Managed Care Lawsuit Watch - March 2005

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:

• Bruun v. Prudential Health Care Plan, Inc.
• In re Managed Care Litigation
• Kotler v. PacifiCare of California
• Reuben-Schneiderman v. Merit Behavioral Care Corp.

Bruun v. Prudential Health Care Plan, Inc. 3rd Cir., No. 03-4459 Unpublished (2/16/2005)

On an appeal from a Rule 12(b)(6) dismissal by the District Court of New Jersey, the Third Circuit considered two issues: (1) whether the HMO Act, 42 U.S.C. § 300e, allows an HMO to subrogate recoveries from third parties, and (2) whether Defendant-Appellee Prudential Health Care Plan ("PruCare") was entitled to reimbursement of the reasonable cash value of benefits in lieu of actual costs paid.

The Third Circuit agreed with the district court's findings that "the HMO specifically accepts its general prepayment requirement (and implicitly allows for subrogation and reimbursement) when a participant's injury or sickness entitles them to benefits under an insurance policy" and that the reasonable cash value reimbursement standard is permitted under the Employee Retirement Income Security Act ("ERISA").

However, it determined that the district court erred in finding that PruCare's plan documents clearly allowed for reasonable cash value reimbursement. The court rejected arguments from both Plaintiffs-Appellants and Defendants-Appellees as to how language in PruCare's reimbursement clause should be construed.

The Third Circuit found that the language in the plan documents was ambiguous as to whether reasonable cash value reimbursement was permitted and remanded the case to the district court for consideration of extrinsic evidence in interpreting the plan documents.

In re Managed Care Litigation S.D. Fla.., MDL No. 1334 No. 00-1334-MD-MORENO

The District Court for the Southern District of Florida has ordered that, based on the factors set forth in Fed. R. Civ. P. 42, the trial be bifurcated into a liability phase followed, if necessary, by determination of individualized damages to be tried to the same jury.

The Plaintiffs are members of a class of physicians who were reimbursed by one or more of the Defendant health plans between 1990 and 2002. The Plaintiffs allege that the Defendants engaged in a pattern of racketeering activity to wrongfully diminish, deny or delay payments to them.

The district court found that separate trials on liability and damages will avoid prejudice to the parties. Defendants had argued that a class-wide trial on damages would reduce the Plaintiffs' burden of proving the extent of damages caused by each Defendant, and thus, prejudice the Defendants.

The district court also found that the issues of liability and damages are significantly different to require bifurcation.

Kotler v. PacifiCare of California Cal. Ct. App., No. B171654 (2/10/05)

The Second Appellate District of the Court of Appeals of California reversed a district court's ruling in favor of PacifiCare, saying that the HMO unreasonably delayed the referral of a member to a specialty physician, breaching its obligation to provide medical services on a timely basis.

Steven Kotler, a beneficiary, sued Pacificare for breach of implied covenant of good faith and fair dealing and breach of contract after numerous attempts to be seen by an in-plan specialist resulted in a six-week wait for an appointment following his primary care physician's recommendation.

The opinion stated that the health care plan was required to provide medically necessary specialty services as authorized by the primary care physician, either at a time specified in the contract or within a "reasonable time." The court determined that the standard of reasonableness in this context is not a medical or "community" standard, but a conventional standard, "derived from 'the situation of the parties, the nature of the transaction, and the facts of the particular case.'"

Reuben-Schneiderman v. Merit Behavioral Care Corp. 2nd Cir., No. 03-9111-cv Unpublished 1/31/2005

In an unpublished opinion, the Second Circuit affirmed a lower court's determination that ERISA preempted a state negligence claim brought by a participant in a preferred provider organization ("PPO") against a company providing utilization review services to the PPO. The plaintiff had sued the utilization review company and the PPO in state court, alleging that the utilization review company negligently refused to provide the patient with coverage for inpatient care of a psychiatric illness.

The defendants removed to state court, and the District Court dismissed the claim. The Second Circuit affirmed, holding that under the Supreme Court's decision in Aetna Health v. Davila, common-law negligence claims such as the plaintiff's are preempted by ERISA. The Second Circuit also affirmed the District Court's dismissal of the plaintiff's claim for a penalty under ERISA § 502c, holding that ERISA does not provide for a penalty in this type of situation.

The Second Circuit did remand the case for further consideration of the plaintiff's attempt to amend his complaint to assert a fiduciary duty claim under ERISA § 502(a)(3), noting that Justice Ginsburg's concurrence in Davila said that Section 502(a)(3) may allow at least some forms of 'make whole relief against a breaching fiduciary.

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