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Managed Care Lawsuit Watch - October 2013


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 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:


Marion Healthcare LLC v. Southern Illinois Healthcare
No. 12-cv-00871-DRH-PMF (S.D. Ill., Aug. 26, 2013)

The United States District Court for the Southern District of Illinois dismissed federal and state antitrust claims brought by Marion Healthcare, LLC (MHC) against Southern Illinois Healthcare (SIH) and BlueCross BlueShield of Illinois (BCBSI) based in large part upon the court's conclusion that MHC failed to properly define the relevant market. MHC is a multi-specialty freestanding outpatient surgery center that offers outpatient surgical services. SIH is a nonprofit corporation that owns various acute-care hospitals that provide inpatient and outpatient medical services. In addition, SIH owns freestanding outpatient surgical service providers. MHC alleged that BCBSI is the largest health insurance company in Illinois, and the dominant health insurer in the defined geographic market. 

MHC alleged violations of federal and state antitrust law, including Sections 1 and 2 of the Sherman Act, Sections 2 and 3 of the Clayton Act, and the Illinois Antitrust Act, and asserted the state law claim of tortious interference with a business expectancy in its eleven count complaint. In particular, MHC's complaint alleged that SIH and BCBSI substantially suppressed competition for outpatient surgical services in a defined relevant market in southern Illinois through exclusionary agreements, exclusive pricing, price discrimination, monopolization, and other conduct. MHC asked the court to award damages and to enjoin SHI and BCBSI from entering into, maintaining, or enforcing contracts that prevent BCBSI from contracting with SIH's competitors.  

MHC's complaint defined two relevant product markets, defined as (1) "the sale of general acute-care inpatient hospital services, including pediatric services and neonatal care services to commercial health insurers," and (2) "the sale of outpatient surgical services to commercial health insurers." According to the complaint, SIH has an approximately 77 percent share of the market for inpatient hospital services and a more than 85 percent share of the market for outpatient services for commercial insurers. MHC claimed that SIH used its dominant position in the relevant markets to coerce BCBSI into entering agreements that prohibited BCBSI from contracting with MHC and other SIH competitors for healthcare services. MHC also alleged that SIH took advantage of its monopoly power in the relevant markets to raise its prices. 

The district court found that, to the extent MHC sought to bring its exclusive dealing, tying, and price discrimination claims pursuant to Section 2 and 3 of the Clayton Act, its claims were barred because those provisions do not apply to the sale of services. The court explained that the Seventh Circuit adopted the "dominant nature" analysis, under which "the dominant nature of the transaction governs whether the activity is subject to the Act." The court also concluded that MHC failed to adequately plead its exclusive dealing claims under Section 1 of the Sherman Act because MHC "failed to include all potential buyers of inpatient or outpatient services" in its relevant markets.

The court dismissed the state claims, in part because it construed provisions of the Illinois Antitrust Law according to federal law and MHC did not dispute that the provisions of the Illinois law are substantially similar to the federal law. The court also dismissed with prejudice MHC's claim for tortious interference with a business expectancy against BCBSI because BCBSI was not a third party to the business expectancy relationships alleged by MHC.

Prime Healthcare Services, Inc. v. Kaiser Foundation Health Plan, Inc. et al.
No. 11-cv-2652-GPC-RBB (S.D. Cal. July 25, 2013)

The United States District Court for the Southern District of California granted defendants' motions to dismiss a complaint alleging an antitrust conspiracy between a health care workers' union and Kaiser health plans (Kaiser) to eliminate a competing health care facility provider from the market and related monopolization claims against Kaiser.

Prime Healthcare claimed that the Service Employees International Union (SEIU) members and Kaiser employees engaged in a secret horizontal agreement to restrain competition in the health care facilities market, in violation of Section 1 of the Sherman Act. Prime alleged this agreement formed through meetings to negotiate labor partnership agreements. Prime also alleged a vertical conspiracy among union members and Kaiser individuals. Prime also claimed Kaiser violated Section 2 of the Sherman Act through monopolization of the relevant markets. 

Prime argued that labor partnership agreements between Kaiser and SEIU directly violated Section 1 because their purpose was market dominance, not collective bargaining. The court disagreed, explaining that quoted language from the agreements showed the parties' mutual goal of increasing plan membership, not an anti-competitive motive to restrain trade. The court also rejected Prime's claim that these agreements used secret "code language" to hide their market domination goals, finding no specificity to support this theory and that the provisions did not suggest unlawful behavior. 

