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Crowell & Moring Managed Care Lawsuit Watch - September 2008

Crowell & Moring Managed Care Lawsuit Watch - September 2008

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Managed Care Lawsuit Watch - September 2008
Managed Care Lawsuit WatchSep.26.08
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 ,Bruce Tavel or any  member of thehealth law group.
Please click to view the fullCrowell & Moring Managed Care Lawsuit Watch archive.
Cases in this issue:
WellCare Agreement United States ex rel. Tyson v. Amerigroup Illinois Inc.Kansas City Urology et al. v. United Healthcare Services et al.New England Carpenters Health Benefits Fund v. McKesson CorporationCook v. Medical Savings Insurance Co.Dr. John Powderly II & Carolina Biooncology Institute, PLLC v. Blue Cross and Blue Shield of North CarolinaLittle Rock Cardiology Clinic, P.A. v. Baptist Health, et al.
WellCare Agreement
WellCare Health Plans Inc. has agreed to pay $35.2 million to the Financial Litigation Unit of the United StatesAttorney's Office arising from understatements of anticipated premium refunds pursuant to its Florida Medicaidcontract. This figure is based on WellCare's estimate of the maximum potential repayment owed to the Florida Agencyfor Health Care Administration ("AHCA") under the state's disease management law from December 1, 2002 throughDecember 31, 2006. The law requires the AHCA to purchase goods and services for Medicaid recipients in a costeffective manner. In July, WellCare filed a Form 8-K for Restatement of Historical Financial Statements with the SEC,claiming that its statements for three separate fiscal years (ending December 31, 2004, 2005 and 2006) and periods in2007 were inaccurate because of accounting errors which caused the recording of inadequate liabilities for anticipatedpremium refunds.The AHCA will receive $24.5 million and the U.S. Attorney's Office will hold the remaining $10.7 million in escrowpending resolution of the current investigation. The agreement explicitly indicates that it shall not be construed as asettlement and does not release WellCare from any potential criminal liability under Federal, State or local criminallaws. The United States Attorney's Office will continue its ongoing health care fraud investigation of WellCare. Theagreement is also not considered a concession by the state and federal government agencies that WellCare cameforward voluntarily or is entitled to any limitation of its potential civil or criminal liability under the False Claims Act.WellCare indicates that the company continues to cooperate fully with both the federal and state governmentinvestigations.
United States ex rel. Tyson v. Amerigroup Illinois Inc.
No. 92C6074 (N.D. Ill., settlement July 22, 2008)
Amerigroup Corp. announced that it has entered into a settlement agreement resolving False Claims Actwhistleblower litigation against the company related to its marketing of an Illinois health plan for indigent citizens.Under the proposed settlement, Amerigroup will pay $225 million to the federal government and the state of Illinois.
 
Crowell & Moring Managed Care Lawsuit Watch - Septembe...http://www.crowell.com/NewsEvents/Newsletter.aspx?id=10291 of 412/31/10 11:06 AM
 
