Managed Care Lawsuit Watch - July 2014
This summary of key lawsuits affecting managed care is provided by the Health Care Group of Crowell & Moring. 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.
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Cases in this issue:
Plaintiff Louis Morrison is a Medicare beneficiary enrolled in a Medicare Advantage (MA) plan offered by defendant Health Plan of Nevada, Inc. (HPN). Morrison was required by the terms of his MA plan to seek covered medical services from providers chosen by HPN. Since at least 2004, HPN had contracted with a gastroenterology clinic where Morrison sought treatment in 2006 and where he allegedly contracted Hepatitis C.
Morrison brought suit against HPN and alleged that HPN breached its duty "to use reasonable care to select its health care providers" and "to inquire into the medical practices at the [c]linic" and was negligent in directing him to seek treatment at the clinic. Morrison also alleged that HPN had failed to properly investigate the clinic and knew or should have known that the clinic engaged in unsafe medical practices causing a high risk of transmission of blood borne pathogens including Hepatitis C.
The trial court dismissed the action with prejudice, finding that Morrison's claim was preempted by the Medicare Act pursuant to Nevada Supreme Court's decision in Pacificare of Nevada, Inc. v. Rogers, 266 P.3d 596 (2011). Morrison argued on appeal that the trial court erred in applying Rogers to dismiss the action because the Medicare Act's preemption provision does not apply to his state common law negligence claim.
In a 4-2 decision, the Nevada Supreme Court affirmed the trial court judgment holding that the Medicare Act preempted Morrison's common law negligence claim. With respect to the scope of preemption, the state Supreme Court cited the Medicare Act's express preemption clause which provides that federal standards affecting the MA program "shall supersede any State law or regulation (other than State licensing laws or State laws relating to plan solvency) with respect to MA plans . . . . 42 U.S.C. § 1395w-26(b)(3)(2012)." The Nevada Supreme Court found that the scope of this preemption standard is very broad, such that MA standards supersede any state laws, regulations, contract requirements, or other standards that would otherwise apply to MA plans, with the exception of laws relating to licensing and plan solvency.
Citing its decision in Rogers, the state Supreme Court noted that prior to 2003, Congress had recognized a presumption against preemption unless a state law was in conflict with a Medicare requirement or fell within four express categories of preempted standards. But the 2003 amendments that created the MA program broadened the scope of preemption such that state laws are presumed to be preempted unless the law in question is a state licensing requirement or state law related to plan solvency. The state Supreme Court thus concluded that the legislative history shows that the Medicare Act's preemption provision has been specifically amended to include generally applicable common law.
The court also noted that the federal government issued extensive regulations governing an MA organization's quality improvement program which require that MA organizations have written policies and procedures for the selection and evaluation of providers to ensure that each physician or other health care professional is appropriately credentialed by verifying licensure or certification, disciplinary status, eligibility for payment under Medicare and to make site visits as appropriate. The court thus found that federal law provides standards to which MA organizations must adhere in its relationships with contracted providers. A state law action asserting the HPN was negligent in directing its insureds to the clinic could result in the imposition of additional state requirements on the quality assurance regime regulated by the federal government contrary to Congress' intent.
Crowell & Moring submitted an amicus brief for America's Health Insurance Plans on behalf of the defendants in the appeal.
The United States Court of Appeals for the Third Circuit declined to follow a lower court's determination that a dispute between two medical device companies and an insurer who declined to cover their devices was subject to arbitration under the participation agreement between the parties, instead holding that the arbitration clause only applied to disputes arising out of the "performance and interpretation" of the agreements, which the court determined the underlying claims did not.
