Managed Care Lawsuit Watch - September 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 Art Lerner or any member of the health law group.

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Cases in this issue:

Brown v. Wiener

E.D. Pa., No. 04-CV-3442, 2005 U.S Dist. LEXIS 15610 (7/6/05)

The U.S. District Court for the Eastern District of Pennsylvania granted defendant Aetna's motion for judgment on the pleadings, finding that plaintiff's negligence claim was preempted under the Employee Retirement Income Security Act ("ERISA"). Relying on Aetna Health Inc. v. Davila, 524 U.S. 200 (2004), the court noted that the essence of plaintiff's claim was more properly characterized as a denial of benefits, which would be preempted by ERISA, rather than a treatment decision by medical care providers, which would not be preempted.

Plaintiff brought a negligence claim against Aetna more than ten years after the HMO allegedly refused to authorize a referral to her obstetrician, resulting in a treatment delay. Plaintiff was eventually diagnosed with preeclampsia and her child was born with severe brain damage. Aetna argued that plaintiff's claim was preempted by ERISA. Plaintiff asserted that her claim was not preempted because it was based on a treatment decision by medical care providers. Relying on Davila, the district court found that Plaintiff's claim was a challenge to Aetna's denial of benefits and thus was preempted by ERISA.

Cooperstein v. Independence Blue Cross

E.D. Pa. No. 05-194 (8/2/05)

The U.S. District Court for the Eastern District of Pennsylvania ruled that ERISA preempted claims brought by prescription drug benefit plan insureds against their insurer and a pharmacy benefits manager ("PBM") that were alleged to have improperly refilled prescriptions through mail-order pharmacy services.

The plaintiffs were enrolled in a prescription drug benefit plan with Independence Blue Cross ("IBC"). In February 2004, IBC switched PBMs, and the new PBM charged higher copayments and automatically substituted "brand medically necessary" prescriptions with generic versions. The plaintiffs sued, alleging inter alia that IBC and the new PBM breached their contract with the insureds. The District Court held that since several of the plaintiffs' claims asked the court to recover benefits to which the plaintiffs were allegedly entitled under their ERISA plan, as well as to enforce the plaintiffs' rights under the plan contract, all of the plaintiffs' claims were subject to complete ERISA preemption.

Daley v. Marriott International Inc.

8th Cir., No. 04-2643 (7/25/05)

The Eighth Circuit Court of Appeals held that ERISA preempts Nebraska's mental health parity law as applied to self-funded ERISA plans. The court determined that because Nebraska's law "relates to" an ERISA plan, "ERISA's deemer clause exempts Marriott's self-funded Plan from application of Nebraska's mental health parity law."

Tracey Daley, a participant in a health plan funded and sponsored by her employer, Marriott Corporation, Inc., received outpatient treatment for a mental health condition, incurring claims exceeding the plan-year maximum of thirty visits in both 2000 and 2001. Daley filed a complaint ("Daley I") against Marriott International, Inc. Medical Plan (the "Plan") and Empire Blue Cross/Blue Shield ("Empire"), the third-party administrator, for breach of contract and breach of fiduciary duty. In a separate but similar action ("Daley II"), Daley sued Marriott International, Inc. in its capacity as Plan administrator. Daley's claims were based on her contention that mental health coverage was not provided in accordance with Neb. Rev. Stat. §44-793(1)(1)(i), which prohibits a health insurance plan from establishing "any rate, term, or condition that places a greater financial burden on an insured for access to treatment for a serious mental illness than for access to treatment for a physical health condition..."

The district court granted the Defendants' motion for summary judgment in Daley I after determining that the Nebraska law was preempted as it applied to self-funded ERISA plans. The complaint in Daley II was also dismissed at the district court level based on the doctrine of res judicata. The appeals court affirmed both trial court dismissals.

International Union of Operating Engineers Local No. 68 Welfare Fund. v. Merck & Co.

