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Managed Care Lawsuit Watch - September 2010


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:


Uhm v. Humana, Inc.
No. 06-35672 (9th Cir. August 30, 2010)

Ninth Circuit upholds lower court ruling that the Medicare Act preempted state law claims  arising from insurer’s alleged failure to provide Medicare Part D prescription drug plan benefits to Medicare beneficiary.

Plaintiffs –suing on behalf of themselves and a putative class of all persons who paid the insurer for enrollment in its Part D plan – filed a lawsuit in federal court, claiming breach of contract, violation of state consumer protection laws, unjust enrichment and fraud.  Plaintiffs alleged that the insurer failed to enroll them in its Part D plan despite representing to plaintiffs that they would be enrolled in the plan and would receive coverage under the plan.

The lower court found the claims were preempted by the Medicare Act and then dismissed the claims for failure to exhaust requisite administrative remedies. 

The Ninth Circuit first concluded that plaintiffs’ breach of contract and unjust enrichment claims were “disguised claims for benefits” that “arose under” the Medicare Act.  The court further found it lacked jurisdiction to consider such claims where the plaintiffs had failed to exhaust its administrative remedies. 

Finally, the court held that the plaintiffs’ consumer protection and fraud claims were expressly preempted by the extensive regulations directly governing plan marketing materials.  Accordingly the Ninth Circuit affirmed the district court judgment.

Pharmaceutical Care Mgmt. Assoc. v. District of Columbia
No. 1:04-cv-01082-RMU (D.C. Cir. July 9, 2010)

The United States Court of Appeals for the District of Columbia Circuit found certain provisions of Title II of D.C.’s Access Rx Act of 2004 (Title II), as  applied to a pharmaceutical benefits manager (PBM) under contract with an employee benefit plan (EBP), preempted by ERISA.  The Court found that ERISA does preempt the fiduciary duty, fiduciary standard, disclosure of conflicts, disclosure of substitution, and substitution pass back provisions of Title II (§§ 48-832.01(a), (b)(1), and (d)), because they relate to an EBP and require an EBP that deals with PBMs to conduct itself in a certain way.  But the Court found that ERISA does not preempt the usage pass back, disclosure of purchases, disclosure of terms, and confidentiality provisions of Title II (§§ 48-832.01(b)(2) and (c)), because EBP’s can choose to waive these provisions in their PBM/EBP contracts.

The Pharmaceutical Care Management Association (PCMA), a national trade organization representing PBMs had filed this suit alleging that ERISA preempted Title II because Title II relates to an Employee Benefit Plan (EBP).  ERISA  itself states that it preempts “any and all State laws insofar as they ... relate to any employee benefit plan.  Furthermore, “a state law relates to an EBP if it has a connection with or references an EBP.” 

In determining whether Title II relates to an EBP, the Court found that “[t]he administration of employee benefits clearly is an area of core ERISA concern.”  The Court also found that Title II’s provisions affect ERISA plans as Title II “regulate[s] the administration of employee benefits” and its purpose “is to prescribe the way PBMs decide which pharmaceuticals to provide to plan beneficiaries and to prevent PBMs from inflating the price the plan pays for those pharmaceuticals.”  Therefore, the Court found that Title II relates to an EBP.

The Court rejected the District’s argument that the provisions of Title II qualify as state law that Congress did not intend ERISA to preempt because Title II does not regulate “relationships among ERISA entities.” The Court also rejected the District’s argument that these provisions allow plan administrators to freely structure their plans, as EBPs can decide between internally administering their pharmaceutical benefits or contracting with a PBM (and thus adhering to Title II’s requirements).

Shane v. Humana (In re Managed Care)
No. 00-MD-1334-MORENO (S.D. Fla. Aug. 15, 2010)

In 2000, a class of health care providers filed suit against various managed care companies alleging violations of ERISA, RICO, Federal antitrust laws, and other state law claims relating to the defendants’ alleged conspiracy to lower payments by using Ingenix to manipulate the Usual and Customary Rates (“UCR”).  In 2005, Wellpoint reached a settlement agreement with the physicians whereby it made substantial payments and agreed to prospectively modify its use of the Ingenix system.  In exchange, the class members agreed not to file any new lawsuits relating to the underlying dispute and the use of Ingenix.  Despite this, several of the former class members filed a new lawsuit, alleging that Wellpoint had continued to use Ingenix to underpay them following the settlement date and that a suit based on these new injuries was therefore not barred by the original settlement.  In response, Wellpoint moved to enforce the original agreement.