CardioNet, Inc. and LifeWatch Services, Inc. (the "Companies") are medical device companies that provide outpatient cardiac telemetry services (OCT). Both entered into provider agreements with Cigna in 2007 that specified that "Covered Services" offered by the Plaintiffs would be reimbursed where medically necessary. At that time, Cigna announced that OCT would be considered a covered service, according to the plaintiffs. But Cigna reconsidered in 2012, determining that OCT would no longer be covered and issuing an update to physicians describing the change (the "Physician Update"). The Physician Update stated that OCT would no longer be covered for any indication, but the new coverage policy allowed for exceptions where the policy conflicted with the language of an existing insurance policy.
Following the policy change, the Companies brought four derivative claims on behalf of beneficiaries who assigned their rights under the Employee Retirement Income Security Act (ERISA) and three direct claims alleging various injuries based on the statements made to providers regarding coverage of OCT in the Physician Update. Cigna moved to compel arbitration.
The decision of the district court turned on language in the arbitration clause of the participation agreements (the "Agreements") between Cigna and the Companies. For the direct claims, the court held that the arbitration provision, which stated that "[a]rbitration is the exclusive remedy for resolution of disputes under this Agreement," was sufficiently broad to encompass the Companies' allegations. With regard to the derivative claims, the court held that since identical disputes not involving plan beneficiaries would be subject to arbitration, the Companies could not nullify their obligation by bringing claims on behalf of others.
On appeal, the Third Circuit delved more deeply into the dispute resolution process for disputes "regarding the performance or interpretation of the Agreement," finding that the context indicated that provisions regarding internal dispute resolution were meant to be read together with the arbitration provision. Crucial to this determination was the fact that the first line of the arbitration clause, which followed the internal dispute resolution clause, stated that disputes not settled by the internal process would be settled by arbitration. Therefore, the court reasoned, the arbitration clause applied only to disputes regarding the "performance or interpretation" of the Agreements addressed in the internal dispute resolution clause.
Turning then to the substance of the dispute, the court held that the Companies' concerns regarding the statements in the Physician Update were totally independent of the Agreements between the parties. Therefore, the arbitration clause, which applied only to disputes under the Agreements, was inapposite to the direct claims made by the Companies, the court said.
With regard to the derivative claims brought under assignment, the court likewise held the arbitration clause to be inapplicable for multiple reasons. First, the court determined that even if the Companies had brought the derivative claims directly, rather than under assignment from the beneficiaries, they would not be subject to arbitration because the Agreements themselves specified that coverage determinations were to be made under the terms of the applicable benefit plans, not the Agreements themselves. Therefore, the court reasoned, Cigna had no contractual duty under the Agreements to cover OCT, so the dispute did not regard the performance or interpretation of the Agreements.
Further, the court stated, if the Companies had brought the claims directly, they would have been preempted by ERISA. Because the only way that the Companies could bring claims was by assignment of the beneficiaries, the claims did not relate to the "performance or interpretation" of the Agreements. The court distinguished between a failure to reimburse a claim pursuant to an agreement and a failure to cover a service under the terms of a benefit plan, with the former being subject to arbitration under the applicable clause and the latter only available as a cause of action under ERISA.
In addition, the court held, even if the claims would be subject to arbitration if brought directly by the Companies, as assignees of the beneficiaries' claims, the Companies stood in the beneficiaries' shoes and, as such, could not be bound by terms that would not bind the beneficiaries. Finally, the court expressed concern from a policy perspective about holding beneficiaries' assigned claims to be subject to arbitration under agreements between providers and insurers. Were providers such as the Companies compelled to be subject to arbitration clauses when accepting assignment of ERISA rights in lieu of payment, the court worried, it would act as a disincentive to providers accepting assignment. The ability to resolve the dispute through litigation rather than arbitration, the court held, added value to such claims and encouraged providers to accept assignment in lieu of payment, thus facilitating access to services.
The Arizona Court of Appeals reversed a grant of judgment, finding that Medicare Advantage Plans could seek reimbursement for expenses paid for an enrollee from the settlement of claims that sought compensation for those expenses on behalf of the enrollee.