Prime also alleged that at meetings between Kaiser and SEIU, the defendants reached verbal agreements to destroy Kaiser's competitors and allow Kaiser to dominate the market. The court rejected this argument too, noting that Prime alleged a vast conspiracy yet failed to specify the dates, locations, or participants of the alleged conspiracy meetings in its complaint. 

Prime also claimed that various independent and parallel activities by the defendants showed their conspiracy to restrain trade. The court held that these allegations lacked the required specificity or plausibility of an illegal conspiracy because they did not sufficiently exclude the possibility of independent action. The alleged conspiracy actions included a purported money laundering scheme, Kaiser's endorsement of SEIU's proposal to increase nurse staffing ratios, and a mutual decision to terminate 1,300 SEIU members from Kaiser. The court found that no allegations related to these events showed that the defendants illegally conspired. Thus, the plaintiffs failed to satisfy the first prong their Sherman Act Section 1 violation.

The court briefly addressed whether the per se or rule of reason test would apply to evaluate the alleged restraint of trade, holding that the rule of reason test would be used because Prime did not cite economic deprivation or anticompetitive effects, nor did its allegations fall into any categories subject to the per se rule.  

In addition, even if Prime had sufficiently pled the existence of an illegal agreement, it did not sufficiently show that the defendants intended to harm trade or that the defendants' actions injured the overall competition. The court found that Prime's examples of the defendants' intent to restrain trade, notably Kaiser's filing of counterclaims in Prime-initiated litigation and SEIU's publicity campaign to pressure non-labor entities to unionize, did not show intent to restrain trade. In addition, Prime's allegations of injury to competition showed only potential harm to Prime, not harm to any others in the industry. 

The court also dismissed Prime's monopolization claims against Kaiser under Section 2 of the Sherman Act. Prime failed to sufficiently allege injury to competition in the relevant markets for the same reasons this element failed under Section 1. Prime did not state a claim for monopolization because it did not show that Kaiser had market power through dominant market share, or that Kaiser actually controlled market prices. Prime's attempted monopolization claim failed because it did not show that Kaiser controlled prices or allege specific intent to control prices. Finally, Prime's conspiracy to monopolize claim failed for the same reasons that its Section 1 conspiracy claim failed.

Kaiser is represented by Crowell & Moring in this matter.

National Community Pharmacists Assoc. v. Express Scripts, Inc.
No. 12-395 (W.D. Pa. June 28, 2013)

The United States District Court for the Western District of Pennsylvania dismissed with prejudice an antitrust monopsony claim brought by a group of pharmacies and pharmacy industry associations (collectively, "Plaintiffs") to enjoin the merger of Express Scripts Inc. and Medco Health Solutions, Inc. (collectively, "Defendants").

On July 21, 2011, Defendants entered into an agreement and plan of merger. At the time, Defendants were two of the three largest pharmaceutical benefits management (PBM) companies in the nation. According to Plaintiffs, PBMs administer prescription drug benefit programs for individual plan sponsors, thereby processing prescription drug claims, maintaining drug formularies, contracting with pharmacies for pharmacy services, and reimbursing retail pharmacies for dispensing prescription drugs and providing related professional services to patients. Plaintiffs alleged that PBMs have becomes the primary buyers of pharmacy services on behalf of plan sponsors and patients.

On March 29, 2012—just four days before Defendants announced the closure of the merger following an eight month investigation by the Federal Trade Commission—Plaintiffs filed suit to enjoin the merger, alleging antitrust violations of Section 7 of the Clayton Act. Among other allegations, Plaintiffs alleged that the merged entity would have enough power to force pharmacies to accept artificially low reimbursement rates. The court dismissed this claim without prejudice. Unilateral lowering of reimbursement rates by a single entity does not give rise to antitrust injury. Absent antitrust injury, Plaintiffs did not have standing to proceed.

Plaintiffs filed an amended complaint on September 10, 2012 to fix the standing issue. Plaintiffs now alleged that Defendants engaged in collusive behavior by agreeing to merge. Plaintiffs further alleged that Defendants' collusion is in close proximity to the injury Plaintiffs would suffer due to suboptimal reimbursement rates, and this injury is the type against which the antitrust laws were meant to protect. Plaintiffs thus argued for standing to proceed with the monopsony claim.

The court rejected Plaintiffs' arguments because they did not allege a plausible connection between the collusion to merge and the claimed injury wrought by lower reimbursement rates. Plaintiffs did not allege that Defendants' colluded to lower reimbursement rates. Rather, the court noted that this alleged injury occurred only from Defendants' unilateral, non-predatory actions post-merger. And, again, unilateral pricing actions do not give rise to antitrust injury. Accordingly, the complaint was dismissed with prejudice.

