In re Managed Care Litigation

150 F.Supp.2d 1330

In re MANAGED CARE LITIGATION This Document Relates to Subscriber Track Cases.

No. MDL 1334.

No. 00-1334-MD.

United States District Court, S.D. Florida, Miami Division.

June 12, 2001.

As Amended June 20, 2001.

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ORDER OF PARTIAL DISMISSAL WITHOUT PREJUDICE

MORENO, District Judge.

Plaintiffs are patients suing managed care insurance companies ("MCOs") for alleged violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), aiding and abetting a scheme to violate RICO, the Employee Retirement Income Security Act ("ERISA"), and common law conspiracy. With the exception of Price v. Humana, the Court dismisses, without prejudice, the RICO claims because the Plaintiffs, at this time, have not properly pled the predicate acts of mail and wire fraud with particularity. The Court denies Defendant Humana's motion to dismiss the RICO claims brought by Plaintiffs Price, Sessa, Katz and Yingling, as they have established primae facie RICO claims as discussed below. The Court also dismisses, without prejudice, all of the Plaintiffs' ERISA claims due to a failure to comply with that statute's exhaustion requirement.

BACKGROUND

This Order addresses motions to dismiss seven separate putative class action lawsuits. One case, Price v. Humana, was originally filed in this Court. The six other lawsuits were previously filed in the federal district court for the South District of Mississippi against the following Defendant insurance companies: Aetna, CIGNA, Foundation Health,¹ Pacificare, Prudential and United.² Each of these lawsuits was transferred to this Court by the Judicial Panel on Multidistrict Litigation ("MDL Panel") and consolidated with the Humana case, pursuant to 28 U.S.C. § 1407.

The Plaintiffs proffer the following facts detailing the alleged scheme perpetrated by the Defendants.³ These MCO allegedly targeted the representative Plaintiffs and induced them to enroll in the MCOs' plans by virtue of standardized misrepresentations and factual omissions contained in advertising, marketing and membership materials. Those advertisements and materials state that the subscriber's Primary Care Physician will prescribe treatments on the basis of the physician's independent medical judgment, exercised with reference to each subscriber's "medical needs." O'Neil Complaint, ¶ 47. Unsuspecting patients are allegedly led to believe that their confidential relationship with their personal physician will not be inhibited by influence from their MCO. Id. at ¶ 104. However, the Plaintiffs charge that they were not fully informed about certain unspecified monetary incentives used to influence their doctors. For example, the managed care company states in its plan benefits materials that the incentives are "intended to continually improve medical care" and "enhance patient satisfaction." Id. at ¶ 102. The Plaintiffs argue that those financial incentives methodically erode the doctors' independent judgments because they reward doctors who limit medical expenses according to factors which override a patient's best interest in favor of restraining "unnecessary" treatment. Id. at ¶ 59.

In addition, the Plaintiffs allege that the managed care insurance companies manipulate the words "medical necessity." Id. at ¶ 77. At the time the subscriber is induced to enroll in the plan, he believes that the words "medical necessity" means that which is necessary to meet the patient's medical needs in the view of the patient's doctor and the American Medical Association. Id. at ¶ 59. In fact, the Plaintiffs say, the MCO's perverse definition of medical necessity more closely resembles whatever will not unnecessarily lower the MCO's profits when delivering medical care.

The Plaintiffs allege that, in making medical necessity determinations, every Defendant managed care company relies primarily not on the studied judgment of experienced physicians, but rather on undisclosed and unregulated guidelines created by third parties who make their calculated decisions based upon "the minimum possible level of care that was adequate in a limited sample of `best case' situations." Id. at ¶ 66. The Plaintiffs assert that "[s]trong financial concerns drive virtually every decision" made by distant MCO medical review bureaucrats with no medical training or education, who base their determinations on little information and no in-person contact with the patient. Id. at ¶¶ 66, 77 (quoting Peeno Testimony). Such is not the quality of medical coverage for which the subscribers bargained.

