Managed Care Lawsuit Watch - December 2009


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 Art Lerner or any member of the health law group.

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Cases in this issue:

Am. Med. Ass’n v. United Healthcare Corp.

00 Civ 2800 (LMM) (S.D.N.Y. Dec. 1, 2009)

On December 1, 2009, a New York federal district court granted preliminary approval of a $350 million class action settlement with United Healthcare Corporation ("United"). This settlement resolves a nearly decade-long challenge to United's use of a data base from its affiliate Ingenix, used in determining claims reimbursements for out-of-network ("OON") health care providers. Beginning in 2000, the American Medical Association ("AMA") and others alleged United had underpaid OON providers. The AMA claimed that the "reasonable and customary" charges for services provided were significantly higher than those allowed by United.

Although the settlement was opposed by co-counsel representing the plaintiff class, the court determined that the monetary figure, $350 million, and other relief (e.g., United would agree to cease producing the Ingenix provider fee survey service and pay $50 million toward establishing an independent surveying entity) agreed upon by the parties merited approval. Specifically, the court found that the proposed settlement (1) would not result in release of too many claims; (2) adequately addressed the "delta" – the aggregate amount OON providers alleged they were underpaid by United – after being adjusted in light of United's primary role as an administrator of self-funded plans; and (3) properly reflected the challenges and risks the plaintiff class would face if it were required to litigate the claims. The court also granted preliminary approval of the settlement class, estimated at over 21 million, because the class met the requirements for certification under the Federal Rules of Civil Procedure.

Health First Health Plans Inc. v. Glatter

No. 09-1547 (M.D. Fla. Oct. 15, 2009)

After being injured in a car accident, Jeffrey Glatter, a Health First Health Plans ("Health First") member, received medical care paid for by Health First as well as settlement proceeds from a tort claim against the person who caused the accident. Health First sued Glatter under ERISA for failing to reimburse Health First for the benefit costs it incurred from the funds he received from the settlement.

Health First's complaint pled two counts – a claim for equitable relief under 29 U.S.C. § 1132(a)(3) and a claim for breach of fiduciary duty and legal damages pursuant to 29 U.S.C. § 1132(a)(2). Glatter sought to dismiss the second count on the ground that he was not a "fiduciary".

Glatter argued he was merely a plan member who received settlement proceeds from a third party tortfeasor and not a "fiduciary" with respect to an ERISA plan. According to Glatter, the settlement proceeds were not "plan assets" as defined under ERISA so that he did not have any fiduciary role with respect to the funds on behalf of the plan, and even if they were defined as plan assets, he had not been clearly informed of his status as a fiduciary.

The Court agreed with Glatter, concluding that the subrogation and recovery provision in the plan document did not identify a third party recovery as an "asset" of the plan. Relying on an Eleventh Circuit observation, the Court noted that the plan's right to reimbursement, as provided in a subrogation provision, does not "automatically convert" the settlement proceeds into a plan "asset."

The Court rejected Health First's argument that the settlement proceeds are assets because the subrogation provision complied with the Supreme Court's decision in Sereboff v. Mid Atlantic Medical Services, Inc. The Court stated that Health First's reliance on Sereboff was misplaced because it dealt with the right to obtain equitable relief pursuant to a subrogation clause rather than the right to legal damages for breaching a fiduciary duty. Accordingly, the Court granted Glatter's motion to dismiss the fiduciary duty and damages claim.

Smith v. Life Investors Insurance Co. of America

No. 2:07-cv-681 (W.D. Pa. Nov. 6, 2009)

The United States District Court for the Western District of Pennsylvania denied class certification and granted plaintiff partial summary judgment in an action challenging an insurer's interpretation of "actual charges" in a supplemental health insurance policy.

Plaintiff Frances Smith ("Smith") purchased a supplemental life insurance policy with Life Investors Insurance Company of America ("Defendant"), which contained an unlimited yearly benefit for chemotherapy, radiation, and blood benefits. Before 2006, Defendant paid benefits on the full amount billed. In January 2006, Defendant required policyholders to submit documentation which showed the amount of the actual charges being paid to and accepted by providers as payment in full.

Plaintiffs then filed a class action lawsuit against Defendant in Pennsylvania state court, which was later removed to federal court based on diversity jurisdiction. The complaint asserted causes of action for breach of contract, bad faith, and declaratory relief on behalf of all covered persons under the cancer-only insurance policies administered or underwritten by Defendant.

The court held that under Federal Rule of Civil Procedure 23, Smith met the requirements of numerosity and commonality, but not the requirements of typicality and adequacy. The vast majority of putative class members had, at most, a potential future claim. Also, because Smith's claims were not typical of the class, she could not serve as an adequate class representative.

Finally, the judge granted partial summary judgment in Smith's favor because the term "actual charges" in the policy was ambiguous and should thus be interpreted in favor of the plaintiff.

Cottrill v. Allstate Ins. Co.