Amerigroup will also agree to abandon its appeal of the federal jury trial verdict which resulted in $144 in trebledamages and an additional $190 million in civil penalties. The United States District Court held that the compensatoryaward was not "monstrously excessive" because it was rationally related to the evidence. The District Court alsoconsidered the widespread harm caused and the potential criminal fines and sentences under the False Claims Act inupholding the financial penalties.This litigation arose when Amerigroup Illinois contracted with the Illinois Department of Public Aid to provide medicalservices to low-income pregnant women and other low income subscribers needing significant medical treatment. The jury found that Amerigroup actively discouraged the enrollment of these groups, and spent less than half of the fundsthey were paid by the state and federal governments on medical services.Plaintiffs alleged that each time Amerigroup Illinois submitted an enrollment form for a member constituted a falseclaim because the company avoided enrolling pregnant women and others with expensive health conditions. Thispractice resulted in an overpayment to Amerigroup for the less expensive population that it was actually enrolling. Theparent company, Amerigroup Corp., was unable to escape liability because it provided financial incentives toencourage employees to avoid enrolling women in their third trimester of pregnancy. The settlement does not requireAmerigroup Corp. to admit any wrongdoing, but the company will enter into a Corporate Integrity Agreement with theDepartment of Health and Human Services Office of Inspector General.
Kansas City Urology et al. v. United Healthcare Services et al.
Nos. WD67814 & WD67815 (Mo. Ct. App. July 15, 2008)
The Missouri Court of Appeals reversed and remanded a circuit court decision denying Blue Cross and Blue Shield of Kansas City ("Blue Cross") and United HealthCare Services and its affiliates ("United HealthCare") motions to compelarbitration in separate antitrust actions. Kansas City area physicians and medical organizations contracted with BlueCross and United HealthCare to provide medical services for their subscribers. These providers later sued Blue Crossand United HealthCare alleging price fixing and violations of anti-trust laws. The circuit court held that the arbitrationagreements did not cover the plaintiffs' antitrust claims, and even if they did, the agreements were unconscionable.The Court of Appeals held that the circuit court erred in ruling that the plaintiffs price fixing and conspiracy claims werenot covered by the arbitration agreements.The Court of Appeals first held that federal law applied because the parties resided in different states and their allegedconduct impacted interstate commerce. Although the Court held that each of the relevant arbitration agreements was"broad" enough to cover plaintiffs' price fixing and antitrust claims, the Court also analyzed the plaintiffs' individualfactual allegations before reaching a decision. The Court noted that in order for plaintiffs to prove their allegations,they would need to introduce evidence not only of Blue Cross and United HealthCare's alleged conspiracy to fixreimbursement rates but also conduct under the contract. This was enough for the Court to conclude that the factualallegations "touched matters covered by the contracts."The Court overruled the circuit court's decision on unconscionability because the physicians did not ever allegeprocedural unconscionability, a required element for their claim.
New England Carpenters Health Benefits Fund v. McKesson Corporation
No. 07-122777-PBS D. Mass. August 26, 2008
A district court has granted a drug wholesaler's motion to dismiss a class action suit alleging that it engaged inunlawful price-fixing to inflate the average wholesale price ("AWP") of prescription drugs by concluding that thePlaintiffs failed to allege any anticompetitive effects from the alleged conspiracy to increase prices. According to theallegation, McKesson, a drug wholesaler, entered into an agreement with First DataBank, a drug pricing publisher, toraise the AWP spread for several hundred prescription drugs and that this price fixing conspiracy violated both federaland state antitrust laws.The fundamental flaw in the Plaintiffs' claim was that the alleged conspiracy between McKesson and the publisher didnot appear to involve any lessening of competition. Purchasers may have been harmed by the scheme, the courtnoted, but not through any reduction of competition.The Plaintiffs first argued that the conspiracy qualified as a "per se" unreasonable restraint on trade. Per se treatmentis applicable only if the alleged conduct falls into a category recognized by the courts to have "manifestlyanticompetitive" effects. Noting the Plaintiffs' concession that the alleged conspiracy was a "unique case," the Courtconcluded that the conduct did not fall into any of the narrowly recognized categories warranting per se analysis under Section 1 of the Sherman Act.The Plaintiffs also argued that the conspiracy merited the "quick look" analysis under the rule of reason. Referring tothe Supreme Court's holding that a "quick look" analysis only applies to claims that do not fit neatly into one of thecategories meriting "per se" treatment but nonetheless present allegations giving rise to an "intuitively obviousinference of an anticompetitive effect," the Court ruled that the alleged conduct was not so facially anticompetitive asto warrant the quick looking analysis. In coming to this conclusion, the Court relied on the Plaintiffs' failure to explainany anticompetitive effects, other than to make a conclusory statement that McKesson gained an unfair advantageover competitors. Finally, the Court found that the Plaintiffs failed to plead facts sufficient to establish an antitrustviolation under the rule of reason.In analyzing the Plaintiffs' claim, the Court noted the Plaintiffs' failure to show any anticompetitive effect in any relevantmarket resulting from the higher prices. The Court emphasized that charging higher prices was not itself sufficient to