United Food and Commercial Workers Unions and Employers Midwest Health Benefits Fund v. Walgreen Co.
No. 12-2977 (7th Cir. July 8, 2013)

The United States Court of Appeals for the Seventh Circuit affirmed dismissal of a complaint alleging RICO violations by a pharmaceutical manufacturer and Walgreens. According to the complaint, Par Pharmaceutical Companies and Par Pharmaceutical, Inc. (collectively "Par") manufacture Zantac, which is most commonly manufactured in capsule form, and Prozac, which is most commonly manufactured in tablet form. Though the tablet form of Zantac and the capsule form of Prozac were less popular, they were more lucrative. As a result, according to Plaintiff, an employee welfare benefit plan, Par made a presentation to Walgreens officials at which it encouraged Walgreens to fill Zantac and Prozac prescriptions in their more lucrative tablet and capsule forms, regardless of what the prescriptions required. Par told Walgreens that these were "bioequivalents," which directly contradicts the FDA's position on this issue.

According to Plaintiff, after this presentation, Walgreens began automatically filling prescriptions with the more lucrative form of the drugs, regardless of what the prescriptions required. In an email to company pharmacists, Walgreens's director of pharmacy marketing incorrectly stated that substitution program complied with FDA regulations. Walgreens's practices came under increasing scrutiny from states attorneys generals and the Department of Justice (Walgreens eventually settled with the federal government, 46 states, and Puerto Rico for $35 million). Ultimately, Walgreens ended the switching program for all new prescriptions in September 2004, and sometime thereafter discontinued it for existing prescriptions. Plaintiffs filed a complaint in January 2012 alleging that Walgreens and Par conducted an "association-in-fact RICO enterprise for the purpose of overcharging insurers by switching dosage forms of [Zantac] and [Prozac]." The District Court granted Defendants' motion to dismiss, holding that Plaintiff insufficiently pleaded facts demonstrating that Defendants conducted the affairs of an enterprise within the meaning of 18 U.S.C. § 1962(c).

The Seventh Circuit agreed with the District Court. It found that § 1962(c) required a plaintiff to identify a "person" (i.e., the defendant) who is distinct from the RICO enterprise, but who "conducted or participated in the conduct of the enterprise's affairs, not just its own affairs." This enterprise must have certain structural features: a common purpose; a relationship among those associated with it; and adequate longevity. The Court found that Plaintiff's complaint failed to sufficiently allege a common enterprise. It stated, "[N]othing in the complaint reveals how one might infer that these communications or actions were undertaken on behalf of the enterprise as opposed to on behalf of Walgreens and Par in their individual capacities, to advance their individual self-interests." Instead, the allegations supported a conclusion that Walgreens and Par were "each going about their business" separately, for the benefit of their own companies. Thus, while a RICO enterprise could have been "possible," the allegations in the complaint did not make it "plausible on its face." The Court therefore held that Plaintiff failed to state a claim for either an association-in-fact RICO enterprise or a RICO conspiracy.

Barnes v. Humana, Inc.
No. 4:13-cv-0068-DGK (W.D. Mo. Aug. 14, 2013)

The United States District Court for the Western District of Missouri, Western Division, granted defendant Humana, Inc's motion to dismiss for failure to exhaust administrative remedies. Plaintiff Missouri resident Richard Barnes (Barnes) is the beneficiary of a Humana health plan governed by the Federal Employees Health Benefits Act (FEHBA). A third party injured Barnes in a car accident, and Humana paid for Barnes's medical treatment. Barnes successfully sued the third party and won a $25,000 settlement. The Humana plan provided for reimbursement or subrogation from benefits paid by a third party if the Plan paid medical benefits. After Barnes received his settlement, Humana sought a lien of $12,576.22.

Barnes sought a declaration that he was not obligated to reimburse Humana. Barnes's primary argument was that the lien is contrary to Missouri public policy. Humana argued that FEHBA requires Humana to assert a lien against the settlement funds to reimburse it for benefits paid during Barnes's medical treatment. Humana brought a motion to dismiss, contending that the District Court lacked personal jurisdiction because Barnes was obligated to exhaust his administrative remedies before filing suit, that Humana was not the proper defendant, and that federal law preempted Barnes's claim.

