By James Hlawek and Ian Morrison

Seyfarth Synopsis:   An employer, which had paid medical expenses on behalf of an employee’s dependent son, made comments about the company’s rising healthcare costs several months before firing the employee. The Sixth Circuit found this was enough to warrant a trial on the employee’s ERISA interference and retaliation claims.

In Stein v. Atlas Industries, Inc., No. 17-3737, the Sixth Circuit reversed the Northern District of Ohio, which had dismissed the plaintiff’s ERISA interference and retaliation claims. Plaintiff’s son, who suffers from a permanent and debilitating neurological condition, was hospitalized for four months in 2013. As an employee of Atlas Industries, Inc., plaintiff participated in a group medical plan that covered his son’s medical expenses. Atlas’s plan was partially self-insured, and the company paid approximately $250,000 for the son’s care.

Seven months later, plaintiff did not call Atlas or report to work for three consecutive days after he had been released to work following a medical leave. Atlas’s handbook provided that any employee absent for three consecutive days without permission would be automatically fired. After plaintiff’s third no-call/no-show day, his supervisor fired him.

Plaintiff sued, alleging that the company had fired him because of his son’s medical expenses, and thus that the company was liable for both retaliation and interference under ERISA. In support, plaintiff pointed to evidence that (1) Atlas had expressed concerns about “skyrocket[ing]” medical costs in employee notices; (2) an Atlas Vice President had told him in 2013 that he hoped his son would be released soon because the medical costs were getting expensive for the company; and (3) an Atlas human resources director showed another employee the son’s medical expenses and said that large payments were causing the company’s health insurance costs to rise.

While the district court entered summary judgment for Atlas, the Sixth Circuit reversed, finding that there was enough evidence of interference or retaliation to deny summary judgment. Specifically, while the supervisor who fired plaintiff did not know about the son’s medical expenses, the Sixth Circuit found significant that the Vice President and director who commented about medical expenses played a role in the decision. Also, plaintiff contended that Atlas had tried to contact other employees before firing them under the no-call/no-show policy, but did not do the same for him.

The decision is serves as a warning to employers about dealing with employees who incur high medical expenses by themselves or their dependents. Comments about those expenses could considered evidence of interference or retaliation if the employee is later disciplined.   Even general comments about rising healthcare costs and how they burden the company could be used against the employer. The decision also reinforces the importance of consistently applying employment policies. Finally, for employers in the Sixth Circuit, this decision is a reminder that that the threshold for a trial on an ERISA interference or retaliation claim can be quite low.

By: Ryan Pinkston and Jon Braunstein

Seyfarth Synopsis: In a major victory for ERISA plans and other payors, the Fifth Circuit recently overturned a district court’s notorious decision in favor of a healthcare provider and reinstated a plan administrator’s ability to guard against healthcare billing fraud, waste, and abuse.

On December 19, 2017, the United States Court of Appeals for the Fifth Circuit issued its decision in Connecticut General Life Insurance Co. v. Humble Surgical Hospital, LLC, 878 F.3d 478 (5th Cir 2017), reversing a highly publicized trial court decision that threatened the ability of ERISA plans, insurers, and other payors to safeguard their coffers from providers engaged in healthcare fraud, waste, and abuse.

As described by the Court of Appeals, between 2010 and the initiation of litigation in 2016, Humble Surgical Hospital (“Humble”), a physician-owned hospital in Harris County, Texas, performed hundreds of non-emergency services on members of ERISA and welfare benefit plans administered by Connecticut General Life Insurance Company and its parent corporation (together, “Cigna”). After processing an expensive claim from Humble for what appeared to be a noncomplex outpatient surgical procedure, Cigna increased its scrutiny of Humble’s claims and surveyed plan members whom Humble had treated. Based on its analysis, Cigna concluded that Humble was engaged in “fee-forgiving” (i.e., waiving patients’ co-insurance or deductible fees) and also intentionally inflating its charges to increase reimbursements.

