing to make a Daubert ruling on Defendant's expert witness before ruling on class certification. The panel noted that the trial court's approach would have been proper in most circumstances, but not in the context of an antitrust class certification in which the expert's opinion is "critical" to determining certification. As for the substantive error, the panel found that the trial court had misapplied the predominance standard, demanding that Plaintiff meet a much higher bar than Rule 23(b)(3) actually requires. On this point, the panel noted that the trial court – which seems to have misunderstood the methodology of Plaintiffs' expert – made a clear error when it concluded that the evidence of Plaintiff's expert was misleading.

Anthem Health Plans of Maine, Inc. v. Superintendent of Insurance
BCD-11-439 (Me. Feb. 28, 2012)

Maine law requires the review of individual health coverage premium increases by the Superintendent of Insurance, though not of group coverage premium increases. Last year, the Maine Supreme Court dismissed as moot a challenge from insurers who sought rate increases on premiums for individual coverage. This year, the court again upheld the Superintendent's decision, but this time reached the substantive arguments made against the Superintendent's decision by Anthem Health Plans of Maine ("Anthem").

Maine's Superintendent of Insurance reviewed and rejected Anthem's proposed annual premium increase of 9.2%, which would provide for a 3% profit margin, deciding instead on a 5.2% increase and providing for a 1% profit margin. Anthem challenged this decision, and when the decision was upheld by a Maine district court filed an expedited appeal with Maine's Supreme Court, which reviewed the lower court's decision for abuse of discretion.

The parties disputed whether the Superintendent's decision went beyond the boundaries established by Maine's insurance code, which directs that the Superintendent may approve an annual increase in premiums for individual coverage so long as the increase is between the statutory ceiling ("excessive") and floor ("inadequate"). Anthem did not challenge the Superintendent's interpretation of "excessive," but contended that "inadequate" should – contrary to the Superintendent's interpretation – be read as an industry term of art that means providing a "fair and reasonable rate of return," i.e., a return comparable to the industry-wide average. The court observed that the term was ambiguous and also that the court owed "great deference to the Superintendent's interpretation unless the statute plainly compels a contrary result." On this basis, the court accepted the Superintendent's suggestion that an "inadequate" increase is one that would threaten an insurer's solvency or threaten competition (by permitting one insurer to drive others out of business by undercutting their prices in the short-term).

In addition to finding that the Superintendent's interpretation was reasonable and so deserving of deference, the court also observed that Maine's insurance code expressly requires consideration of an insurer's reasonable profits for other insurance products, and expressly removes that factor from the list of what must be considered when reviewing proposed changes to premiums for individual health coverage.

Sw. Pharmacy Solutions, Inc. v. CMS
2:11-cv-00227 (S.D. Tex. Dec. 5, 2011)

Plaintiffs, a for-profit member-owned independent pharmacy cooperative, challenged implementation of the "preferred pharmacy" rule by the administrators of the Medicare Part D prescription drug program. Plaintiffs allege that the rule, which, the plaintiffs said, permits a Part D plan to exclude independent pharmacies from its network of preferred pharmacies, contravenes the "any willing pharmacy provision" of the Part D statute. The court never reached this substantive question, however.

The Department for Health and Human Services (HHS) moved the court to dismiss plaintiffs' complaint on the grounds that failure to exhaust administrative remedies precludes judicial review of a claim brought against the Secretary of HHS. Plaintiffs responded that the court had jurisdiction despite the statutory exhaustion requirement because the applicable administrative process was effectively inaccessible to plaintiffs, such that plaintiffs were effectively precluded from completing that process and thus from judicial review.

Specifically, plaintiffs set forth two lines of argument. Both began by noting that, as an association, plaintiffs could not seek relief under the applicable regulations themselves.

The first line of argument alleged that no proxy could ever raise the issue, because a proxy could only ever challenge a particular coverage decision and could not allege a "grievance" based on the structure of benefit regulations more generally. The court rejected this argument, agreeing instead with the defendant that any dispute over the amount of cost sharing for a drug under Part D amounted to a disputed coverage determination.