In September 2007, Deborah Ethridge died due to neglect at a nursing home. Ethridge's estate sued the nursing home for the cost of her medical expenses and ultimately settled the case for $1.2 million. Mercy Care Advantage, which provided Ethridge Medicare benefits, then sued Ethridge's estate seeking reimbursement for the cost of medical services Mercy Care Advantage paid to the nursing home on Ethridge's behalf.
The estate subsequently sought a declaratory judgment that Mercy Care Advantage was not entitled to reimbursement for the medical expenses under Arizona's anti-subrogation doctrine – a common law doctrine that bars the subrogation or assignment of personal injury claims.
In finding for Ethridge on a judgment on the pleadings, the superior court found that federal Medicare law and its associated regulations did not preempt Arizona's anti-subrogation doctrine. The Arizona Court of Appeals reversed and remanded.
Ethridge's estate argued that Part C of the Medicare Act only provided Medicare Advantage Organizations the right to bill, and not the right to assert a lien, claim subrogation, or obtain reimbursement. The court disagreed. 42 CFR Sec. 422.108(d)(2) of the Medicare regulations permits a Medicare Advantage plan to bill a plan enrollee "only to the extent that he or she has been paid by the carrier, employer, or entity for covered medical expenses." It would be illogical for the regulations to permit a plan to bill an enrollee, but not to recover on the bill. The court also noted that Sec. 422.108(f) grants Medicare Advantage plans the same rights to recover from an individual that federal law grants to traditional Medicare, which is expressly authorized to bring a cause of action against beneficiaries after the beneficiary subsequently recovers for medical expenses that Medicare had paid.
Ethridge's estate then argued that although Medicare Part C obtained an express preemption clause, the preemptions only applied to positive enactments – statutes and regulations – and not to Arizona's anti-subrogation doctrine, which was part of the state's common law. The estate reasoned that the clause specifically preempts "any state law or regulation" and that if "law" were read broadly to include the common law, it might also be read to include regulations, which would render the express reference to "regulation" superfluous.
The Arizona Court of Appeals rejected this interpretation of the preemption clause, observing that such an interpretation would contradict the clause's broad language referring to "any State law or regulation," as opposed to "a law or regulation" and that the clause does not expressly exclude common law from its reach, the way it excludes state licensing laws or state laws that relate to insolvency. The court added that it was not required to avoid surplusage at all costs and that CMS has since "clarified" that "all State standards, including those established through case law, are preempted to the extent that they specifically would regulate MA plans."
The United States District Court for the Northern District of Illinois Eastern Division approved, in part, plaintiff Pennsylvania Chiropractic Association's (PCA) proposed injunction requiring the defendant to provide ERISA-compliant notice and appeal when demanding that a health care provider repay previously issued health insurance benefits.
PCA won judgment in a bench trial for its ERISA claims against defendant Independence Blue Cross (IBC). Through the bench trial, the court determined that PCA members were beneficiaries for purposes of ERISA because IBC paid benefits directly to them for services rendered to insureds. Moreover, the court held that PCA members suffered adverse benefit determinations within the meaning of ERISA when IBC withheld or reduced payments after determining that prior payments had been made incorrectly. The court thus concluded that PCA was entitled to a permanent injunction to ensure the ERISA-compliance of IBC's notice and appeal procedures and practices regarding recoupments of paid benefits from PCA providers. PCA then submitted its proposed injunction, which the court approved in part.
PCA's proposed injunction included the following terms to ensure ERISA-compliance: IBC was to identify the health plan(s) at issue when demanding repayment from a provider on previously issued health benefits; for ERISA-governed claims, IBC would need to note the reason for repayment and describe material the provider may produce to avoid repayment and provide information about appeal procedures. The proposed injunction also required the IBC to explain more details for repayment demands dealing with benefits originally paid pursuant to the terms of a group health plan. The proposed injunction also established appeal procedures for providers subject to repayment demands when the benefit in question was paid pursuant to an ERISA plan.
