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Managed Care Lawsuit Watch - February 2010


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:


Connecticut State Dental Association v. Anthem Health Plans Inc.
No. 08-15268 (11th Cir. Dec. 30, 2009)

The Eleventh Circuit Court of Appeals ruled that ERISA completely preempted provider claims against an insurer arising from alleged underpayments for services rendered to ERISA beneficiaries.

Plaintiffs - two participating dental providers - sued Anthem Health Plans, Inc. ("Anthem") in state court for various claims, including breach of contract, violation of the Connecticut Unfair Trade Practices Act ("CUPTA") and negligent representation, alleging underpayments made to participating providers for services rendered. The plaintiffs were both members of the Connecticut State Dental Association ("CSDA"), which filed a separate but similar complaint in state court alleging a single count against Anthem for violations of CUTPA. Anthem removed both actions to federal court on the basis of complete preemption under ERISA. The district court granted Anthem's motions to dismiss both complaints.

Noting that providers generally do not have standing to assert ERISA claims against an insurer, the court found that claims forms authorizing payment of dental benefits to the plaintiffs were sufficient to establish derivative standing. The court found that the dentists' claims implicated ERISA because they involved the right of payment, i.e., the systematic denial and reduction of reimbursement for services through improper denials.

The court ultimately concluded that plaintiffs' state law claims were completely preempted by ERISA and the action was therefore properly removed to federal court. The court, however, remanded CSDA's complaint, finding that the CSDA state law claim seeking damages on behalf of its members was not completely preempted because it lacked standing to sue under ERISA.

Peoria Day Surgery Center v. OSF HealthCare System
No. 06-1236 (C.D. Ill. Dec. 30, 2009)

A district court allowed an Ambulatory Surgery Center to proceed in its antitrust claims against a competitor, but denied in part and granted in part the defendant-competitor's motion for summary judgment regarding claims for tortuous interference.

I n 2001, Caterpillar, a self-insured health plan, entered into an exclusive contract with the defendant, OSF Healthcare System d/b/a Saint Francis Medical Center ("SFMC"). The contract contained a provision requiring Caterpillar to terminate its relationship with the plaintiff, Peoria Day Surgery Center ("PDSC") once SFMC acquired sufficient capacity. Subsequently, another group sought to purchase shares of PDSC, but ultimately decided to invest instead in SFMC. Humana also terminated its relationship with PDSC as part of negotiations that led to its acquisition of a subsidiary of the defendant.

In response to these events, PDSC alleged a tying arrangement by SFMC in violation of Sherman Act § 1 and the Illinois Antitrust Act, as well as various tortious interference claims. SFMC moved for summary judgment, arguing that it had not violated the antitrust laws under a rule of reason analysis.

The court denied SFMC's motion, holding that a genuine issue of material fact existed regarding the antitrust claims, specifically whether the exclusive contracts had anticompetitive effects. Even assuming a rule of reason analysis - as opposed to a per se analysis - applied, the existence of an expert affidavit describing the anticompetitive effects was sufficient to withstand a motion for summary judgment.

With regard to the tortious interference claims, the court denied in part and granted in part SFMC's motion for summary judgment. First, the court granted SFMC's motion relating to the relationship between Caterpillar and PDSC. The fact that the parties did not reduce extensions of the original contract to writing did not preclude a claim for tortious interference with contractual relations. The court accepted, however, SFMC's claim that any interference was "privileged" in that it was necessary to preserve its conflicting interest and the intent was to increase business through competition, not specifically to harm a competitor.

Second, the court denied SFMC's motion as it related to the potential purchase of PDSC shares by Midwest Orthopedic Center because the false statements made by SFMC - that Caterpillar had already terminated its contract with PDSC when it had not - was sufficient to establish a claim for tortious interference. Finally, the court granted SFMC's motion pertaining to PDSC's relationship with Humana because that contract was terminable at will by either party, and PDSC did not offer facts which demonstrated an intentional and unjustifiable interference on the part of SFMC.

Little Rock Cardiology Clinic PA, et al. v. Baptist Health
No. 08-3158/09-1786 (8th Cir. Dec. 29, 2009)

The United States Court of Appeals for the Eighth Circuit ruled against Little Rock Cardiology Clinic ("LRCC") on its claim that Baptist Health Hospital ("BHH") and its affiliated HMO violated sections 1 and 2 of the Sherman Act. The court found that LRCC had failed to define a proper relevant product and geographic markets.

Baptist Health is the largest hospital company in Arkansas and LRCC physicians had maintained clinical and staff privileges at BHH since 1975. Additionally, LRCC was a member of Blue Cross & Blue Shield of Arkansas's ("BCBS") network of preferred providers. Subsequently, LRCC developed Arkansas Heart Hospital which competes with BHH. Shortly thereafter, BCBS terminated its network provider agreements with LRCC and its doctors. LRCC claims that Baptist Health effected the termination. By way of showing that Baptist Health wanted LRCC's termination, LRCC points to a Baptist Health policy which prohibited doctors that held an interest in a competing hospital from maintaining privileges at BHH.

Specifically, LRCC alleged that Defendants conspired to restrain trade in the market for cardiology services, by (1) BH forming a jointly owned HMO with BCBS; (2) agreeing with BCBS that BHH would be the Defendant HMO's exclusive in-network facility; and (3) BHH agreeing with BCBS that BCBS would remove Plaintiff from its preferred provider network. As Plaintiff had not alleged a per se violation of the Sherman Act, it had the burden of proving harm to competition in a relevant market. The Court examined LRCC's definitions of both the relevant product market and the relevant geographic market.

