In re Managed Care Litigation
| Citation | 135 F.Supp.2d 1253 |
| Decision Date | 02 March 2001 |
| Docket Number | No. 00-1334-MD-MORENO.,MDL No. 1334.,00-1334-MD-MORENO. |
| Parties | In re MANAGED CARE LITIGATION. This Document Relates to Provider Track Cases. |
| Court | U.S. District Court — Southern District of Florida |
Plaintiffs are doctors suing managed care insurance companies ("HMOs") for alleged violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), the Employee Retirement Income Security Act ("ERISA"), plus federal and state prompt pay statutes. The Plaintiffs also have filed breach of contract, unjust enrichment and quantum meruit claims. The Court dismisses, without prejudice, the RICO claims because the Plaintiffs have not properly pled the "enterprise" element. The Court also dismisses, without prejudice, the state prompt-payment statutory claims as insufficiently pled. In addition, the Court dismisses, with prejudice, the Plaintiffs' federal claim for prompt payment for services rendered because there is no such implied cause of action arising under the Medicare Act or its regulations. However, the Court finds that ERISA does not preempt the Plaintiffs' claims for breach of contract, quantum meruit and unjust enrichment, and therefore denies the Defendants' motions to dismiss these claims.
The Plaintiffs are seven health care providers from various states who have business relationships with the eight managed care insurance company Defendants. The original Complaint was filed in the Western District of Kentucky as Charles B. Shane, M.D., et. al. v. Humana, Inc., et. al., W.D. Ky, C.A. No. 3:00-53, and listed only Humana and its subsidiaries as Defendants. The case was transferred to this Court by the Judicial Panel on Multi-district Litigation on July 21, 2000. See 28 U.S.C. § 1407 (). The Amended Complaint thereafter added the other Defendants.
The following facts, although contested in part by the Defendants, are assumed to be true for the purpose of a Federal Rules of Civil Procedure 12(b)(6) motion to dismiss. The Plaintiffs allege that the Defendants have undertaken a common course of conduct designed to further a scheme of fraud and extortion to the detriment of the Plaintiffs. This scheme begins with the Defendants' "internal policies and procedures specifically designed to systematically obstruct, reduce, delay and deny payment and reimbursements to health care providers" in contravention of contractual agreements. Amended Complaint, ¶ 153. These policies are implemented by third party claim reviewers who receive monetary incentives to deny claims often arbitrarily and without regard to "medical necessity" as defined in provider contracts. Id. at ¶¶ 154, 158.
The Plaintiffs charge that the Defendants and their agents engage in "undisclosed automatic `downcoding' of claims submitted by physicians." Id. at ¶ 164. "Downcoding" is an operation whereby "CPT codes" (a benefit code entered on a reimbursement form by the provider which refers to a particular service) are arbitrarily and without notice changed in a manner designed to reduce payments due to the physicians. Id. at ¶ 164. "Bundling" is another process in which the Defendants arbitrarily reduce payments by combining two or more procedures. Id. at ¶ 165.
The Plaintiffs furthermore submit that the Defendants improperly conceal their manipulation of these procedures and fraudulently misrepresent the criteria for coverage determination, treatment decisions, payments and reimbursements. Id. at ¶ 159. The insurance companies' rate-setting methodology lacks an actuarial basis, and the Defendants refuse to provide data pertaining to this methodology. Id. at ¶ 181. The Defendants also systematically "target, coerce, threaten and intimidate providers who objected to Defendants['] wrongful practices." Id. at ¶¶ 155-56. The Plaintiffs allege that the managed care Defendants monopolize the patient referral market. Id. at ¶¶ 174-176, 178, 180. Through this monopolistic power, the Defendants use economic pressure to continue the fraudulent scheme and extort concessions and property rights from the Plaintiffs.
Counts I, II and III of the Plaintiffs' Amended Complaint seek relief for violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1962(a) and (c) and conspiracy to violate these two subsections. The Plaintiffs allege that the Defendants violated federal criminal statutes prohibiting fraud, extortion and bribery as part of a pattern of racketeering activity. Count IV alleges that the Defendants aided and abetted violations of subsections (a) and (c). Count V is a claim for benefits under the federal Employee Retirement Income Security Act. In the alternative, the Plaintiffs conceive of counts VI, VII, and IX, which are pendant state law claims for breach of contract, quantum meruit and unjust enrichment. Finally, counts VIII and X ask for relief pursuant to thirteen state statutes and a federal regulatory provision which require that health insurance companies pay certain claims for reimbursement within a specified time period.
