Managed Care Lawsuit Watch - February 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 any member of the health law group.

Please click to view the full Crowell & Moring Managed Care Lawsuit Watch archive.

Cases in this issue:

• Beard v. Benicorp Insurance Co.
• CareFirst of Maryland, Inc. v. First Care, P.C.
• In re Managed Care Litigation
• New York Insurance Department Fines CIGNA
• Knieriem v. Group Health Plan
• In Re: Managed Care Litigation

Beard v. Benicorp Insurance Co. W.D. Tenn. No. 04-2417 B (12/28/05)

The District Court for the Western District of Tennessee determined that the Employee Retirement Income Security Act (“ERISA”) preempts a Tennessee common law requirement that an insurer provide notice of the nonpayment of the insurance premium by the insured’s employer.

An electrician and his employer brought an action against Benicorp Insurance Company (“Benicorp”) alleging breach of contract and violation of ERISA for wrongful denial of benefits under an employee benefit plan sponsored by the employer. The district court dismissed the employer’s ERISA claim for lack of standing, as the employer was neither a participant nor a beneficiary of the employee benefit plan. The court rejected the employee’s breach of contract claim, which alleged violation of a Tennessee law requiring notice of nonpayment of the insurance premium, finding that such claim was preempted by ERISA.

In determining that the Tennessee notice requirement did not fall within ERISA’s savings clause, the court noted that although the Tennessee law was specifically directed towards insurers, the law was preempted by ERISA because it did not substantially affect the initial apportionment of risk among the parties when the contract commenced.

CareFirst of Maryland, Inc. v. First Care, P.C. Fourth Circuit No. 04-2493 (1/11/06)

The Fourth Circuit affirmed a district court’s grant of summary judgment for First Care, P.C., (“First Care”) a physician group, which was the defendant in a trademark infringement action brought by CareFirst of Maryland (“CareFirst”). Plaintiff brought an action before the District Court for the Eastern District of Virginia against First Care, a group of physicians who practice in southeastern Virginia, alleging trademark infringement and trademark dilution.

In order to prevail on a claim for trademark infringement, a Plaintiff must show first that it has a valid and protectable mark. If the mark is protectable, it must then show that Defendant's use of a similar mark is likely to cause substantial confusion among consumers. The district court found that CareFirst failed to prove that First Care’s mark was likely to cause substantial confusion among consumers. The district court noted that many third parties used either CareFirst or First Care names. The court also determined that there was no evidence that the public confused the two marks.

In order to make a claim for trademark dilution, a Plaintiff must show that Defendant's use of a similar mark began after Plaintiff's mark had become famous and that Defendant's use causes dilution of the distinctiveness of Plaintiff's mark. The district court granted First Care's motion for summary judgment on the dilution claim, finding that CareFirst failed to show that its mark was famous when Defendant began using the name First Care in 1995.

The Fourth Circuit, echoing the district court’s opinion, determined that the CareFirst and First Care names are commonly used in the healthcare industry, indicating the weakness of the CareFirst mark. The court also found that there was no evidence of consumer confusion between the two marks, because the two marks have different appearances, and CareFirst and First Care provide distinct services. Moreover, the court determined that there was no evidence that First Care adopted its name with the intent to trade on CareFirst’s goodwill. Therefore, the court concluded there was no likelihood of confusion. The Fourth Circuit also rejected CareFirst’s trademark dilution claim, agreeing with the district court’s finding that CareFirst had not shown its mark was famous when Defendant began using the name.

In re Managed Care Litigation S.D. Fla. MDL No. 1334 Settlement approved 12/31/05 Proposed Settlement Agreement Order Approving Settlement Agreement

Judge Moreno of the U.S. District Court for the Southern District of Florida gave final approval to a proposed settlement involving WellPoint, Inc. (“WellPoint”) that would resolve the claims against WellPoint in the national class actions filed by over 700,000 physicians against the nation's major managed care companies.

The physician plaintiffs in the long-running case alleged that the managed care companies violated numerous federal and state laws, including the Racketeer Influenced and Corrupt Organizations (“RICO”) Act and state prompt-pay laws, in their effort to hold down physician payments. Various lawsuits were consolidated before the District Court for the Southern District of Florida in 2000, and class certification was granted for the federal RICO claim.

On July 11, 2005, WellPoint announced a proposed settlement agreement, under which it agreed to make business practice changes including adopting a new definition of medical necessity, increasing transparency in paying claims, and ceasing the use of software that automatically downcodes claims. The settlement also included a payment of $58 million in physicians' legal fees , and payments of $7,500 each to all but one of the Representative Plaintiffs.

New York Insurance Department Fines CIGNA Fine issued 1/24/06

CIGNA Healthcare of New York, Inc. (“CIGNA”) was fined $150,000 by the New York Superintendent of Insurance (the “Department”) for allegedly neglecting to respond to consumer complaints in a timely fashion. New York law requires health maintenance organizations and insurers to respond to consumer complaints forwarded to them by the Department’s Consumer Services Bureau within 15 business days.