IBC first argued that because it is not a plan administrator, ERISA does not contemplate its supplying ERISA-compliant notice and appeal to chiropractors. The court rejected IBC's argument, maintaining that its prior decision already clarified that IBC is required to provide notice and appeal to PCA members pursuant to ERISA when IBC recoups benefit amounts.
The court then limited the applicable scope of PCA's proposed injunction. PCA requested an injunction that applied to all providers who contract with IBC, not just PCA members or chiropractors. The court explained that its prior ruling did not extend to all medical providers, and that the injunction should be limited to IBC's notice and appeal procedures provided to PCA members upon issuance of a demand for repayment of a benefit. The court also rejected PCA's proposed retroactive application of the injunction, noting that injunctions serve as prospective relief. The court thus granted in part PCA's proposed injunction, with the limitations described herein.
Holding that complete preemption does not exist under the Federal Employees Health Benefits Act of 1959 (FEHBA), the United States Court of Appeals for the First Circuit reversed and directed the district court to remand to the Puerto Rico local court a tort and breach of contract suit arising out of an FEHBA insurer's refusal to cover an insured's gastric lap band surgery.
Plaintiff-appellant Raquel López-Muñoz, who was insured by defendant-appellee Triple-S Salud, Inc. (Triple-S), and who received health coverage by virtue of her husband's employment with the federal government, underwent gastric lap band surgery after she was diagnosed with morbid obesity. Although Triple-S initially denied authorization for the surgery, López-Muñoz persuaded Triple-S to reconsider its refusal. After the surgery, however, Triple-S objected to the cost of the lap band and the anesthesiologist's fees.
López-Muñoz brought suit in the Puerto Rico Court of First Instance for tort and breach of contract and sought damages. Triple-S removed to the United States District Court for the District of Puerto Rico on the grounds that (1) López-Muñoz's claims were completely preempted by the FEHBA, and (2) Triple-S was acting under the direction of a federal officer. López-Muñoz moved to remand and Triple-S simultaneously moved to dismiss, arguing again that López-Muñoz's claims were completely preempted and that López-Muñoz had not exhausted her administrative remedies as required under the FEHBA.
The District Court held that the FEHBA completely preempted López-Muñoz's claims based on the statute's preemption clause, and thus original federal question jurisdiction attached. The District Court then dismissed López-Muñoz's action without prejudice for failure to exhaust administrative remedies, as outlined by the Office of Personnel Management's (OPM) regulations governing denial-of-claims disputes.
The First Circuit, however, reversed, relying on the United States Supreme Court's explicit holding in Empire Healthchoice Assur., Inc. v. McVeigh, 547 U.S. 677, 698 (2006), that the FEHBA's preemption clause "is not sufficiently broad to confer federal jurisdiction." Although Triple-S attempted to distinguish Empire by, inter alia, claiming that the case involved the subrogation claim of an FEHBA insurer against its insured, while López-Muñoz's claims were based upon the denial of benefits, the First Circuit dismissed this argument based on the Supreme Court's assumption that the FEHBA's preemption clause reached the subrogation claim at issue in Empire. The First Circuit similarly dismissed Triple-S's claims that a 1998 amendment to the FEHBA's preemption clause and the existence of OPM regulations evinced the requisite congressional intent to establish complete preemption, particularly in light of the Supreme Court's explicit consideration and rejection of the former argument in Empire, and where the OPM regulations arose out of the agency's policy about-face, and not congressional action or statutory change.
On the other hand, the First Circuit left open an alternative route into federal court: the federal ingredient doctrine. Although the doctrine "applies in a special and small category of cases where a state-law claim necessarily raises a stated federal issue, actually disputed and substantial, which a federal forum may entertain without disturbing any congressionally approved balance of federal and state judicial responsibilities," One & Ken Valley Hous. Grp. v. Me. State Hous. Auth., 716 F.3d 218, 224 (1st Cir. 2013) cert. denied, 134 S. Ct. 986 (2014) (alteration and internal quotation marks omitted), the First Circuit declined to explore the doctrine's applicability because Triple-S did not raise the issue, and thus waived the argument.