The second line of argument sought to show that even if a proxy could theoretically raise the issue, no proxy would ever actually have reason to or be able to do so. That is, (1) only an enrollee in a preferred pharmacy plan could act as a proxy and raise the issue, yet (2) no claim by an enrollee could meet the required amount in controversy, and (3) such a party would never have the incentive to bring such a claim besides. The court rejected each of these points in turn. To begin, it found that either an enrollee or a pharmacy employee would have standing to raise the instant claim for administrative review. It then noted that the $1,300 amount in controversy requirement could indeed be met by a hypothetical enrollee (defendants submitted an order pointing out that one medication for one hospice patient cost nearly $6,000). And finally, the court concluded that plaintiffs did not carry the burden – as they were required to do – on the question of whether any enrollee or pharmacy employee had adequate incentive to dispute the legality of the "preferred pharmacy" rule.

John B. v. Emkes
No. 3:98-cv-0168 (M.D. Tenn. Feb. 14, 2012)

The U.S. District Court for the Middle District of Tennessee vacated a longstanding consent decree on provision of EPSDT services to children in Tennessee. In so deciding, the court looked to the consent decree's terms permitting expiration upon the state's achievement of prescribed screening rates and "substantial compliance" with all other terms of the decree. Based on the evidence, as detailed throughout the Memorandum Opinion, the court found both requirements to have been satisfied.

The court first described the lengthy history surrounding the EPSDT consent decree. In a November 2010 Sixth Circuit decision, the Court of Appeals ordered a remand based on its holding that certain EPSDT requirements are not enforceable under a Section 1983 action like the one that produced the instant consent decree. Consequently, the district court on remand found various provisions of the consent decree to be unenforceable and vacated them. The instant action specifically sought to vacate those provisions which remained following the earlier partial vacating of the decree.

The court then described the evidence and plaintiffs' claims as to the state's compliance with the remaining consent decree requirements. As to the state's EPSDT outreach efforts, the court specifically rejected plaintiffs' claims that the state did not make adequate attempts assess the effectiveness of its outreach efforts, finding the consent decree does not specifically require a guarantee of effectiveness. Rather, the state had properly "adopt[ed] policies and procedures necessary to ensure that TennCare rules and guidelines" mandate compliance with EPSDT outreach requirements. On the question of the state's EPSDT screening rates, the court rejected plaintiffs' argument that the state used an improper methodology. The court also rejected plaintiffs' argument that the state failed to sufficiently track follow-up care resulting from EPSDT diagnosis and treatment. Rather, the court found that no nexus between plaintiffs' argument and any specific decree provision. In addition, the court found that because problems relating to a shortage of certain specialists were not unique to the TennCare program, any such shortage did not indicate noncompliance with the decree.

In addressing substantial compliance with particular consent decree provisions, the court prefaced its analysis by acknowledging that "substantial compliance" would not be assessed in a way that would require perfection. Rather, substantial compliance "must be assessed based upon whether the State has a sound system in place, one pursuant to which problems can be reliably identified and addressed as they arise." Thus, the court was able to find "substantial compliance with virtually every operative paragraph of the Consent Decree."

The Oak Brook Surgical Center v. Aetna Health, Inc.
No. 10 C 5580 (N.D. Ill., Mar. 16, 2012)

The Oak Brook Surgical Center ("Plaintiff") brought claims against Aetna, alleging that Aetna had pre-approved treatments then declined to provide coverage for them. Aetna removed the case to federal court after Plaintiff amended its complaint, narrowing the causes of action to promissory estoppel only (the initial complaint also alleged breach of contract and violation of the Illinois Insurance Code). Aetna moved to dismiss the claim as preempted by ERISA. Plaintiff tacitly conceded that ERISA's governed the health plans of its patients, but maintained that ERISA broad preemptive scope did not encompass its cause of action.

The court endorsed Plaintiff's reliance on the Seventh Circuit decision, Franciscan Skemp Healthcare, Inc. v. Central States Joint Bd. Health and Welfare, 538 F.3d 594 (7th Cir. 2008), and rejected Aetna's effort to distinguish that case. In particular, the court highlighted that Plaintiffs, like the provider-plaintiffs in Franciscan Skemp, sought relief for injury to themselves for an alleged misrepresentation and did not seek relief for an injury incurred as a plan beneficiary's assignee.

Before concluding, the court noted that authority existed on both sides of the question of whether ERISA preempts claims brought by providers seeking recovery from an insurer for alleged misrepresentations about coverage, but concluded that ERISA should not preempt where "the basis for [an insurer's] reversal is completely outside the plan." The court thereby rejected Aetna's argument that permitting providers to bring claims for alleged misrepresentations about coverage would invite providers to make an end-run around ERISA preemption.

