Managed Care Lawsuit Watch - September 2004

This summary of key lawsuits affecting managed care is provided by the Health Care Law 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:

• Aetna and American Dental Association Settlement (In re Managed Care Litigation)
• Community General Hospital Inc. v. Zebrowski
• Klay v. Humana, Inc. (In re Managed Care Litigation)
• State Farm Mutual Automobile Insurance Co. v. Blue Cross Blue Shield of Louisiana
• Wachtel v. Guardian Life Ins. Co.

Aetna and American Dental Association Settlement (In re Managed Care Litigation) S.D. Fla., MDL No. 1334 Settlement approved (7/22/04)

A federal judge in the U.S. District Court for the Southern District of Florida gave final approval to an agreement between Aetna and the American Dental Association (“ADA”), settling a class action lawsuit brought by 147,000 dentists against Aetna in 2001 for alleged underpayment of patients’ out-of-network dental services. The lawsuit, originally filed in Illinois, was transferred to Judge Moreno in the Southern District of Florida and consolidated with the multi-district litigation case known as In re Managed Care Litigation.

Under the terms of the settlement, Aetna will take steps to ensure increased predictability and speed of claims payment, and will reduce the administrative requirements it places on dentists seeking payment for services rendered. Aetna agreed to increase the rate of auto-adjudication of claims submitted by dentists, to disclose its claim reimbursement methods regarding downcoding and bundling, and to refrain from automatically downcoding or bundling claims for covered services under dental plans. Aetna also agreed to establish a $4 million settlement fund for dentists, and to contribute $1 million to the ADA Foundation.

Community General Hospital Inc. v. Zebrowski N.D.N.Y., No. 5:03-CV-249 (8/2/04)

The United States District Court for the Northern District of New York held that the Employee Retirement Income Security Act (“ERISA”) preempted claims against a third party administrator (“TPA”) for breach of contract, bad faith processing of a claim, and infliction of emotional distress. Zebrowski, a beneficiary of a plan provided by Lockheed Martin for its employees, commenced an action pro se against the plan’s TPA after himself being sued by Community General Hospital in a collection action. CIGNA, the TPA for the mental health portion of Lockheed Martin’s self-insured managed care plan, removed the case to federal court.

Zebrowski, who was hospitalized for severe depression, was set to be released from Community General Hospital after a brief stay. However, he remained hospitalized when his doctor learned that Zebrowski did not have housing, which the physician believed put him at risk of harming himself. Although CIGNA agreed to pay for the initial hospitalization period, it refused to pay for the extended period of inpatient care based on its finding that further care was not “medically necessary.” Evidence at trial demonstrated that the extended hospital stay was intended to allow Zebrowski to look for housing, and that he was granted day passes for that purpose.

The court concluded that ERISA preempted Zebrowski’s claims, because they related to plan coverage and administration. The court also noted that Zebrowski’s contract claim would fail on the merits, as Zebrowski was not a party to the contract between CIGNA and Lockheed Martin. The court concluded by noting that CIGNA’s decision to deny coverage for Zebrowski’s extended hospital stay was not arbitrary and capricious, nor was it “unsupported by substantial evidence, or erroneous as matter of law.”

Klay v. Humana, Inc. (In re Managed Care Litigation) 11th Cir. No. 02-16333 (9/1/04)

In the latest chapter of the ongoing managed care litigation involving federal and state law claims brought by thousands of doctors against major health maintenance organizations, the U.S. Court of Appeals for the 11th Circuit affirmed the District Court of the Southern District of Florida’s grant of class certification for the plaintiff’s federal RICO claims. The 11th Circuit also reversed the district court’s grant of class certification for the plaintiffs’ state law claims, except for one claim based on California law.

The plaintiffs, a putative class of all doctors who submitted claims to any of the defendant HMOs between 1990 and 2002, had brought numerous federal and state claims against the defendants essentially alleging that the defendants engaged in a nationwide conspiracy to systematically underpay the plaintiffs. Various lawsuits were consolidated before the District Court for the Southern District of Florida, and in 2001 the plaintiffs filed an amended complaint in the consolidated cases requesting that the district court certify three classes: a global class that would pursue the plaintiffs’ federal RICO claims, a national subclass to pursue the various state-law claims, and a California subclass to pursue an alleged violation of California law. The district court certified all three classes in 2002, and the defendant HMOs appealed.

