Managed Care Lawsuit Watch - December 2012

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 Chris Flynn, Peter Roan, or any member of the health law group.

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Cases in this issue:

• Christoff v. Ohio Northern University Employee Benefit Plan
• Advanced Rehabilitation, LLC v. UnitedHealth Group, Inc.
• Potts v. The Rawlings Company, LLC
• Sandoz, Inc. v. Kentucky ex rel. Conway; AstraZeneca, LP v. Kentucky ex rel. Conway
• United States v. Humana Inc.
• Treasurer, Trustees of Drury Industries, Inc. Health Care Plan and Trust v. Sean Goding; Casey & Devoti, P.C.
• Humana Health of Puerto Rico, Inc. v. Vilaro

 

Christoff v. Ohio Northern University Employee Benefit Plan No. 11-3887 (6th Cir. Aug. 22, 2012)

The Sixth Circuit agreed with a district court's decision that a plan administrator's decision to deny coverage for plaintiff's son's attention-deficit hyperactivity disorder therapy and testing was not arbitrary and capricious. The plaintiff argued that he was denied a "full and fair review," as required by ERISA, due to five alleged procedural errors in the processing of his claim. 

The plaintiff first argued that a conflict of interest existed because the plan administrator was an employee of the University, which was the largest contributor of the plan. As a result, he had a financial incentive to deny the claim. Because the plaintiff was unable to provide significant evidence that the alleged conflict actually affected the plan administrator's decision, the court declined to find a conflict of interest present.

The plaintiff next argued that the file reviewers' decisions were prejudiced by having seen the reports of prior reviewers. However, because the plaintiff conceded that presenting prior reviewers' reports to later reviewers was a routine practice, the court held that there were no grounds for a finding of arbitrary or capricious conduct. 

The plaintiff also challenged the plan administrator's reliance on reports from physicians he claimed were unqualified or lacked the authorization to evaluate his son's condition properly. The court ruled that the plan administrator's reliance on the reports did not render the decision arbitrary and capricious because the plan administrator had four other reports he could have relied on.

Next, the plaintiff claimed that the plan administrator arbitrarily and capriciously ignored evidence from his son's physician and failed to contact the physician to discuss his son's condition. According to the court, the reviewers were evaluating whether the treatment was covered by the plan and not evaluating his son's condition. Therefore, the court concluded that the plan administrator provided a sufficient explanation to withstand the plaintiff's challenge.

Finally, the plaintiff challenged the reviewer's decision to rely on paper file reviews rather than conducting a physical examination of his son. The court held that the failure to conduct a physical examination did not render arbitrary and capricious the plan administrator's reliance on the reviewer's reports to deny the plaintiffs benefit claim because the question posed to the reviewers was whether the ADHD treatment and testing were covered by the plan, which did not require a subjective reports about the son's condition.  Moreover, the reports did address and refute the plaintiff's countervailing evidence.

Advanced Rehabilitation, LLC v. UnitedHealth Group, Inc. No. 11-4269, 2012 U.S. App. LEXIS 20050 (3rd Cir. Sept. 25, 2012)

A group of physical therapy providers filed a class action complaint against UnitedHealth and a number of its subsidiaries alleging that it had violated ERISA and state law by systematically denying reimbursement for a procedure called "manipulation under anesthesia" ("MAU"). The procedure involves sedating a patient and then moving the patient's joints to break up scar tissue. UnitedHealth denied reimbursement for these procedures based on policy terms that excluded procedures that were not "medically necessary" or that were "experimental." Plaintiffs argued that the MAU procedures were not experimental because the AMA had assigned it a CPT code in the Codebook of Reimbursable Procedures more than thirty years ago.

The Third Circuit upheld the District Court's dismissal of the complaint, finding that Plaintiffs failed to allege any facts to demonstrate that "MUA procedures were 'medically necessary' for the particular patients who received them." It also rejected Plaintiffs' argument that the AMA's assignment of a CPT code to MAU procedures automatically rendered them medically necessary and not experimental. The Court cited the introduction to the CPT Codebook, which indicated that inclusion of a procedure did not represent an endorsement of the procedure or that the procedure would be covered under any health insurance policy. But even if the CPT Codebook suggested that the MUA treatment was consistent with national standards, the Court held that Plaintiffs still could not demonstrate that MUA treatments would be considered safe and effective for treating the individual patients at issue in the suit—something the relevant plans required for the procedures to be considered "medically necessary." As such, if the MUA treatments were not medically necessary or were experimental under the terms of the relevant plans, "routinely denying coverage for such procedures would have been consistent with the terms of those plans." Consequently, UnitedHealth did not abuse its discretion in denying reimbursement to Plaintiffs.