The plaintiff was enrolled in a Federal Employees Health Benefits Program (FEHBP) plan (the "Plan"). The plaintiff alleged that she received medically necessary mental health treatment at a residential facility for treatment of anorexia nervosa. The plaintiff sought but was denied pre-approval for her residential treatment. The plaintiff's father was denied reimbursement for the residential treatment, and the Office of Personnel Management (OPM) agreed that the treatment need not be reimbursed because the Plan explicitly did not cover residential treatment. Having exhausted her administrative remedies, plaintiff sought damages and declaratory relief stating that the Plan violated California's Mental Health Parity Act. The trial court denied the plaintiff's motion for summary judgment.
The court first ruled against the plaintiff's claim that OPM violated the Federal Employees Health Benefits Act (FEHBA). FEHBA provides a limited waiver of sovereign immunity allowing a court to order payment of benefits improperly withheld from a patient. The court held that the plaintiff's request for damages and declaratory relief exceeded the scope of FEHBA's waiver, thus barring the plaintiff's desired relief from OPM.
The Court also ruled against the plaintiff's claims that OPM violated the California Mental Health Parity Act, as the California statute is preempted by federal law. By requiring that every health care service plan ensure parity, the California statute falls squarely within FEHBA's express preemption clause. Moreover, California's statute is preempted because it conflicts with FEHBA.
The court also denied the plaintiff's motion for summary judgment on her claim seeking declaratory relief that the Plan violates the federal mental health parity act. The court agreed with OPM's argument that the federal mental health parity act did not amend FEHBA and thus does not apply to the FEHBA program. The federal mental health parity act does not apply to federal employee health plans and is not administered by OPM, the court ruled. While OPM decided to require plans under FEHBA to follow the federal mental health parity act, doing so does not augment OPM's liability, as an agency cannot waive sovereign immunity and thereby alter federal court jurisdiction. Sovereign immunity thus bars the cause of action.
Academy of Allergy & Asthma in Primary Care v. American Academy of Allergy, Asthma, & Immunology
No. SA-14-CV-35-OLG (W.D. Tex. May 6, 2014)
The United States District Court for the Western District of Texas denied a preliminary injunction sought by primary care physicians to stop allergists from encouraging health plans to deny or limit allergy-related reimbursements to physicians who are not board-certified allergists.
Plaintiffs, a primary care physicians' group and allergy testing support company for primary care physicians, also alleged that the defendants intimidated primary care physicians from providing allergy care and coerced other allergists to boycott both primary care physicians and the allergy support company. The defendants consisted of individual board-certified allergists and their related professional organizations.
In addition, the plaintiffs asserted that the individual defendants also tried to restrict patient self-administration of allergy shots, allowing allergists to charge for visits to administer this treatment.
The court held that the plaintiffs did not show the elements required for a preliminary injunction. While acknowledging that the plaintiffs presented compelling arguments for antitrust relief, the court found that they did not show the requisite likelihood of success on the merits. To succeed under Section 1 of the Sherman Act, according to the court, the plaintiffs had to show that the defendants (1) engaged in a conspiracy (2) that restrained trade (3) in a particular market. The court held that the plaintiffs could satisfy only the first prong of that test: the evidence presented by plaintiffs tended to show that defendants conspired to keep plaintiff primary care physicians out of the allergy market and proof of concerted action among the allergists. In support, the court cited a newsletter article written by a defendant recommending that allergists approach primary care physicians and payors to encourage them to use allergists for the services at issue. But the plaintiffs failed to convince the court that the defendants engaged in an unreasonable restraint of trade, either through a group boycott or vertical price constraints. Moreover, the court believed that the plaintiffs had not yet defined the market with specificity.
