Managed Care Lawsuit Watch - November 2008
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 any member of the health law group.
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Cases in this issue:
Plaintiff Golden Gate Restaurant Association ("GGRA") brought suit against the city and county of San Francisco arguing that ERISA preempted the city's Health Care Security Ordinance (the "Ordinance"), which includes a requirement that employers with more than 20 workers spend a minimum amount towards employee health coverage. Employers were required to make the payments either into their own employee benefits funds or into Healthy San Francisco, the city's fund. GGRA argued ERISA preemption existed either because the Ordinance creates a "plan" under ERISA or because it "relates to" employers' ERISA plans.
The Court began by noting that state and local laws enjoy a presumption against preemption when they "clearly operate in a field that has been traditionally occupied by the States." In this case, the Court concluded that while the Ordinance does so with a novel approach, it nevertheless operates in an area traditionally governed by state and local law by providing for the provision of health care services to persons with low or moderate incomes.
GGRA first argued the Ordinance "created" an ERISA plan. The Court rejected this argument and held that ERISA is not concerned with employee benefits, but with employee benefit plans, which are subject to possible abuse and mismanagement. The Court found that the city-payment option under the Ordinance did not create an ERISA plan due to its lack of administrative obligations. The Ordinance merely obligated employers to make "the required payments for covered employees, and to retain records to show it has done so." In order to have a "plan" under ERISA, the Court held there must be more than "some modicum of discretion," such as a "particularized, administrative, discretionary analysis[making] the plan an ongoing administrative scheme."
Second, since ERISA preempts all state laws insofar as they "relate to" an employee benefit plan, the plaintiffs argued for preemption. The Court again disagreed and concluded that the Ordinance does not require any employer to adopt an ERISA plan or other health plan. Instead, employers governed by the Ordinance merely must discharge their payment obligations, "whether those expenditures are made in whole or in part to an ERISA plan, or in whole or in part to the City." Moreover, since the employer is required to pay at a certain level, the Court noted that an employer might decide to adopt or change an ERISA plan in lieu of making the required health care expenditures to the city, but it found such influence permissible under Supreme Court precedent.
The plaintiffs, a group of out-of-network providers, had brought their claims under the Racketeer Influenced Corrupt Organizations Act ("RICO") and the Employee Retirement Income Security Act ("ERISA"). They alleged that the defendant systematically delayed, diminished, and denied the payment of claims to out-of-network providers submitted on behalf of Medical Mutual of Ohio's members.
The court held that the RICO claims were "reverse-preempted" by the McCarran-Ferguson Act. The court stated that "a state law is enacted for the purpose of regulating the business of insurance if the activities at issue are part of the business of insurance and the state law possesses the aim of regulating those activities." In this case, the plaintiffs alleged that the defendant "violated a duty to pay amounts owed to the insureds, which is perhaps the most integral part of the policy relationship between the insurer and the insured." Therefore, the court held that a RICO action in this case would frustrate the administrative regime of the state of Ohio.
Regarding the ERISA claims, the court agreed with the defendant that the plaintiffs had failed to allege that they had complied with ERISA's administrative exhaustion requirements before bringing legal action. Although the plaintiffs had alleged that the administrative procedures would have been futile, nevertheless "the claimant bears the burden of proving futility beyond mere conclusory allegations." Therefore, since the plaintiffs had not detailed any efforts to pursue administrative remedies, the court also dismissed the ERISA claims.
In 2006, Plaintiff hospitals filed a complaint in state court, alleging breach of contract, fraud, unjust enrichment and violations of New York Human Rights and General Business laws. Plaintiffs claimed that UnitedHealth Group fraudulently negotiated and terminated contracts to reduce reimbursement rates and conspired with subsidiaries to minimize payments due to defendants. The state court compelled arbitration pursuant to the mandatory arbitration clauses contained in the agreements between the parties. Plaintiffs subsequently filed a motion to renew its opposition to Defendants' motion, citing the discovery of new information. The state court denied Plaintiffs' motion to renew.
