Managed Care Lawsuit Watch - July 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 managed care team.
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Cases in this issue:
Pipefitters Local 636 Insurance Fund v. Blue Cross & Blue Shield of Michigan
No. 09-2294 (6th Cir. Apr. 6, 2011)
The Sixth Circuit ruled that the district court was unable to issue an injunction ordering disclosure of certain documents because the Sixth Circuit had previously held that Blue Cross Blue Shield of Michigan (BCBSM) had no fiduciary duty to disclose the documents at issue. In the initial complaint, the Pipefitters Local 636 Insurance Fund alleged that BCBSM was in breach of its fiduciary duties under ERISA by withholding information about its discount arrangements with medical providers.
The district court originally had dismissed the lawsuit and was partially reversed when the Sixth Circuit held that BCBSM was an ERISA fiduciary, but was not acting as such when it refused to disclose information regarding discount arrangements.
Upon remand, the district court found that BCBSM was a plan fiduciary and ordered disclosure of the discount information. BCBSM appealed, alleging that such a ruling was foreclosed by the Sixth Circuit's previous opinion. The Sixth Circuit agreed, stating that to allow the decision to stand would reduce its previous ruling to "an advisory opinion from the Court informing [the Fund] of the deficiencies of the complaint and giving it an opportunity to cure those deficiencies."
The Supreme Court of Louisiana reinstated a trial court's judgment against Health Net, Inc. ("Health Net"), the prior owner of three HMOs, and awarded approximately $180 million in aggregate damages to the Commissioners of Insurance in three different states. According to the court, the state-approved sale of the three HMOs occurred as a result of deceptive and misleading submissions to the state which failed to disclose financial risks inherent to the sale, including an $8.4 million cash sweep from funds reserved for paying out policyholder claims.
The sale took place as an alternative to the winding down of the business of the HMOs, which had been struggling. According to the court, Health Net, then owner of the HMOs, sold the HMOs to a newly incorporated holding company, AmCareco, Inc. ("AmCareco"), despite the company's lack of any substantial assets with which it could make the purchase. Because regulatory approval of the sale under these conditions, was unlikely, the court said, Health Net and AmCareco arranged a "cash sweep" by re-characterizing funds from the PDR reserve, intended for the payment of insurance liabilities, as a restructuring reserve. According to the court, this action inaccurately inflated the assets of the company, leading regulatory authorities in three states to allow the sale to go forward and leaving the HMOs in financial distress and their associated policy members at risk. Health Net retained a substantial minority interest and stock rights in the HMOs following the sale.
According to the court, after the sale, the three HMOs experienced serious cash flow problems, and receivers were appointed in Louisiana, Texas, and Oklahoma, ultimately resulting in the filing of three lawsuits against various involved entities and individuals, including claims against Health Net as the former owner, seeking enforcement of a 1996 contractual guarantee and recovery of damages, attorneys fees, and other equitable relief. Claims against all parties other than Health Net were settled prior to the commencement of litigation. A jury found Health Net liable for breach of fiduciary duty, fraud, knowing unfair and deceptive acts or practices, conspiracy, and malice or gross negligence and granted compensatory and punitive damages. On initial appeal, the court reversed all judgments with the exception of enforcement of the contractual guarantee, limiting the damages award to $2 million. The Supreme Court of Louisiana reversed on all but one issue, reinstating the trial court's judgment and damages.
First, the Supreme Court affirmed the appeals court's determination of contract damages of $2 million, rejecting the Louisiana Receiver's arguments for more substantial damages.
Next, the court rejected claims by Health Net of prejudicial procedural error regarding faulty jury instructions, among other things. On the issue of the jury instructions relating to fiduciary duty, the court found Health Net owed a common law fiduciary duty, holding that "a wholly-owned subsidiary's directors owe a fiduciary duty to the subsidiary corporation itself, as well as to the parent corporation which owns 100% of its shares." Alternatively, Texas insurance law was held to apply so as to provide specific fiduciary duty "for those entrusted with the financial affairs of HMOs." On jury instructions relating to unfair or deceptive practices, the court held that the omission of the word "shareholder" from the list of entities that qualify as "persons" to which the unfair or deceptive acts or practices provisions of Texas insurance law apply did not preclude Health Net from qualifying as such person.
