Managed Care Lawsuit Watch - November 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.
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Cases in this issue:
The Ninth Circuit Court of Appeals affirmed a lower court and held that Montana’s insurance commissioner could prohibit insurers in the state from including discretionary clauses in employee benefit plans governed by the Employee Retirement Income Security Act (‘ERISA”).
The Commissioner of Montana announced that a state stature required him to disapprove any insurance contract containing a discretionary clause. Standard Insurance Company (“Standard”) applied to the Commissioner for approval of its disability forms, which contained discretionary clauses. The Commissioner denied the request, and Standard sued in district court, arguing that the law was preempted by ERISA. The district court granted the Commissioner summary judgment.
The court of appeals first found that the practice of disapproving insurance forms that contain discretionary clauses is specific to the insurance industry. Thus, it met the first prong of the two-part test under ERISA’s savings clause. Next, the court of appeals found that the second prong of the savings clause test was met because the practice affected the risk-pooling arrangement between insurers and their insureds.
Additionally, the Ninth Circuit said the Commissioner’s practice was not preempted by ERISA because he was not attempting to give ERISA plan participants any form of relief that would go beyond what they would receive from ERISA. Specifically, the “Commissioner’s practice [wa]s directed at the elimination of insurer advantage, a goal which the Supreme Court has identified as central to any reasonable understanding of the savings clause.” The practice created no new substantive right and offered no additional remedy that was not contemplated by ERISA’s remedial scheme.
The Eleventh Circuit held that the phrase “actual charges incurred” in a supplemental health insurance policy was unambiguous and referred to the amount actually accepted as full payment by a hospital rather than the amount charged. The defendant (“Buckles”) had purchased a supplemental health insurance policy from Central States Health & Life Insurance Co. of Omaha (“CSH”), which covered any “actual charges incurred” above those paid by his primary insurer. When Buckles was diagnosed with a covered disease, his primary insurer paid the hospital treating him a reduced, negotiated rate which the hospital accepted as payment in full.
Subsequently, Philadelphia Life Insurance (“ Philadelphia”) acquired the supplemental policy and filed a declaratory judgment seeking construction of the phrase “actual charges incurred.” Buckles responded with a counterclaim for declaratory judgment. Granting Philadelphia’s motion for summary judgment, the lower court held that “actual charges” meant the amount billed by the provider, but that “actual charges incurred” represented the reduced amount that the hospital accepts from an insurance company as full payment. Buckles appealed and the Eleventh Circuit affirmed.
On appeal, Buckles argued that the district court erred by construing the policy against him in light of the ambiguity of the phrase at issue and the extrinsic evidence available, namely that CSH had already paid him for the amounts billed rather than the amounts accepted by the hospital as full payment. The court rejected Buckles’s argument that the phrase “actual charges incurred” was ambiguous, however, because the dictionary defines “incurred” to require the insured to pay for or become liable for the charge. Thus, the plain meaning of “actual charges incurred” is the “amount the provider accepts from an insurer as full satisfaction of the policyholder’s liability.”
In this case, because the payments made under the primary insurance policy were accepted as full payment, Buckles did not incur any liability. Reading the contract such that Buckles could recover an amount above that which was accepted as full payment by the hospital would “give him a benefit based on a fictional amount and lead to an absurd result.” Thus, the court held that the phrase “actual charges incurred” was not ambiguous and extrinsic evidence could not be considered.
Noting its "strong interest in the correct delineation of federal and state roles in the Medicare scheme," the Centers for Medicare & Medicaid Services (CMS) filed an amicus brief in Uhm v. Humana, Inc., arguing that all of the state and common law claims asserted are either expressly or impliedly preempted by the Medicare Act.
On a panel rehearing, the Ninth Circuit had withdrawn its decision in Uhm v. Humana Inc., 540 F.3d 980 (9th Cir. 2008), affirming a district court ruling that Medicare's express preemption clause barred various state law and common law claims arising out of Humana's alleged failure to provide timely Part D benefits, and ordered CMS to submit its views as to whether the Medicare Act preempts state claims.
In its amicus brief, CMS agreed that the Ninth Circuit had properly affirmed dismissal of plaintiffs' claims and argued that the state consumer protection claims based on allegedly fraudulent marketing materials are expressly preempted because CMS has established federal standards that regulate marketing materials. CMS also argued that the state law claims for breach of contract and unjust enrichment and for common law fraud are impliedly preempted because they conflict with key provisions of the Medicare Act, including careful coordination of benefits, limited judicial review and primary jurisdiction.