In 2007, while Plaintiffs' motion to renew was pending, Plaintiffs filed a complaint in federal court, alleging identical claims asserted in the state court lawsuit, in addition to violations under the Racketeer Influenced and Corrupt Organizations Act ("RICO"). Plaintiffs also named additional defendants in the Complaint. In response, Defendants filed a motion requesting the Court abstain from asserting jurisdiction, or in the alternative, to compel arbitration or stay the action.
The federal court first denied Defendants' motion to abstain from asserting jurisdiction, finding that the facts did not weigh in favor of abstention, as applied under the six-factor test enunciated by the Supreme Court in Colorado River Water Conservation District v. United States. The federal court then considered Defendants' motion to compel arbitration or stay the action. The court evaluated the complaint and found that res judicata applied, thereby precluding the hospitals from bringing the complaint in federal court. The federal court reasoned that the pattern of racketeering alleged in the federal complaint was previously alleged in the state court complaint and did not create the basis for RICO claims where none existed. Furthermore, the federal court found that the addition of new defendants did not affect its ruling, reasoning that "while the State Court Complaint did not name an identical set of defendants, in it Plaintiffs alleged wrongs committed by all of the instant defendants; those wrongs collectively served to further the business practices about which Plaintiffs complain in both their state and federal actions."
United States of America ex re. Bonnie Sterling v. Health Insurance Plan of Greater New York
06 Civ. 1141 (PAC)
Ms. Sterling, the relator, alleged that HIP violated the False Claims Act by falsifying data to obtain NCQA accreditation that the U.S. Office of Personnel Management relied on to issue contracts. The Court granted HIP's motion to dismiss the complaint for failure to state a claim and failure to plead fraud with particularity.
The Court relied in part on the recent Allison Engine Supreme Court decision. The Court considered whether HIP made false statements to NCQA with the intent that the Government would rely on the statements as a condition of payment. The Court concluded that there was no evidence to support that allegation.
In addition, the plaintiff alleged that the presentment of an alleged false claim to NCQA serves as a presentment of a claim to the Government. The Court disagreed—there was no presentment of a claim to the Government, particularly when NCQA is "not funded by, in contract with, or related to the government in any way."
Plaintiff, Omega Hospital ("Omega"), sued Aetna Life Insurance Company ("Aetna") alleging state law claims of detrimental reliance on Aetna's oral representations that specific medical treatments would be covered. Aetna removed the case to federal court, asserting that Omega's claims were preempted by ERISA. Once in federal court, Omega moved to remand the case back to state court, claiming that ERISA preemption did not apply.
The Court first held that, when outside the realm of diversity jurisdiction, complaints must typically assert on their face a claim under federal law in order to be heard in federal court. The court, however, also held that where "a federal statute wholly displaces the state-law," the federal court may hear the case.
There must be "complete preemption" in order for a federal court to hear a case that arises under state law. There are two ways in which a federal statute may "displace" and thereby preempt state law. First, the federal statute may "occupy the field," in which case the federal law was intended to "recharacterize" state law. For example, any state cause of action that seeks the same relief as a cause of action authorized by ERISA is completely preempted. Second, the federal statute may preempt state law when it conflicts with state law. However, the mere presence of a conflict does remove a case to federal court, but this "conflict preemption" may serve as a defense to a state action.
In this case, in order to find whether complete preemption existed, the court first looked to whether Omega could have brought its claim under ERISA. Here, since the two patients at issue had assigned their rights to receive benefits under their ERISA plans to Omega, the hospital was entitled to bring a derivative action to enforce the plan beneficiaries' claims. .
However, the court found that there was an independent legal duty, outside of ERISA and the plan terms, implicated by Aetna's actions in this case. The court held, "[a] claim implicates an independent legal duty when the individual may bring the state law claim regardless of the terms of an ERISA plan." In this case, Omega's allegations were based upon alleged misrepresentations on the part of Aetna. The court concluded, "[r]egardless of whether the ERISA plan would have covered the procedures, Omega claims that Aetna entered into an oral contract with Omega in which Aetna represented that the specific care would be covered by the plan." Therefore, ERISA preemption was found not to apply, and the court remanded the case to state court.
