In re Smithkline Beecham Clinical Lab. Litigation

Decision Date02 July 1999
Docket NumberNo. MDL 1210.,No. CV3:97CV17795 AVC.,MDL 1210.,CV3:97CV17795 AVC.
Citation108 F.Supp.2d 84
PartiesIn re SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC. LABORATORY TEST BILLING PRACTICES LITIGATION. Blue Cross Of California, et al., Plaintiffs, v. Smithkline Beecham Clinical Laboratories, Inc., Defendant.
CourtU.S. District Court — District of Connecticut

COVELLO, Chief Judge.

This is an action for legal and equitable relief in which the plaintiffs, thirty-seven health care insurers and payers for health care services, four health care plans, and six individuals, claim that the defendant, SmithKline Beecham Clinical Laboratories, Inc. ("SBCL"), engaged in, inter alia, fraudulent billing practices.1 Specifically, the second amended complaint and the amended class action complaint assert causes of action under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. ("RICO"), the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq. ("ERISA"), and under common law tenets sounding in fraud, unjust enrichment and restitution.2

Pursuant to Federal Rule of Civil Procedure 12(b)(6), SBCL now moves to dismiss both the second amended complaint and some, but not all, of the counts in the consolidated amended class action complaint.

The issues presented are: 1) whether the second amended complaint and the amended class action complaint allege facts sufficient to establish a RICO cause of action;3 and, if so, 2) whether the class plaintiffs' allegations of fraud underlying their RICO claim are alleged with sufficient particularity as required by Federal Rule of Civil Procedure 9(b); 3) whether the plaintiff insurers have alleged facts sufficient to establish that they are "fiduciaries" within the meaning of ERISA, so as to have standing to assert their ERISA claims against SBCL; and, if not, 4) whether the court should recognize a federal common law cause of action for equitable relief in favor of the plaintiff insurers who are not "fiduciaries" within the meaning of ERISA; 5) whether the plaintiff insurers' state common law causes of action for fraud, unjust enrichment and restitution are preempted by ERISA; 6) whether the court should create a common law cause of action for unjust enrichment or restitution on behalf of the class plaintiffs who already have standing to assert an ERISA claim against SBCL; and 7) whether the state law causes of action for conversion, unjust enrichment, and for violations of the Pennsylvania Unfair Trade Practices Act asserted by the four employee benefit plans identified in the consolidated amended class action complaint are preempted by ERISA.4

For the reasons hereinafter set forth, the court concludes that: 1) the complaints fail to state a cognizable RICO cause of action; 2) only six of the thirty-seven plaintiff insurers have alleged facts sufficient to establish, at this stage of the litigation, that they are "fiduciaries" within the meaning of ERISA with standing to sue SBCL; 3) in light of the court's conclusion that the class plaintiffs' RICO cause of action should be dismissed, it need not address whether the class plaintiffs' allegations of fraud fulfill the requirements of Federal Rule of Civil Procedure 9(b); 4) it should not create a federal common law cause of action for equitable relief on behalf of those insurers who are not "fiduciaries" within the meaning of ERISA; 5) the plaintiff insurers' state common law causes of action for fraud, unjust enrichment and restitution are preempted by ERISA, to the extent they seek relief for payments made to SBCL on behalf of ERISA-qualifying benefit plans; 6) the court should not create a federal common law cause of action for unjust enrichment or restitution on behalf of parties who already have a cause of action against SBCL under ERISA; and 7) the state law causes of action for conversion, unjust enrichment and for violations of the Pennsylvania Unfair Trade Practices Act asserted by the four employee benefit plans, are preempted by ERISA.

Accordingly, the defendant's motion to dismiss the second amended complaint is GRANTED in part and DENIED in part, and its motion to dismiss counts I and III of the consolidated amended class action complaint and counts IV, V, and VI, of the consolidated class action complaint to the extent those claims are asserted by the four employee benefit plans, is GRANTED.

FACTS

On August 19, 1997, thirty-seven insurance companies initiated this lawsuit.

On June 11, 1998, the court dismissed the plaintiff insurers' amended complaint and the individual plaintiffs (now the "class plaintiffs") complaint, but gave them leave to re-file their claims against SBCL.

On September 18, 1998, the plaintiff insurers filed their second amended complaint against SBCL.

