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Managed Care Lawsuit Watch - March 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:


Love v. Blue Cross and Blue Shield of Arizona, Inc.
Case No. 03-21296 (S.D. Fla. 2/25/09)

On February 25, 2009, Magistrate Judge Torres of the United States District Court for the Southern District of Florida issued a report and recommendation that if upheld will dismiss with prejudice RICO conspiracy and related claims against eleven Blue Cross Blue Shield plans, seven of whom are represented by Crowell & Moring. Judge Torres found that Plaintiffs' allegations of a RICO conspiracy and the predicate acts of mail and wire fraud lacked adequate specificity under Twombly and Federal Rule of Civil Procedure 9(b).

The case is part of the In re Managed Care multidistrict litigation pending since 2000. Various other defendants facing these claims have entered into settlements paying over a billion dollars to physicians and hundreds of millions of dollars in attorneys' fees, as well as committing to significant business practice changes.

The Magistrate found that plaintiffs' allegations of a RICO conspiracy and the predicate acts of mail and wire fraud lacked adequate specificity under Bell Atlantic Corp. v. Twombly and Federal Rule of Civil Procedure 9(b). He held that plaintiffs failed to provide any specific factual allegations regarding how and why the defendants agreed to defraud physicians. The Court rejected as insufficient plaintiffs' conclusory allegations of an agreement, inferences from parallel conduct that could "be easily explained by a theory of rational independent action," and evidence that merely showed an opportunity to conspire rather than direct evidence of a conspiratorial agreement.

In addition, Judge Torres found that plaintiffs' mail and wire fraud allegations failed to meet Rule 9(b)'s heightened pleading requirements, because they did not provide the "who, when, when, where and how" of the allegedly fraudulent misrepresentations and omissions and did not allege facts about each defendant's participation in the fraud. He stated "the Sixth Amended Complaint does not adequately plead a single incidence of fraudulent conduct" and "does not set out for each Defendant how that Defendant participated in the fraud." Judge Torres rejected plaintiffs' argument that a prior Supreme Court decision rendered Rule 9(b) inapplicable to RICO mail and wire fraud allegations. He found that neither plaintiffs' Complaint nor RICO Case Statement described with sufficient particularity how provider agreements, manuals, claim forms, patient lists, payments, and reports misled plaintiffs into believing that they would be paid in accordance with the Current Procedural Terminology ("CPT").

While Judge Torres found that plaintiffs had alleged with particularity their claims regarding defendants' mailing of Explanations of Benefits forms to plaintiffs, he found that the "allegations regarding the information contained in the EOBs do not identify any statements that were fraudulent or misleading," and "[i]f anything, the EOBS helped to reveal the fraud as they put Plaintiffs on alert that they were not properly paid in accordance with CPT," and therefore could not have furthered an illegal scheme.

Judge Torres' report and recommendation is subject to review by Federal District Court Judge Moreno.

Kaye v. Humana Ins. Co.
No. 08-80819 United States District Court for the Southern District of Florida

Plaintiff Joel Kaye learned in mid-2002 that he had an incurable form of prostate cancer. In late 2005, Kaye enrolled in a Humana Medicare Advantage PPO plan after checking whether the cancer treatment center where he was receiving care was a participating provider. Humana allegedly made numerous affirmative indications that the cancer center participated with Humana. As it turned out, Humana did not have a contract with the Plaintiff's cancer center for the PPO plan.

The Court ruled that Kaye's claims were preempted by federal Medicare law because the breach of contract, fraud in the inducement, and statutory bad faith claims were "essentially" claims for benefits. The Court noted that judicial review is permitted for a claim for benefits only after the Secretary renders a final decision on the claim, which requires (1) presentment of the claim to the Secretary and (2) exhaustion of administrative remedies by the Plaintiff. Though the Court indicated Humana may have acted in bad faith in delaying the administrative review procedure, there still was no presentment to the Secretary.

The Court also dismissed Plaintiff's intentional infliction of emotional distress claim because it was not clear that Humana had acted so outrageously as to constitute behavior "beyond all possible bounds of decency." While dismissing all of Kaye's common law claims, the Court granted Kaye leave to amend his complaint consistent with the Court's Order.

