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Managed Care Lawsuit Watch - February 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 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:


West Penn Allegheny Health System Inc. v. UPMC
No. 09-4468 (3d Cir. Nov. 29, 2010)

The plaintiff, West Penn Allegheny Health System (Allegheny), the second largest hospital system in the Pittsburgh area, sued the dominant hospital system (UPMC) and the dominant health insurer (Highmark) for conspiring to "protect one another from competition."  Allegheny alleged that UPMC agreed to use its power in the provider market to insulate Highmark from competition in the health insurance market by refusing to contract with Highmark's rivals and by gutting a competing insurance company UPMC had established.  In return, Highmark allegedly agreed to protect UPMC from competition by providing artificially depressed reimbursement rates to Alleghany while paying UPMC supracompetitive rates, by removing its "low-cost" insurance plan from the market, and by engaging in other acts to harm Allegheny.  Allegheny also alleged that Highmark increased its premiums to afford the higher rates paid to UPMC, which it was able to do because UPMC had insulated it from competition.  Finally, Allegheny alleged that UPMC attempted to monopolize the Pittsburgh-area market for specialized hospital services by soliciting physicians away from Alleghany, pressuring community hospitals to refer all patients to UPMC, and making defamatory statements about Alleghany. 

The district court dismissed the complaint, holding that Allegheny: (1) failed to allege a "conspiracy"; (2) had not suffered an "antitrust injury" caused by the conspiracy; and (3) had failed to show UPMC engaged in "anticompetitive conduct" necessary to support an attempted monopolization claim.

On appeal, the Third Circuit reversed, criticizing the district court for apparently imposing a heightened pleading requirement due to the complexity of the case.  With respect to the conspiracy claims, the Third Circuit held that the complaint contained sufficient allegations to establish a conspiracy that caused anticompetitive effects in the market.  The court found that Highmark did not cause an antitrust injury when it removed the low cost insurance plan from the market, explaining that a "supplier" such as Allegheny cannot suffer an antitrust injury "when competition is reduced in the downstream market [i.e., the insurance market] in which it sells goods or services."  Similarly, the court held that Highmark's refusal to refinance a loan it had made to Allegheny did not cause an antitrust injury.  The Third Circuit concluded, however, that Highmark's alleged payment of artificially depressed reimbursement rates pursuant to the conspiracy did cause an antitrust injury because, even if this resulted in lower premiums to subscribers (which it did not), it might still have caused other anticompetitive effects such as "suboptimal output, reduced quality, allocative inefficiencies, and (given the reductions in output) higher prices for consumers in the long run."

Finally, the court held that UPMC's conduct – engaging in a conspiracy to drive Allegheny out of business, hiring away employees to injure Allegheny, pressuring other hospitals to refer patients exclusively to UPMC, and making false statements – at least when viewed as a whole, plausibly suggested UPMC engaged in anticompetitive conduct sufficient to sustain an attempted monopolization claim.  Accordingly, the court reversed dismissal of the complaint.

DeLuca v. Blue Cross Blue Shield of Michigan
No. 08-1085 (6th Cir. December 8, 2010)

The Sixth Circuit Court of Appeals upheld a lower court dismissal of a class action complaint, affirming that the defendant insurer was not acting as a fiduciary under ERISA when it negotiated reimbursement rates with hospitals for its health plan coverage programs. 

Plaintiff – a participant in a self-funded plan – filed a class action complaint against the health insurer, alleging a breach of fiduciary duty when the insurer negotiated rate changes with participating hospitals that were allegedly more favorable to its own insurance plan than its self-funded health plan clients.  The federal court dismissed the complaint, finding that the insurer was not acting as a fiduciary when negotiating system-wide payment schedules for its various types of health benefits programs. 

The Sixth Circuit upheld the dismissal, concluding that there was no breach of fiduciary duty where the insurer was not acting as a fiduciary when it negotiated the challenged rate changes because those business dealings were not directly associated with the benefits plan at issue but were generally applicable to a broad range of health care consumers.

Omnicare, Inc. v. UnitedHealth Group, Inc.
No. 09-1152 (7th Cir. Jan. 10, 2009)

A Seventh Circuit panel affirmed the decision of the District Court for the Northern District of Illinois to grant summary judgment to UnitedHealth Group (United); PacifiCare Health Systems (PacifiCare); and PacifiCare's subsidiary, RxSolutions.  The panel determined that, based on the record presented, a jury could not reasonably infer the conspiracy in restraint of trade or the fraud that Omnicare alleged.