At issue before the Court was whether a dispute over reimbursement of benefits is a "claim filed under the plan" for purposes of the regulation's administrative exhaustion requirement. The insurer provided benefits to Barnes on the condition that it might seek reimbursement from tortfeasors, and the suit concerned plaintiff's right to keep his benefits without reimbursing Humana. The suit was thus one "under the plan" for FEHBA purposes, and FEHBA's administrative exhaustion requirement applied. While the regulations do not explicitly state that subrogation or reimbursement disputes fall under the administrative exhaustion requirement, the court found that a textually explicit statement requiring exhaustion is not required. As a result, the Court granted Humana's motion to dismiss, finding that plaintiff was first required to exhaust his administrative remedies.

In re WellPoint, Inc. Out-of-Network "UCR" Litigation
MDL No. 09-2074 PSG (FFMx) (C.D.Cal. 2013)

In early 2009, groups of WellPoint subscribers, physicians who treated WellPoint subscribers, and various associations filed an action in California federal district court alleging that WellPoint had conspired with UHG and Ingenix, a company that maintained a data services platform, to systematically reimburse subscribers and providers for out-of-network care at artificially low rates. According to the plaintiffs, Ingenix, which was wholly-owned and operated by UnitedHealth Group, Inc., maintained a claims database that it used to create "usual, customary, and reasonable" (or "UCR") pricing schedules. Plaintiffs claim that Ingenix conspired with WellPoint and UHG to manipulate the claims data in order to establish UCR pricing schedules with artificially low usual and customary rates. According to the plaintiffs, WellPoint then contracted with Ingenix to use these UCR pricing schedules to calculate reimbursement amounts for out-of-network services, thus resulting in under-reimbursement for these services. 

On July 19, 2013, the court ruled on the defendants' motions to dismiss the Corrected Fourth Consolidated Multi-District Litigation Complaint (CFAC), which added new allegations and legal theories to previous versions of the complaint. The CFAC asserts a series of different causes of action, including violation of the federal antitrust laws, violations of California unfair competition and antitrust laws, ERISA claims, RICO violations, breach of contract, and breach of the covenant of good faith and fair dealing. 

In its decision, the court first dismissed the associations' ERISA claims and the subscribers' antitrust-related claims on standing grounds—in the latter case, finding that the plaintiffs had failed to plead injury of the type proscribed by the antitrust laws, or that the plaintiffs were participants in the data market. It then dismissed the RICO claims against WellPoint and UHG and dismissed the ERISA claims (which only related to WellPoint). As to the ERISA claims, the defendants successfully argued that (1) the plaintiffs had not sufficiently exhausted administrative remedies and (2) ERISA does not impose on insurers the obligation to disclose how reimbursement rates were calculated. The court's ruling essentially confirms one of its earlier rulings that there is "no ERISA provision or implementing regulation requiring an insurer to provide every bit of data underlying a claim decision and details about the way in which that data was used." The court then partially dismissed the breach of contract, good faith and fair dealing, and California statutory claims. Remaining in the case are Ingenix ERISA benefit reduction claims by the subscribers and providers, as well as certain individual plaintiffs' claims for breach of contract, implied covenant of good faith and fair dealing, and unfair competition.

Consumer Watchdog v. California Department of Managed Health Care
No. B232338 (Cal. Ct. App. Sept. 10, 2013)

A California Court of Appeal held that the Department of Managed Health Care (DMHC) can no longer uphold a plan's denial of coverage for Applied Behavioral Analysis (ABA) on the basis that the ABA provider is not state-licensed. 

In its ruling, the court found that studies identify ABA as the most effective treatment known for autistic children. ABA is a time-intensive treatment, often prescribed for 26 to 40 hours per week. Prior to this ruling, insurance companies routinely denied coverage for ABA therapy on the grounds that it was not provided by a state-licensed provider. While all parties agreed that the treatment must be provided by a qualified professional, the court held that the treatment should be covered when provided by therapists certified by the Behavior Analyst Certification Board, even if they are not otherwise licensed to practice medicine or psychology.

A key to the litigation was a statute enacted by the California legislature in 2011 which clarified that HMOs and health insurers must provide coverage for ABA therapy for autistic patients enrolled in private health plans, and that ABA treatment could be provided by non-licensed, but board certified providers. The law—known as S.B. 946—exempted patients enrolled in public health plans (including Medi-Cal, the Healthy Families Program, and the Public Employee's Retirement System) from its coverage mandates. The California Court interpreted the new law as recognizing that a state license was not required to provide ABA therapy. As a result, the court held that the DMHC could not prohibit coverage of ABA that is provided by unlicensed individuals after S.B. 946's implementation in July 2012.

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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