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Managed Care Lawsuit Watch - October 2003


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 health law group.

Please click to view the full Crowell & Moring Managed Care Lawsuit Watch archive.

Cases in this issue:

Blue Cross Blue Shield of New Jersey, Inc. v. Philip Morris USA, Inc.
2nd Cir. No. 02-7276 (L), 02-7394 (CON), 02-7424 (CON) (9/16/03)

The United States Court of Appeals for the Second Circuit reversed in part and reserved decision in part on a district court's denial of judgment as a matter of law, following a jury award of 17.8 million dollars to Empire Healthcare, Inc., d/b/a Empire Blue Cross & Blue Shield ("Empire") against Philip Morris. Empire brought both subrogation and direct claims against several tobacco companies pursuant to, among other laws, New York's consumer protection statute ("Section 349"). It alleged that the tobacco companies caused its health care expenditures to rise by deceiving the public, including its subscribers, as to the negative health consequences of cigarette smoking.

The appellate court first reversed the judgment for Empire on its subrogation claim. While noting that "an insurance company may bring a subrogation action against tobacco companies to recover certain medical costs resulting from smoking," it held that Empire's failure identify the number of subgrogors or their names prevented it from bringing a "true" subrogation claim.

Regarding the direct claim, the appellate court held that Empire had standing to sue pursuant to Section 349. A party need not be a consumer to have Section-349 standing, so long as the party alleges "harm to the public interest." However, the appellate court further held that New York precedent was unclear as to whether (1) Empire's claims were too remote under Section 349 and (2) Section 349 requires individualized, as opposed to aggregate and statistical, proof of harm to subscribers. Thus, these two questions were certified to the New York Court of Appeals and decision was reserved on both the direct claim and Empire's entitlement to attorneys' fees.

Collins v. Anthem Health Plans, Inc.
Connecticut Supreme Court No. SC 16900 (09/29/03)

The Connecticut Supreme Court ruled that a trial court had erred under state law when it certified a class of individual physicians and group practices in a lawsuit against Anthem Health Plans, Inc. The lawsuit, originally filed in 1999 by a group of 16 orthopedic surgeons, alleged that Anthem Blue Cross & Blue Shield of Connecticut breached its provider agreement by failing to make timely payments, failing to provide medical utilization and quality management for covered services, and failed to perform other contract duties. The plaintiffs sought to bring a class action on behalf of all physicians who had signed provider agreements with Anthem from 1993 to 2001, estimated at between 7,000 and 8,000 physicians. The trial court had certified a class for some of the physicians' claims, but had not certified other claims because those claims were unique to those physicians and did not represent the whole class.

The Connecticut Supreme Court vacated the trial court's certification and remanded the case back to the trial court. The Supreme Court found that the trial judge had erred by failing to consider whether questions of law and fact common to the plaintiffs and potential class members predominated over questions affecting only individual members of the class. The Court also ruled that the plaintiffs had met two requirements for class certification – the so-called adequacy-of-representation and superior-form-of-adjudication prongs.

Connolly v. Aetna U.S. Healthcare, Inc., et al.
D. N.J. Civil No. 03-1814 (JBS) (8/25/03)

In an unpublished decision, the U.S. District Court for the District of New Jersey held that state law negligence claims arising out of medical treatment to an HMO subscriber were not completely preempted by ERISA, and remanded the case to New Jersey state court. The plaintiff's physicians asked Aetna to provide a home uterine activity monitor for pre-term contractions and cervical dilation. Aetna would not approve the monitor, but instead provided home uterine palpation through nursing company visits and telephone contact. A week later, however, the plaintiff went into premature labor with twins, one of whom died after birth. The second twin suffered severe disabilities resulting from the premature labor.

The plaintiff sued Aetna, alleging state law claims of negligence, medical negligence, and gross negligence. Aetna removed the case to federal court asserting ERISA preemption because it claimed the suit was based upon Aetna's denial of benefits. The court disagreed, finding that the case related to the quality of the medical treatment. The plaintiff filed an amended complaint contending, inter alia, that Aetna was negligent "in the implementation and adoption of the policy" relating to the uterine monitor, as well as in adopting other policies, recklessly indifferent, and negligent in failing to provide adequate medical advice and in failing to advise the plaintiff to seek immediate medical attention.

The court denied Aetna's attempt to remove the case to federal court, finding that Aetna's actions were best categorized as providing medical treatment as opposed to administering benefits and, therefore, were not subject to ERISA.

Grider v. Keystone Health Plan, Central, Inc., et al.
E.D. Pa. No. 2001-CV-05641 (9/18/03)

The Eastern District of Pennsylvania held that Plaintiffs, providers of services to insureds of Keystone Health Plan Central, Inc., ("Keystone"), could proceed with their suit against Keystone. Plaintiffs alleged that the defendants and various non-parties formed the "managed care enterprise," an entity which allegedly functioned to defraud the plaintiffs and other physicians.

The plaintiffs' contracts with Keystone provided for compensation through capitation and fee-for-service arrangements, along with a complex bonus system. According to the plaintiffs, Keystone intentionally misrepresented and failed to disclose internal policies and procedures related to payments to the physicians, which resulted in the systematic reduction, denial and delay of payments.