Cigna then sued Humble to recover over $5 million in alleged overpayments. In response, Humble asserted counterclaims against Cigna for nonpayment or underpayment of claims, breach of fiduciary duty, and failure to comply with requests for plan documents. After a bench trial, the district court concluded that Cigna’s claims and defenses failed as a matter of law. The district court also awarded Humble nearly $11.4 million in damages based on Cigna’s underpayment of claims, nearly $2.3 million in statutory penalties based on Cigna’s failure to provide plan documents upon request, and over $2.7 million in attorneys’ fees based on Humble’s success in the litigation. Cigna appealed.

On review, first, the Fifth Circuit reversed the award to Humble of nearly $11.4 million in damages based on underpaid claims and Cigna’s purported breach of fiduciary duties. Notably, the Fifth Circuit held both that the plans at issue vested Cigna with discretionary authority to determine eligibility for benefits and also that Cigna’s interpretation of plan provisions to prohibit “fee‑forgiving” was not arbitrary or capricious. The Court of Appeals also determined that Cigna’s decision was supported by substantial evidence, namely, the survey responses from plan members indicating that Humble had informed the members that they would not be charged for any of the services at issue. This conclusion affirms that courts should defer to a plan administrator’s interpretation of the terms of its own plan.

Second, the Fifth Circuit reversed the approximately $2.3 million awarded to Humble as statutory penalties, because Cigna was not an “administrator” as defined by ERISA. The Fifth Circuit also joined at least eight other circuits in rejecting the notion that a person or entity may become a de facto administrator for notice or statutory penalty purposes. The Court of Appeals’ decision supports the proposition that courts should adhere closely to the express language of the relevant ERISA provision when resolving a dispute, and it also provides welcome comfort to third party claims administrators and other “non-designated” persons or entities that they cannot be held liable for ERISA statutory penalties.

Third, the Fifth Circuit reinstated Cigna’s fraud claims on the ground that the district court failed to address Cigna’s argument that Humble affirmatively misrepresented actual charges by overbilling Cigna. The court’s decision is a reminder that a trial court should examine carefully all of the ways in which a fraudulent scheme may be perpetrated before dismissing a plan’s fraud claims. Finally, based on the foregoing outcomes, the Fifth Circuit vacated the award of attorneys’ fees to Humble and remanded the issue for reconsideration in light of the appellate decision. It remains to be seen whether the trial court will award Cigna its attorneys’ fees in light of its significant success before the appellate court.

Healthcare litigation is on the rise, especially reimbursement disputes. In this instance, Cigna filed suit against Humble in hopes of protecting itself — and health plans for which it serves as claims administrator — from healthcare fraud and abuse. In exchange, Cigna faced a judgment against it in excess of $16 million. The Fifth Circuit’s decision vindicating Cigna’s position constitutes a significant victory for ERISA plans, insurers, and other payors, both for its affirmation of ERISA principles and also for its reversal of a trial court decision that had gained some notoriety for its slant in favor of healthcare providers.

 

By: Brian Stolzenbach and Meg Troy

Seyfarth Synopsis: In Medina v. Catholic Health Initiatives, — F.3d —, 2017 WL 6459961 (10th Cir. Dec. 19, 2017), the Tenth Circuit held that a retirement plan sponsored by Catholic Health Initiatives (“CHI”), a church-affiliated healthcare organization, is a “church plan” under ERISA. This decision strengthens the litigation positions of religiously-affiliated healthcare systems who are facing similar lawsuits across the country and gives other courts a solid framework to analyze the relevant statutory provisions.

If a benefit plan is a “church plan,” it is exempt from the statute and is not required to adhere to ERISA requirements. A “church plan” is defined as “a plan established and maintained . . . for its employees (or their beneficiaries) by a church . . . .” 29 U.S.C. § 1002(33)(A). The statute continues:

A plan established and maintained for its employees (or their beneficiaries) by a church . . . includes a plan maintained by an organization, whether a civil law corporation or otherwise, the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, for the employees of a church . . . if such organization is controlled by or associated with a church. . . .”

29 U.S.C. § 1002(33)(C)(i).

We have previously written about the Supreme Court’s June 2017 Advocate Health Network v. Stapleton decision here. In Advocate, the Supreme Court held that plans maintained by certain tax-exempt organizations controlled by or associated with a church may qualify as church plans. Specifically, a plan established by a non-church may qualify for the exemption if the plan is maintained by a “principal-purpose organization,” i.e., an organization whose principal purpose is administering or funding a plan and that is controlled by or associated with a church. That being said, the Court did not further explain what qualifies as a “principal-purpose organization” or what it means to be “controlled by” or “associated with” a church.