Related to: AvMed, Inc., et al. v. BrownGreer, PLC, et al., No. 08-1633 & 1199 SEIU Greater New York Benefit Fund, et al. v. BrownGreer, PLC, et al., No. 08-3627
The U.S. District Court for the Eastern District of Louisiana held that two groups of health plans could not proceed with their claims to enjoin distribution of payments in the Vioxx Settlement Program under § 502(a)(3) of ERISA. The plans argued they were entitled to reimbursement for services provided to plan beneficiaries that receive payouts from the Vioxx Settlement Program, established to resolve multidistrict products liability litigation involving the prescription drug. The Court granted the Defendant's Motion to Sever the claims of the "AvMed Plaintiffs" and the Defendants' Motion to Strike Class Allegations of the "Greater New York Plaintiffs."
The Court granted defendants' motion to strike class allegations because each of the Greater New York plaintiffs would "necessarily have to rely on highly individualized evidence in order to support its claims." Each health plan was different and used different contractual language. The Court also found the proposed class was unascertainable because membership could not be determined without identifying information for Vioxx Settlement fund claimants; the exact remedy these plaintiffs sought. The Court had earlier denied a motion for a temporary restraining order and preliminary injunction to compel disclosure of the identities of the Vioxx claimants participating in the settlement and to prevent distribution of funds until the plans sought reimbursement claims against settlement fund claimants.
On October 6, 2008, the Michigan Court of Claims granted in part and denied in part a Motion to Dismiss Claims that a Blue Cross Blue Shield of Michigan subsidiary violated its non-profit status. Following Blue Cross' transfer of $125 million to its Accident Fund subsidiary to purchase three workers' compensation companies, the Attorney General of Michigan filed suit alleging unauthorized investment ownership of an insurance company, use of Blue Cross funds to operate and subsidize the subsidiary in violation of Michigan law, and breach of the asset purchase agreement. The Defendants' filed a Motion to Dismiss, arguing that Plaintiffs did not allege facts to support its assertion that Blue Cross and its subsidiary violated the Nonprofit Health Care Corporation Reform Act.
The Court rejected Defendants' argument that Michigan law permitted the parent company's capital contribution. Plaintiff "asserted that Defendant made the contribution explicitly for purposes of funding that acquisition [of the workers' compensation companies]." Plaintiff successfully stated a claim for unauthorized investment because the Nonprofit Health Care Corporation Reform Act prohibits a health care corporation's direct or indirect ownership or control of an insurance company. However, the Court dismissed plaintiff's claim regarding the capital contributions because the claim was more appropriate for resolution by the state Insurance Commissioner under the doctrine of primary jurisdiction. The Court also dismissed plaintiff's claim under the asset purchase agreement because thealleged conduct occurred after the defendant was no longer bound the relevant provisions of the agreement.
In the most recent ruling in an antitrust action filed by the City of New York (the "City") 2006 seeking to prevent the merger of Group Health Incorporated ("GHI") and Health Insurance Plan of Greater New York ("HIP"), the U.S. District Court for the Southern District of New York denied GHI and HIP's motion to compel the production of documents that they argued directly related to the City's consideration of conditions in the health insurance market and its choice of insurance carriers and plans. The Court, however, ruled that the documents were not protected under the deliberative process privilege asserted by the City.
The deliberative process privilege is designed to allow government officials to freely debate policies and thereby "safeguard the quality and integrity of government decisions by protecting the decision making processes of the executive from discovery in civil actions." In order to invoke the privilege, the documents asserted to be privileged must be both predecisional and deliberative and must involve the formulation of "important" public policy.
The Court ruled that the deliberative process privilege did not apply to the documents, even though the Court believed the documents were deliberative and predecisional, because they did not specifically relate to an important policy decision. According to the Court, "there remains too great a disconnect between the City's deliberations over the financial impact of the merger and the arguable public policy interest in management and budgetary decisions of the City." Although the Court held that the privilege did not apply, the Court nonetheless denied GHI and HIP's motion to compel production because the documents were either irrelevant to the claims at issue and were not likely to lead to relevant information or had either been produced or contained only information publicly available or previously provided.
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