Sec'y of Labor v. Macy's, Inc.

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SECRETARY OF LABOR, Plaintiff, v. MACY'S, INC., et al., Defendants.

No. 1:17-cv-541

United States District Court, S.D. Ohio, Western Division

November 17, 2021

OPINION AND ORDER

DOUGLAS R. COLE JUDGE

This matter comes before the Court on Defendants Connecticut General Life Insurance Company (“Cigna”), Anthem Blue Cross Life and Health Insurance Company (“Anthem”), Macy's, Inc., and Macy's Inc. Welfare Benefits Plan's (together “Macy's”) Motions to Dismiss (Docs. 36, 37 38) the Secretary of Labor's (the “Secretary”) Amended Complaint (Doc. 4). For the reasons explained below, the Court GRANTS Cigna's and Anthem's Motions (Docs. 36, 38) in their entirety, thereby DISMISSING WITH PREJUDICE the Secretary's claims against Cigna and Anthem. The Court GRANTS IN PART and DENIES IN PART Macy's Motion (Doc. 37). Specifically, the Court GRANTS Macy's Motion (Doc. 37) as to the Secretary's claims arising out of the out-of-network reimbursement methodology, and thus DISMISSES those claims WITH PREJUDICE. The Court also GRANTS Macy's Motion (Doc. 37) as to the Secretary's claims for breach of fiduciary duty arising out of the Tobacco Surcharge Wellness Program for Macy's Health Plan Years 2011-2013, and DISMISSES those claims WITH PREJUDICE. The Court further GRANTS Macy's Motion (Doc. 37) with respect to the Secretary's claims for discriminatory wellness program and breach of fiduciary duty in connection with the Tobacco Surcharge Wellness Program for Health Plan Years 2014 and following and DISMISSES those claims, but WITHOUT PREJUDICE. The Court DENIES Macy's Motion (Doc. 37) with respect to the Secretary's claims for discriminatory wellness program for Health Plan Years 2011-2013. The Court GRANTS the Secretary leave to further amend his Amended Complaint (Doc. 4) to state a claim for discriminatory wellness program and breach of fiduciary duty with respect to the Tobacco Surcharge Wellness Program for Macy's Health Plan Years 2014 and following. But the Court DENIES leave to further amend the Amended Complaint (Doc. 4) in all other respects.

BACKGROUND

For purposes of a motion to dismiss, the Court accepts as true the factual allegations in the Complaint. Thus, the Court reports and relies on those allegations here, but with the disclaimer that these facts are not yet established, and may never be.

On August 16, 2017, the Secretary of Labor (the “Secretary”) filed the original Complaint in this action. (Doc. 1). On August 29, 2017, the Secretary filed an Amended Complaint, the operative complaint in this action. (Doc. 4). In general terms, the Amended Complaint alleges Defendants violated the Employee Retirement Income Security Act (“ERISA”) in two separate ways. First, the Amended Complaint alleges that all Defendants violated the Macy's Health Plan (the “Health Plan” or “Plan”) documents when they used an out-of-network reimbursement methodology based on the Medicare Allowable Rate, which is in turn based on the cost to a provider of providing a medical service (i.e., a cost-plus model), as opposed to the prices typically charged to patients for that service (i.e., a market-price model), and thereby violated their fiduciary duties under ERISA. Second, the Amended Complaint alleges that Macy's operated a discriminatory wellness program in violation of ERISA (and Macy's fiduciary duties) in that Macy's imposed a fee on Health Plan participants who use tobacco.

In regard to the out-of-network reimbursement methodology, the Secretary alleges that Defendants failed to follow Plan documents in reimbursing out-of-network claims made against the self-funded portion of the Health Plan. Specifically, the Secretary alleges that between July 1, 2008, and June 30, 2012, the Summary Plan Description Addenda (“the Addenda”) specified that reimbursement of out-of-network claims would be based on the “maximum reimbursable charge (also sometimes referred to as the ‘reasonable and customary' or ‘usual and customary' charge).” (Am. Compl., Doc. 4, ¶ 42, #55). The Addenda defined the “maximum reimbursable charge” as “the lesser of: the provider's normal charge for a similar service or supply; or the amount determined by the claims administrator, calculated based on criteria established from time to time by the claims administrator which takes into account all charges made by providers of such service or supply in the geographic area where it is received.” (Id. at ¶ 43, #55). And the Addenda defined “charges” as “the actual billed charges; except when the provider has contracted directly or indirectly with the claims administrator for a different amount.” (Id. at ¶ 44, #55). In other words, the plan documents provided that reimbursement would be set by reference to market prices.