The Tenth Circuit analyzed these open issues by answering three questions: (1) Is the entity offering the plan a tax-exempt nonprofit organization associated with a church? (2) If so, is the entity’s plan maintained by a principal-purpose organization? That is, is the plan maintained by an organization whose principal purpose is administering or funding a plan for entity employees? (3) If so, is that principal-purpose organization itself associated with a church?

First, in determining whether CHI was “associated with” the Catholic Church, the Court looked to the language of 29 U.S.C. § 1002(C)(iv), which defines the phrase to mean sharing “common religious bonds and convictions” with a church. It found CHI was “associated with” the Catholic Church because of, among other things, CHI’s relationship with Catholic Health Care Federation, a “public juridic person” created by, and accountable to, the Vatican; CHI’s Articles of Incorporation provide it was organized exclusively to carry out religious purposes; and CHI was listed in the Official Catholic Directory.

Second, Court considered what it means to “maintain” a plan under 29 U.S.C. § 1002(C)(i). Analyzing the ordinary meaning of the term, the Court concluded that to “maintain” a plan means that an entity “cares for the plan for purposes of operational productivity.” Based on this definition, CHI’s Defined Benefit Plan Subcommittee, which administers the CHI Plan, was a “principal purpose organization” that “maintained” the plan for purposes of the exemption.

Third, the Court determined that the subcommittee was an “organization” because it satisfied the ordinary meaning of the term, which means “a body of persons . . . formed for a common purpose.” The Court also concluded that the subcommittee was “associated with” the Catholic Church because it is a subdivision of CHI and the plan itself stated that the subcommittee shared “common religious bonds and convictions” with the Catholic Church.

The Court also found that the church plan exemption, as applied to CHI’s retirement plan, did not violate the Establishment Clause of the First Amendment.

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By Sam Schwartz-Fenwick and Tom Horan

Seyfarth Synopsis: The Supreme Court announced that it would not hear an appeal from the City of Houston in a case challenging the city’s ability to offer spousal benefits to same-sex spouses of municipal employees. By leaving in place the Texas Supreme Court’s ruling that the Obergefell decision does not, in fact, require such benefits to be extended, the decision to deny cert will return the case to the trial court, where plaintiffs will argue that the benefits violate Texas state law and seek an order forcing the city to rescind them.

In a case previously discussed in this blog here, the United States Supreme Court denied the petition for certiorari filed by the City of Houston, seeking to challenge the Texas Supreme Court’s ruling in Pidgeon v. Turner, No. 15-0688. The petition had asked the Court to consider whether the Supreme Court of Texas correctly decided that Obergefell v. Hodges “did not hold that states must provide the same publicly funded benefits to all married persons,” regardless of whether their marriages are same-sex or opposite sex.

While the Houston City Attorney said the city’s policy to provide benefits to same-sex spouses will continue despite today’s ruling, the decision to deny certiorari will return the case to the trial court in Texas, where plaintiffs seek an injunction, arguing that Texas state laws prohibit spending taxpayer funds on benefits for same-sex spouses. An order from the state court that the city must stop offering the benefits would likely bring the case back before the Supreme Court.

In light of the Supreme Court’s normal practice of only considering cases after they have reached final resolution, it was viewed as unlikely that the Court would grant the city’s petition here. Still, certiorari was seen as a possibility because of the Texas Supreme Court’s narrow reading of Obergefell as requiring states to license and recognize same-sex marriage, but not necessarily provide all recognized married person with the same publically funding benefits. Plaintiffs, in fact, argue that the right to marry does not “entail any particular package of tax benefits, employee fringe benefits or testimonial privileges.”

While it remains possible that the Texas state courts will determine that Houston cannot constitutionally deny benefits to its employees’ same-sex partners, it leaves in place, for now, the Texas Supreme Court’s decision that there is still room to explore “the reach and ramifications” of marriage recognition following Obergefell.