According to the Plaintiffs, the doctors are also victims of the Defendants' quest for profits at the expense of patients. The Plaintiffs allege that each managed care company applies extortionate financial pressure on the physicians in order to keep patients in the dark about the financial incentives and the medical necessity bait-and-switch, yet tell potential plan members that it "encourages participating physicians to discuss their financial arrangements with patients." O'Neil Complaint, ¶ 99. The acts of extortion therefore further the nationwide conspiracy to defraud patients of proper treatment and appropriate insurance coverage as promised. Id. at ¶¶ 168-69. The MCOs require "gag clauses" in their contracts with physicians, whereby the doctors suffer penalties if they communicate to the patients information concerning the financial incentives or discuss alternative treatment not covered by the managed care company's plan. Id. at ¶¶ 59, 79 (citing Patient Right to Know, Re: H.R.2976, the "Patient Right to Know Act of 1996," Hearings Before the House Subcomm. on Health, Comm. on Ways and Means, 104th Cong. (1996) (testimony of John C. Nelson, M.D., presenting statement of the American Medical Association) ("`Gag clauses' strike at the heart of the patient-physician relationship because they present an inherent ethical conflict of interest.")). The Plaintiffs maintain that, by hiding behind the high respect and trust that individuals place in their doctors, the Defendants are able to take advantage of the special relationship between patient and doctor in order to increase profits and wrestle away from patients medical treatment purchased through the payment of premiums.

STANDARD OF REVIEW

A court should grant a motion to dismiss only if 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 such a motion, 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).

PERSONAL JURISDICTION

Defendant Foundation contends that this Court does not have personal jurisdiction over it. Unless a decision on the merits would favor the party challenging jurisdiction, courts should address issues relating to personal jurisdiction before reaching the merits of a plaintiff's claims. Republic of Panama v. BCCI Holdings (Luxembourg) S.A., 119 F.3d 935, 940-41 (11th Cir.1997). Foundation argues that because Pay v. Foundation Health Systems, Inc. was transferred to this Court from the Southern District of Mississippi for pre-trial proceedings only, the Court should apply the test for personal jurisdiction as if that case were still pending in Mississippi.⁴ Accordingly, the Defendant argues that the case should be dismissed for lack of contacts with Mississippi, despite any minimum contacts with Florida, where this Court sits.

Yet in cases transferred pursuant to Section 1407, a federal district court applies the clearly settled law of the transferee court. See Murphy v. Federal Deposit Ins. Corp., 208 F.3d 959, 965 (11th Cir. 2000), cert. denied, 531 U.S. 1049, 121 S.Ct. 849, 148 L.Ed.2d 733 (2001) (adjudicating choice of law in the context of a transfer under 28 U.S.C. § 1406); In re Korean Air Lines Disaster of September 1, 1983, 829 F.2d 1171 (D.C.Cir.1987). Moreover, irrespective of any alleged insufficient contacts with Mississippi, RICO's nationwide service of process provision, 18 U.S.C. § 1965(d), provides that process may be served "on any person in any judicial district in which such person resides, is found, has an agent, or transacts his affairs." Given the Plaintiffs' assertion of a colorable RICO claim and the Defendant's status as a domestic corporation doing business in this country, the statutory basis for personal jurisdiction is satisfied. BCCI Holdings, 119 F.3d at 942.

The only remaining issue is whether an exercise of jurisdiction over the Defendant comports with the Fifth Amendment's guarantee of due process. This requires an inquiry into (1) whether the defendant has established that its liberty interests have actually been infringed, and if so, (2) whether the burdens imposed on the individual defendant outweigh the federal interest. Id. at 949. Under the first prong, the Defendant must shoulder the burden of showing "that the assertion of jurisdiction in the forum will make litigation so gravely difficult and inconvenient that [the Defendant] unfairly is at a severe disadvantage in comparison to his opponent." Id. at 948 (citations and quotation marks omitted). Foundation has proffered no evidence that its ability to defend this lawsuit will be compromised if it is eventually required to litigate in Mississippi. Because the Defendant failed to meet its burden of showing that its liberty interests have been infringed, the Court "need not balance the federal interests at stake in this lawsuit." Id. The Court therefore concludes that it may properly exercise jurisdiction over the Defendant.⁵

RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS ACT

Section 1962(c) of Title 18 of the United States Code states that it is ...