McCoy v. Health Net, Inc.
| Decision Date | 08 August 2008 |
| Docket Number | Civ No. 03-1801 (FSH).,Civ No. 01-4183(FSH).,Civ No. 05-0301(FSH). |
| Citation | 569 F.Supp.2d 448 |
| Parties | McCOY, Plaintiff v. HEALTH NET, INC., et al., Defendants. Wachtel, et al., Plaintiffs, v. Health Net, Inc., et al., Defendants. Scharfman, et al., Plaintiffs, v. Health Net, Inc., et al., Defendants. |
| Court | U.S. District Court — District of New Jersey |
Barry M. Epstein, Lynne M. Kizis, Michael Franklin Fried, Michele Calderon Lefkowitz, Barbara G. Quackenbos, Wilentz, Goldman & Spitzer, PA, Woodbridge, NJ, for Plaintiffs.
B. John Pendleton, Jr., Heather V. Taylor, McCarter & English, LLP, Herve Gouraige, James P. Flynn, Epstein, Becker & Green, PC, John J. Gibbons, Kevin McNulty, Gibbons, P.C., Newark, NJ, George William McClellan, Jr., Robert Alan White, Coleen M. Meehan, Morgan, Lewis & Bockius, LLP, Princeton, NJ, James E. Del Bello, Morgan, Lewis & Bockius, LLP, Philadelphia, PA, for Defendants.
Having reached a settlement in this case of unprecedented intensity and duration, the parties now move for (1) final approval of (a) the proposed Settlement Agreement between Plaintiffs and Defendant Health Net and (b) the proposed Plan of Allocation; and (2) an award of attorneys' fees, expenses, and payment of Plaintiff incentive awards. The Court held a preliminary fairness hearing on April 24, 2008. The final fairness hearing was held on July 24, 2008 and an order approving the Settlement was entered on July 25, 2008. This opinion sets forth the Court's reasons for entering that order.
Health Net is a health care insurer that offers several kinds of plans, one of which is a "point of service plan." As the Court previously explained, point-of-service plans
permit the subscriber to use in-network or out-of-network providers. An out-of-network (or non-participating) provider is a provider who is not part of Health Net's network and does not have a contracted-for rate with Health Net. If a subscriber decides to go to an out-of-network provider, the subscriber is subject to deductible, coinsurance, allowable amounts, reasonable and customary amounts, and/or usual, customary, and reasonable charge limitations.
Wachtel v. Guardian Life Ins. Co., 223 F.R.D. 196, 199 (D.N.J.2004). These cases arose from Health Net's treatment of out-of-network ("ONET") claims submitted by insureds with point-of-service plans. Plaintiffs' Complaints challenged Health Net's policies for determining the usual, customary, and reasonable ("UCR") charge limitations used to calculate the amount of an insured's ONET claim that Health Net will reimburse. As the Court previously explained,
Health Net's plan contracts do not cover an entire fee charged by an out-of-network provider. Rather, [Health Net] pays a percentage of a certain allowed charge.... [The allowed charge] is most often defined as the Usual, Customary, and Reasonable charge for the. service provided. The beneficiary pays the remaining percent of the UCR charge and is responsible for the rest [i]f a medical bill ... exceeds the UCR charge.... Thus, the coverage for out-of-network treatment that a beneficiary receives depends heavily on how UCR is defined.
In order to determine UCR charges for ONET claims, Health Net relied on databases licensed from a third-party vendor, Ingenix. Plaintiffs allege that Health Net's reliance on these databases (the "Ingenix databases") was improper and in violation of ERISA, 29 U.S.C. § 1001 et seq. Specifically, Plaintiffs alleged that the Ingenix databases are inherently flawed1 and that each time Health Net determined an ONET reimbursement in reliance upon an Ingenix database, Health Net failed to pay all the benefits due to its insureds and thereby violated ERISA. The Scharfman Plaintiffs also brought a claim pursuant to the Racketeering Influenced and Corrupt Organizations Act ("RICO") arising from the same facts.
The instant Settlement comes after seven years of extraordinarily contentious litigation. The Wachtel action was removed to this Court in August 2001; the McCoy complaint was filed as a "related case" in April 2003, followed by the Scharfman complaint in January 2005. The seven years of litigation in these cases defy simple summary. As the Court noted in 2006,
The Wachtel and McCoy cases are two of the oldest on this Court's docket. The litigation has been fierce and without respite, through several changes of defense counsel.... In sum, it gives new meaning to the term "scorched earth" litigation tactics.