That this case continues on more than two years after the Supreme Court’s ruling legalizing same-sex marriage, demonstrates that opponents of marriage equality continue to view the courts as a viable vehicle to limit or reverse marriage equality. As this case and other challenges make their way through the courts, private employers and benefit plans considering modifying their benefit offerings to exclude same-sex spouses should tread very carefully, especially given the EEOC’s position that differential benefit offerings to same-sex spouses violates Title VII of the Civil Rights Act.

 

By Jonathan A. Braunstein and Michael W. Stevens

Seyfarth Synopsis: The Fourth Circuit found that the medical necessity of a given service constitutes a material element of representations regarding submissions for payment, potentially providing payors with another legal authority to fight health care fraud.

The Fourth Circuit recently affirmed two criminal convictions for health care fraud under 18 U.S.C. §§  1347 and 1349, finding that a misrepresentation as to the medical necessity of the service rendered was material for purposes of violating the statute. United States v. Palin, — F.3d —-, No. 16-4522, 2017 WL 4871381 (4th Cir. Oct. 30, 2017).

The two defendants operated an addiction medicine clinic and laboratory, which frequently processed urine tests. There were two kinds of urine tests, a simpler, less-expensive test and a more complicated, more expensive one.  When submitting lab orders, doctors would usually not specify which test they intended.  Generally, where patients were uninsured, the defendants would use the cheaper test, but where patients were insured, the defendants would use the more expensive test.

The district court convicted the defendants, finding that by this course of conduct, defendants “knowingly and willfully executed a scheme to defraud health care benefit programs” in violation of the health care fraud statute.

Defendants appealed, asserting that the district court erred in its analysis of materiality of the misrepresentation. Defendants asserted that there was no material misrepresentation, because they did not misrepresent to payors either the type of test they billed for or the frequency of the tests. See id. at *2.  Defendants impliedly argued that because they billed for services actually rendered, and told the payors which services were rendered, no fraud occurred.

The Fourth Circuit rejected defendants’ arguments, finding that “materiality looks to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation” Id. at *3 (citations omitted).

The Court found that “the misrepresentations here were material: insurers would not have paid for the sophisticated tests had they known those tests were unnecessary. . . . [T]he insurers here did not reimburse claims despite knowing [defendants] sought payment for tests that [defendants] knew were not medically necessary. . . . No evidence even suggests that medical necessity was anything less than a critical prerequisite to payment.” Id. (emphasis added).  The Fourth Circuit proceeded to reject defendants’ other arguments against their convictions.

Palin represents an important arrow in the quiver for payors alleging that billing payors for medically unnecessary services constitutes health care fraud.  Although this case involved a criminal conviction for fraudulently billing private insurers, the facts potentially apply equally to civil actions and disputes involving other payors, including ERISA Plans.  Stay tuned to this blog for further legal developments in health care fraud and provider billing litigation.

By: Jules Levenson and Mark Casciari

Seyfarth Synopsis: A district court in New York has held that a plaintiff cannot assert claims against a plan in which she did not participate and cannot assert claims of fiduciary breach without plausible allegations of wrongdoing.

A federal district judge in the Southern District of New York has dismissed claims that a stable value fund was depressing returns and pocketing the difference between the amount credited to the investments and the actual return on the investments. The decision is reported as Dezelan v. Voya Retirement Ins. & Annuity Co., No. 16-cv-1251 (S.D.N.Y. July 6, 2017).

The plaintiff participated in a separate-account stable value fund (with money segregated from Voya’s general accounts).  She sued on behalf of a class of participants in all of Voya’s ERISA-covered stable value funds in a multitude of employer-sponsored plans, including participants in non-segregated funds. The suit alleged that Voya violated its fiduciary duties and engaged in prohibited transactions by skimming money from the investments rather than allowing it to accrue to the plans.

Voya filed a motion to dismiss, which the Court granted without prejudice. On the general account claims, the court found that the plaintiff did not have standing to attack alleged violations in the general account funds because the she did not participate in the funds, and thus  had no redressable injury.  It also rejected plaintiff’s claims as to separate account plans because the claims turned on a showing that Voya improperly transferred assets between its segregated and general accounts. The Court lastly rejected holdings from other circuits that an ERISA participant may represent participants in other plans if the “gravamen” of the suit involves the same general practices across all plans.