The District Court for the Southern District of West Virginia held that Consumers Life Insurance Co. (“CLIC”) must reconsider its decision to deny coverage for the transfer costs for airlifting a newborn from one hospital to another after the child was born prematurely and there was some evidence that the condition was serious enough to warrant transfer. Considering the need for transfer, the court looked at hospital documentation, which, among other things, contained a certification for transfer by the child’s treating physician. That physician had indicated that the child was at risk for “worsening distress” and that a “transfer to a tertiary care facility was necessary to obtain neonatology ad pediatric cardiology care.”
The court concluded that, while the Employee Retirement Income Security Act (“ERISA”) does not require health plans to defer to a patient’s treating physician when making coverage determinations, nevertheless a plan administrator may not ignore a claimant’s credible evidence, including a treating physician’s statements. Because the treating physician’s “contemporaneous appraisal of [the child’s] condition, and the necessity for expedited transport, are reflected in detail in the [the hospital’s] records,” the court remanded the case for a new determination based on all available evidence.
A district court ruled that an ERISA plan administrator abused its discretion when it denied payment for a computer-assisted musculoskeletal surgical navigational procedure. The plaintiff (“Welch”) sued HMO Louisiana, Inc. (“HMOLA”) in state court after HMOLA claimed the procedure was “investigational” and therefore not covered under the terms of the plan. Asserting ERISA preemption, HMOLA removed the suit to federal court, and the parties filed cross motions for summary judgment.
Turning to the legal standards in the case, the court noted that HMOLA both evaluates claims for benefits and pays the benefits claims, and that this conflict must be taken into account. Because the plan granted the administrator discretionary authority to determine eligibility, the court explained that it was required to first determine whether the administrator’s interpretation was legally correct, and if not, then decide whether the incorrect decision was an abuse of discretion. The most important factor in this analysis, the court continued, is whether the interpretation was consistent with a fair reading of the plan.
Tthe court granted summary judgment in favor of Welch and denied HMOLA’s cross motion. The Medical Policy issued by HMOLA defined “investigational” as something that has not been clearly tested and incorporated into standard medical practice based upon (A) whether the FDA has approved the procedure, and (B) whether further studies or clinical trials are required to determine the procedure’s effectiveness. The court determined that the first prong was not applicable because the FDA does not require data documenting the outcomes of this procedure, and the second prong did not apply because nothing in the policy indicated the purpose of further studies or clinical trials.
Concluding that the administrator’s interpretation was neither a fair reading of the plan nor legally correct, the court held that the administrator abused its discretion in denying payment for the computer-aided procedure, and thus summary judgment for Welch was proper.
The named Plaintiff, who is a member of the AARP health insurance program supplied by United Health Group (“UHG”) under contract with AARP Trust, brought a breach of fiduciary duty and a gross negligence claim against the AARP Trustees regarding their approval of a portion of the UHG premium. Plaintiff asserts that the Trustees breached their fiduciary duty “to keep insurance premiums reasonable and economic and tied to the cost of the health insurance provided” and that they acted with gross negligence in their management of the Trust.
The AARP member-insureds’ premiums were calculated in light of several components, one of which was as an allowance to AARP for sponsoring the program and for the use of its trademarks and services. While the amount of each monthly premium already included a pre-determined allowance amount, the allowance actually given to AARP was calculated as a percentage of the aggregate of all member-insureds’ premiums. However, rather than subtracting the allowance amount that was already included in the premiums, the percentage was taken of the entirety of the premiums collected. Therefore, the member-insureds were effectively double-charged, allegedly raising the amount of the member-insureds’ overall premium.
The Defendants moved to dismiss the Complaint on several grounds including that the filed rate doctrine precluded Plaintiff’s claims because the challenged rate had been approved by the governing regulatory agency, the New York State Department of Insurance (“NYSDI”). The filed rate doctrine “bars suits against regulated utilities grounded on the allegation that the rates charged by the utility are unreasonable.” Plaintiff countered that she is challenging only the Trustees’ approval of the AARP allowance portion of the rate and its method of calculation rather than the entire rate.
The Court ruled that the Plaintiff’s claims, though brought under the guise of fiduciary duty and negligence, were still claims attacking the reasonableness of a rate approved by the NYSDI and were hence barred by the filed rate doctrine. Though the Court dismissed the claim, the Court also noted that Plaintiff may bring her claim in a more appropriate forum, such as under the administrative proceedings of the NYSDI.
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