N.J. Super. Ct., Law Div., No. ATL-L-3015-03 (7/29/05)

A New Jersey trial court granted a motion for certification of a third-party payor class in a suit against Merck for misrepresenting the safety of Vioxx. The named Plaintiff sought to certify a nationwide class of third-party non-government payors who "paid any person or entity for the purchase of the prescription drug Vioxx since May 1, 1999."

The suit, which was brought under the New Jersey Consumer Fraud Act, alleged that Merck "orchestrated a fraud on a national level" with regard to Vioxx's safety and benefits in order to ensure that the drug would be listed on the formularies of various third-party payors. The plaintiffs claim that, due to Merck's advertising and promotion of Vioxx, third-party payors listed the drug on their formularies at favorable tiers, resulting in far higher payments for Vioxx than would have been made "had accurate information about the drug been disclosed."

Merck opposed class certification, arguing that the state law of each class member, rather than New Jersey law, should apply. The trial court conducted an in-depth analysis of conflicts of law, and determined that New Jersey law should apply. The court stated that New Jersey's law is one of the strongest consumer protection laws in the country, and that other state's policies "will not be frustrated by imposing New Jersey law onto a corporation residing in New Jersey." The court noted that those who choose not to pursue a claim in New Jersey can opt out of the class.

Merck's opposition to class certification also included an argument that individual issues would predominate. The court rejected this argument, stating that individual issues would primarily impact the resolution of actual damages, and that they "would not be so unduly burdensome as to predominate over common questions of law and fact."

The court also observed that the complaint was filed prior to passage of the federal Class Action Fairness Act, and that the case was not subject to removal to federal court under that law.

In re Managed Care Litigation

S.D. Fla., MDL No. 1334 (8/25/05)

The District Court for the Southern District of Florida granted Defendants' motion for summary judgment on all "missing months" capitation claims in a long-running case before Judge Moreno.

Plaintiffs' claimed that (1) Defendants failed to assign new members a primary care provider ("PCP") upon enrollment, resulting in lost capitation payments and (2) Defendants missed other capitation payments. In granting Defendants' motion, the district court noted that Plaintiffs had not demonstrated that Defendants did not "autoassign" new members who failed to select a PCP. The court also gave little weight to Plaintiffs' expert, noting that the expert did not take into account the possibility that Defendants had manually made capitation payments, and did not consider situations where valid reasons existed for not making a capitation payment. The court also found insufficient evidence that any missing payments were the result of an unlawful conspiracy, rather than unintentional error.

Jackson, Tennessee Hosp. Co. v. West Tennessee Healthcare, Inc.

6th Cir. No. 04-5387 (7/11/05)

The Sixth Circuit Court of Appeals affirmed a lower court decision holding that the allegedly anticompetitive actions of a hospital district were authorized by the plain language of a Tennessee statute. A private hospital sued the hospital district, its wholly-owned subsidiary, and Blue Cross Blue Shield of Tennessee ("Blue Cross") alleging that the defendants attempted to monopolize the local healthcare market by engaging in exclusive contracting with doctors and insurers, bundling services, and charging anticompetitive prices.

The district court dismissed the suit, noting that a statute granted the hospital district a long list of specific and general powers and stated that the hospital district could exercise such powers "regardless of the competitive consequences thereof." The district court thus determined that the hospital district and Blue Cross were exempt from antitrust liability for the alleged anticompetitive actions pursuant to the state action doctrine.

The Sixth Circuit affirmed, emphasizing that the hospital district and its wholly-owned subsidiary are "political subdivisions of the state of Tennessee."

North Jackson Pharmacy v. Caremark Rx Inc.

N.D. Ill. No. 04-C-5674 (8/12/05)

The U.S. District Court for the Northern District of Illinois held that it would apply the rule of reason as opposed to the per se rule in analyzing whether the joint administration of prescription drug benefit plans by PBMs and drug plan sponsors violated Section 1 of the Sherman Act.