In the matter of ProMedica Health System, Inc.
FTC Docket No. 9346 - Opinion - Order

The Federal Trade Commission (FTC) and Ohio Attorney General ("AG") challenged ProMedica Health System, Inc.'s ("ProMedica") acquisition of St. Luke's, a non-profit hospital in northwest Ohio. The FTC and Ohio AG persuaded the District Court for the Northern District of Ohio to issue a preliminary injunction stopping the acquisition and a "hold separate" order, which would preserve St. Luke's corporate and operational integrity pending the conclusion of the FTC's administrative review process.

At the conclusion of that process in December 2011, ALJ Chappell issued an Initial Decision rejecting the proposed acquisition on the grounds that it would strengthen ProMedica's bargaining power vis-à-vis commercial payors to an impermissible degree, which would increase reimbursement rates and increase the costs that payors would pass on to consumers in turn. The ALJ noted that, whether one used Complainant or Respondent's market definition, the expected resulting levels of market concentration in the regional markets for general acute inpatient care and for inpatient obstetric care would exceed the threshold for presumptive illegality, as defined by the FTC's 2010 Merger Guidelines. In the order accompanying his Initial Decision, the ALJ instructed ProMedica to divest from St. Luke's within 180 days; ProMedica appealed that decision to the FTC.

On March 22, 2012, the FTC voted 4-0 to adopt nearly all of the ALJ's findings of fact and conclusions of law. The sole exception related to regional tertiary inpatient care, which the FTC said should be carved out from general acute care services because it was not likely to be affected in the same way by ProMedica's acquisition of St. Luke's. That exception did not alter the outcome for ProMedica, which the FTC ordered to divest St. Luke's to an FTC-approved buyer within 180 days. The fifth commissioner concurred in the decision and remedy, but took issue with the market definition and econometric methodology used by the FTC to arrive at that decision.

HHS Rate Review of Trustmark Life Insurance Company

The Affordable Care Act added a new section to the Public Health Service Act directing HHS, in conjunction with the states, to establish a process for the annual review of "unreasonable increases in premiums for health insurance coverage." This statutory addition requires health insurance issuers with certain products to submit to HHS and the applicable State justifications for unreasonable premium increases prior to implementation. HHS has since promulgated regulations implementing this section at 45 C.F.R 154.101 et seq.

As a result, Trustmark Life Insurance Company asked HHS to review its 13% rate increases for its small group PPO product in Alabama, Arizona, Pennsylvania, Virginia, and Wyoming. When combining Trustmark's rate increases for this product in Alabama and Arizona over the past 12 months, rates would increase 27.2% and 18.1%, respectively. After independent expert review, HHS determined that these rate increases were unreasonable, because (1) they would result in Medical Loss Ratios that are below the Federal standard of 80%, i.e., less than 80% of premiums are spent on medical costs, and (2) the assumptions on which Trustmark based the rate increase were found to be unreasonable as its proposed increase was based on national experience rather than state-specific experience. HHS has asked Trustmark to "immediately rescind the rates, issue refunds to consumers or publicly explain their refusal to do so." Trustmark has responded by posting a justification for its proposed rate increase on the HHS rate review website.

HHS has also noted that since the passage and implementation of the Affordable Care Act, there has been an increase in both the number of states that have the authority to reject unreasonable rate increases, and the scope of states that already had such authority. HHS has provided the following examples of states rejecting allegedly unreasonable rates pursuant to state authority:

(1) New Mexico denied a request from Presbyterian Healthcare for a 9.7% rate increase, lowering it to 4.7 percent;
(2) Connecticut stopped Anthem Blue Cross Blue Shield from increasing rates by a proposed 12.9%, instead limiting it to a 3.9 percent increase;
(3) Oregon denied a proposed 22.1% rate increase by Regence, limiting it to 12.8 percent;
(4)New York denied rate increases from Emblem, Oxford, and Aetna that averaged 12.7 %, instead holding them to an 8.2 percent increase;
(5) Rhode Island denied rate increases from United Healthcare ranging from 18 to 20.1 %, instead limiting them to between 9.6 and 10.6 %; and
(6) Pennsylvania held Highmark to rate increases ranging from 4.9 to 8.3%.



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This material was prepared by Crowell & Moring attorneys. It is made available on the Crowell & Moring website for information purposes only, and should not be relied upon to resolve specific legal questions.

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