The court also held that the plaintiffs did not meet the other requirements for a preliminary injunction in addition to a likelihood of success on the merits: the plaintiffs failed to show (1) a substantial threat of irreparable injury; (2) that the threatened injury if the injunction is denied outweighs any harm that will result if it is granted; and (3) that the grant of an injunction will not go against the public interest.
A California appeals court reversed a lower court's decision denying insurance coverage to two women with anorexia nervosa who filed an action against Blue Shield of California (Blue Shield), finding that the insurer had to pay for medically necessary treatment of eating disorders even though their plans specifically excluded it. The three-judge panel found that pursuant to the California Mental Health Parity Act (Parity Act), Blue Shield was required to cover the residential treatment of plaintiffs' eating disorders. The court rejected Blue Shield's argument that since the Parity Act is a component of California's Knox-Keene Act, the language in the Knox-Keene Act mandating coverage of "basic health services" for all physical illnesses limited the required scope of the company's mental illness coverage such that it did not have to pay for the residential treatment.
To counter this argument, the court explained that it did not "interpret the concept of 'parity' to require treatments for mental illnesses to be identical to those mandated for physical illnesses. . . . [P]arity instead requires treatment of mental illnesses sufficient to reach the same quality of care afforded physical illnesses." This ruling mirrors the Ninth Circuit decision in Harlick v. Blue Shield of California in June 2012, which required Blue Shield to cover a nearly ten month stay at a residential treatment center for a woman with anorexia nervosa, although Blue Shield's plan specifically stated that this care would not be covered.
On April 24, 2014, the California Court of Appeal effectively held that recently-enacted legislation in California requiring coverage for Applied Behavioral Analysis (ABA) services for autism will essentially require all health plans subject to California's Mental Health Parity Act to cover ABA services performed by certain non-state-licensed providers. The Court of Appeal held that the California Department of Managed Health Care (DMHC) cannot uphold a denial of coverage on the basis that ABA was provided by therapists certified by organizations such as the Behavior Analyst Certification Board (BACB), but otherwise unlicensed. The court was careful to emphasize that its holding is limited to denials based on the fact that providers were unlicensed—and not any other grounds.
Applied Behavioral Analysis (ABA) is a form of behavioral health treatment for autistic children. California's Mental Health Parity Act (MHPA) requires all Knox-Keene plans to cover the "diagnosis and medically necessary treatment of severe mental illnesses." It was not entirely clear whether ABA provided by BACB-certified therapists was included in this mandate. During the pendency of appeal in this case, though, California enacted Health & Safety Code section 1374.73 (the ABA statute) requiring health plans to cover ABA and other behavioral health treatments, as provided by any "qualified autism service provider," defined to include both state-licensed persons and persons certified by a national entity, such as the BACB.
The Court of Appeal found a large portion of the case moot on account of the ABA statute. The ABA statute, though, does not apply to Healthy Families Program or PERS plans, each of which is subject to the MHPA. Even though these plans are not subject to the ABA, the court found that the ABA effectively transformed BACB certification into a "license" and DMHC may not uphold a license-related denial by these plans. (California Medi-Cal health plans are exempt from both the ABA statute and MHPA.)
The Court of Appeal determined that only prospective injunctive relief was available, rather than causing the review of previous denials to be reopened, based on the plaintiff's particular request for relief and the choice it made to only name DMHC as a defendant (rather than adding any health plans). The decision also affirmed the lower court's order that 2009 DMHC guidance stating that ABA providers must be licensed violated the Administrative Procedures Act—though the Court of Appeal did so because the DMHC's cross-appeal on that issue was untimely by a very slim margin.
The Court of Appeal also upheld DMHC's determination that all grievances for denial of autism services by BACB-certified providers would first be resolved through standard grievance procedures, and would only be sent through Independent Medical Review (IMR) for "medical necessity" determination if it was determined that the plan covered ABA services by BACB-certified providers. The Court of Appeal held that DMHC has discretion on that issue and may not be directed to resolve all grievances under IMR.
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