Omnicare, an institutional pharmacy, alleged Sherman Act violations, violation of the antitrust provisions of Kentucky's Consumer Protection Act, and common law fraud on the part of United and PacifiCare, two Medicare Part D plan sponsors that each negotiated contracts with Omnicare during the period of due diligence preceding United and PacifiCare's merger. Specifically, Omnicare characterized the plan sponsors' approach to negotiations as an illegal "buyer's cartel," through which the sponsors extracted low reimbursement rates.

The 7th Circuit panel determined that none of Omnicare's purported grounds for identifying a buyer's cartel, whether considered individually or in combination, raised a question of material fact. Among the seven evidentiary grounds for Omnicare's allegation, the panel identified only one (the "carve-out" provision of the merger agreement) as supporting an inference of collusion among defendants. However, the panel ultimately rejected this argument in the absence of further evidence that would tend to exclude innocent explanations for that provision.

The panel also granted summary judgment against Omnicare's fraud claim, which rested on a single piece of evidence—an allegedly deceptive email about United's future plans. This determination drew in part on the panel's rejection of Omnicare's antitrust allegations, because Illinois law provides that "a false statement of intent regarding future conduct" is "not actionable . . . unless the plaintiff also proves that the act was a part of a scheme to defraud."

Holling-Fry v. Coventry Healthcare of Kansas, Inc.
No. 07-cv-0092 (W.D. Mo. Nov. 23, 2010)

Plaintiff, Joy Holling-Fry, was enrolled in a HMO insurance plan provided by Coventry Healthcare of Kansas, Inc. that was provided through her husband's employment.  The Plaintiff sued Coventry in state court, asserting that Coventry required her to pay copayments that were greater than 50 percent of the cost of providing any single service, which she claimed violated Missouri state law.  Coventry removed the case to the United States District Court for the Western District of Missouri based on ERISA preemption.

The district court rejected Coventry's argument about the nature of the 50 percent payment requirement, and it held that the law did apply to copayments for prescription medications.  Furthermore, the court held that the law applied at the point of service and that Coventry could not comply with the law by later refunding money to customers.

Following class certification by the district court, Coventry moved for summary judgment based, in part, on its argument that its method of reimbursing members complied with the plan's terms and that the Plaintiff did not have standing to bring a claim for future injunctive relief.  Coventry also argued that the state regulation did not provide a private right of action, and that the class could not bring or maintain a lawsuit on the basis of the regulation.

The court rejected Coventry's arguments, concluding that "[t]his lawsuit is not brought to enforce the regulation but to enforce Plaintiffs' rights to benefits under the plan."  The court found that the regulation was implicated in the case because Coventry incorporated it into its plan, which entitled the Plaintiff to sue under ERISA.  Furthermore, the court held that Coventry was not entitled to summary judgment because its determination that prescription drugs are not subject to the 50 percent copayment limitation was an error of law.

The Plaintiff did not dispute Coventry's argument that its method of reimbursing members for copayment amounts over 50 percent of the total cost of the service complies with the terms of the plan.  On this issue, the court granted Coventry summary judgment.  The court also agreed with Coventry that the Plaintiff was not an adequate class representative and that she lacked standing to sue for injunctive relief.

Arcadian Health Plan v. Korfman
No. 1:10-CV-322-GZS (D. Me. Dec. 14, 2010)

The Maine Bureau of Insurance (the "Bureau") pursued an administrative proceeding against Arcadian Health Plan, Inc. ("Arcadian") for alleged Medicare Advantage ("MA") program marketing abuses by its agents.  Arcadian sought a preliminary injunction from the U.S. District Court in Maine to prevent this, arguing that the federal MA marketing laws preempt application of Maine's marketing laws.  (The state laws at issue were Maine's unfair/deceptive trade practices and unfair solicitation laws.)  The magistrate judge agreed with Arcadian and recommended that the injunction be granted.  The judge confined his comments to express preemption under the Medicare Modernization Act ("MMA") and determined that the federal marketing regulations regulated the same activity as did the state statutes involved in the administrative proceeding.

Although the Bureau argued that preemption did not apply because the administrative proceeding only involved vicarious liability for Arcadian's agents' violations of the marketing laws, which is not expressly regulated by the federal regulations, the judge rejected the argument by noting that it was the insurer (not the agents) that was being subjected to the administrative proceeding.  The judge further noted that the Bureau had the ability to proceed directly against the individual agents for the alleged abuses without running afoul of the preemption provision.  