Consistent with that, from July 1, 2008, through June 30, 2011, Anthem, which adjudicated claims for the self-funded portion of the Health Plan, used a market-price reimbursement methodology that reimbursed at the lesser of the provider's normal charge or between the 75th and 80th percentile of the usual and customary charge as calculated by a database called Ingenix. (Id. at ¶ 48, 50, #9). On July 1, 2011, however, Anthem, on Macy's instruction, began using the Medicare Allowable Rate instead of the usual and customary charge to determine the maximum out-of-network reimbursement. (Id. at ¶ 53, #56). Specifically, Anthem began reimbursing at 285 percent of the Medicare Allowable Rate. (Id. at ¶ 54, #57). The Medicare Allowable Rate reflects a cost-based model. That is, the rate is based on the cost to a provider of providing a service, rather than the price charged to patients. (Id. at ¶ 53, #56-57). Moreover, Macy's did not amend the Addenda according to the required procedures to reflect the change, and Anthem did not ask Macy's to do so. (Id. at ¶¶ 55, 57, #57).

Cigna also adjudicated claims for the self-funded portion of the Health Plan. Like Anthem, it originally used the Ingenix database to calculate the maximum reimbursable charge, reimbursing at the lesser of the provider's normal charge or the 80th percentile of usual and customary charges. (Id. at ¶¶ 59, 60, #57-58). Beginning on July 1, 2009, though, Cigna instead began reimbursing at the lesser of the provider's normal charge or 200 percent of the Medicare Allowable Rate. (Id. at ¶ 64, #58). Again, Cigna did not ask Macy's to amend the Plan documents to reflect the change in reimbursement methodology, and Macy's did not do so. (Id. at ¶¶ 65, 67, #58, 59).

The Secretary alleges that the Defendants' failure to follow the Addenda's specifications regarding out-of-network reimbursement methodology violated ERISA's fiduciary duties provision, 29 U.S.C. § 1104, in two ways. First, Defendants failed to act solely in the interests of the participants and beneficiaries of the Health Plan in violation of 29 U.S.C. § 1104(a)(1)(A). (Am. Compl., Doc. 4, ¶ 69(a), #59). Second, Defendants failed to discharge their duties in accordance with the documents governing the Plan in violation of 29 U.S.C. § 1104(a)(1)(D). (Id. at ¶ 69(b), #59).

The Amended Complaint's second set of factual allegations, this time against Macy's only, concerns what it calls the Tobacco Surcharge and corresponding Tobacco Surcharge Wellness Program (“TSWP”). The Secretary alleges that from “at least” July 1, 2011, to the present, the Health Plan assessed a surcharge for employees and their dependents enrolled in company-sponsored medical coverage who had used tobacco products within the previous six months. (Id. at ¶ 27, #52). During that same period, Macy's provided Health Plan participants free access to tobacco cessation programs, which sometimes were administered by Anthem, and at other times by Cigna. (Id. at ¶ 28, #52). For the one-year period from July 1, 2011, to June 30, 2012, the Tobacco Surcharge was $35 per month per affected Plan participant, regardless of the number of tobacco users covered by an enrolled Plan participant's policy (e.g., as dependents). (Id. at ¶ 32, #53). After July 1, 2012, the Tobacco Surcharge was $45 per month per affected participant (again without respect to the number of tobacco-user dependents). (Id. at ¶ 33, #53).

The Amended Complaint further alleges that, from October 1, 2011, to April 30, 2012, the Health Plan participants and their dependents who used tobacco had a one-time opportunity to avoid the Tobacco Surcharge by declaring that they were tobacco users, but then (1) informing the Plan prior to September 22, 2011, that they would enroll in a tobacco cessation program, (2) doing so, and (3) returning what the Amended Complaint calls a Tobacco Affidavit between April 1, 2012, and May 1, 2012, in which they stated that they had been tobacco-free for six months. (Id. at ¶ 91, #64). The Amended Complaint alleges that taking these steps (including becoming tobacco-free) was the only way for tobacco users to avoid the Tobacco Surcharge. (Id. at ¶ 95, #65). The Amended Complaint contains substantially similar allegations with respect to Health Plan Year 2012. (See Id. at #66-68).

With respect to Health Plan Year 2013, the Secretary acknowledges that the Tobacco Affidavit now included notice of an opportunity for individuals, for whom it was either unreasonably difficult due to a medical condition or medically inadvisable to cease using tobacco products, to avoid the Tobacco Surcharge by completing a reasonable alternative standard. (Id. at ¶ 108(a), #69). The Secretary alleges, however, that the Tobacco Affidavit also stated that the Tobacco Surcharge would “not be changed retroactively and no refunds or credits [would] be issued.” (Id. at ¶ 108(b), #69).

With respect to Health Plan Years 2014 and following, the Secretary alleges that the Tobacco Affidavit required Health...