State of Texas v. Hermann Healthcare System
Agreed Final Judgment and Stipulated Injunction

The Texas Attorney General and Memorial Hermann Healthcare System ("Hermann") have settled allegations that Hermann pressured insurers not to contract with Houston Town and Country Hospital, a physician-owned hospital. The Attorney General alleged that after Hermann learned that a health insurer had contracted with Town and Country, Hermann notified the health insurer of its intent to terminate its contract. This resulted in a substantial rate increase for Hermann. Herman notified the other health insurers in the Houston market of its termination with this insurer as an example of what would happen if they contracted with Town and Country. As a result, the Attorney General alleged that Town and Country Hospital was unable to establish contracts with major insurers.

In addition to requiring Hermann to pay $700,000 in partial reimbursement for the investigation costs, Hermann must refrain from requesting information from insurers on the rates that they pay to competing hospitals. Additionally, Hermann may not attempt to facilitate agreements with health plans to refuse to deal with competing hospitals or attempt to terminate contracts with health plans due to the fact that the plan has entered into an agreement with a competing hospital.

Independent Practice Associates Medical Group, Inc., d/b/a AllCare IPA
FTC Decision and Order

The FTC has approved the Final Consent Order in a matter in which it accused Independent Practice Associates Medical Group, Inc. d/b/a AllCare IPA ("AllCare"), with approximately 500 physicians in the Modesto, California area, of engaging in price-fixing.

AllCare negotiated contracts with payors on both a capitated basis as well as with PPO payors on a fee-for-service basis. The FTC charged that AllCare violated Section 5 of the Federal Trade Commission Act by fixing prices charged to PPO payors and refusing to deal with such payors in the Modesto area. The FTC alleged that AllCare restrained competition by facilitating, entering into, and implementing agreements to fix prices in PPO contracts. To enforce the inappropriate negotiations, AllCare caused a significant number of physicians to send the same form termination letter to the same PPO.

The Final Consent Orders prohibit AllCare from entering into or facilitating agreements between providers (i) to negotiate on behalf of any physician with any payor; (ii) refuse or threaten to deal with any payor; (iii) regarding any term, condition, or requirement upon which any physician is willing to deal with any payor; or (iv) not to deal individually with a payor, except through AllCare. The Final Consent Order does not preclude AllCare from engaging in negotiations and other conduct concerning legitimate qualified risk-sharing arrangements or qualified clinically integrated arrangements.

Omnicare, Inc. v. UnitedHealth Group, Inc.
No.: 06 C 6235 (N.D. Ill. 1/16/09)

A federal Court granted summary judgment, dismissing claims alleging antitrust violations and fraud by two health insurers, UnitedHealth Group and PacifiCare Health System, brought by an institutional pharmacy, Omnicare. Defendants were separately negotiating contracts with Omnicare for pharmacy services, to show federal regulators they had adequate pharmacy networks for individuals in long-term care facilities under Medicare Part D. UnitedHealth agreed to terms with Omnicare, and was certified for Medicare Part D. At the same time, UnitedHealth and PacifiCare were considering, and ultimately agreed to a merger. PacifiCare then ended negotiations with Omnicare, obtaining approval without Omnicare in its pharmacy network. PacifiCare later reentered contract talks with Omnicare, and secured a more favorable deal than the one secured by UnitedHealth. After the merger, UnitedHealth abandoned its deal with Omnicare, relying on PacifiCare's more favorable terms with Omnicare.

Omnicare sued alleging that the health insurers conspired to obtain more favorable rates from Omnicare. The Court found that the Merger Agreement did not evidence a conspiracy in restraint of trade because it did not require UnitedHealth to approve PacifiCare's Part D contracts. The Court also held that the reimbursement rate paid by PacifiCare was not evidence of a conspiracy. PacifiCare's bargaining position was improved when CMS approved its Prescription Drug Plan without Omnicare, enabling PacifiCare to demand more favorable terms from Omnicare. More importantly, Omnicare knew of Defendants' planned merger before entering its agreement for pharmacy services with PacifiCare's subsidiary. Omnicare did not try to include any terms prohibiting UnitedHealth from using the lower rates that the subsidiary had secured.

Prospect Medical Group, Inc. v. Northridge Emergency Medical Group
No. S142209 (Cal. Jan. 8. 2009)

In a dispute regarding payments to non-participating providers for emergency services, the California Supreme Court ruled that under the California Knox-Keene Act, non-participating emergency room doctors cannot directly bill patients for the difference between the bill submitted and payment received from the patient's HMO.