The court dismissed plaintiffs' aiding and abetting claims under RICO, but allowed the conspiracy claims, as well as claims alleging fear of economic retaliation for disputing the delay and denial of claims, claims relating to bribery and Travel Act violations, and plaintiffs' state law claim for prompt payment of claims to go forward. Additionally, the plaintiffs' claims relating to mail and wire fraud stemming from "shaving" capitation payments, manipulation of bonus criteria, misrepresentations and material omissions pertaining to the payment of medically necessary services, and incentives for claim reviewers to wrongfully delay and deny payment and downcode claims all survived.

Group Health Plan, Inc. v. Philip Morris USA, Inc.
8th Cir. No. 02-1684 (9/16/03)

The Eighth Circuit affirmed the District of Minnesota's granting of summary judgment on behalf of the defendant- tobacco companies as to the plaintiff-HMOs' damages claims. Plaintiffs, four HMOs, sued to recoup health care costs of their members that resulted from tobacco use, alleging that the tobacco industry conspired to mislead the public about the harmful effects of tobacco. In affirming the summary judgment the court found that the HMOs' evidence of causation and damages was insufficient. Further, the plaintiffs' expert witness was unable to provide more than a speculation as to the costs incurred by the HMOs due to their enrollees' tobacco use. While the court found that the evidence was not sufficient enough to lead to a "reasonable estimate of the extent of the harm caused," as to plaintiffs' claims for injunctive relief, the evidence was sufficient to "raise an inference that harm has in fact been caused," and remanded the case to the District of Minnesota for consideration.

In re Managed Care Litigation
S.D. Florida MDL No. 1334-MDL-Moreno (09/26/03)

There have been recent developments in the ongoing Multi-District Litigation being heard before Judge Moreno in the Southern District of Florida concerning alleged RICO and ERISA violations against HMOs.

On September 4, Judge Moreno granted preliminary approval to a $550 million settlement between CIGNA HealthCare and a national plaintiff class of more then 700,000 physicians who alleged that CIGNA violated RICO and state prompt-pay laws in processing their claims. The settlement ends CIGNA's involvement in the federal and state legal actions.

On September 26, Judge Moreno ruled on two categories of class certifications in the remaining claims. The judge denied the subscriber classes comprised of a RICO class of all persons who had purchased or participated in HMO, PPO and/or point of service plans from October 1995 forward, and an ERISA class of all persons who had purchased or participated in an ERISA-governed plan after October 1993. The judge did, however, certify a class of nearly 600,000 providers who were insured by any of the defendant organizations from August 4, 1990 to September 30, 2002.

The judge denied the subscriber classes due to an inadequacy of representation. One of the law firms representing the class was also representing the provider class, which the court determined to be conflicting interests. Further, the Court held that at this point in the litigation, the plaintiffs had failed to show that there was a uniform policy or scheme to the defendants' actions. "The ‘scheme,' however, if there is one at all, is not promulgated by centralized authority, or uniform in all respects, but rather controlled on an individual level through subsidiaries and employers, thus differing amongst them." Finally, the subscribers had not shown that the class action was the best method of resolving the cases.

Rubin-Schneiderman v. Merit Behavioral Care Corp.
S.D.N.Y. No. 00-civ-8101 (08/27/03)

A federal district court judge ruled that ERISA preempted a participant's state lawsuit against his PPO for his inpatient care for a psychiatric illness. The judge had previously ruled that the lawsuit was preempted, but was ordered by the Second Circuit to reconsider his decision in light of the Second Circuit's February 2003 opinion in Cicio v. Vytra. In Cicio, the Second Circuit held that ERISA did not preempt a medical malpractice claim brought under New York law based on a medical decision made by an HMO in the course of a utilization review. The Cicio court held that if the malpractice claim is based on a "mixed eligibility and treatment decision" it is not preempted by ERISA when it "challenges an alleged flawed medical judgment as applied to a particular patient's symptoms."

In this case, Eric Rubin-Schneiderman requested coverage for inpatient care for a psychiatric illness. Empire Blue Cross, his PPO, referred its utilization review services out to Merit Behavioral Care Corp., which denied Rubin-Schneiderman's request. Seven months after this denial, Rubin-Schneiderman attempted suicide. He then brought a state law malpractice lawsuit against Merit and Empire, alleging that they were negligent in refusing to cover his inpatient psychiatric care.

The court differentiated Rubin-Schneiderman's case from Cicio, finding that in the present case, the insurer did not interfere in the doctor-patient relationship. Rather, "the crucial distinction is that the Plan Administrator here had no physician-patient relationship with the insured and its role was confined to informing a patient before receiving treatment whether that treatment would be covered under the plan." Unlike in Cicio, where the plan administrator had disapproved the patient's recommended treatment and approved an alternative, the plan administrator here only did the former. As such, this was not a medical decision or a mixed decision, and the lawsuit was preempted by ERISA.


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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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For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

Arthur N. Lerner
Partner – Washington, D.C.
Phone: +1 202.624.2820