Managed Care Lawsuit Watch - April 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 Life Insurance Co. v. DFW Sleep Diagnostics Center
• Carey v. Connecticut General Life Insurance Co.
• Crawley v. Oxford Health Plans
• Heaser v. Blue Cross and Blue Shield of Minnesota
• Patient Advocates LLC v. Prysunka
• Providence Health Plan v. McDowell

Aetna Life Insurance Co. v. DFW Sleep Diagnostics Center E.D. La. No. 02-1335 (03/09/2004)

In a lawsuit filed by Aetna and a countersuit filed by DFW Sleep Diagnostics Center (“DFW”) over a billing dispute, the court ruled that Aetna was obligated to turn over documents detailing performance guarantees it made to sponsors of ERISA benefit plans.

The lawsuit began when Aetna sued DFW, alleging that it had fraudulently misrepresented the services performed and overcharged Aetna for polysomnography services by charging for each individual component rather than for the bundled service. Aetna alleged that DFW’s deviation from the normal billing practice resulted in nearly $750,000 in overcharges paid by Aetna. When Aetna began recalculating the bills coming from DFW by bundling the unbundled charges, DFW countersued for the amount it alleged Aetna withheld.

Aetna argued that information about any performance guarantees it may have made with sponsors of ERISA benefit plans were irrelevant to the case, as the case only concerned the billing practices of DFW. But the Court ruled that such performance guarantees were relevant “insofar as it may reveal Plaintiff’s motivation in attempting to pay a significantly lesser amount than actually billed.”

Carey v. Connecticut General Life Insurance Co. D. Minn. No. 02-3642 (03/08/2004)

A judge in the District of Minnesota ruled that a denial of coverage for treatment for a plan participant’s autistic son occurred when a health plan administrator called the participant, not when the HMO sent written notice of the same several months later.

In May 2001, the plan participant applied for benefits to cover behavioral therapy for his autistic son. In July 2001, a representative of the plan administrator told the participant in two phone conversations that his son’s behavioral therapy was not covered by the plan. In October 2001, Connecticut General sent written notice to the participant in response to a letter sent by the participant’s attorney.

The issue was before the court to determine which plan would govern the review of the case. In between the telephone calls in July and the written notice in October, the plan was amended to provide Connecticut General with discretionary authority to interpret and apply the plan’s terms. By ruling that the denial occurred with the telephone calls rather than the written notice, the Court ruled that it will decide the case de novo, rather than under the arbitrary and capricious standard of review adopted by the change to the plan.

Crawley v. Oxford Health Plans Mich. Cir. Ct. No. 03-1127-CR

Plaintiff alleged that his health plan wrongfully terminated coverage for failure to pay a premium, and filed suit in state court. Oxford removed the case to Federal court, arguing ERISA preemption. The U.S. District Court for the District of Connecticut granted plaintiff’s motion to remand, agreeing that plaintiff’s conversion policy involved an independent relationship between the plaintiff and the insurer, not regulated or administered as ERISA plan by the plaintiff’s former employer. While Crawley had initially participated in HMO sponsored by his employer, he had since terminated his employment with the employer. Crawley obtained COBRA continuation coverage for a period of time, and, upon expiration, applied for an individual conversion policy. The Court stated, since “conversion is now complete and the right to convert is not in question [the] facts do not support application of ERISA.” The Court also distinguished Crawley’s conversion policy from continuation coverage under COBRA.

Heaser v. Blue Cross and Blue Shield of Minnesota D. Minn, No. 02-960, JNE/JGL (3/19/04)

The U.S. District Court for the District of Minnesota held that the ERISA preempts state claims relating to a plan administrator’s denial of benefits. Lavern and Lynn Heaser, health plan enrollees who filed a pro se action, claimed that Blue Cross Blue Shield of Minnesota (BCBSM) improperly denied coverage for payments related to treatment of Lynn Heaser’s rare medical condition. Plaintiffs’ state contract claims were determined to arise “from the alleged improper processing of a claim for benefits under an ERISA-regulated plan” and were therefore preempted Plaintiffs’ other state law claims were “either preempted by ERISA or fail to provide them with a cause of action.” BCBSM’s motion for partial summary judgment was granted, leaving Plaintiffs’ with only those remedies available under ERISA. Plaintiffs’ motion to remand to state court and motion to dismiss without prejudice were denied.

Patient Advocates LLC v. Prysunka D. Maine, No. 03-118-P-H (3/24/04)

The U.S. District Court for the District of Maine concluded that health claims data that are not held in trust and have not been proven to have economic value are not “plan assets.” The Maine Health Data Organization, a state agency charged with developing a health information database, required third-party administrators, among others, to provide it with information on payments, diagnoses, and demographic information for plan members. Patient Advocates argued that, as an agent for plan fiduciaries, it is obligated under the ERISA to preserve the “plan assets” of fiduciaries. The court, while declining to hold that claims data could never constitute “plan assets,” determined that the data at issue did not qualify as plan assets, and therefore ERISA does not prevent the provision of such information pursuant to state law.

Providence Health Plan v. McDowell 9th Circuit No. 02-35263; 02-35841 (3/24/04)

The Ninth Circuit heard appeals of two actions in which Providence sought to recover benefits it paid to its insureds; action I for breach of contract, filed in state court, and action II for equitable relief under ERISA, filed in federal court. The Court reversed the District Court for the District of Oregon’s dismissal of Action I but affirmed the dismissal of Action II.

The McDowells received coverage through an employer health plan, which contained a subrogation provision entitling Providence to proceeds of any settlement up to the amount of benefits it paid, “less a proportionate share of reasonable attorneys fees.” The McDowells were injured in a car accident and Providence paid over $31,000 for their combined care. The McDowells eventually settled personal injury lawsuit and obtained a $500,000 settlement, $21,000 of which Providence unsuccessfully sought as reimbursement under the plan.

Providence filed suit in state court, alleging breach of contract and contending it was owed reimbursement. McDowell removed case to federal court, arguing ERISA preemption. The District Court granted the McDowells’ motion to dismiss on the grounds that ERISA barred Providence’s breach of contract claim. Providence then filed a second action in Federal district court claiming that ERISA’s civil enforcement provision governed. The District Court dismissed, finding that Providence was seeking monetary, and not equitable relief.

In reversing the District Court as to Action I, the Ninth Circuit said that removal to federal court is appropriate where the state law claims “relate to” any employee benefit plan. The Ninth Circuit found that District Court erred in deciding that a breach of contract action “related to” an ERISA plan since no interpretation of plan was required. Further, Providence’s breach of contract claim failed to qualify for removal jurisdiction because it didn’t fall within ERISA’s civil enforcement provision. As to Action II, ERISA authorizes suit in federal court for “appropriate equitable relief.” The plan’s suit to recover money and enforce a contractual obligation falls outside ERISA’s purview.

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