On the merits of the separate account claims, the Court found that the complaint did not state a claim for breach of fiduciary duty because the complaint did not plausibly allege that Voya kept plan money, so there was no inference of misconduct. As to the prohibited transaction claims, the complaint did not allege, the Court said, that any improper transfers occurred,  and one could not be presumed because of opportunity.

The Court’s decision is important because it shows that, at least for some district judges, the Supreme Court’s Twombly plausibility standard continues to limit the ability of plaintiffs to sue for, and seek discovery on, alleged wrongdoing in plans in which they did not participate.  It is also important because it requires plaintiffs to carefully allege self-dealing facts.  That said, the decision has the potential to lead to piecemeal litigation, with a multiplicity of suits asserting similar claims. And note that the Dezelan case is far from over. On August 3, 2017, the plaintiff filed her amended complaint; an answer or new motion to dismiss is due September 18.

By Sam Schwartz-Fenwick and Michael W. Stevens

Seyfarth Synopsis: The Texas Supreme Court held that the U.S. Supreme Court’s landmark marriage equality decision, Obergefell v. Hodges, did not dispositively address how far government employers must go in providing benefits to same-sex married couples.

In a provocative opinion, in Pidgeon v. Turner, No. 15-0688, the Texas Supreme Court held that Obergefell v. Hodges, 135 S. Ct. 2584 (2015), does not necessarily require state governments to extend marital benefits to same-sex married couples.

Procedural Background

In 2013, the city of Houston began extending benefits to same-sex spouses of city employees who were lawfully married. Shortly thereafter, Pidgeon was filed. It alleged that the city’s actions violated Texas and Houston law. The law was enjoined by a state court. In July 2015, the Texas court of appeals reversed the injunction, holding that Obergefell represented a “substantial change in the law regarding same-sex marriage since the temporary injunction was signed,” and that Obergefell forbade states from refusing to recognize lawful same-sex marriages.  The appeals court also remanded to the trial court to issue opinions “consistent with” Obergefell . Plaintiffs then appealed to the Texas Supreme Court.

The Court’s Opinion

The Texas Supreme Court reversed. The Court wrote “The [U.S.] Supreme Court held in Obergefell that the Constitution requires states to license and recognize same-sex marriages to the same extent that they license and recognize opposite-sex marriages, but it did not hold that states must provide the same publicly funded benefits to all married persons.”  Slip op. at 19 (emphasis added). The Texas Supreme Court remanded the case, so the trial court could decide if the Constitution or Obergefell “requires citizens to support same-sex marriages with their tax dollars.” Id. at 20.

The decision rested on the proposition that Obergefell is “not the end” of the inquiry as to the “reach and ramifications” of the constitutional status of same-sex marriage. Id. at 23.  Notably, the Texas Supreme Court acknowledged that the U.S. Supreme Court had, in the same week, decided Pavan v. Smith, No. 16-992, which rejected the state of Arkansas’ efforts to limit recognition of same-sex parents on birth certificates.  In Pavan, in a per curiam opinion, the Court held that same-sex couples are entitled to the same “constellation of benefits that the Stat[e] ha[s] linked to marriage.”  2017 WL 2722472, at *2 (citations omitted).

Despite the apparent inconsistency with Pavan, the Texas Supreme Court emphasized the purported uncertainty over the reach of same-sex marital benefits by noting that the U.S. Supreme Court has also granted certiorari in Masterpiece Cakeshop, Ltd. v. Colo. Civil Rights Comm’n, No. 16-111, a case involving a baker who was sued after he refused to make a wedding cake for a same-sex wedding.

Next Steps

The trial court may now proceed to the merits of the case, and a ruling that is inconsistent with Obergefell and Pavan is a distinct possibility.  Should the case ultimately proceed to the U.S. Supreme Court, in light of Pavan, and assuming the current membership of the Court remains the same, it seems unlikely that a narrow reading of Obergefell, at least as to governmental actors, would be upheld.  Unlike Masterpiece Cakeshop, Ltd., Pidgeon does not raise any questions of freedom of speech or religious liberty.  Rather, as with Pavan and Obergefell, it addresses whether state actors can treat same-sex marriages differently than opposite sex marriage.