The case arose when two retail pharmacies brought a proposed class action claiming that PBM Caremark Rx Inc. and numerous prescription drug plan sponsors violated Section 1 of the Sherman Act. The plaintiffs alleged that the plan sponsors engaged in a conspiracy, using Caremark as their common agent, to fix the drug prices that retail pharmacies could charge, and that Caremark also conspired with other PBMs to fix those same prices.

The court determined that it would analyze the plaintiffs' common agent claim under the rule of reason. The court analogized Caremark's relationship with the plan sponsors to that of a cooperative purchasing agreement, and stated that such a relationship could properly be analyzed under the ancillary restraints doctrine (which holds that rule of reason analysis will apply to restraints of trade that contribute to the success of a cooperative venture that promises greater productivity and output).

The court also determined that the plaintiffs' second claim, which alleged a naked horizontal price-fixing agreement, would be subject to analysis under the per se rule.

Smelik v. Mann

Texas Dist. Ct. (224th Jud. Dist., Bexar Co.), No. 03-CI-06936 (Jury verdict 7/1/05)

A Texas jury awarded $7.4 million in actual damages to the family of an HMO participant who died from complications of acute renal failure. The Texas jury verdict is controversial due to its implication for ERISA preemption in light of Aetna Health Inc. v. Davila, 524 U.S. 200 (2004), which provided that any state law cause of action that "duplicates, supplements, or supplants" ERISA § 502 "conflicts with the clear Congressional intent to make ERISA remedy exclusive." Some have argued that Smelik falls outside of the scope of Davila, because Humana was sued for "mismanaged managed care", or negligence in the coordination of medical care, rather than for a denial of medical care, as in Davila.

Plaintiffs alleged that Humana did not follow its own utilization management policies, failing to refer Smelik to a kidney specialist or to its disease management program. Plaintiffs also alleged that Humana negligently approved payment for a combination of drugs considered dangerous for patients with kidney problems.

Humana, two doctors, and a medical group were sued for wrongful death, negligence and fraud, but the physicians and the medical group settled prior to trial. Despite the out-of-court settlements, Texas law required the jurors to attribute blame among all defendants. The jury found Humana liable for 35 percent of the $7.4 million in actual damages for negligence, but found no evidence that Humana committed fraud. The jury also determined that Humana's behavior was consistent with gross negligence, and the company stipulated to $1.6 million in punitive damages pursuant to an out-of-court agreement. Humana was found to be responsible for a total of $4.2 million, and has announced that it will appeal.

U.S. ex rel. Garner v. Anthem Insurance Companies Inc.

S.D. Ohio No. 00-00463-SAS (settlement announced 8/8/05)

Anthem Insurance Companies ("Anthem") agreed to pay the United States $1.5 million to settle allegations that from 1992 through 2002, it improperly calculated drug rebates due to the Office of Personnel Management ("OPM") and overcharged the Federal Employee Health Benefits Program ("FEHBP") by including impermissible profits in the cost of billed services. The settlement, which includes an agreement by OPM not to debar or suspend Anthem or its subsidiaries or affiliates based on the covered conduct, resolves a qui tam action brought by a former Anthem employee under the federal False Claims Act.

U.S. ex rel. Morton

10th Circuit, No. 04-4148 (unpublished, 7/19/05)

The Tenth Circuit affirmed a district court dismissal of a qui tam action brought against an ERISA plan because the relators had failed to allege a "false or fraudulent" claim under the federal False Claims Act.

Relators filed a qui tam action in federal district court alleging that defendants A Plus Benefits and Everest Administrators unreasonably denied health benefits for medical treatment provided to relators' son, resulting in the Utah State Medicaid program's payment of these expenses.

In affirming the district court's decision, the Court of Appeals noted that one of the two elements necessary to state a claim under the False Claims Act is that there be a "false or fraudulent" claim. The Tenth Circuit, noting that liability under the False Claims Act must be predicated on an objectively verifiable fact, agreed that expressions of opinion or statements as to conclusions about which reasonable minds could differ, such as whether relators' son's treatment fell within the plan's definition of 'custodial' care, cannot be false. Thus, the district court's dismissal of the action for failure to state a claim was appropriate.

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