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establish an "antitrust injury" and that the Plaintiffs needed to show that the conduct stifled competition.
Cook v. Medical Savings Insurance Co.
10th Cir., No. 06-6233 Order and Judgment 7/22/08
The Tenth Circuit upheld a trial court jury award of $550,000 in compensatory and $550,000 in punitive damages,finding that Medical Savings Insurance Company (MSIC) committed fraud when it sold the Plaintiff an insurance policythat misrepresented the insurer's true reimbursement rate.In 2003, Cook purchased an MSIC insurance policy under the representation that MSIC would pay 100% of reasonable and customary medical expenses above the $5,000 deductible, up to $1 million. The policy defined"reasonable and customary charge" as the most common charge for particular services or supplies and includedseven factors MSIC could consider in determining the reasonableness of the charge. The policy failed to include thatMSIC would only pay the Medicare reimbursement rate plus 26% of billed charges for hospital bills totaling more than$3000.In 2004, when Cook underwent surgery and submitted a hospital bill for approximately $19,500, MSIC reimbursedCook the Medicare reimbursement rate plus 26%. Cook subsequently sued MSIC, alleging fraud, and breach of goodfaith and fair dealing when MSIC mishandled and refused to pay his insurance claims.At trial, the jury found that MSIC committed fraud and awarded Book $550,000 in compensatory and $550,000 inpunitive damages. On appeal, the Tenth Circuit upheld the verdict, finding (1) that the evidence presented wassufficient to support the jury's verdict and (2) that the jury's award was not excessive or so extreme as to "shock theconscience."
Dr. John Powderly II & Carolina Biooncology Institute, PLLC v. Blue Cross and Blue Shield of North Carolina
No. 3:08-cv-00109-W Western District of North Carolina
Defendant-Blue Cross and Blue Shield of North Carolina ("BCBSNC") filed a motion to reconsider in the WesternDistrict of North Carolina after the court denied its 12(b)(6) motion to dismiss. BCBSNC claimed that reconsiderationwas warranted because allegations pertaining to a monopsony claim - monopolistic conduct in the purchase of healthcare provider services -- were "completely absent" from the plaintiffs' complaint. Furthermore, BCBSNC claimed that itlacked the necessary market power as a purchaser of health care services for plaintiffs to plead a valid monopsonyclaim.The court, pursuant to law, liberally construed the allegations in the plaintiffs' complaint, and reiterated that its prior denial of BCBSNC's 12(b)(6) motion was based on the fact that the plaintiffs' complaint sufficiently plead factsamounting to a monopsony claim.The court relied on a complaint allegation that that BCBSNC is "by far the largest health insurance company in NorthCarolina" with a 60% market share. Furthermore, the court found that the plaintiffs' allegations of BCBSNC's marketpower permits, or perhaps implies, the possibility that BCBSNC exercises monopsony power over the supply of oncology services in relevant markets where plaintiffs are participants.Finally, the court notes the plaintiffs' allegation that BCBSNC's sixty percent share of sales of health insurance doesnot account for the substantial share by Medicare and Medicaid in the purchase of health services, the court foundthat evidence would be required on that issue since Medicare and Medicaid may perhaps not be considered part of the relevant market.The opinion did not address what conduct by BCBSNC was alleged to have improperly created or maintained itsalleged "monopsony" power, since merely exercising monopsony or monopoly power does not violate the antitrustlaws.
Little Rock Cardiology Clinic, P.A. v. Baptist Health, et al.
No. 4:06CV01594 JLH (E.D. Ark. 8/29/08)
An Arkansas federal court dismissed cardiologists' antitrust claims against an association of hospitals and severalinsurance companies later added as defendants. Little Rock Cardiology Clinic filed suit against Baptist Health, anonprofit corporation operating hospitals in Arkansas, alleging violations of the Sherman Act. Plaintiffs sought trebledamages and injunctive relief under the Clayton Act. Plaintiffs claimed that Baptist Health monopolized the market for cardiology services for privately insured patients in a sixteen counties in Arkansas.In 1997, plaintiffs became the only specialists excluded from FirstSource Network, used by Blue Cross health plansand its affiliates. In January 2006, they were allowed back into some portion of the network. Plaintiffs' filed their initialcomplaint on November 2, 2006, a second amended complaint about a year later, and a third amended complaint onMarch 27, 2008.The Court dismissed the majority of plaintiffs' claims on statute of limitations grounds. Plaintiffs argued their claimswere not time-barred because they alleged continuing antitrust violations within four years of the filing their complaintand second amended complaint. The Court drew a "critical distinction" between "'a violation which … must occur within some specific and limited time span' and 'conduct … which inflicted continuing and accumulating harm' on theplaintiff."
Crowell & Moring Managed Care Lawsuit Watch - Septembe...http://www.crowell.com/NewsEvents/Newsletter.aspx?id=10293 of 412/31/10 11:06 AM

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