crowell & moring managed care lawsuit watch - september 2008

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Managed Care Lawsuit Watch - September 2008

Managed Care Lawsuit Watch

Sep.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 contactArt Lerner, Bruce Tavelor any

member of the health law group.

Please click to view the full Crowell & 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 Corporation

Cook v. Medical Savings Insurance Co.

Dr. John Powderly II & Carolina Biooncology Institute, PLLC v. Blue Cross and Blue Shield of North Carolina

Little 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 States

Attorney's Office arising from understatements of anticipated premium refunds pursuant to its Florida Medicaid

contract. This figure is based on WellCare's estimate of the maximum potential repayment owed to the Florida Agency

for Health Care Administration ("AHCA") under the state's disease management law from December 1, 2002 through

December 31, 2006. The law requires the AHCA to purchase goods and services for Medicaid recipients in a cost

effective 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 in

2007 were inaccurate because of accounting errors which caused the recording of inadequate liabilities for anticipated

premium refunds.

The AHCA will receive $24.5 million and the U.S. Attorney's Office will hold the remaining $10.7 million in escrow

pending resolution of the current investigation. The agreement explicitly indicates that it shall not be construed as a

settlement and does not release WellCare from any potential criminal liability under Federal, State or local criminal

laws. The United States Attorney's Office will continue its ongoing health care fraud investigation of WellCare. The

agreement is also not considered a concession by the state and federal government agencies that WellCare came

forward 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 government

investigations.

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 Act

whistleblower 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.

owell & Moring Managed Care Lawsuit Watch - Septembe... http://www.crowell.com/NewsEvents/Newsletter.aspx?id

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Amerigroup will also agree to abandon its appeal of the federal jury trial verdict which resulted in $144 in treble

damages and an additional $190 million in civil penalties. The United States District Court held that the compensatory

award was not "monstrously excessive" because it was rationally related to the evidence. The District Court also

considered the widespread harm caused and the potential criminal fines and sentences under the False Claims Act in

upholding the financial penalties.

This litigation arose when Amerigroup Illinois contracted with the Illinois Department of Public Aid to provide medical

services 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 funds

they 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 false

claim because the company avoided enrolling pregnant women and others with expensive health conditions. This

practice resulted in an overpayment to Amerigroup for the less expensive population that it was actually enrolling. The

parent company, Amerigroup Corp., was unable to escape liability because it provided financial incentives to

encourage employees to avoid enrolling women in their third trimester of pregnancy. The settlement does not require

Amerigroup Corp. to admit any wrongdoing, but the company will enter into a Corporate Integrity Agreement with the

Department 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 compel

arbitration in separate antitrust actions. Kansas City area physicians and medical organizations contracted with Blue

Cross and United HealthCare to provide medical services for their subscribers. These providers later sued Blue Cross

and United HealthCare alleging price fixing and violations of anti-trust laws. The circuit court held that the arbitration

agreements 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 were

not covered by the arbitration agreements.

The Court of Appeals first held that federal law applied because the parties resided in different states and their alleged

conduct 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' individual

factual 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 fix

reimbursement rates but also conduct under the contract. This was enough for the Court to conclude that the factual

allegations "touched matters covered by the contracts."

The Court overruled the circuit court's decision on unconscionability because the physicians did not ever allege

procedural 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 in

unlawful price-fixing to inflate the average wholesale price ("AWP") of prescription drugs by concluding that the

Plaintiffs failed to allege any anticompetitive effects from the alleged conspiracy to increase prices. According to the

allegation, McKesson, a drug wholesaler, entered into an agreement with First DataBank, a drug pricing publisher, to

raise the AWP spread for several hundred prescription drugs and that this price fixing conspiracy violated both federal

and state antitrust laws.

