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Managed Care Lawsuit Watch - February 2004


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 Art Lerner 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:

Adler v. Unicare Life & Health Insurance Co.
S.D.N.Y., No. 01 Civ. 4421 (BSJ) (12/10/03)

The U.S. District Court for the Southern District of New York concluded that state contract law claims against a health insurance company were preempted because the plans at issue were employee benefit plans governed by the Employee Retirement Income and Security Act (ERISA). Adler, a podiatrist, provided services to patients insured by Unicare Life and Health Insurance Company under employee welfare benefit plans maintained by the patients' employers. When Unicare refused to reimburse Adler, he sued for breach of contract, claiming that the plans fell within ERISA's "Safe Harbor" provision, and were therefore exempt from ERISA. The court stated that in order to come within the purported "Safe Harbor" exception, a plan must meet the following criteria: "(1) no contributions may be made by the employer; (2) participation in the program must be completely voluntary…; (3) the sole function of the employer must be, without endorsing the program, to permit the insurer to publicize the program to its employees…; and (4) the employer must receive no consideration…in connection with the program." The court held that the plans at issue failed to meet all of these requirements, as contributions were made by the employers on behalf of their employees, and the employers assumed active roles in endorsing the plans and negotiating their terms.

The ruling did not explicitly address any argument that the plaintiff's claims arose under a provider contract with the insurer, and therefore were not preempted by ERISA, regardless of the plan's being an ERISA plan.

Arana v. Ochsner Health Plan
U.S. S.Ct. No. 03-542 (cert denied 1/12/04)
5th Cir. No. 01-30922 (7/10/03)

The United States Supreme Court denied certiorari, leaving in place the Fifth Circuit's July 2003 ruling that ERISA preempts a plan beneficiary's claims that attempts by the plan administrator to recover amounts received by the beneficiary as settlement for personal injuries were impermissible under Louisiana law.

The Fifth Circuit, in a rehearing en banc, held that only complete preemption of a claim under ERISA § 502(a) is required for removal, and that conflict preemption under ERISA §514 is not also required. The Court characterized Arana's claim as one to either recover benefits or to enforce his rights, each of which would qualify for complete preemption by ERISA. Arana, sued Ochsner Health Plan in Louisiana state court seeking a declaration that he was entitled to retain settlement money that he received after sustaining injuries in a car accident. Oschner Health Plan sought to exercise a right to subrogation and removed the case to Federal court seeking reimbursement for benefits it previously paid to Arana. The District Court granted summary judgment for Arana and a panel of the Fifth Circuit reversed the judgment, holding that the District Court lacked subject matter jurisdiction.

Baylor Univ. Medical Center v. Arkansas Blue Cross Blue Shield
N.D. Texas No. 3:03-cv-2084-G (1/9/04)

The District Court for the Northern District of Texas held that ERISA does not preempt a medical center's claim that an HMO violated state prompt pay laws when it failed to pay the medical center for a subscriber's medical bills. The court articulated that it would not "insulate" insurers from liability under state prompt pay laws. Pursuant to the contract between Baylor Medical Center and Arkansas BCBS, Baylor was to provide discount medical services to BCBS of Texas patients, and out-of-state BCBS plans, such as Arkansas BCBS.

After Arkansas BCBS filed to pay, Baylor brought suit, asserting breach of contract and late payment of claims under the Texas Insurance Code. Defendants argued that the suit arose under federal law because the plaintiff's causes of actions constituted claims for benefits under an employee welfare benefit plan subject to ERISA. The court disagreed, finding that the substance of the plaintiff's claims were governed by the state's prompt pay laws requiring payment of clean claims within 45 days. The claims were not governed by ERISA because they were not made by plan participants or beneficiaries. Baylor's right to recovery, the court said, existed separate from ERISA.

Saint Agnes Medical Center v. Pacificare of California, et al
California Supreme Court No. 01CECG01243 (12/18/2003)

The California Supreme Court ruled that PacifiCare could invoke the arbitration clause of a health services agreement, even though it had argued in a connected lawsuit that the health service agreement in question was invalid and should not be enforced.

In March 2001, PacifiCare filed a lawsuit against Saint Agnes Medical Center to resolve disputes about contractual rights and obligations under two health services agreements that the parties entered into with each other in 1994 and 2000. PacifiCare sought to have the 2000 agreement rescinded and have the 1994 agreement enforced as if the 2000 agreement did not exist.

In April 2001, Saint Agnes filed a separate lawsuit in another county against PacifiCare, seeking damages caused by PacifiCare's alleged wrongful conduct. Saint Agnes prevailed in having PacifiCare's March 2001 lawsuit transferred into the county where it had filed its lawsuit.

PacifiCare then attempted to remove 7 of the 11 issues in dispute to arbitration. The 2000 agreement contained an arbitration clause; the 1994 agreement did not. The trial court ruled that the arbitration clause could not be enforced because PacifiCare had filed a lawsuit before invoking it. An appellate court overruled that decision, finding that the arbitration clause remained in effect. The Supreme Court affirmed, finding that PacifiCare had not waived its right to arbitration by filing a lawsuit or by arguing the 2000 agreement should be rescinded.


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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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Arthur N. Lerner
Partner – Washington, D.C.
Phone: +1 202.624.2820