The Court also upheld the District Court's denial of leave to file an Amended Complaint. The proposed Amended Complaint only added "conclusory allegations that MUA was 'medically necessary,' as well as an isolated claim that one medical journal article from 1999 had found MUA to be 'safe and efficacious' in certain contexts." According to the Court, these additional allegations were insufficient to state a valid claim.

Potts v. The Rawlings Company, LLC No 11 Civ. 9071 (JPO) (S.D.N.Y. Sept. 25, 2012)

Plaintiffs are members of Medicare Advantage ("MA") plans who were injured, received medical care that the plans reimbursed, and subsequently sued the third-party tortfeasors that had caused the injuries. Defendants, the MA plans and their agents, sought to recover the monies Plaintiffs received from their settlements with the tortfeasors and Plaintiffs sought a declaratory judgment in state court that New York law prohibits subrogation by MA plans of settlement proceeds. Defendant health plans removed to federal court pursuant to the Class Action Fairness Act and on the grounds that Plaintiffs claims arose under the Medicare Act and implicate the Federal Officer removal statute, 28 U.S.C. §  1442(a)(1).

Having successfully removed the case to the Southern District of New York, Defendants moved to dismiss Plaintiffs' suit for failure to exhaust administrative remedies under the Medicare Act and – owing to the Medicare Act's express preemption of conflicting provisions of New York law – for lack of subject matter jurisdiction. Plaintiffs opposed the motion, arguing 1) that they need not exhaust any administrative remedy because their claims did not arise under the Medicare Act; and 2) that the Medicare Act does not preempt New York's law against subrogation because the Act does not create a right of action for the Defendants.

The court's determination of the exhaustion question began by rejecting Plaintiffs' characterization of their suit as something other than a "request for determination of benefits" or a "challenge to the denial of benefits." The court found instead that, by seeking to prevent reimbursement of the MA plans and thereby to keep their benefits, Plaintiffs were indeed requesting a determination and/or challenging a denial of benefits – steps that the Medicare Act requires to be preceded by exhaustion of administrative remedies. That this case dealt with MA plans and not Medicare itself was unimportant in the eyes of the court. 

The court also roundly rejected Plaintiffs' argument against the Medicare Act's preemption of New York's law against a health plan's subrogation of monies paid to beneficiaries by tortfeasors. The court first concluded that Plaintiffs had put themselves on the losing side of splits among New York state courts and among federal courts on the question of whether the Medicare Act creates a private right of action for MA plans. The court went on to observe that, even if Plaintiffs were correct and the Medicare Act did not provide MA plans with a private right of action in federal court, that point was immaterial in light the Medicare Act's "very broad, express preemption clause," which would determine the issue whether a federal or a New York court adjudicated it.

Sandoz, Inc. v. Kentucky ex rel. Conway; AstraZeneca, LP v. Kentucky ex rel. Conway No. 2010-CA-000626-MR (Ky. Ct. App. Oct. 12, 2012)

For several years up until 2004, Kentucky Medicaid derived the "estimated acquisition cost" it would pay to pharmaceutical manufacturers for a given drug on behalf of a Medicaid beneficiary using the average wholesale price ("AWP") reported by the manufacturers to the industry price publisher. Before 2004, AWPs were generally overstated relative to the actual prices paid in transactions with manufacturers for drugs. In 2004, Kentucky's Attorney General followed the lead of other attorneys general and filed suit against Sandoz, Inc. and AstraZeneca, Inc., among others, on the grounds that, by reporting inflated AWPs to Kentucky, the manufacturers violated Kentucky's Medicaid Fraud Statute, Consumer Protection Act, and False Advertising Statute. Juries awarded Kentucky $16 million of compensatory damages from Sandoz and $14.7 million from AstraZenenca.

The manufacturers appealed. Sandoz sought vacation of the ruling and a new trial on three grounds:

1. The verdict was not supported by sufficient evidence;
2. Kentucky failed to prove causation; and
3. Kentucky's claims were barred by the separation of powers and political questions doctrines.

AstraZeneca sought the same relief on four slightly different grounds:

1. The AWPs reported by AstraZeneca caused no harm to Kentucky;
2. Kentucky's Consumer Protection Act and Medicaid Fraud Statute claims must fail as a matter of law;
3. Kentucky's claims violated the Kentucky Constitution and were preempted by federal law; and
4. A new trial is proper because the jury was not instructed as to Kentucky's knowledge of AWP-inflation prior to 2004.