While the decision in Pidgeon may ultimately be vacated, that this decision was issued 2-years after a ruling by the Supreme Court legalizing same-sex marriage, underscores that opponents of marriage equality continue to use courts as a vehicle to limit or reverse marriage equality.

As Pidgeon and other challenges to marriage equality make their way through the courts, employers and benefit plans considering modifying their benefit offerings to exclude same-sex spouses should tread very carefully, especially given the EEOC’s position that differential benefit offerings to same-sex spouses violates Title VII of the Civil Rights Act.

By: Samuel Schwartz-Fenwick and Thomas Horan

Seyfarth Synopsis: Adding to the body of conflicting authority on the scope of the attorney-client privilege in ERISA lawsuits, a district court has found that the fiduciary exception to attorney-client privilege applies to an insurance company that acts as a claim administrator, thus requiring disclosure of  communications between the insurer and its lawyers regarding a claim for benefits during the claims process.

When an insurance company asks its attorneys for advice regarding decisions on benefits claims and appeals, it may be doing so without the protection of attorney-client privilege, according to a recent decision from the Southern District of New York. In McFarlane v. First UNUM Life Insurance Company, the court granted Plaintiff’s motion to compel production of  documents determined by the court to be within the fiduciary exception to the attorney-client privilege. No. 16-cv-07806, 2017 WL 480500 (S.D.N.Y. Feb. 6, 2017). In doing so, the court rejected the argument that the fiduciary exception to attorney-client privilege—which makes a fiduciary’s communications with counsel discoverable in certain situations— does not apply to insurers acting as benefit claims administrators.

Plaintiff sought benefits under an LTD plan offered by her employer. Authority to make decisions on benefit claims and appeals had been delegated to Defendant, the insurer who issued the policy. After benefits were terminated, Plaintiff filed suit and sought production of the administrative record. Along with its production, Defendant produced a privilege log containing three entries related to communications between the Lead Appeals Specialist and Defendant’s in-house attorneys. Those three entries were the subject of Plaintiff’s motion.

Defendant argued these documents were privileged based on the rationale of Wachtel v. Health Net, Inc., 482 F.3d 225 (3d Cir. 2007). In Wachtel, the Third Circuit found the fiduciary exception did not apply to insurers. It reasoned, that in contrast to an internal claims-administrator, when an insurer acts as the claim administrator the legal advice it seeks during the claim process is paid for by the insurer, not by the beneficiary or benefit plan. As such, the insurer—as opposed to a traditional administrator—owns the funds that will ultimately be paid out and has an interest in the management of those assets.

Rejecting the Third Circuit reasoning, the court found that the dispositive factor under Second Circuit law is the purpose of the communication in question. Thus, if the purpose of the communication concerns the exercise of fiduciary functions, the requirement that the fiduciary act in the beneficiary’s best interests makes the beneficiary the “true client” of the advice. This is a “fact-specific inquiry” and requires the court to examine both the content and context of the communication.

The court’s rejection of Wachtel highlights the fact that courts differ in their application of the fiduciary exception. It also, however, demonstrates that fiduciaries need to be aware of the risk that a court may find their communications with counsel discoverable should a dispute arise regarding an administrator’s decision during the administrative review process.

By Andrew Scroggins and Mark Casciari

The Seventh Circuit has stymied an EEOC attempt to declare that employer wellness plans violate the Americans with Disabilities Act (“ADA”). The court decided that the issues raised by the suit are moot, and deferred to another day tackling weightier questions of statutory interpretation and the EEOC’s rulemaking authority.

The decision arises out of EEOC v. Flambeau, Inc.  As we previously wrote, Flambeau offered an employer-subsidized self-funded health plan, but conditioned participation on completion of a “health risk assessment” and “biometric screening test.”  The health risk assessment “required each participant to complete a questionnaire about his or her medical history, diet, mental and social health and job satisfaction.” The biometric test “involved height and weight measurements, a blood pressure test and a blood draw.”  The EEOC argued that this violated the ADA’s ban on involuntary medical examinations, citing its then proposed (now final) regulations on employer-sponsored wellness plans.  (See also our prior blogs here and here.)

