Managed Care Lawsuit Watch - May 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.

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

Cases in this issue:

• Artandi v. Buzack
• Klay v. Humana Inc. (In re Managed Care Litigation)
• Watters v. The Wellness Plan; Cox v. Michigan Health Maintenance Organization Plans, Inc.
• York v. Ramsay Youth Services of Dothan

Artandi v. Buzack S.D.N.Y No. 02 Civ. 5759 (JCF) (4/9/04)

In a suit by a physician against a plan sponsor, four plan participants, and a third party administrator (“TPA”) seeking approximately $100,000 in unpaid medical claims, the U.S. District Court for the Southern District of New York dismissed the claim against the TPA. The court determined that First Health Group Corporation, the TPA for a self-funded health plan, lacked discretionary authority regarding payment of benefits and thus could not be sued as a fiduciary under the Employee Retirement Income Security Act (“ERISA”). The court emphasized that the TPA’s role is contractually limited and that the plan sponsor retains final authority regarding the eligibility of claims. However, a motion for summary judgment by the plan sponsor was denied. The court determined that the physician had standing to sue the plan sponsor because the plan participants assigned their rights to him. Moreover, the court found that a genuine issue of fact remained as to whether the services provided were medically necessary.

Klay v. Humana Inc. (In re Managed Care Litigation) 11th Circuit No. 04-11006-EE (4/21/2004) S.D. Fla. No.00-1334-MDL

The only appeals challenging CIGNA HealthCare’s $550 million settlement of a national class action brought by 700,000 physicians have been dismissed, clearing the way for the terms of the settlement agreement to be implemented. Five individual physicians had appealed District Judge Moreno’s final approval of the settlement agreement, and all five voluntarily dismissed their appeals.

In February 2004, Judge Moreno gave his final approval to the terms of a settlement agreement negotiated between CIGNA and attorneys for most of the 700,000 plaintiffs. The settlement resolves claims made by the plaintiffs that CIGNA had violated federal RICO and state prompt-pay laws in the processing of physicians’ claims, charges which CIGNA denies.

Watters v. The Wellness Plan Mich. Cir. Ct. No. 03-1127-CR Cox v. Michigan Health Maintenance Organization Plans, Inc. Mich. Cir. Ct. No. 98-88265-CR (petitions filed 4/8/04)

The State of Michigan Insurance Commissioner, Linda Watters, filed two petitions seeking state approval of asset sales of two HMOs—The Wellness Plan and Omnicare. The HMOs hold Medicaid contracts with the state and together have over 160,00 members. Both HMOs are in significant debt and are unqualified to bid for two-year Medicaid contracts that would take effect later this year because of their financial situations. If the petitions are approved, Amerigroup will purchase The Wellness Plan and Coventry Health Care, Inc., will purchase Omnicare.

York v. Ramsay Youth Services of Dothan M.D. Ala. No. 03-A-837-S (03/29/2004)

The U.S. District Court for the Middle District of Alabama ruled that a state court lawsuit alleging fraud, negligence and intentional or reckless infliction of emotional distress brought by plaintiffs who had health insurance through their employment by the defendant was preempted by ERISA.

Plaintiffs were employees of the defendant Ramsay Youth Services, and were insured under an ERISA plan. The employees purchased health insurance from Blue Cross and Blue Shield of Alabama through payroll deductions. In the summer of 2002, Blue Cross and Blue Shield informed the employees that their coverage was cancelled; Ramsay had failed to pay the premiums, despite deducting the money from the employees’ accounts. Ramsay first assured the employees that their insurance was still in effect, and then later that the insurance would be reinstated retroactively. Allegedly relying on this assurance, plaintiffs did not seek out additional health insurance. When coverage did resume through Blue Cross and Blue Shield, the coverage was not retroactive, leaving a 4-5 month gap in coverage.

Plaintiffs sued in state court; Ramsay removed the case to federal court and filed a motion to dismiss on the grounds that plaintiffs’ claims were preempted by ERISA. The Court agreed, finding that plaintiffs’ claims related to an ERISA plan and were therefore preempted under § 514(a). The Court noted that the relief sought by the plaintiffs was similar to the relief available under the § 502(a) civil enforcement provision.

Crowell & Moring LLP - All Rights Reserved
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.