Knieriem v. Group Health Plan 8th Cir. No. 05-1139 (1/19/06)

The court of appeals for the Eighth Circuit affirmed the dismissal of a plan participant’s request for restitution for the plan’s refusal to approve a stem cell transplant for the participant.

Mr. Siade, the plaintiff, sought pre-approval from his employer-sponsored health plan for a stem cell transplant to treat his lymphoma. Group Health Plan (GHP), the plan administrator, denied coverage for the transplant as “investigational and unproven.” Siade never underwent the procedure.

In 2004, Siade filed suit in Missouri state court, and GHP removed the case to federal court based on ERISA preemption. Siade died soon thereafter, and Knieriem was substituted as plaintiff. In the amended complaint, Knieriem argued GHP’s denial of coverage was a breach of its fiduciary duties. Knieriem sought relief under 29 U.S.C. §1132(a)(3) for restitution of the benefits GHP would have paid for the procedure, and a “‘surcharge,’ as that term was used in equity prior to the fusion of law and equity.”

The Eighth Circuit agreed with the trial court, and held that Knieriem had simply cloaked a claim for compensatory damages in the language of equitable relief. In reviewing the remedies available under §1132(a)(3), the Court noted that recovery is limited to “classic equitable remedies…such as injunctive, restitutionary, or mandamus relief,” and Supreme Court precedent precluded an award of compensatory damages. Because Siade never underwent the transplant and never incurred any expenses as a result, GHP was not holding any funds or property that properly belonged to Siade’s estate. Therefore, the Court held all claims were properly dismissed.

In Re: Managed Care Litigation MDL No. 1334, 00-1334-MD-Moreno

On January 31, 2006, Judge Moreno of the U.S. District Court for the Southern District of Florida granted PacifiCare Health Systems, Inc.'s ("PacifiCare's") motion for summary judgment in In Re: Managed Care Litigation, MDL No. 1334, 00-1334-MD-Moreno. The plaintiff class of physicians had claimed that PacifiCare (along with other commercial health insurers and HMOs) participated in a RICO conspiracy to defraud physicians of proper payment through the misuse of automated claims processing systems and other practices. The plaintiffs had specifically claimed that PacifiCare agreed to the "overall objective" of this conspiracy.

In order to prove that a defendant's agreement with the "overall objective" of a conspiracy rises to the level of RICO liability, according to the judge, a plaintiff must produce 1) evidence of an opportunity to conspire; 2) evidence that the defendant acted in parallel conduct with other conspirators; and 3) "plus factor" evidence, i.e., evidence that the parallel conduct was more than "mere lawful conscious parallelism." The judge found that Plaintiffs' evidence, apart from PacifiCare's use for some period of time of software programs attacked by the plaintiffs, consisted of: A) PacifiCare representatives' attendance at meetings and conferences with other defendants' representatives; B) the fact that PacifiCare and other defendants are customers of Ingenix, a data collection subsidiary of UnitedHealthcare; C) PacifiCare's collaboration with other defendants regarding the merger of trade associations and the planning of joint business activities; and D) PacifiCare's and other defendants' participation in the same industry surveys. The court determined that this evidence may be able to demonstrate that PacifiCare had an opportunity to conspire with other defendants, but could not demonstrate that PacifiCare acted in "parallel conduct" with any other defendant. The court's ruling notes that the judge specifically asked plaintiffs to identify its three best items of evidence demonstrating PacifiCare's "parallel conduct," and the court determined that those three items could establish nothing more than the mere opportunity to conspire.

In its defense on the parallel conduct issue, PacifiCare noted that A) only 20% of its business involves fee-for-service reimbursement (the only form of reimbursement at issue at this point in the case, alleged abuses of capitation payment methods no longer being part of the litigation); B) a large portion of its fee-for-service claims payments are processed in accordance with specific requirements of the Medicare program; C) it did not use ClaimCheck or similar software until after the alleged conspiracy commenced; and D) the fee-for-service damages alleged to have resulted from PacifiCare's conduct are less than one-fifth of one percent of the total alleged damages.

For all of these reasons, the court determined that the plaintiffs failed "to demonstrate that PacifiCare acted in a parallel manner with the other defendants" and therefore did not need to determine whether plaintiffs' evidence was sufficient "plus factor" evidence. Finding that none of plaintiffs' evidence could reasonably be relied upon a jury at trial to prove that PacifiCare had come to an agreement with any other defendant, the court also dismissed plaintiffs' claim that PacifiCare aided and abetted the other defendants' alleged improper conduct. Therefore, the court granted PacifiCare's motion for summary judgment, entirely removing PacifiCare as a defendant in the litigation. The plaintiffs have until February 17, 2006 to cite to additional evidence bearing on the two remaining defendants, United and Coventry, and on March 14, 2006, the court will hear oral argument on those parties' motions for summary judgment.

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