Finally, the Court reinstated tort and fiduciary duty liability and damages against Health Net, reviewing the factual record under a manifest error standard.
The Third Circuit Court of Appeals reversed in part the decision of the District Court for the District of New Jersey, which had dismissed two qui tam plaintiffs' allegations that UnitedHealth Group, Americhoice, and Americhoice of New Jersey violated the False Claims Act ("FCA") by falsely and knowingly certifying compliance with Medicare regulations and with the Medicare Anti-Kickback Statute ("AKS"). The plaintiffs had alleged various violations of federal regulations and rules governing the marketing of insurance products reimbursed through Medicare Parts C and D. The panel rejected the first line of argument put forth by appellants, but agreed with the second.
Appellants first argued that FCA liability should attach because appellees' activities violated conditions of participation in Medicare Part C or D – conditions to which appellees had certified their compliance by signing contracts with Medicare. The panel responded that appellees were not alleged to have violated conditions of payment by Medicare, but only of participation, and further noted that appellants' proffered approach would replace a nuanced scheme for regulating Medicare participation with an overbroad federal judicial remedy.
Appellants second line of argument was that FCA liability should attach to claims reimbursed to appellees because those claims would not have been reimbursed had Medicare known that appellees' certification of AKS compliance was false. The District Court had rejected this argument on the grounds that appellants did not specify in their pleadings a particular claim for reimbursement that was made false as a result of appellees' certification. The panel – emphasizing that the case was at the pleading stage, and that it was not reviewing appellants' claims under the particularized pleading standard of Rule 9(b) – agreed with appellants on this point, reversing the trial court. The panel explained:
"We conclude that appellants, in stating a plausible claim for relief at this stage of the proceedings for their complaint to survive a Rule 12(b)(6) motion, need not allege a relationship between the alleged AKS violations and the claims appellees submitted to the Government. Rather, the complaint is sufficient to survive a Rule 12(b)(6) motion to dismiss because appellants have pleaded that appellees knowingly violated the AKS while submitting claims for payment to the Government under the federal health insurance program."
The New Hampshire Federal District Court upheld a health plan's determination that occipital neurostimulation through implantation of a "peripheral nerve stimulator," which was prescribed to treat a patient's chronic headaches, was excluded by the plan's terms as a procedure that is "Experimental, Unproven, or Investigational."
The patient sued for coverage under ERISA after a temporary trial of the implant was seemingly successful in reducing her pain by 95 per cent. Although the plan covered the temporary trial, it later explained this coverage was erroneously provided based on incorrect billing codes entered by the treating physician.
In reviewing the plan's determination de novo, the court agreed that there was insufficient evidence in published peer-reviewed literature supporting long-term effectiveness and safety of the procedure. The court clarified that the patient's personal experience and apparent success with the treatment was insufficient to show that the treatment has been demonstrated by generally accepted medical standards to be safe and effective. Because the patient failed to produce published medical reports and literature in support of the procedure, she was unable to establish that the exception for experimental, unproven, or investigational procedures did not apply to occipital neurostimulation.
Ohio State University ("OSU") Pathology, a wholly-owned subsidiary of OSU Physicians and the sole member of OSU Path Component, filed suit in federal district court to permanently enjoin Aetna's demand for arbitration over 165,000 disputed claims paid to OSU Pathology since September 2008. Aetna had signed agreements with OSU Physicians in 2005 and in 2010; the 2005 agreement provided that a a Participating Provider would not be reimbursed additional amounts for claims filed under Modifier 26. Aetna's cross-motion for summary judgment sought to compel OSU Pathology to arbitrate its claims, all of which had been filed under Modifier 26.
Before denying OSU's motion and granting that of Aetna, the court determined three issues: 1) whether the court had jurisdiction to determine the case's arbitrability; 2) whether the parties meant for arbitration clause of the 2005 agreement to remain in force despite the absence of an arbitration provision from the integrated 2010 agreement that "supercedes any and all prior . . . representations"; and 3) whether OSU Pathology was a "participating provider" as that term was defined in the 2005 agreement between OSU Physicians and Aetna, and so was subject to the 2005 agreement's arbitration provision.