No. 09-714 (S.D. Ohio. Oct. 30, 2009)

Plaintiff Richard Cottrill was injured in an automobile accident. At the time of the accident, Plaintiff maintained an automobile insurance policy with Allstate and an employer sponsored group health insurance plan with Blue Cross Blue Shield of Michigan ("Blue Cross"). Plaintiff sought a declaratory judgment that Blue Cross's subrogation rights under the plan are barred under Ohio law, preventing Blue Cross from receiving any portion of money from a future settlement or jury verdict, because Allstate's policy limits were insufficient to wholly compensate Plaintiff's injuries.

Blue Cross removed to federal court on the grounds of complete federal preemption under ERISA. Blue Cross argued that Federal courts have exclusive jurisdiction over Plaintiffs' declaratory judgment action, because it falls within the scope of § 1132(a)(3) as a "claim for determination of rights under an employer sponsored health plan."

The Southern District Court of Ohio ruled that Plaintiff's declaratory judgment action did not seek to enjoin violations or to enforce any provision of ERISA or the terms of the plan, and therefore, could not have been filed under § 1132(a)(3). Rather the Court found that Plaintiff was seeking a determination that "Blue Cross's contractual right to subrogation is unenforceable because it is contrary to state law."

Yarick v. Pacificare of California

No. F057032 (Cal. Ct. App. Dec. 1, 2009)

The estate of Joseph Yarick filed several claims against Pacificare of California, Yarick's Medicare Advantage ("MA") HMO, for breaching a California common law duty and a duty derived from the California Health and Safety Code relating to HMOs. Plaintiff asserts at the root of all the claims that the "…contractual structure through which [Pacificare] arranges to provide medical services gives the medical care providers an undue financial incentive to deny medically reasonable services."

The Court found that the federal statute "…expressly preempts application of state laws where 'standards' for MA plans are established pursuant to the Medicare law." In addition, the Court found that Plaintiff's common law claim was impliedly federally preempted, because the common law action "… would stand as an obstacle to the accomplishment and execution of the purposes and objectives of Congress."

The Court continued to say that if such state common law claims were allowed, then the federal authorities would "…lose control of the regulatory authority that is at the very core of Medicare generally and the MA program specifically."

Grandcolas v. Healthy Alliance Life Ins. Co et al

No. 4:09cv1452 (E.D. Mo. Nov. 3, 2009)

On a motion to remand, a Missouri federal district court ruled that ERISA completely preempted all claims arising from a cancellation of coverage, and accordingly dismissed the case.

Plaintiff sued his employer, insurer and agent for various claims, including negligence and fraud in state court for alleged wrongful cancellation of his health insurance coverage. Plaintiff further claimed that the alleged wrongful cancellation prevented him from obtaining timely treatment, causing his medical condition to worsen. Defendants removed the action to federal court and filed a motion to dismiss; plaintiff filed a motion to remand.

Noting that the Supreme Court rejected complete preemption of medical malpractice claims where the defendant is not the plaintiff's treating physician or the employers of the plaintiff's treating physician, the court concluded that plaintiff's state law claims were completely preempted by ERISA and the action was therefore removable to federal court. The Court further granted defendants motion to dismiss the case for failure to state a claim, but granted plaintiff's request to file an amended complaint.

MAMSI Life & Health Ins. Co. v. Wu

Misc. No. 8 (Md. Ct. App. Oct. 20, 2009)

In answering a certified question from the Maryland District Court, the Maryland Court of Appeals held that the state code does not restrict the ability of health maintenance organizations ("HMO") to provide in their contracts that health benefits may be secondary to personal injury protection ("PIP") benefits under an automobile insurance policy.

The issue arose when the plaintiff, Kuei-I Wu ("Plaintiff") sued MAMSI Life and Health Insurance Co. ("MAMSI") after being involved in an automobile accident and receiving treatment pursuant to the PPO plan to which she belonged. The Plaintiff alleged that "MAMSI illegally directs all providers within its healthcare plans that when a patient has been involved in an automobile accident, the providers must collect PIP benefits from the patient's automobile insurer first, before submitting any claims to MAMSI for payment." This scheme, the Plaintiff contended, is in direct violation of section of the Maryland Insurance Code, which provides that PIP benefits "shall be payable without regard to . . . any collateral source of medical, hospital, or wage continuation benefits." In response, MAMSI argued that the law regulates automobile insurers, not health insurers.

Determining that the plain meaning of the statute was ambiguous, the Court of Appeals looked to the legislative intent and concluded that the law did not apply to HMOs. First, the court explained that the placement of the amended sections in the "Motor Vehicle" subtitle indicated that the provision was meant to apply only to automobile insurance policies, not HMOs. Second, the code defines a "named insured" as "the person denominated in the declarations in a motor vehicle liability policy." Third, the legislative history of the law indicated that the Legislature intended to establish a mechanism to allow insureds to make PIP benefits secondary to a collateral insurer. Finally, portions of the code regulating HMOs are found in entirely different sections than the PIP provision, and they state that HMOs are not otherwise subject to the insurance laws of Maryland. Ultimately, the court concluded that had the Legislature intended to restrict HMO contracts, it would have done so in the code sections regulating HMOs.

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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.