The magistrate judge agreed with Wellpoint and ordered the physicians to withdraw their complaint.  Construing the settlement agreement as a contract, the court explained that the “clear language” prohibited new claims that were “in any way related” to any of the underlying facts or conduct at issue in the original complaint.  Because the antitrust and RICO claims were still premised on the alleged conspiracy that occurred prior to the settlement agreement, they were clearly barred by the terms of the agreement.  Even assuming that the plaintiffs had, in fact, suffered “new” injuries, the underlying conduct – using Ingenix to manipulate UCR rates – still occurred prior to the settlement date. 

Although they were not premised on a conspiracy predating the settlement, the court also rejected the ERISA and other state law claims because the broad terms of the settlement agreement sufficiently put the plaintiffs on notice that they were releasing Wellpoint from all liability relating to its improper UCR calculations.  Perhaps more importantly, the settlement agreement required Wellpoint to change its use of Ingenix and provided a detailed mechanism for the physicians to enforce the settlement agreement if Wellpoint failed to do so.  Thus, because allowing the plaintiffs to maintain the current suit would impermissibly provide them with “another bite at a very devoured apple,” the court granted Wellpoint’s motion to enforce the settlement agreement and ordered the plaintiffs to withdraw their complaint.

Memorial Health System v. Aetna Health, Inc.
No. 10-cv-00371-CMA-MJW (D. Colo. Aug. 5, 2010)

In 2005, Memorial Health, a healthcare provider entered into a provider agreement with Aetna, a healthcare insurer.  The contract allowed Aetna to “bundle” some, but not all, of the services provided by Memorial Health before paying them.  Alleging that Aetna had paid less than the contract required by bundling services not permitted by the provider agreement, Memorial Health sued for breach of contract.  In response, Aetna removed the case to federal court, alleging that ERISA completely preempted the suit, and Memorial Health moved to remand back to state court.

The court held that Aetna failed to show that ERISA completely preempted Memorial Health’s claim and therefore remanded the case to state court.  First, the court determined that Memorial Health had “derivative standing” because it had obtained “assignments of benefits” from its patients and therefore could have pursued a claim under ERISA’s civil enforcement scheme.  Aetna failed, however, to show that its payment decisions were necessarily premised on eligibility determinations made pursuant to ERISA-regulated plan documents, whereas Memorial Health offered evidence that the bundling determinations were made independent of any ERISA documents.  Further, the terms of the agreement indicated that Aetna used a commercial software package in making the determinations, suggesting that Aetna's bundling decisions were made independent of any ERISA plan.  Thus, because Memorial Health only challenged the rate of payment pursuant to the provider contract rather than Aetna’s eligibility determinations pursuant to an ERISA plan, the court held that Memorial Health did not actually bring its suit under ERISA.

Second, the court evaluated whether the complaint was based on any “independent duty” other than one imposed by ERISA.  Although acknowledging that the provider contract did refer to ERISA plans in passing, the court nevertheless concluded that the mere reference to the plans was insufficient by itself to find that Memorial Health's claim arose under ERISA.  Instead, the court held that the complaint was based on an alleged breach of the hospital agreement, with which Aetna had an independent duty to comply.  Accordingly, ERISA did not completely preempt the plaintiff’s claim and the court remanded the case to state court.

American Surgical Assistants, Inc. v. CIGNA Healthcare of Texas, Inc.
No.H-09-575 S.D. Texas August 16, 2010

A federal court in Texas granted CIGNA’s motion to dismiss American Surgical Assistants’ (“ASA”) suit alleging negligence, negligent misrepresentation, breach of contract, failure to provide payment for services rendered, and violation of the Texas Insurance Code and the Deceptive Trade Practices Act (“DTPA”), holding that the claims were preempted by ERISA.

ASA claimed it provided surgical assistants to CIGNA’s patients and policyholders after verifying their insurance coverage with CIGNA.  ASA claimed that it only provided the surgical assistants upon receiving CIGNA’s approval.  ASA also alleged that CIGNA refused to pay the bills for ASA’s services and proceeded to sue CIGNA in Texas state court.  CIGNA removed the case to federal court.