The first issue was readily decided, but the court called its decision on the second "a very close call." This owed to several silences. The 2005 contract was silent as to the survival of its arbitration clause; the 2010 contract was silent as to release from obligations incurred by either party under the 2005 contract; and the 2010 contract was also silent as to the parties' obligation to arbitrate per the terms of their 2005 contract. Citing a 1977 Supreme Court decision on arbitration provisions' survival, the court concluded that "there is nothing in the express language of the Agreements, nor the parties['] intent, to discredit [Aetna]'s argument that any dispute arising under the previous contract are still subject to arbitration."
As for the third issue, the court identified two key reasons to side with Aetna, and none that were countervailing. First, OSU Pathology had expressly authorized its parent-owner to act as its agent in negotiations with Aetna, thereby creating actual and apparent agency—sufficient grounds to bind a non-signatory to an arbitration agreement. Second, OSU Pathology submitted its tax identification number to Aetna in order to receive reimbursements for its claims and benefited substantially from its participation in OSU Physicians' agreement with Aetna.
The FTC challenged acquisition of St. Luke's Hospital by ProMedica Health System on the grounds that it would hurt competition in the Lucas County, Ohio markets for inpatient obstetric and general acute-care inpatient hospital services. The court found that the existing level of concentration in the Lucas County market made the proposed acquisition presumptively illegal, and determined that ProMedica's various arguments failed to rebut that presumption. Though their corporate affiliation had already occurred, the court granted a preliminary injunction, requiring the parties to continue abiding by the existing Hold Separate Agreement for the duration of the FTC's administrative proceedings.
The court observed that ProMedica is Lucas County's "dominant" health system, and further that by eliminating the competition from St. Luke's the acquisition would make ProMedica a "must have" system for commercial medical payers. That is, ProMedica would enjoy a near-monopolistic bargaining position in the relevant markets.
ProMedica sought to counter this characterization by arguing (1) that the acquisition would generate efficiencies, reducing prices to consumers; (2) that the acquisition would improve the ability of ProMedica and of St. Luke's to take productive advantage of federal health reform's support for Accountable Care Organizations; and (3) that St. Luke's was a failing enterprise whose resources would only remain productive if the acquisition prevented the impending failure.
The court rejected each of these arguments. According to the court, (1) all of ProMedica's purported efficiencies were speculative at best; (2) St. Luke's was already well positioned to take advantage of opportunities created by the Patient Protection and Affordable Care Act (PPACA); and (3) contrary to ProMedica's assertions, St. Luke's was neither flailing nor failing, as evidenced by improvements to volume, occupancy, and financials that followed from a recent leadership change. Finally, the court also noted that, however much new entry or incumbent expansions might mitigate the acquisition's anticompetitive effects, that mitigation will not be timely, likely, or sufficient.
The case will now proceed before an FTC administrative law judge, whose ruling may be appealed to the Commission itself.
Plaintiff Justin Quintana was injured in an auto accident and received medical care, the costs of which were reimbursed by his ERISA plan. Quintana recovered damages from the other party involved in the accident in a state court action. State Farm, the insurer of that other party, subsequently sought information from the ERISA plan's subrogation vendor, Ingenix, in order to determine what State Farm owed to Quintana under the other party's accident insurance policy.
Quintana brought claims in state court against State Farm, Ingenix, and Ingenix employee Kem Lightner for the alleged disclosure of Quintana's medical information to State Farm. Quintana's claims included alleged violation of his right to privacy, conspiracy to invade his privacy, intentional infliction of emotional distress, and violation of HIPAA. After the defendants removed the case to federal court, Quintana moved to remand.
The federal district court granted Quintana's motion for remand after rejecting Ingenix's argument that Quintana's state law claims were preempted by ERISA. Distinguishing Aetna v. Davila, the court noted that "Quintana is neither attempting to recover benefits nor alleging a violation of the terms of the [ERISA] Plan." Because Quintana's claims did not address an area of exclusive federal concern, and because he alleged that Ingenix acted beyond the scope of the authority granted it by the Plan's terms, the federal court concluded that his state law claims should proceed in state court.
