California Federal Court Upholds Providers' and Associations' Claims Against WellPoint, Inc.

On August 11, 2011, a federal district court in California denied defendants’ motion to dismiss plaintiffs’ ERISA and antitrust claims against WellPoint, Inc., a Blue Cross Blue Shield licensee and one of the nation’s largest health insurers. This is a major victory for plaintiffs.

The case alleges that WellPoint violated ERISA, the Sherman Act, and RICO, through its use of the Ingenix database – owned by UnitedHealth Group – to determine usual, customary, and reasonable (UCR) rates for reimbursements for out-of-network services. Pomerantz is co-lead counsel representing health care providers and eight health care associations, who are seeking relief for themselves and as the representative of their physician members. Representative standing may be available if the association’s members otherwise have standing to sue in their own right; the interests the association seeks to protect are relevant to the association’s purpose; and neither the claim asserted nor the relief sought requires the participation of individual members in the lawsuit. Plaintiffs are demanding recovery of unpaid benefits, and equitable relief including an injunction to stop WellPoint from applying the improper reimbursement policies.

Monitor readers will recall that Pomerantz has sued a large number of health insurers for using the Ingenix database because it systematically under-calculates UCR rates. We have already obtained hundreds of millions of dollars in damages, along with injunctive relief, in settlement of our claims with Health Net, Inc. and with United Healthcare. Our settlement with United Healthcare was contingent, in part, on United’s compliance with an agreement with the New York Attorney General to close the Ingenix database following the creation of a new database by an independent entity. WellPoint still continues to defend its use of Ingenix products for fixing UCR rates.

The purpose of ERISA is to protect beneficiaries of employee benefit plans by providing uniformity of procedures, fiduciary duties for plan administrators, minimum standards regarding funding, disclosure and reporting with respect to such plans, and a federal court forum for resolving disputes. As Brian Hufford wrote in the most recent issue of the Monitor, however, courts’ interpretations of ERISA have often benefited insurers, rather than beneficiaries, by limiting awards for damages.

In order to make a valid claim for certain relief under ERISA, plaintiffs must typically first exhaust all administrative remedies. For example, subscribers must have pursued all the health plan’s internal appeals from any adverse benefits determinations. However, courts have made exceptions to this rule in cases where pursuing administrative remedies would have been futile.

WellPoint asserted the “exhaustion” argument in its motion to dismiss, arguing that the associations could not have representative standing because each member physician would be required, on a case-by-case basis, to demonstrate that he or she had exhausted all administrative remedies. WellPoint also sought dismissal of the claims of certain individual plaintiffs who had not demonstrated that they personally had exhausted all appeals to the insurance carrier.

In its ruling on this Motion to Dismiss, the court held that the associations could pursue their claims for equitable relief in a representative capacity, which would require little, if any, individual participation. The associations, however, could not pursue damage claims on behalf of their members, because individual members would have to submit their own proof of injury to obtain damages.

The Court also allowed the individual plaintiffs’ pursuit of damages to proceed, finding that our presentation of detailed facts alleging exhaustion and futility with respect to one plaintiff was enough to allow the claims of the other plaintiffs to go forward.

Additionally, the Court allowed plaintiffs to proceed with claims for both unpaid benefits and breach of fiduciary duty under ERISA. Some courts have barred plaintiffs from proceeding on both fronts, considering the claims duplicative. Plaintiffs are also permitted to proceed with their claims that defendants violated the antitrust laws by using a flawed database that understates UCR amounts.

Next step in this litigation: class certification.