A court will not grant a motion to dismiss unless the plaintiff fails to allege any facts that would entitle the plaintiff to relief. Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). When ruling on a motion to dismiss, a court must view the complaint in the light most favorable to the plaintiff and accept the plaintiff's well-pleaded facts as true. Scheuer v. Rhodes, 416 U.S. 232, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974); St. Joseph's Hospital, Inc. v. Hospital Corp. of America, 795 F.2d 948 (11th Cir.1986).
At the outset the Defendants contend that, in light of the Supreme Court decision Pegram v. Herdrich, 530 U.S. 211, 120 S.Ct. 2143, 147 L.Ed.2d 164 (2000), the Plaintiffs' claims should not proceed because they amount to a "wholesale attack[] on existing HMOs," in contravention of "the congressional policy of allowing HMO organizations." Id., 120 S.Ct. at 2157. In Pegram, a plaintiff patient brought medical malpractice, state-law fraud and ERISA claims against her doctor and the health maintenance organization, on the theory that the HMO breached its fiduciary duty to the patient by providing incentives for its physicians to limit medical care and procedures. Id., 120 S.Ct. at 2147-48. After parsing congressional intent and policy arguments, the Court held that "mixed eligibility decisions by HMO physicians are not fiduciary decisions under ERISA," id., 120 S.Ct. at 2158, and therefore the plaintiff failed to state a claim for breach of fiduciary duty under ERISA.
Defendants read Pegram as if it were a talisman before which all of Plaintiffs' claims should fail. Yet the Court in Pegram did not fashion an all-encompassing cloak of immunity for the health care industry. Instead, partly out of a concern that granting the remedy sought by the Plaintiff in Pegram would result in "nothing less than elimination of the for-profit HMO," id., 120 S.Ct. at 2156, the Court reached its narrow holding. The viability of HMO-type structures will not be imperiled if such entities are held accountable for concrete harm flowing from acts of fraud, extortion and breach of contract, as alleged by the Plaintiffs. Cf. id., 120 S.Ct. at 2157 ().
Furthermore, Pegram concerned an ERISA claim brought by a patient with a significantly different factual situation. The Plaintiffs here seek relief under a number of state and federal statutes in compliance with the Pegram Court's observation that remedies to be applied against HMOs should be constructed by the legislature rather than the judiciary. Consequently, Pegram does not act as a bar to these claims.1
RICO, 18 U.S.C. § 1962, proscribes in relevant part: (1) investing income derived, directly or indirectly, from a pattern of racketeering activity or through collection of an unlawful debt in any enterprise which affects interstate commerce (subsection a), (2) conducting or participating in the affairs of any enterprise which affects interstate commerce through a pattern of racketeering activity or collection of unlawful debt (subsection c), and (3) conspiring to violate any of the provisions of subsections (a), (b), or (c) (subsection d).
As defined by RICO, "racketeering activity" includes a lengthy list of enumerated federal and state crimes, including those crimes alleged in this case, namely extortion (as set forth in the Hobbs Act), mail fraud, wire fraud and bribery/gratuity. A "`pattern of racketeering activity' requires at least two acts of racketeering activity, one of which occurred after the effective date of [RICO] and the last of which occurred within ten years (excluding any term of imprisonment) after the commission of a prior act of racketeering activity." 18 U.S.C. § 1961(5). RICO establishes both criminal penalties, see 18 U.S.C. § 1963, and civil remedies, see 18 U.S.C. § 1964, for violations of Section 1962. Section 1964 provides a private cause of action in federal district court for "any person injured in his business or property by reason of a violation of section 1962." § 1964(c). The injured party may recover treble damages, as well as costs. Id.
The Defendants first submit that the Plaintiffs lack the requisite standing to bring RICO claims. A "plaintiff only has standing if, and can only recover to the...
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