The court also noted sua sponte that Quintana's claim under HIPAA did not confer federal jurisdiction. HIPAA provides no private cause of action to parties like Quintana, and the Fifth Circuit, the court said, – unlike some other federal courts – has not inferred such a cause of action from "HIPAA's comprehensive remedial scheme."
The Delaware Insurance Commissioner recently reported, after a target market conduct examination, that BCBSD violated state law as a result of practices associated with its pre-authorization review for nuclear stress tests, which were administered by third-party contractor MSI. Among other findings, the report concluded that the contract's financial incentives violated state law and that MSI's guidelines inappropriately instructed employees not to grant nuclear stress test pre-authorizations in the first instance to intermediate and high risk patients.
On July 1, 2009, BCBSD and MSI contracted for MSI to administer pre-authorizations for certain diagnostic tests, including nuclear stress tests. BCBSD had not previously required pre-authorization for nuclear stress tests. The Delaware Department of Insurance report was the culmination of an examination conducted over the period from March 29, 2007 to April 6, 2010, designed to determine whether BCBSD's pre-authorization and Individual Review Plan ("IRP") practices in relation to nuclear stress tests were consistent with both state law and accepted medical standards. The examination revealed a number of concerns and "exceptions" (i.e., unlawful practices), including those discussed below.
First, the report found that the original contract between BCBSD and MSI included unlawful payment terms. Specifically, the contract provided that the level of administrative fees paid to MSI were contingent on annual cost savings to BCBSD associated with MSI's management of radiology benefits. According to the report, this provision conflicted with Delaware law, which prohibits any such agreement with an insurer where fees are "contingent upon savings effected in the adjustment, settlement and payment of losses covered by the insurer's obligations." A June 3, 2010 amendment to the contract, however, deleted this contract provision, and the provision never went into effect.
Second, the report reviewed the clinical policies and procedures governing MSI's pre-authorization practices on behalf of BCBSD. The report compared MSI's clinical policies and procedures to criteria for nuclear stress tests set out in Guidelines issued by the American College of Cardiology Foundation ("ACCF") in 2009. Given the difficulty in interpreting symptoms of heart disease, the ACCF Guidelines allow the use of nuclear stress tests as the first form of diagnostic testing for intermediate and high risk patients. The MSI policies, however, provided that, if possible, the first test should always be an exercise treadmill stress test, which does not include nuclear imaging. In addition, contrary to the ACCF Guidelines, the MSI policies require echo imaging tests prior to nuclear stress tests, even for intermediate and high risk patients.
Though the report acknowledged the harmful effects of radiation exposure and the availability of alternative cardiac tests, including stress echocardiography, it concluded that the alternatives may not always be available and that licensed physicians should be able to weigh all of the clinical options in determining what test is in the best interest of the patient from the start. As a result, the report recommended that BCBSD revise its contract with MSI so that their criteria for nuclear stress tests "are not more restrictive than criteria established by ACCF or other recognized professional medical specialty organizations."
Third, the report found that, contrary to Delaware law, MSI's administrative review of initially denied requests for nuclear stress testing was not always conducted by a cardiologist or other licensed, certified or registered health care professional with expertise in the field. Consequently, the report recommended that the pre-authorization review process be revised so that denials based on medical necessity are reviewed by such medical professionals.
Fourth, the report found that, among all the requests for nuclear stress tests examined, 33 of 271 initially denied requests should have been granted had the ACCF criteria applied and been given effect. The report, thus, reiterated that the contract should be revised so that MSI's criteria are no more strict than those of ACCF and stressed that the criteria should be accurately and consistently applied. In addition, 21 of the 271 initially denied requests were later granted under the appeals process. As a result, the report also called for better monitoring of MSI's pre-authorization practices on the part of BCBSD.
Finally, the report found that 122 claims for nuclear stress testing denied on the basis of "no authorization" were inappropriately denied on the basis of claims system processing errors. This finding also rendered BCBSD in violation of Delaware law, which proscribes "a general business practice" of "[f]ailing to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies."
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