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Managed Care Lawsuit Watch - Sept./Oct. 2006


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:

Moore v. CapitalCare, Inc.
D.C. Cir. No. 04-7121 8/29/06

The U.S. Court of Appeals for the D.C. Circuit held that a beneficiary must repay CapitalCare, Inc. for benefits the plan paid on the beneficiary’s behalf, even though the beneficiary was not made whole through a personal injury settlement.

Plaintiff was injured in an automobile accident, and CapitalCare paid over $200,000 in accident-related benefits. Plaintiff later received over $1.3 million to settle her personal injury lawsuit related to the accident. Plaintiff also sued CapitalCare for unpaid benefits. CapitalCare countersued under ERISA, claiming that the plan’s subrogation clause entitled CapitalCare to reimbursement of the benefits it already paid. Plaintiff appealed the district court’s grant of an equitable lien to CapitalCare, claiming that because she was not made whole under the settlement, the plan was not entitled to reimbursement.

The appellate court first noted that several Circuits apply a “make whole” rule as the default rule of construction when a plan document does not specifically state whether a right to reimbursement applies to a partial recovery. In this case, however, the Court held that the subrogation provision in the plan document specifically granted CapitalCare a subrogation right even when the beneficiary was not made whole by a third party settlement. The Court also noted that even if the plan document had been ambiguous on the issue, it would have deferred to CapitalCare’s reasonable interpretation of the subrogation provision.

Robley v. BlueCross and BlueShield of Mississippi
Miss. No. 2003-CT-02209-SCT 8/10/06

The Mississippi Supreme Court recently held that a covered dependent may pursue tort claims against Blue Cross and Blue Shield of Mississippi for disclosure of confidential information, even though a contract between the subscriber and the plan does not create a fiduciary obligation from the plan to a covered dependent.

Plaintiff Robley was a covered dependent under her husband’s plan with Blue Cross and Blue Shield of Mississippi (BCBS). A BCBS employee allegedly described Ms. Robley, who had a history of migraine headaches, as a “drug seeker” to a wound care center employee. The wound care center employee repeated the comment to Ms. Robley’s husband, which Ms. Robley overheard. She then brought suit against BCBS, alleging intentional and negligent infliction of emotional distress and breach of confidentiality, stating that BCBS had a fiduciary duty to maintain the confidentiality of her medical records.

The Mississippi Supreme Court held that the contract established merely a business relationship, and did not create the special trust and confidence in the parties that would justify finding a fiduciary relationship. The court went on to note that the confidentiality of medical records “must be governed by the strict necessities of the situation,” and that there remained a factual dispute as to whether the BCBS employee used the term “drug seeker” and whether such a disclosure was reasonable and necessary. The court remanded the case for determination of Ms. Robley’s tort claims.

Louisiana Health Service & Indemnity, Co. v. Rapides Healthcare System
5th Cir. No. 04-31114 8/16/2006

The Fifth Circuit Court of Appeals held that ERISA does not preempt a Louisiana law requiring health insurers to honor assignments of benefits.

Louisiana’s assignment statute requires insurers to honor patient benefit assignments even when the health care provider is not a participating provider with the insurer. Louisiana Health Service & Indemnity Company, d/b/a Blue Cross and Blue Shield of Louisiana, argued that the law created an additional means to enforce payment of benefits under an ERISA plan, and that it authorized “double recovery” of benefits.

The Court held that ERISA is silent on the assignability of benefits, so the Louisiana statute was not conflict preempted. The court then held that the Louisiana statute does not create an additional means of enforcement, as it merely transfers the cause of action under Section 502(a) from the beneficiary to the provider. Finally, the court held that the potential for a double recovery was Blue Shield’s to bear, because it would risk paying twice only if it failed to honor an assignment in accordance with the Louisiana statute.

Miami Valley Hospital v. Community Insurance Co., d/b/a Anthem Blue Cross & Blue Shield
S.D. Ohio No. 3:05-cv-297 August 7, 2006

The U.S. District Court for the Southern District of Ohio determined that ERISA preempts neither the estoppel nor the state insurance law claims of a health care provider against a plan administrator, even when a plan participant assigns ERISA benefits to the provider.

Prior to rendering services to an Anthem beneficiary, Miami Valley Hospital (“MVH”) contacted Anthem and was authorized to provide medically necessary hospital services. After receiving an assignment of benefits, MVH sent Anthem a bill for over $23,000. However, Anthem paid approximately $3,900 directly to the beneficiary and refused to pay any amount to MVH.

MVH sued Anthem in state court, alleging that Anthem’s violated Ohio’s direct pay and prompt pay statutes; MVH also brought a claim for equitable estoppel. Anthem removed the case to federal court, convinced a magistrate not to remand the case to state court, and argued that ERISA preempted MVH’s claims.