The Court found that LRCC had improperly limited the relevant product market, because LRCC had defined the relevant product market as patients with private insurance, rather than patients with whom LRCC could provide services. Similarly, the Court found that Plaintiff had limited the alleged relevant geographic market, the city of Little Rock and North Little Rock, to an artificially narrow area based simply on where "a large percentage of residents around the state who need cardiology services in hospitals" obtain cardiology procedures, rather than the geographic area from where these patients come.

Schermer v. BCBSM, Inc.
No. 09-2039 (8th Cir. Dec. 18, 2009)

The Eighth Circuit Court of Appeals affirmed a lower court and held that requested services were not covered under the health plan.

Irvin Schermer and his wife, Barbara, had health insurance under a plan administered by Blue Cross Blue Shield of Minnesota ("Blue Cross"). After being seriously injured in a fall, Barbara learned she would require 24-hour home health care after her hospital release. Blue Cross determined that one skilled nursing visit per week would be covered but that services provided by a home health aide would not be covered because that type of care was considered "custodial care," which was not covered under her plan. The Schermers sued Blue Cross in the United States District Court for the District of Minnesota pursuant to the Employee Retirement Income Security Act and Minnesota statues. The lower court recommended that the case be dismissed, and the Schermers appealed to the Eighth Circuit.

The court of appeals first found that it was clear that the medical records recommended the requested care for Barbara but determined that the issue was ultimately whether Blue Cross covered that care. In adopting the magistrate judge's opinion, the court of appeals found that because Barbara's activities were part of a daily routine and assistance in completing them would be performed by a non-health care professional, the plan administrator properly concluded she was not entitled to recover benefits because custodial care was not covered under the plan.

John F. Kennedy Medical Center v. Dialysis Clinic Inc Group Health Plan
No. 09-4208 (D.N.J. Dec. 2, 2009)

John F. Kennedy Medical Center contracted with Galaxy Health Network to become a preferred provider in Galaxy's network. Galaxy in turn contracted with Dialysis Clinic Inc. Group Health Plan , a group health plan, in order to allow the Plan's members to access preferred rates at participating hospitals. Plaintiff sued the Plan for breach of contract and unjust enrichment based on its failure to pay the full amount provided for under the Galaxy contract. The defendant removed the action to federal court claiming the suit was about a claim for benefits and therefore governed by ERISA. In response, the plaintiff moved to remand to state court, arguing that its claim was merely a breach of contract claim involving the appropriate amount of payment under the Galaxy contract.

The Court granted the motion to remand. The Court noted that the plaintiff hospital is not a participant or beneficiary in Defendant's plan. Because standing to sue under Section 502(a) of ERISA is limited to participants and beneficiaries, the Court concluded that such a fact eliminated "any possibility that Plaintiff's claims could be preempted by ERISA." The court did not address [??] the possibility that an assignee of a plan participant's benefits could have ERISA standing. The Court also addressed the defendant's argument that because the hospital was unable to produce a valid contract to support its claim, Plaintiff would have to resort to a claim under ERISA. According to the Court, such an argument "has been flatly rejected by the Third Circuit" because the argument requires a review of the merits of the case and is therefore irrelevant to an analysis involving a jurisdictional motion for remand.

G., Parent and Next Friend of K. v. Hawaii Department of Human Services
No. 1:08-cv-551 (D. Haw. Dec. 23, 2009)

In 2008, Hawaii submitted a request to CMS to approve the QUEST Expanded Access ("QExA") Medicaid managed care program. The new program would move the state's aged, blind, and disabled ("ABD") population from an existing fee-for-service model to the managed care program. Additionally, the QExA program was to be administered through two private contractors, Evercare and Wellcare of Arizona. When CMS issued its approval of the program, CMS exercised its authority under Section 1115 of the Social Security Act and granted the state's waiver of the Medicaid Act's "freedom of choice" provision because it believed the program demonstration would likely "assist in promoting the objectives" of the Medicaid Program.

The "freedom of choice" provision allows Medicaid beneficiaries the ability to choose between a range of providers without government interference. Hence, CMS's waiver of this provision allows Hawaii to require all ABD beneficiaries to enroll in a QExA sponsored managed care program effectively limiting the beneficiaries' choice of providers.

Individuals who could only receive Medicaid benefits through enrolling in QExA brought several claims against CMS including the following two: (1) CMS acted "arbitrarily and capriciously" in granting the waiver of the "freedom of choice" provision, and (2) CMS acted "arbitrarily and capriciously" in reviewing the QExA contracts with Evercare and Wellcare of Arizona. In response to the freedom of choice argument, the Court found that "the project is likely to yield useful information or demonstrate a novel approach to program administration" and that "the proposed project is likely to further the objectives of the [Medicaid Act]." The Court therefore concluded that CMS's approval of the waiver was neither arbitrary nor capricious.

The court similarly found that CMS's review of the private contracts awarded to administer the QExA program was not arbitrary and capricious. The Court found that CMS correctly determined: (1) the contractors had sufficient networks of providers, (2) the adequacy of payments to providers is assured through the Medicaid Act's requirements and CMS therefore did not have to evaluate payment rates to providers, and (3) CMS properly determined that the contractors met Medicaid solvency standards.


Crowell & Moring LLP - All Rights Reserved
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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