Prospect Medical Group, an individual practice association, had filed related actions against two emergency physician groups ("Emergency Physicians"), seeking - among other things - a judicial determination that the Medicare rate for emergency medical care is "reasonable" payment to emergency physicians and that the practice of balance billing is unlawful. The Court of Appeal held that Prospect Medical Group was not entitled to a judicial declaration imposing the Medicare rate as the reasonable rate and that balance billing is not statutorily prohibited under California law.

On appeal to the California Supreme Court, the court reviewed whether Emergency Physicians may engage in balance billing. The Supreme Court examined the applicable statutory scheme and rejected the Court of Appeal's holding that balance billing is not statutorily prohibited. The court found that "the only reasonable interpretation of a statutory scheme that (1) intends to transfer the financial risk of health care from patients to providers; (2) requires emergency care patients to agree to pay for the services or to supply insurance information (3) requires HMO's to pay doctors for emergency services rendered to their subscribers (4) prohibits balance billing when the HMO, and not the patient, is contractually required to pay; (5) requires adoption of mechanisms to resolve billing disputes between emergency room doctors and HMO's and (6) permits emergency room doctors to sue HMO's directly to resolve billing disputes, is that emergency room doctors may not bill patients directly for amounts in dispute."

United HealthCare Insurance v. Honorable Kathleen Blanco Consolidated with Humana Insurance Company and Humana Health Benefit Plan of Louisiana, Inc. v. Jerry Luke LeBlanc, et. al.
No. 07-532-RET-DLD

The U.S. District Court, Middle District of Louisiana issued a judgment on November 5, 2007 in favor of Plaintiffs United HealthCare Insurance Company ("United HealthCare"), Humana Insurance Company, and Humana Health Benefit Plan of Louisiana (collectively, "Humana") that had alleged that a Louisiana law unconstitutionally discriminated against interstate commerce by disqualifying companies not based in Louisiana from competing for a state contract.

The case concerned Act 479 (the "Act") which required the state's Office of Group Benefits to solicit proposals from and award contracts to up to three "Louisiana HMOs" for state employee health benefits. To be a "Louisiana HMO," a company had to be domiciled, licensed and operating in the state, to maintain its primary corporate office and at least 70 percent of its employees there, and perform most of its core business functions in the state. The effect was to exclude United HealthCare and Humana.

After United HealthCare and Humana sued, the Court enjoined implementation of the Act as a violation of the Commerce Clause due to its discrimination against interstate commerce.

The Court has now denied a motion for a new trial, finding no error in the grant of the injunction. The Court upheld the Commerce Clause violation finding rejecting claims that OGB was acting as a market participant that can escape scrutiny under the Commerce Clause, and finding that the McCarran-Ferguson Act does not apply.

Courts have long interpreted the Commerce Clause as a restraint on state authority to discriminate against interstate commerce regulate commerce - commonly known as the dormant Commerce Clause. The Court concluded that the Act is facially discriminatory and disadvantages "among similarly situated in-state and out-of-state interests" because United HealthCare, Humana, and Vantage (a Louisiana-based HMO) all offer the same products and the only difference is that Vantage qualifies because it meets the definition of a "Louisiana HMO" under the Act. The state then failed to show that the purpose of the Act is unrelated to economic protectionism.

Kaden v. First Commonwealth Insurance Company
No. 05 C 2212

The U.S. District Court for the Northern District of Illinois, Eastern Division, granted First Commonwealth Insurance Company's ("FCI's") motion for summary judgment and denied Plaintiff's motion for class certification as moot.

The Plaintiff was a member of FCI's employer-sponsored dental plan. He received three fillings and claims he was overcharged and failed to receive the dental benefits to which he was entitled. The Plaintiff's wife allegedly called FCI on several occasions to complain and was told that there was no process to file a complaint or grievance. Nevertheless, the Court disagreed with the Plaintiff's contention that he was denied meaningful access to administrative remedies because the subscription certificate included a complaint resolution procedure.

The Plaintiff also alleged promissory estoppel since he relied on statements made in a brochure when deciding to enroll in the dental plan. The Plaintiff' claims that the brochure was misleading since it provided that the member's payment responsibility was based on a fee schedule of charges "common in your community." The case raised the unusual claim that the plan had set its fee schedule allowance too high, relative to the community, so that the coinsurance due from the plaintiff was too high. The Court disagreed since the brochure referred to the subscription certificate for a complete description of benefits and limitations and the copayment schedule was available upon request. Therefore, summary judgment was granted for FCI.

Crowell & Moring LLP - All Rights Reserved
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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