Upon review of MVH’s objections to the magistrate’s report, the District Court found for MVH, finding that MVH brought its claims in its own right, and did not seek to “stand in the shoes” of the beneficiary, i.e., MVH’s claims did not derive from the beneficiary’s, but rather were grounded in its own independent state statutory rights. The court thus remanded MVH’s claims back to state court.

Matthews v. Leavitt
2nd Circuit No. 05-4853 July 31, 2006

The Second Circuit Court of Appeals has ruled that the Medicare + Choice administrative appeals process does not provide a forum for the resolution of a claim that a benefit determination triggered a premature discharge that, in turn, proximately caused an injury-producing fall.

Plaintiff Matthews, a beneficiary of Senior Choice, a Medicare + Choice plan administered by Excellus Health Plan, Inc., was hospitalized and subsequently stayed at three skilled nursing facilities in a 6-month period. During his stay at the second facility, Senior Choice informed Matthews that coverage of SNF services at that facility would cease, as Senior Choice had made the organizational determination that Matthews had achieved his rehabilitation goals. Matthews was discharged while appealing this determination, but fell at his home, requiring the third SNF stay.

Matthews ultimately spent 138 days in the three SNFs, and challenged Senior Choice’s second determination to refuse to cover more than 100 total days of SNF services. Matthews alleged that he would not have needed to stay the extra 38 days in the third facility if not for Senior Choice’s decision to cease coverage at the second facility, i.e., that that organizational determination caused the second facility to prematurely discharge him, which in turn caused the fall and the need to stay at the third SNF.

An Administrative Law Judge dismissed Matthews’ appeal for lack of jurisdiction, stating that Matthews’ argument, akin to a medical malpractice claim, is not subject to the M+C administrative appeal process. After the ALJ dismissed his appeal, Matthews exercised his statutory right to file an action in the U.S. District Court for the Southern District of New York, alleging that Senior Choice had breached the covenant of good faith and fair dealing implied in his subscriber agreement. However, the District Court determined that an ALJ does not have statutory authority to entertain a state law breach of contract claim. Upon appeal, the Second Circuit Court of Appeals affirmed.

Kruger Clinic Orthopaedics v. Regence BlueShield
Washington Supreme Court No. 76719-0

The Washington Supreme Court invalidated the arbitration provisions contained in Regence BlueShield’s provider contracts with two health care providers, determining that they violated a Washington State insurance law that prohibits health insurers from imposing on health providers a form of binding arbitration that excludes the possibility of judicial remedy.

The arbitration provisions in the Regence BlueShield agreements either (1) stated that arbitration is both binding and final, i.e., prohibit a subsequent action in court; or (2) stated that judicial remedies would be limited to those available under the Washington Arbitration Act (“WAA”). Finding the WAA to neither contemplate permissive arbitration nor allow a new trial, the Court found both arbitration provisions to violate the state insurance law.

Regence BlueShield argued that the Federal Arbitration Act preempted the state insurance law, but the Court held that the McCarran-Ferguson Act saved the law from FAA preemption.

In re New Century Health Quality Alliance Inc.
FTC File No. 051-0137 August 24, 2006
Decision and Order

Two IPAs and several physician practices in Kansas City settled charges brought by the FTC that the IPAs and practices unreasonably restrained competition in violation of Section 5 of the FTC Act. According to the FTC’s initial complaint, the defendants constituted 95% of the physician network of the only Medicare HMO offered (by Humana) in Wyandotte County and 50% of the physician network of the Medicare HMO offered by Humana in Johnson County.

When Humana notified the IPAs of the termination of their risk contracts, and further indicated that it would seek to contract with the IPAs’ member physicians on an individual and fee-for-service basis, the defendant IPAs allegedly informed Humana that their member physicians would not deal individually or on such a basis. The IPAs allegedly indicated their continued willingness to contract with Humana on behalf of their member physicians, but only on a risk basis and, with respect to commercial business, only upon receipt of a 30% increase in reimbursement.

According to the complaint, the IPAs were not exclusive, i.e., member physicians were able to contract and in fact certain member physicians had contracted on individual bases with commercial insurers and patients. The consent agreement entered into by the defendants does not constitute an admission of violating any law.

California Hospital Assn. v. Blue Cross of California
Cal. Super Ct. No. BC353609 August 1, 2006

A California court denied the California Hospital Association’s (“CHA’s”) request that Blue Cross of California be enjoined from implementing a new payment policy that would increase reimbursement (by 5%) to physicians that perform endoscopic procedures in ambulatory surgical centers, but decrease reimbursement (by 20%) to physicians for procedures performed in hospitals.

The court stated that the CHA had failed to prove that the payment policy would interfere with physicians’ professional judgment, and specifically stated that CHAs’ suggestion that it would “would suggest a marked lack of integrity and professionalism in the medical profession.”

Despite finding that CHA would be unlikely to prevail on its claims that the policy violates California’s anti-kickback statutes, the court stayed such claims for 60 days, as the California Department of Managed Health Care is currently reviewing the policy to make that precise determination.

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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