The judge also rejected the Bureau's argument that the state laws at issue were laws of general applicability and therefore not subject to preemption, noting that even a facially neutral law can be preempted as applied, which was the case here. Further, the judge concluded that the state law at issue had more than a "tenuous, remote, or peripheral" connection with MA plans as applied in the administrative proceeding.  Additionally, the judge rejected the argument that the case fell within the licensing exception of the MMA preemption provision, highlighting the fact that there are other more direct licensing laws in Maine's code and that the law at issue did not mandate loss of the insurer's license as a penalty for the forbidden actions of the agents.

Mann v. Reeder
10-cv-00133 (W.D. Ky. Dec. 21, 2010)

Plaintiffs enrolled in a Medicare Advantage Private Fee for Service ("PFFS") plan administered by Humana Insurance Company, Inc. ("Humana").  The plan was sold by Mark Reeder, a Humana agent.  The PFFS plan started out with no monthly premium, and plaintiffs alleged that Mr. Reeder assured them that the monthly premium would not rise to a level greater than $3.00 per month.  When Humana informed the plaintiffs that their monthly premium was being assessed at the rate of $50.00 per month, plaintiffs attempted to cancel.  But, because the plaintiffs did not abide by limitations imposed by federal law on the timeframe for cancelling Medicare coverage, Humana denied their request for cancellation.

When plaintiffs brought claims for fraud and breach of contract in state court, the defendants, Mr. Reeder and Humana, removed the case to the U.S. District Court for the Western District of Kentucky.  The court was called upon to determine the suitability of plaintiffs' motion to remand and defendant's motion to dismiss the claims for failure to exhaust administrative remedies. 

Humana asserted that the court had subject matter jurisdiction over the dispute due to the Federal Officer Removal Statute, which provides that a civil or criminal prosecution commenced in state court against certain entities may be removed to federal court when, in part, the entity is acting under color of federal office.  According to the court, the applicability of the law depended on "the level of official control [and] whether the defendant acted sufficiently under the direction of a federal officer in the performance of the acts that form the basis of the suit." 

The court held that Humana was "doing more than merely acting under the general auspices of a federal officer" as a Medicare Advantage plan sponsor.  The court found that, because Medicare Advantage plans are monitored and directly controlled by the Centers for Medicare and Medicaid Services, including disenrollment procedures and premium adjustments, Humana was not merely "complying with the law," but was acting under color of federal office.

Therefore, because Humana had also offered a colorable defense under federal law, the court denied the plaintiffs' motion to remand.  The court gave the Plaintiffs further opportunity to respond to Humana's motion to dismiss.

Anthem Blue Cross of California Settlement

Anthem Blue Cross of California (Anthem), California's largest for-profit health insurer, recently agreed to pay $1.62 million to settle allegations made by the California Department of Managed Health Care (DMHC) that Anthem violated California law by improperly reimbursing hospitals for services.  The money will go to seven California hospitals.  According to the DHMC, Anthem required hospitals to send requests for stop loss payments to a mailing address different from where claims for per diem payments were to be sent.  As a result, claims were processed improperly, in part because the stop loss claims had shorter submission deadlines than the regular claims.  Anthem did not admit to any wrongdoing and stated that it settled the matter in order to avoid litigation.

Merziotis v. Kaiser Foundation Health Plan
No. 10cv0686-LAB (WVG) (S.D. Calif. Nov. 23, 2010)

While travelling outside of the United States, George Merziotis was injured and received emergency medical care.  Merziotis paid for the medical care he received out-of-pocket, and he later submitted a claim for reimbursement to his insurer, Kaiser Foundation Health Plan Inc.  After Merziotis's claim for reimbursement was denied, he filed suit against Kaiser for breach of contract and breach of the implied covenant of good faith and fair dealing.

Kaiser then filed a motion to dismiss Merziotis's claim on the basis that Merziotis's plan was governed by, and therefore preempted by, ERISA as evidenced by the plan documents that Kaiser had attached to the motion.  Merziotis did not present any information in response to indicate that his plan was not an employee benefit plan.  Therefore, on the basis of the plan documents submitted by Kaiser, the Court found that Merziotis's claim was preempted by ERISA, because the Kaiser plan formed the basis of his claims.





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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
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Phone: +1 202.624.2820