Wachtel v. Health Net, Inc., 239 F.R.D. 81, 84 (D.N.J.2006). The Wachtel docket sheet is now 115 pages long, with 141 motions, 283 briefs, 316 other applications, 44 hearings, 11 conferences, and 5 appeals to the Third Circuit. The age of these cases and their extraordinary procedural histories are not solely attributable to the complexity and importance of the databases used to calculate UCR reimbursements.2
Class notice for the Wachtel and McCoy classes was complete as of July 6, 2007. Following the Court's preliminary approval of the Settlement Agreement and preliminary approval of the Scharfman RICO and ERISA classes on April 24, 2008, "smart notice" was mailed to all class members in Wachtel, McCoy, and Scharfman between May 19, 2008 and June 11, 2008. Those Wachtel and McCoy class members who had not previously opted out were given an additional opportunity to opt out. Those Wachtel and McCoy class members who had previously opted out were given an opportunity to waive their opt out and again become Class Members. Class members were given the opportunity to opt out or object by June 23, 2008.
The parties engaged in settlement negotiations before several mediators over the past four years. The first mediation took place in 2004 with a retired state court judge. The second negotiation took place in Florida in January 2005 with a retired federal judge. The third and fourth mediations took place with a private and renowned mediator. In August 2007, the parties informed the Court that they had reached a settlement in principle. This settlement, however, included only the sum of money to fund direct reimbursements; equitable relief and other crucial reforms of the UCR calculation process took many months longer to negotiate.
Between August 9, 2008 and April 17, 2008, the parties continued to negotiate the remaining provisions of this Settlement, including important business practice changes. The Court held several phone and in-person conferences to monitor the parties' progress on the remaining terms. Prior to the preliminary fairness hearing, the Court held a "tutorial" hearing to more fully explore the Ingenix database. The parties submitted a final Settlement Agreement to the Court on April 17, 2008.
The present Settlement is among the largest ERISA health insurance settlements on record. The Settlement entails a substantial cash component as well as business practice changes that will have a lasting impact on the way Health Net reimburses its subscribers for out-of-network medical services. It also raises a clarion call for greater disclosure about the databases used for health care coverage. The UCR database flaws are discussed in section III.B.2(g)(1).
Health Net will provide a cash fund of $215 million, divided into three categories. First, Health Net will provide a $40 million prove-up fund for Class Members who were Balance Billed3 by their ONET providers after Health Net reimbursed the ONET provider at a rate lower than the provider's billed charge. Second, Health Net will provide a $160 million cash fund from which all Class Members are entitled to receive a pro rata reimbursement for claims subject to an erroneous ONET determination. Finally, $15 million of the fund will be paid to the New Jersey Department of Banking and Insurance ("DOBI") and used in the discretion of that state agency to reimburse members of the New Jersey small employer plan Class (the Wachtel Class).
The Settlement Agreement divides Class Members who have been Balance Billed by their ONET providers into two groups for purposes of allocating the prove-up fund. Group B consists of those Class Members who received a Balance Bill from their ONET provider after the beginning of their class period and can demonstrate that they paid some or all of the Balance Bill on or before April 24, 2008, the date of the Preliminary Fairness Hearing in this matter. Group C consists of those claims for covered services received by a Class Member on or after May 6, 2005 for which the Class Member received, but did not pay, a Balance Bill from their ONET provider on or before April 24, 2008.4 The closing date for both groups is established by the requirement that Health Net have in its claims system a check payment date for reimbursement to the ONET provider on or before July 31, 2007 (the date set by the Scharfman class definition). The third ground, Group A, consists of all remaining claims, including, for example, those claims for which Health Net reimbursed the ONET provider less than their full billed amount, but where the ONET provider did not Balance Bill the Class Member.
The prove-up fund will be allocated first. Group B Class Members—those who have paid all or part of a Balance Bill—will be reimbursed first and they are entitled to receive up to 100% of the amount they paid out of pocket. If any portion of the $40 million prove-up fund remains after all Group B claims are satisfied in full, those funds will be used to satisfy Group C claims on a first-come, first-served basis. Any portion of the $40 million prove-up fund that remains after all Group B and C claims are satisfied reverts to Health Net. Any Group B or C claims that remain after the prove-up fund has been fully allocated become Group A claims for purposes of further distribution. All Group A claims will...
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