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Managed Care Lawsuit Watch - January 2009


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:


Total Benefits Planning Agency, Inc. v. Anthem Blue Cross and Blue Shield
No. 07-4115 United States Court of Appeals for the Sixth Circuit

Total Benefits Planning Agency (“Total Benefits”) brought this suit against Anthem Blue Cross and Blue Shield (“Anthem”) alleging, inter alia, violation of § 1 of the Sherman Antitrust Act. The suit alleged that Anthem sought to blacklist and boycott Total Benefits to suppress its efforts to keep premium costs down while maintaining benefits at the same level by raising deductibles on existing group policies and administering benefits through a medical expense reimbursement plan. Total Benefits claimed that the system saved businesses “20% or more on their health insurance costs, without cutting benefits.” Total Benefits brought this suit after Anthem informed it that Anthem would no longer allow its agents to utilize these practices.

Originally, the district court found that Total Benefits had sufficiently pled a claim for relief under the Sherman Act “per se” test. Later, however, after the Supreme Court had handed down Bell Atlantic Corp. v. Twombly, in which the Court determined that a complaint must present “enough facts to state a claim to relief that is plausible on its face,” the district court reversed its earlier decision and found that Total Benefits had failed to state a claim under either the “per se” or “rule-of-reason” tests.

The Sixth Circuit Court of Appeals agreed with the district court, and it found that Total Benefits had failed to state a claim under either the per se or rule-of-reason tests. First, under the per se test, which “recognizes there are some methods of restraint that are so inherently and facially anti-competitive that an elaborate and burdensome inquiry into a demonstrable economic impact on competition in a relevant market is not required,” the Court found Total Benefits failed to plead the required factual elements. The Court based this conclusion on the fact that the Anthem defendants, being wholly owned and controlled by Anthem Insurance Company, were incapable of conspiracy as a matter of law. Moreover, “[n]o agreements are identified between competitors” in this case.

Second, “[t]he rule-of-reason test requires the court to analyze the actual effect on competition in a relevant market to determine whether the conduct unreasonably restrains trade.” The Court found that Total Benefits had failed to state a claim under this second test as well, since the “allegations in the complaint fall significantly short of the required pleading threshold.” Total Benefits offered “bare allegations without any reference to the ‘who, what, where, when, how or why.’” As a result, the Sixth Circuit affirmed the district court’s dismissal of these claims.

Edwards v. Blue Cross Blue Shield of Texas
No. 5-07-01281-CV Tex. App. December 19, 2008

The Court of Appeals of Texas recently ruled that a provider’s state law contract and tort claims against Blue Cross Blue Shield of Texas (“BCBST”) were “inextricably intertwined” with claims for Medicare benefits and were therefore preempted by the Medicare Act.

Dralves Gene Edwards, a physician, sued BCBST, seeking consequential damages resulting from BCBST’s alleged violations of state laws. Edwards alleged that BCBST, as a Medicare Part B carrier, violated these laws by placing him on pre-payment review, negligently administering the pre-payment review and then fraudulently denying nearly all his Medicare Part B billings over two years.

Although Edwards had successfully recovered money for the denied reimbursement claims through the Medicare administrative review process, he sued BCBST for consequential damages resulting from breach of contract and torts.

Relying on decisions by courts addressing similar state law claims and holding that “those claims were inextricably intertwined with claims for Medicare reimbursement, and thus arose under the Medicare Act,” the Court held that Edward’s state law contract and tort claims were preempted by the Medicare Act. Under these decisions, the courts held that making a claim for collateral damages rather than challenging the denial of benefits did not prevent the claims from being inextricably intertwined with claims for Medicare benefits. Moreover, the completion of an administrative review of the Medicare reimbursement claims did not prevent the state law claims from being inextricably intertwined with the Medicare Act.

The Court explained that Edward’s claims were inextricably intertwined with his claims for Medicare reimbursement because a court would need to review each Medicare reimbursement claim and BCBST’s denial of those claims in order to determine whether those denials were tortious or a breach of contractual duty. Further, under Medicare, judicial review is only permitted after a party receives an adverse determination upon exhausting administrative review of the denied claims. Accordingly, the Court held that because Edward’s reviews did not result in an adverse decision, he was not entitled to further review by a court.

United States ex rel. Lobel v. Express Scripts Inc.
No. 05-cv-02707 (E.D. Pa. Dec. 1, 2008)

The United States District Court for the Eastern District of Pennsylvania dismissed a qui tam complaint brought under a certification theory, finding the complaint failed to state a cause of action under the False Claims Act.

Lobel filed a qui tam complaint against his former employer, Express Scripts, Inc., asserting violations of various provisions of the False Claims Act. In support, Lobel alleged that Express Scripts falsely certified compliance with a contract term, statute, or regulation as a condition to government payment when payment is conditioned on compliance with that requirement. In particular, the complaint alleged that Express Scripts failed to properly verify the Drug Enforcement Agency number assigned to the prescribing physician and then placed that number on the prescription. The government chose not to intervene, but requested that any dismissal should be without prejudice to the government’s ability to take action in the future.