Reviewing the district court’s decision in light of Federal Rule of Civil Procedure 23(a) and (b), the 11th Circuit affirmed the district court’s grant of class certification for the plaintiff’s RICO claims. The court agreed with the district court that common questions of fact and law predominated for the plaintiffs’ RICO claims, as the case involved allegations of a nationwide conspiracy. The 11th Circuit also agreed with the district court’s determination that a class action would be superior to other available methods for the fair and efficient adjudication of the claims.

The court rejected the defendants’ argument that because each plaintiff would have to prove individual reliance upon the defendant’s alleged misrepresentations, the RICO claims were unsuitable for class certification; the 11th Circuit instead stated that certification was proper because the circumstantial evidence that could be used to show reliance was common to the whole class. The court also held that the fact that individualized damage determinations would be necessary did not preclude class certification, as many such determinations could be accomplished fairly simply. The court further rejected the defendants’ arguments that a class action would be an inferior mode of adjudication because it would place the fate of the managed care industry in the hands of one jury and improperly pressure the defendants to settle. The court stated that those arguments presented insufficient reasons for not granting certification of an otherwise meritorious class action suit.

Though it affirmed the district court’s certification of the global class to pursue the federal claims, the 11th Circuit suggested that the district court consider splitting the plaintiffs into two subclasses based on their reimbursement arrangements. The 11th Circuit advised splitting the class into one subclass for plaintiffs operating on a fee-for-service basis and another subclass for doctors with capitation contracts, as the capitation plaintiffs’ claims involved additional common issues that were not relevant for the fee-for-service plaintiffs.

The 11th Circuit reversed the district court’s grant of class certification for the state law claims. The court held that common issues of law and fact did not predominate in the plaintiffs state law breach of contract, unjust enrichment and prompt-pay claims, mainly because a wide range of individualized issues of fact would need to be considered for these claims.

The 11th Circuit also held that the defendants did not properly challenge on appeal the District Court’s certification of the California subclass, and thus deemed the issue waived.

State Farm Mutual Automobile Insurance Co. v. Blue Cross Blue Shield of Louisiana 16th Judicial District Court Parish of St. Martin Louisiana No. 67846 G (7/26/04)

A Louisiana District Judge held that a hospital violated Louisiana’s Health Care Consumer Billing and Disclosure Protection Act by filing a lien against an insured patient, seeking to recover payment from the patient in excess of the hospital’s contracted reimbursement rate with the patient’s health insurer. The Louisiana Act prohibits providers that have contracted with health insurers from discount billing, dual billing, or attempting to collect from an insured patient any amount in excess of the contracted reimbursement rate for covered health care services. Pursuant to the Act, the court ordered the hospital to pay the patient all costs of the proceeding, including attorneys’ fees.

Wachtel v. Guardian Life Ins. Co. Dist. N.J. No. 01-4183 (08/05/2004)

A lawsuit brought by participants of a Health Net of New Jersey, Inc. point-of-service (POS) plan alleging a breach of fiduciary duty was certified as a class action by the federal judge hearing the case. Original defendant Guardian Life Ins. Co. was dropped from the case.

The plaintiffs allege that between 1999 and 2002, Health Net and its related companies used outdated usual, customary, and reasonable (UCR) data to calculate copayments for out-of-network services under the POS plans. Further, the plaintiffs allege that when they would phone the companies to inquire about copayments, the companies engaged in a deceptive practice of telling participants that Health Net was mistakenly using the wrong UCR data and was actually paying more in benefits than was permitted under their plans.

The class action alleges that Health Net companies breached their ERISA duties by: (1) concealing material information from plan participants and beneficiaries; (2) purposefully discouraging beneficiaries from appealing denials of claims; (3) being purposefully dishonest in providing explanations to participants and beneficiaries about UCR determinations; and (4) implementing cost-savings reimbursement policies without regard to the best interests of participants and beneficiaries. The court found that even if only a small percentage of the 135,000 subscribers in small employer plans and the 160,000 subscribers in large employer plans were POS plans, the number would still be sufficient to meet the numerosity requirements of Federal Rule 23(a).

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