The district court rejected the EEOC’s position, finding that the EEOC’s regulations were not binding on the court.  Working through the statutory language, the court concluded that the ADA’s safe harbor protections, which exempt activities related to the administration of a bona fide employee benefit plan, enable employers to design benefit plans that require otherwise prohibited medical examinations as a condition of enrollment.

In EEOC v. Flambeau, Inc., No. 16-1402 (7th Cir. Jan. 25, 2017), the Seventh Circuit affirmed “but without reaching the merits of the parties’ statutory debate.”  The court held that neither party to the case continued to have a serious stake in its outcome, and the relief sought by the EEOC is either unavailable or moot.  Before the EEOC commenced litigation, Flambeau had already made its wellness program non-mandatory, having concluded that the costs of the health risk assessment and biometric screening test outweighed their benefits.  The employee who had challenged the policy had no claim for damages, including EEOC-requested punitive damages, and had long since left the employer.  The court also observed that the case was a poor candidate for evaluating the statutory questions because the events at issue had occurred before the EEOC issued its wellness plan regulations.

A decision on the merits of the EEOC’s regulations will have to wait for another day.  But the Seventh Circuit’s discussion did provide defense lawyers a memorable line to be cited in future cases where the EEOC stakes out a new or untested position:

An employer’s or its attorney’s disagreement with EEOC guidance does not by itself support a punitive damages award, at least where the guidance addresses an area of law as unsettled as this one.

Stay tuned for more court decisions and, perhaps, revocation or non-enforcement of the regulations, as the Trump administration makes leadership changes at the EEOC.  Note as well that, President Trump has named Vicki Lipnic as EEOC Acting Chair.

 

By Kathleen Cahill Slaught and Shireen Yvette Wetmore

Seyfarth Synopsis: Insurer gets to pick its remedy when hospital engages in dishonest billing and illegal kickbacks…to the tune of $41 million.

Judge Lynn Hughes of the U.S. District Court for the Southern District of Texas closed out the year with a bang in Aetna Life Insurance Company v. Humble Surgical Hospital, LLC, No. Civil Action H-12-1206 (S.D. Tex. Dec. 31, 2016). The not-so-appropriately-named Humble Surgical Hospital, LLC (“Humble”) was sued by insurer Aetna for allegedly waiving patient fees and paying kickbacks to referring physicians through an elaborate, but ultimately not-so-clever, shell game in which the providers created shell LLCs and paid $3,500 annually in “administrative fees” to participate in the 300-bed hospital’s scheme.

In a scathing opinion, the court explained the scheme as follows, “Because no economically rational patient would choose [Humble] over an in-network provider, Humble paid referral fees to doctors, waived patient costs, and submitted inflated bills to Aetna.”

In a three-year period from 2010 to 2013, Humble managed to bill $41 million in fees paid by Aetna. The Court found that Humble had enticed patients with promises that their out-of-pocket costs would be equal to or less than the cost of using in-network services. Yet Humble was not part of the Aetna network, nor did it charge Aetna for services at the in-network negotiated rates. Humble also enticed the doctors with a 30% kickback–representing nearly $12 million in fees.

Clearly illegal, right? Comically, Humble attempted to argue that Aetna was not entitled to recovery because it knowingly paid Humble the amounts it charged without challenging the charges. Because Aetna did not know of the scheme, the Court said that the voluntary payment rule did not apply.

Humble also attempted to argue defenses based on preemption. The Court found that ERISA is silent regarding overpayment by providers and that recovery actions for fraud are not attempts to enforce the applicable plans. As such, the Court found that Aetna’s claims were not preempted.

Humble even attempted to argue the defense of unclean hands. The Court made short work of that: “Humble has no defense . . . [it] is filthy up to the elbows from lies and corrupt bargains.”

In the end, the Court gave Aetna a choice between three remedies:

  • $12 million – to recover the kickbacks Humble unlawfully gave to providers
  • $20 million – to recover the difference between the out-of-network fees paid and the in-network equivalents, OR
  • $41 million – to recover the total amount paid by Aetna to Humble during the three year period from 2010 to 2013.

Which would you choose?