The Court ruled that ASA’s common law claims related to non-payment of services were preempted under § 502(a) because those claims sought to recover ERISA covered benefits.  The Court then held that ASA’s allegations that CIGNA violated the Texas Insurance Code and the DTPA were preempted by § 514(a) of ERISA.  The Court stated that the claims were not protected by the savings clause because they did not meet two of the three savings clause requirements: (1) “the practice is an integral part of the policy relationship between the insurer and the insured” and (2) “the practice is limited to entities within the insurance industry.”  Because the relevant section of the Texas Insurance Code specifically incorporates the DTPA, which is a law of general application, the claims based on the Insurance Code and the DTPA were not saved from ERISA preemption.

Ramos v. Horizon Blue Cross Blue Shield of New Jersey
No. 10-2687 (D.N.J. July 9, 2010)

Plaintiffs, registered nurses, brought several state law claims in New Jersey state court alleging that Defendant, Horizon Blue Cross Blue Shield of New Jersey (“BCBS”), failed to reimburse them for medical services they had provided to patients who were members of BCBS’s health insurance plans and networks.  BCBS sought to remove the case to federal court, claiming that Plaintiffs’ state law claims were claims for benefits due under an ERISA plan and were therefore preempted by § 502(a) of ERISA.  The Court ruled that it did not have subject matter jurisdiction over Plaintiffs’ state law claims because Plaintiffs did not have standing to sue under ERISA.  The Court therefore denied Defendant’s notice to remove the case to federal court. 

BCBS had argued that it could remove the case to federal court under the doctrine of complete preemption.  For complete preemption to apply to a claim, the party seeking removal must show: “(1) that the plaintiff could have brought the claim under §502(a) and (2) that ‘no other legal duty supports’ plaintiff’s claim.” 

The Court stated that the statute indicates that “only participants or beneficiaries of an ERISA plan have standing to sue under the statute in their own right.”  In particular, defendant did not show that plaintiffs had accepted an assignment of claimants’ benefits, nor did it dispute Plaintiffs’ claim that the Plaintiffs were neither participants nor beneficiaries under ERISA.  BCBS’s argument that plaintiffs’ claims were based on the allegation that BCBS did not adequately reimburse for services rendered to plan participants and that Plaintiffs were making out claims as third-party beneficiaries, did not adequately show that Plaintiffs had standing to sue under §502(a).  As a result, Plaintiffs could not have brought their claims under §502(a).   The Court thus did not have to reach the second prong of the complete preemption test and remanded the case to the Superior Court of New Jersey.

Brunswick Surgical Center v. CIGNA
No. 09-5857 (D.N.J. August 16, 2010)

The Brunswick Surgery Center brought a claim seeking reimbursement for the facility fees it charged Defendants for outpatient procedures performed at the surgery center on Defendants’ members.  These fees cover the costs for an operating room, recovery room, holding area, pharmacy, and supplies. The Defendants had paid the Surgery Center’s facility fees previously, but then ceased to pay the fees beginning in 2008 claiming that the Defendants’ insurance policies for several of the Surgery Center’s patients limits coverage of such fees to facilities that fall within the definition of “Other Health Care Facility” found within Defendants’ policies.  Ultimately, the United States District Court for the District of New Jersey denied the Brunswick Surgery Center’s claim seeking reimbursement of its facility fees finding that the Plaintiff’s surgery center does not fall within the definition of “Other Health Care Facility” found in Defendant’s policies.

Defendants’ policies lists in the “Covered Expenses” section “charges made on its own behalf, by an Other Health Care Facility, including a Skilled Nursing Facility, a Rehabilitation Hospital or a subacute facility for medical care and treatment….”  The Defendants’ policies define “Other Health Care Facility” as a “facility other than a Hospital or hospice facility.  Examples of Other Health Care Facilities include, but are not limited to, licensed skilled nursing facilities, rehabilitation Hospitals and subacute facilities.”  Defendants’ policies also include in its “Covered Expenses” section “Free-standing Surgical Facility” which is defined in part as having at least two operating rooms and is individually licensed by the state.

The Court found that the Surgery Center did not meet the definition of “Free-standing Surgical Facility” in the policies, because the Surgery Center was not licensed by New Jersey and only had one operating room.  The Court also found that the Surgery Center did not fall within the definition of “Other Health Care Facility” even though the Surgery Center is a “facility other than a Hospital or hospice facility.”  In so ruling, the Court found that the policies’ language was unambiguous – subject  to only one reasonable interpretation – and that the Surgery Center did not qualify as an “Other Health Care Facility,” because if it did, so would a Free-standing Surgical Facility.  Such an interpretation would render this item in the Covered Expenses section redundant.



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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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Arthur N. Lerner
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Phone: +1 202.624.2820