Franco v. Connecticut Gen. Life Ins. Co.

• Decision Date: 23 September 2011
• Docket Number: Case No. 07–cv–6039 (SRC) (PS).
• Citation: 52 Employee Benefits Cas. 1060,818 F.Supp.2d 792
• Parties: Darlery FRANCO, individually and on behalf of all others similarly situated, Plaintiffs, v. CONNECTICUT GENERAL LIFE INSURANCE CO., et al., Defendants.
• Court: U.S. District Court — District of New Jersey

52 Employee Benefits Cas. 1060

818 F.Supp.2d 792

Darlery FRANCO, individually and on behalf of all others similarly situated, Plaintiffs,

v.CONNECTICUT GENERAL LIFE INSURANCE CO., et al., Defendants.

Case No. 07–cv–6039 (SRC) (PS).

United States District Court, D. New Jersey.

Sept. 23, 2011.

Angelo J. Cifaldi, Barbara G. Quackenbos, Barry M. Epstein, Julia Alejandra Lopez, Kevin Peter Roddy, Lynne M. Kizis, Michael Franklin Fried, Michele Calderon Lefkowitz, Kevin M. Berry, Eric J. Marcy, Wilentz, Goldman & Spitzer, PC, Philip A. Tortoreti, Woodbridge, NJ, Wilentz, Goldman & Spitzer, Susan J. Weiswasser, New York, NY, James E. Cecchi, Lindsey H. Taylor, Carella, Byrne, Cecchi, Olstein, Brody & Agnello, P.C., Bruce H. Nagel, Randee M. Matloff, Andrew Lowe O'Connor, Nagel Rice, LLP, Roseland, NJ, Martha Jane Fessenden, Doffermyre Shields, Atlanta, GA, for Plaintiffs.

Tennessee Medical Association, pro se.

Medical Association of Georgia, pro se.California Medical Association, pro se.Florida Medical Association, pro se.El Paso County Medical Society, pro se.American Podiatric Medical Association, pro se.New Jersey Psychological Association, pro se.Washington State Medical Society, pro se.

Brian J. McMahon, William P. Deni, Jr., Gibbons, PC, Newark, NJ, Kristin Muir, Melissa Toner Lozner, Michael B. Himmel, Natalie Janet Kraner, Lowenstein Sandler, PC, Roseland, NJ, for Defendants.

OPINION

CHESLER, District Judge.

This matter comes before the Court on four separately filed motions to dismiss: (1) Defendant CIGNA's motion to dismiss the Consolidated Amended Class Action Complaint (“CAC”) [docket entry 250]; (2) CIGNA's supplemental motion to dismiss the Amended Complaint filed by North Peninsula Surgical Center, L.P. (hereinafter, the “North Peninsula Complaint”) [docket entry 384]; (3) CIGNA's supplemental motion to dismiss the Complaint filed by Camilo Nelson, Sr., Shahidah Nelson and Camilo Nelson, Jr. (hereinafter, the “Nelson Complaint”) [docket entry 423]; and (4) the motion filed by Defendants UnitedHealth Group, Inc. (“UnitedHealth”) and Ingenix, Inc. (“Ingenix”) to dismiss the Nelson Complaint [docket entry 424]. All of the motions have been opposed. The Court has considered the papers filed by the parties and has opted to rule on the papers and without oral argument, pursuant to Federal Rule of Civil Procedure 78. For the reasons expressed below, CIGNA's motion to dismiss the CAC will be granted in part and denied in part; CIGNA's supplemental motion to dismiss the North Peninsula Complaint will be granted in its entirety; CIGNA's supplemental motion to dismiss the Nelson Complaint will be granted in part and denied in part; and UnitedHealth's and Ingenix's motion to dismiss the Nelson Complaint will be granted in part and denied in part.

BACKGROUND

This consolidated action revolves around the manner in which Defendant CIGNA determined the benefit amount it owed to members of its employer-sponsored health benefit plans when those members sought treatment from providers who were out-of-network (“ONET”), that is, who did not participate in CIGNA's preferred provider network. The crux of the various claims is that CIGNA violated its contractual obligation to pay for the ONET services at the “usual, customary and reasonable” (“UCR”) amount by obtaining UCR information from a flawed database maintained by a company known as Ingenix. The Ingenix data allegedly generated artificially low UCRs. Thus, the basic theory of this litigation is that CIGNA's use of Ingenix data resulted in the underpayment of ONET benefits to which CIGNA plan members were entitled. Apart from the straightforward charges of failure to fulfill plan obligations, the complaints allege that CIGNA knowingly participated in the depression and manipulation of UCR data and thus engaged in a fraudulent scheme to underpay for ONET services and in an anticompetitive conspiracy to fix prices for ONET service reimbursements. The scheme and conspiracy allegedly involved various other insurers as well as Defendants UnitedHealth and Ingenix.