The fundamental flaw in the Plaintiffs' claim was that the alleged conspiracy between McKesson and the publisher did

not appear to involve any lessening of competition. Purchasers may have been harmed by the scheme, the court

noted, 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 treatment

is applicable only if the alleged conduct falls into a category recognized by the courts to have "manifestly

anticompetitive" effects. Noting the Plaintiffs' concession that the alleged conspiracy was a "unique case," the Court

concluded 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 to

the Supreme Court's holding that a "quick look" analysis only applies to claims that do not fit neatly into one of the

categories meriting "per se" treatment but nonetheless present allegations giving rise to an "intuitively obvious

inference of an anticompetitive effect," the Court ruled that the alleged conduct was not so facially anticompetitive as

to warrant the quick looking analysis. In coming to this conclusion, the Court relied on the Plaintiffs' failure to explain

any anticompetitive effects, other than to make a conclusory statement that McKesson gained an unfair advantage

over competitors. Finally, the Court found that the Plaintiffs failed to plead facts sufficient to establish an antitrust

violation under the rule of reason.

In analyzing the Plaintiffs' claim, the Court noted the Plaintiffs' failure to show any anticompetitive effect in any relevant

market 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 policy

that 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 included

seven factors MSIC could consider in determining the reasonableness of the charge. The policy failed to include that

MSIC 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 reimbursed

Cook the Medicare reimbursement rate plus 26%. Cook subsequently sued MSIC, alleging fraud, and breach of good

faith and fair dealing when MSIC mishandled and refused to pay his insurance claims.

At trial, the jury found that MSIC committed f raud and awarded Book $550,000 in compensatory and $550,000 in

punitive damages. On appeal, the Tenth Circuit upheld the verdict, finding (1) that the evidence presented was

sufficient to support the jury's verdict and (2) that the jury's award was not excessive or so extreme as to "shock the

conscience."

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 Western

District of North Carolina after the court denied its 12(b)(6) motion to dismiss. BCBSNC claimed that reconsideration

was warranted because allegations pertaining to a monopsony c laim - monopolistic conduct in the purchase of health

care provider services -- were "completely absent" from the plaintiffs' complaint. Furthermore, BCBSNC claimed that it

lacked the necessary market power as a purchaser of health care services for plaintiffs to plead a valid monopsony

claim.

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 facts

amounting to a monopsony claim.

The court relied on a complaint allegation that that BCBSNC is "by far the largest health insurance company in North

Carolina" with a 60% market share. Furthermore, the court found that the plaintiffs' allegations of BCBSNC's market

power permits, or perhaps implies, the possibility that BCBSNC exercises monopsony power over the supply ofoncology 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 does

not account for the substantial share by Medicare and Medicaid in the purchase of health services, the court found

that 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 its

alleged "monopsony" power, since merely exercising monopsony or monopoly power does not violate the antitrust

laws.

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 several

insurance companies later added as defendants. Little Rock Cardiology Clinic filed suit against Baptist Health, a

nonprofit corporation operating hospitals in Arkansas, alleging violations of the Sherman Act. Plaintiffs sought treble

damages 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 plans

and its affiliates. In January 2006, they were allowed back into some portion of the network. Plaintiffs' filed their initial

complaint on November 2, 2006, a second amended complaint about a year later, and a third amended complaint on

March 27, 2008.

The Court dismissed the majority of plaintiffs' claims on statute of limitations grounds. Plaintiffs argued their claims

were not time-barred because they alleged continuing antitrust violations within four years of the filing their complaint

and 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 the

plaintiff."


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The Court identified the basis of plaintiffs' claims as a refusal t o deal which occurred in 1997, holding that the

defendant's actions in 2006 were not new and did not subject plaintiff to accumulating injury. The 2006 exclusion

simply reaffirmed the initial decision made a decade earlier. The Court rejected plaintiffs' claims that defendants

committed overt acts that would allow the statute of limitations to begin running anew. Plaintiffs' claims for injunctive

relief were barred by laches because plaintiffs did not provide any justification for its delay in bringing the claim.

The Plaintiffs' remaining anti-trust claims were also dismissed because the third amended complaint did not state the

impact of defendants' alleged conduct on competition among cardiologists, distinct from the impact on the plaintiffs.

Plaintiffs did not allege that defendants' conduct caused cardiologists to increase their rates for privately insured

patients in hospitals or any other patients. As a result of plaintiffs' "inability to plead a coherent relevant market" the

Court dismissed the remaining claims with prejudice.

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This material was prepared by Crowell & Moring attorneys. It is made available on the Crowell & Moring website for

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For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

Arthur N. LernerPartner - Washington

Phone: 202.624.2820

Email: [email protected]

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