The District Court dismissed the complaint, finding that an alleged failure to comply with a general certification, rather than a particular statute or regulation, fell short of alleging violations under the False Claims Act. The Court further noted that the complaint did not allege that any of the prescriptions were fraudulent, or that the government was billed for any prescriptions that were not in fact filled. Accordingly, the District Court dismissed the complaint, and declined to rule on the government’s request to dismiss without prejudice because the United States was not a direct party to the action.

Francesco v. Group Health Inc.
No. 79-EDA 2008 (Pa. Super. Ct. Dec. 18, 2008)

Pennsylvania State Superior Court vacated and remanded a trial court’s dismissal of complaint, holding that the trial court erroneously determined that the Federal Employees Health Benefit Act (“FEHBA”) preempted a coverage dispute between a provider and insurer, independent of the insurer’s coverage obligations to its insured.

Appellant assignee – Francesco – had filed a lawsuit against Group Health Inc. (“GHI”) on behalf of PenTech Infusions, Inc. (“Pen Tech”), a health care supply provider, in state court, alleging breach of contract and promissory estoppel for failure to pay for supplies furnished to a GHI insured, despite assurances from GHI that the benefits would be covered. FEHBA governed the GHI insured’s health policy. The state court dismissed the complaint, finding that FEHBA preempted the dispute between GHI and Pen Tech and the court therefore lacked subject matter jurisdiction to hear the dispute.

On appeal, appellant asserted that the dispute between an insurer and a contracted provider rather than between the enrollee and its insurer did not implicate FEHBA. The Superior Court, determining that the question of whether FEHBA applied to the dispute was a question of first impression, relied on federal court decisions to determine that the FEHBA preemption mechanism “was not designed for, nor available to resolve, contractual disputes between carriers and health care providers.” The Court therefore held that FEHBA did not deprive the trial court of the power to decide the dispute where the complaint alleged breach of a legal duty independent of GHI’s coverage obligations to its insured. Accordingly, the court vacated and remanded the case to trial court.

Estate of John Cecil Spinner, Deceased v. Anthem Health Plans of Virginia, et al.
Civil No. 6:07CV00050 (W.D. Va. Dec. 18, 2008)

On December 18, 2008, the United States District Court for the Western District of Virginia held that a health plan was not required to pay medical fees in excess of $1 million for a plan participant who neglected to switch to individual coverage or continued group benefits before his benefits were discontinued. Plaintiff, the estate of a brain hemorrhage victim, sued the health plan and the deceased’s former employer for wrongful denial of benefits, equitable estoppel and ERISA violations as well as other claims. The Court granted Defendants’ motion to dismiss all claims.

Before ending his coverage, the deceased’s former employer wrote the deceased’s wife explaining that he was no longer entitled to coverage by his plan or COBRA benefits and that she could seek to have her husband added to her own insurance plan or to take out an individual plan on his behalf. The health plan also sent the wife a Summary Plan Description providing similar options for continuing coverage. The deceased did not switch to his wife’s plan, individual coverage or seek a 90-day extension under state law.

The District Court held that COBRA, ERISA and Virginia law did not require the health plan to give the deceased or his wife notice of other insurance options upon termination of his plan beyond the information already provided. The deceased’s former employer was not subject to COBRA because the company employed fewer than 20 workers. The Court rejected Plaintiff’s breach of fiduciary duty claims under ERISA because it was an attempt to recover benefits for an individual beneficiary rather than for the plan as a whole as prescribed by the statute. Additional ERISA claims were dismissed because there was no indication that the health plan misrepresented or omitted material information or that the deceased’s wife relied upon any misrepresentation. The Court speculated that the letter should have induced the wife or another representative to contact the insurer or former employer to explore coverage options, rather than do nothing.

Carolyn C. Phillips, et al., v. Wythe County Community Hospital, et al.
Case No. 7:08CV10016, (W.D. Va. Dec. 22, 2008)

On December 22, 2008, the United States District Court for the Western District of Virginia held that retired hospital workers were entitled to notice under COBRA even when they were receiving retiree coverage. Plaintiffs accepted an early retirement package that provided group health coverage until age 65. When their former employer sold its assets, their health plan also ended. Although the successor entity agreed to purchase a new health plan, plaintiffs were without coverage for a two-month gap period. They sued the hospital and its successor entity in federal court, alleging that Defendants failed to provide them notice of their COBRA benefits and violated ERISA’s disclosure and reporting requirements. Defendants filed a motion to dismiss for failure to state a claim.

Defendants challenged Plaintiffs’ claims for statutory penalties on statute of limitations grounds. Since neither ERISA nor the COBRA amendments contained an express statute of limitations applicable to Plaintiffs’ claims, the Court applied the two year “catch-all” statute of limitations. Plaintiffs’ potential benefits under COBRA differed from the coverage they received as retirees. As such, they were entitled to notice of their rights under COBRA upon retiring despite already receiving benefits under the retirement package. Plaintiffs’ termination of employment was a “qualifying event” that triggered the requirement to provide notice of COBRA benefits.

Although Plaintiffs’ ERISA claims were time barred, the Court could not determine when the statute of limitations began to run for the COBRA claims. Plaintiffs alleged that “they did not know all of the relevant facts entitling them to COBRA continuation coverage upon retirement.” The Court held the pleadings alone were insufficient to determine whether Plaintiffs knew or should have known that their retiree benefits differed from those available under COBRA.


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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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