The Court of Appeals did not address all the issues raised, but focused on causation alone. On that point, the court agreed entirely with the manufacturers. Its reasons were two: 1) Kentucky Medicaid had persisted in paying inflated prices to the manufacturers for years even though 2) several sources had informed Kentucky Medicaid about AWPs' inflated character – including a private study commissioned by Kentucky that concluded AWPs were significantly inflated! This pair of facts led the court to conclude that "[t]he Commonwealth was entirely complicit in this system of pricing," and that such in pari delicto conduct meant there had been "a complete absence of proof on the issue of causation of damages" at trial. For these reasons, the court reversed the decision below and rescinded the damages awarded to Kentucky.

United States v. Humana Inc. No. 12-cv-00464 (RBW) (D.D.C. Oct. 22, 2012)

The United States District Court for the District of Columbia entered a stipulated final judgment permitting Humana Inc's acquisition of Acadian Management Services, Inc., a Medicare Advantage ("MA") organization, while requiring divestitures of overlapping operations in selected local markets. Under the agreed upon terms between Humana, Arcadian and the U.S. Department of Justice Humana and Arcadian will make divestitures in local market areas in five states to address concerns that the acquisition would have anticompetitive effects on particular geographic markets for MA health coverage. Crowell & Moring, LLP represented Humana.

Treasurer, Trustees of Drury Industries, Inc. Health Care Plan and Trust v. Sean Goding; Casey & Devoti, P.C. No. 11-2885 (8th Cir. Sept. 7, 2012)

The Eighth Circuit upheld the District Court's denial of reimbursement by a beneficiary's law firm to an ERISA Plan administered by Treasurer, Trustees of Drury Industries, Inc. Health Care Plan and Trust ("Drury"). 

The Plan beneficiary, Sean Goding, received benefits from Drury following a slip-and-fall accident.  Subsequently, Goding obtained compensation for his injuries in a civil suit.  In the suit, the law firm Casey & Devoti ("Casey") represented Goding. Drury sought reimbursement from Goding according to the subrogation provision in its Plan contract with Goding. When Goding filed for bankruptcy, Drury looked to Casey for satisfaction on three bases: (1) subrogation; (2) equitable lien; and (3) a state law conversion claim.

During its representation of Goding, Casey twice acknowledged Drury's subrogation agreement with Goding. First, Casey wrote to Drury, "This will confirm that we do acknowledge Drury['s] lien in this matter." A few months later, Casey wrote, "We are not challenging your right to reimbursement/subrogation for payments made for the health care of Sean Goding . . . ." When Casey received the settlement money from the civil suit, it kept the amount subject to Drury's subrogation interest in trust and disbursed the remainder to Goding. After about a month, though, Casey disbursed that amount to Goding as well.  When Goding filed for bankruptcy without reimbursing Drury, Drury filed suit against Casey.

The District Court for the Eastern District of Missouri denied Drury's motion for summary judgment and granted summary judgment to Casey on all causes of action.

First, the District Court held that Casey was not a party to the subrogation provision. A subrogation agreement between a beneficiary and an ERISA Plan is only enforceable against the beneficiary's attorney if the attorney agrees with the beneficiary and the ERISA Plan to honor the Plan's subrogation right. The Court stated that mere acknowledgement of the provision did not constitute an implied contract between Casey and Drury. Though Casey acknowledged the validity and existence of the subrogation provision, Casey never promised to be accountable for it nor to honor it. The Court thus held that Casey was not party to the agreement, and Drury cannot enforce it against Casey.

Second, the District Court denied Drury's equitable action against Casey under Section 502(a)(3) of ERISA. That section allows a party to bring a civil action for violation of a plan, but the party may obtain only equitable, not legal, relief. In equity, there is not cause for restitution where the trustee of property wrongfully disposes of another's property if the trustee no longer holds the property or its product. In other words, if the wrongdoer no longer has the property or its product in his possession, a person must bring a legal, not an equitable, claim against the wrongdoer. In this case, Casey no longer held the funds due to Drury. Any action by Drury to recover from Casey is thus a legal claim, not equitable, so Section 502(a)(3) does not apply.

Finally, the District Court dismissed a state law cause of action against Casey for conversion of funds as preempted by ERISA. The Court of Appeals for the Eighth Circuit affirmed the District Court in all respects.

Humana Health of Puerto Rico, Inc. v. Vilaro No. 12-1445 (D.P.R. Sept. 17, 2012)

The federal District Court of Puerto Rico denied a motion to dismiss antitrust and tortious interference claims that Humana of Puerto Rico ("Humana") asserted against various providers. The court held that Humana adequately demonstrated antitrust injury and pled sufficient facts to support its price fixing and group boycott claims – namely, that the defendants included one another in attempted negotiations with Humana via email, copied one another on each other's notifications of termination to Humana, and jointly provided a table setting forth proposed, higher rates required as a condition to continue providing services to certain patients.

 

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