On September 29, 1998, the "class plaintiffs"5 filed their consolidated amended class action complaint.

The second amended complaint and the amended class action complaint disclose that the plaintiff insurers are thirty-seven health insurers6 and payers for health care services, and the "class plaintiffs"7 are four employer benefit plans, one corporation8 and six individuals. SBCL is a subsidiary of SmithKline Beecham plc, a British corporation and incorporated in the state of Delaware. SBCL owns and operates one of the nation's largest chains of clinical laboratories.

The gravamen of the second amended complaint and the RICO Case Statement9 is that from 1989 until 1995, SBCL engaged in fraudulent billing practices that resulted in millions of dollars in losses to the plaintiff insurers. Specifically, the plaintiff insurers allege that SBCL exploited the health care payment system in five fundamental ways: 1) SBCL billed the plaintiff insurers for tests that physicians did not order or intend to order and billed for tests that it had led physicians to believe would not result in separate charges ("add-ons"); 2) SBCL offered physicians discounts for certain test packages, but billed the plaintiff insurers for the full price for supposedly discounted test packages ("selective discounts"); 3) SBCL billed the plaintiff insurers separately for expensive constituents of test panels that should have been billed at a single composite rate ("unbundling"), 4) SBCL performed and billed for more expensive tests than were ordered ("upcoding"), and in some cases performed; and 5) SBCL inserted fabricated diagnosis codes to obtain reimbursement from third party payers ("code jamming").

The plaintiff insurers allege that, through this scheme, SBCL effectively substituted its own financially self-interested judgment for the informed, clinical judgment of physicians. The plaintiff insurers further allege that SBCL forced its scheme upon unsuspecting physicians by offering institutional incentives and kickbacks. The incentives included test discounts, hiring physician family members, computer equipment, refrigerators, free phlebotomists' services, office draw sites and other free services, such as writing off STAT (urgent) services which were then billed to third-party payers.

The amended class action complaint alleges that between 1989 and 1995, SBCL engaged in fraudulent billing practices, causing the class plaintiffs to pay inflated charges for clinical laboratory tests. The class plaintiffs claim that "SBCL used its control over the management of the Laboratory Network to engage in a fraudulent scheme with respect to clinical laboratory tests on human tissue, blood or urine specimens, which resulted in the intentional and systematic;" 1) billing for medical tests that physicians did not order or intend to order; 2) billing for medical tests that SBCL had intentionally led doctors to believe would not result in additional charges ("add-ons"), 3) billing at full price, for tests that SBCL had represented would be discounted ("selective discounts"); 4) manipulation of the test requisition order forms provided to physicians by SBCL, 5) billing separately for individual test panels, thereby dramatically increasing the cost ("unbundling"); and 6) altering of physician orders for standard tests so that the more expensive medical tests were conducted and paid for by the class plaintiffs ("upcoding").

On November 17, 1998, SBCL filed the within motions to dismiss the second amended complaint and to dismiss counts I and III of the consolidated amended class action complaint, as well as counts IV, V, and VI of the consolidated class action complaint, to the extent those claims are asserted by the four employee benefit plans defined therein.

STANDARD

A motion to dismiss pursuant to Fed. R.Civ.P. 12(b)(6) involves a determination as to whether the plaintiff has stated a claim upon which relief can be granted. Fischman v. Blue Cross Blue Shield, 755 F.Supp. 528, 530 (D.Conn.1990) The motion must be decided solely on the facts alleged. Goldman v. Belden, 754 F.2d 1059, 1065 (2d Cir.1985). In deciding a motion to dismiss, a court must assume all factual allegations in the complaint to be true and must draw reasonable references in favor of the non-moving party. Scheuer v. Rhodes, 416 U.S. 232, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974). "When determining the sufficiency of plaintiffs' claim for Rule 12(b)(6) purposes, consideration is limited to the factual allegations in [the] plaintiffs' amended complaint, which are accepted as true, to documents attached to the complaint as an exhibit or incorporated in it by reference, to matters of which judicial notice may be taken, or to documents either in plaintiffs' possession or of which plaintiffs had knowledge and relied on in bringing the suit." Brass v. American Film Technologies, Inc., 987 F.2d 142, 150 (2d Cir.1993) (citations omitted). Such motion must be granted only where no set of facts consistent with the allegations could be...

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