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Managed Care Lawsuit Watch - January 2005


This summary of key lawsuits affecting managed care is provided by the Health Care Law 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:

Academy of Medicine of Cincinnati, et al. v. Aetna Health Inc., et al
Ohio Ct. Com. Pl. No. A0204947 (12/09/2004)

Courts in Ohio and Kentucky have given preliminary approval to a $22 million settlement between Aetna, Inc. and Cincinnati area physicians. In December 2003, the courts approved a similar settlement with Humana Inc. for $100 million.

The Academy of Medicine of Cincinnati and several other physician groups sued in Ohio and Kentucky courts, alleging that four payors had colluded to maintain low physician reimbursement rates. The settlement, if approved, would remove Aetna from the lawsuit, but would require Aetna to increase physician reimbursements beginning with the last quarter of 2004. There would also be a compliance committee established to review rate negotiations between physicians and Aetna in place between 2007 and 2009 to ensure competitiveness.

A decision on final approval is expected within three months.

Administrative Committee of the Wal-Mart Associates Health and Welfare Plan v. Willard
10th Cir., No. 04-3081 (12/28/2004)

The Tenth Circuit affirmed a district court decision allowing a Wal-Mart sponsored health plan to receive reimbursement out of a beneficiary's settlement proceeds, received after the beneficiary sued Wal-Mart in tort based on an alleged error made by a company pharmacist.

The court concluded that the reimbursement was "appropriate equitable relief" under section 502(a)(3)of the Employee Retirement Income Security Act ("ERISA"), which authorizes civil suits by fiduciaries when the funds (1) are "specifically identifiable," (2) "belong in good conscience to the plan" and (3) are "within the possession and control of the defendant beneficiary."

The funds were identifiable because they were deposited in the court's registry. In addition, the Plan's right to the funds is derived from Plan language - that it can "recover or subrogate," and has "first priority with respect to its right to reduction, reimbursement, and subrogation." Finally, the court rejected the beneficiary's argument that the funds were not in his possession because the funds were deposited in the court's registry. Instead, the court determined that Willard still exercised control over the funds, and was in constructive possession of them, which amounted to adequate "possession and control."

State Medical Society v. Oxford Health Plans (CT), Inc. / Connecticut State Medical Society v. Connecticare, Inc.
Connecticut Supreme Court No. SC 17071, Connecticut Supreme Court, No. SC 17072

The Connecticut Supreme Court affirmed a trial court finding that a medical association representing seven thousand physicians lacked standing to bring an action against a managed care company for alleged unfair trade practices, because the medical association's alleged injuries were too remote. The supreme court affirmed an identical finding on similar facts in the companion case Connecticut State Medical Society v. Connecticare, Inc.

Plaintiff Connecticut State Medical Society ("the Society") brought an action against Oxford Health Plans ("Oxford"), alleging that Oxford violated the Connecticut Unfair Trade Practices Act ("CUPTA") by denying bona fide physician claims for payment in connection with services rendered to Oxford's subscribers. Plaintiff brought the suit on behalf of itself and its physician members to enjoin Defendant from engaging in alleged unfair trade practices. The trial court granted Oxford's motion to dismiss Plaintiff's representational claim. Plaintiff filed a second amended complaint in response to Oxford's request that Plaintiff explain how Oxford's actions directly harmed plaintiff. Oxford moved to strike the second amended complaint on the ground that the Society lacked standing because its alleged injury was derivative and too remote. The trial court granted Defendant's motion to strike. Plaintiff appealed, alleging that the trial court improperly granted the motion.

On appeal, the Connecticut Supreme Court found that the trial court properly relied on the case Ganim v. Smith & Wesson Corp., in which the Connecticut Supreme Court held that CUPTA claims are subject to the remoteness doctrine, which provides a limitation on standing. The court noted that the injuries the Society asserted were indirect, and derivative of the alleged injuries to its physician members. Thus, the court found that the Society lacked standing to assert its CUPTA claim. The court opined that the proper parties to bring the CUPTA claim were the physicians that directly suffered harm. Finally, the court noted that allowing the Society to bring the claim on behalf of itself or its physician members would subvert the arbitration clauses present in the physicians' contracts with defendant Oxford.

Kuthy v. Mansheim
4th Cir., No. 04-1290 (12/3/2004) Unpublished opinion

In an unpublished decision, the Fourth Circuit Court of Appeals held that state law malpractice and wrongful death claims brought against an HMO by the husband of a deceased enrollee were completely preempted by ERISA.

Mr. Kuthy filed suit in West Virginia state court against his wife's HMO and physicians who worked for the HMO, arguing that the HMO physicians breached their standard of care by denying coverage for an experimental treatment that the wife's treating physician had recommended. The defendants removed to federal district court, which granted summary judgment for the defendants on the grounds that Kuthy's claims were completely preempted by ERISA.

The 4th Circuit affirmed, holding that Kuthy's claims met the three-part standard for complete ERISA preemption in that Kuthy had standing to pursue an ERISA claim, his wife's insurance plan was an ERISA-governed plan, and the claims fell within the scope of an ERISA provision. On the last point, the court noted the Supreme Court's ruling Aetna Health Inc. v. Davila that claims that challenge an HMO's interpretation of an ERISA regulated plan fall within ERISA's scope, and the 4th Circuit accordingly held that Kuthy's claims fell within ERISA's scope because Kuthy's challenged the defendants' interpretation of a provision in his wife's ERISA plan that excluded experimental treatments.

Timmis v. Kaiser Permanente, et al.
California Court of Appeal No. A102962 (12/21/2004) Unpublished opinion

The California Court of Appeal affirmed a trial court's finding that Kaiser Permanente's (Kaiser) "pill-splitting" policy did not violate California's Unfair Competition Law (UCL) or the Consumers Legal Remedies Act (CLRA). The Court of Appeal also noted that plaintiff-appellants failed to present any evidence that the policy was unsafe, and thus could not prove that Kaiser made misrepresentations to consumers about the quality of its services.

The case arose when current and former patients of Kaiser and others brought an action in California state court challenging the legality of Kaiser's "pill-splitting program," and alleging that Kaiser misrepresented the quality of its services to patients. Under the pill-splitting policy, a doctor would prescribe medication to a patient at double the regular dosage, and the patient would be required to split pills in half in order to obtain a single dose. The trial court found that pill-splitting was a common practice in the health care industry used to reduce costs. In their suit, plaintiff-appellants sought to enjoin Kaiser's pill-splitting program and also sought damages for alleged misrepresentations by Kaiser about the quality of its services. The trial court granted Kaiser's motion for summary judgment and dismissed plaintiffappellants' claims on judicial abstention grounds, noting that the claims involved complicated healthcare issues that should be determined by the legislature.

On appeal, the California Court of Appeal upheld the trial court's finding that Kaiser was entitled to summary judgment. While the Court of Appeal agreed with the trial court that the issues involved should be decided by the legislature, the Court also found that Kaiser did not violate the UCL. It noted that to find unfairness to competitors under the UCL, there must be some "legislatively declared policy or proof of some actual or threatened impact on competition," citing Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. The Court of Appeal opined that there was no evidence that Kaiser's pill-splitting policy was unfair or that it was unsafe. The Court also noted that various statutes, including the Knox-Keene Act and the Pharmacy Law, supported the idea that the legislature intended to "occupy the field" of healthcare regulation.

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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