As identified above, three separate but similar complaints are at issue in the instant motions to dismiss.¹ Each has been pled as a putative class action. Each seeks relief pursuant to the Employee Retirement Income Security Act of 1974 (“ERISA”), the Racketeer and Corrupt Organizations Act (“RICO”) and the Sherman Antitrust Act (“Sherman Act”). The Nelson Complaint and the North Peninsula Complaint also assert various state law causes of action, and these will be reviewed in the discussion below after the Court addresses the sufficiency of the federal claims. All three complaints are predicated on similar if not identical allegations of wrongdoing. Following its brief identification of the various plaintiffs involved in this litigation, the Court will provide an overview of the factual background of the case.

I. The Parties

The CAC asserts claims brought by two CIGNA plan subscribers, Darlery Franco and David Chazen (the “Subscriber Plaintiffs”); by several ONET providers (collectively, the “Provider Plaintiffs”); and by several associations whose members consist of physicians and non-physicians who provided ONET services to patients insured by CIGNA (collectively, the “Association Plaintiffs”).

Subscriber Plaintiff Darlery Franco (“Franco”), a resident of New Jersey, was at all relevant times a member of a health plan fully-insured by CIGNA and sponsored by a New Jersey employer. On June 18, 2003, Franco underwent facial reanimation surgery to restore proper functioning to her facial muscles and to repair nerve damage she sustained at birth. The surgery was performed by Drs. Elliott Rose and Fred Valauri, both non-participating providers (“Nonpars”) in CIGNA's physician network. CIGNA paid $35,000 of the surgeons' total charges of $64,000. Franco remained financially responsible to the providers for the $34,000 difference. On September 13, 2005, Franco underwent another stage of facial reanimation surgery with Dr. Rose. CIGNA covered less than 50% of the billed charges, leaving Franco responsible for the unpaid amount.

Subscriber Plaintiff David Chazen (“Chazen”), a resident of New Jersey, was at all relevant times a member of a health plan fully-insured by CIGNA and sponsored by a New Jersey small employer.² On August 2, 2006, he suffered a shoulder injury which required surgery. Dr. Roger G. Pollack, a Nonpar orthopedist, performed the surgery on August 14, 2006. Dr. Pollack billed $6,500 for the surgery. CIGNA paid only $2,061.50 of this amount, leaving Chazen liable for the remainder. As of the filing of the CAC, Chazen had paid his provider approximately $3,730.

The Provider Plaintiffs consist of both physician and non-physician health professionals.³ They do not participate in CIGNA's provider networks and are thus all referred to in this Opinion as ONET providers or Nonpars. The Provider Plaintiffs named in the CAC are James M. Gardner, M.D.; Darrick E. Antell, M.D.; Brian Mullins, M.S., P.T.; Carmen Kavali, M.D. and Maldonado Medical, LLC. Provider Plaintiff North Peninsula is a non-physician provider of outpatient surgery services in California.⁴

The Association Plaintiffs, who assert claims in the CAC, are organizations whose members consist of physicians, podiatrists or psychologists who actively practice or once practiced in the United States and/or a particular state or locality. The Association Plaintiffs include the American Medical Association (“AMA”), Medical Society of New Jersey and 12 other organizations.

The Nelson Plaintiffs ⁵ are residents of California who were insured by an employer-sponsored CIGNA health plan. Camilo Nelson, Sr. was the plan subscriber and the other two named plaintiffs were insured family members. (Unless otherwise noted, the Court will include the Nelson Plaintiffs in its collective reference to the “Subscriber Plaintiffs” throughout this Opinion.) All three sought and obtained treatment from Stephanie Higashi, a chiropractor, doing business as Mar Vista Institute of Health. Higashi was a Nonpar with CIGNA.

Defendant CIGNA ⁶ provides healthcare and related benefits in the United States and internationally. It offers a variety of products and services, such as consumer-directed healthplans, health maintenance organizations, and preferred provider plans, among others. It is one of the largest health insurers in the United States.

Defendant UnitedHealth also offers health insurance products and services.

Defendant Ingenix is a wholly-owned subsidiary of UnitedHealth. Ingenix offers, among other things, software and data services to health care payors. It owns and maintains a database of provider charges (the “Ingenix Database”) which it licenses to insurers. Insurers use the Ingenix Database to make reimbursement determinations for ONET services.

II. The Facts

A summary of the dispute requires an overview of the relationship between the healthcare industry and the health insurance industry as it concerns the payment of services rendered to insured patients. The following information is derived from the various complaints:

CIGNA enters into contracts with employers to enable them to provide health plans to employees, their spouses and dependents. CIGNA offers health insurance plans that differentiate between coverage for medical treatment provided by in-network providers and ONET providers. In-network providers, also referred to a “participating providers” or “Pars”, have negotiated discounted rates with CIGNA. As part of their agreement with the health insurance plan, the in-network providers are precluded from billing the insured patient for any amount above the negotiated rate for covered services. ONET Providers, in contrast, charge insureds their usual, non-discounted rates. They are neither required to accept reduced rates nor precluded from balance billing ⁷ insured patients for any amount not covered by the health plan. In fact, “Nonpars may...