A rift between plaintiffs firms in New Jersey and New York is threatening to disturb a proposed $350 million class action settlement between the American Medical Association and the United Healthcare Group and is affecting the pursuit of actions against three other insurers.
For nine years, attorneys now at Wilentz, Goldman & Spitzer in Woodbridge, N.J., and at Pomerantz Haudek Block Grossman & Gross in New York have been co-counsel for the AMA, doctors and insureds in the suit against UHG in federal court in Manhattan.
The firms also have worked together in pending class actions in federal court in Newark against Cigna, Aetna and Oxford insurance companies and in a case against HealthNet that settled for $255 million last year.
The suits contain the same allegation that a database used by all the carriers to determine reimbursement rates for out-of-network treatments is rigged in the companies' favor, fraudulently shortchanging subscribers and doctors.
Pleadings suggest relations between the firms began unraveling last year in the UHG litigation over a classic issue: Should we take a reasonable settlement from the defendant that is doable now or do we bet on the solidity of our case, keep litigating and get a better deal?
Pomerantz went for the settlement. In January, with the support of the AMA and other doctors' groups, the firm told U.S. District Judge Lawrence McKenna that a tentative agreement with UHG had been reached for $350 million, plus equitable relief for the entire class of doctors and subscribers. Legal fees, not to exceed 25 percent, would come from the $350 million.
Wilentz, backed by some individual plaintiffs, is now asking McKenna to reject the proposal as insufficient. The AMA may believe the pact is good for the reforms going forward, but it isn't, and there is no proof that $350 million will come close to compensating the insureds and doctors for their losses, Wilentz says.
Last week, the gulf between the firms widened. Pomerantz appeared among the firms filing a new class action in Newark on behalf of the AMA and five state medical societies against Cigna and Aetna.
The filings generated headlines around the country because of the defendants' huge share of America's health insurance market. But what the AMA announcement did not say was that the case made essentially the same allegations about rigged databases that Wilentz and Pomerantz had been pursuing for two years against Cigna and Aetna in Newark on behalf of subscribers.
Wilentz had been asking U.S. District Judge Faith Hochberg in Newark to name the firm as interim class counsel in the two-year-old Cigna and Aetna cases, but Pomerantz now wants her to put the request on hold, pending a discussion of which firm has the right approach.
"Pomerantz and Wilentz have unfortunately had a falling out due to irreconcilable differences over how the cases should be prosecuted," the New York firm said in a brief filed Jan. 23. Pomerantz said Aetna has approached the firms about a settlement but Wilentz has rebuffed the overtures.
Pomerantz told Aetna it "would not pursue settlement talks given the current situation with Wilentz," the brief says.
The new filings on behalf of the AMA and the state medical associations presumably create an opportunity for Pomerantz or its co-counsel in those new cases to engage in those talks. An Aetna spokeswoman said the company would defend itself vigorously but did not confirm or deny there were settlement talks.
As recently as a year ago, it looked as though Wilentz and Pomerantz were in sync, at least publicly, and that they were benefiting personally from the relationship. In July, after four years of litigation, HealthNet agreed to reimburse doctors and make reforms -- a package that would cost it $255 million, of which $68 million would be for legal fees.
The case was important because the allegations against HealthNet coincided with those against the other defendant insurers. They all use a database maintained by Ingenix, a UHG subsidiary, which factors the usual, customary and reasonable reimbursements due to out-of-network providers for each form of treatment to HealthNet's subscribers.
The suits say false information was plugged into the database, skewing the results in the companies' favor and reducing the amount of the reimbursements to subscribers and to doctors who take assignment of the patients' claims.
The plaintiffs' lawyers described the settlement with HealthNet as a template for pacts with the other defendant insurers, particularly UHG.
In 2007, months before the HealthNet settlement, UHG's use of the Ingenix database attracted the attention of Attorney General Andrew Cuomo in New York, where UHG insures thousands of public and private workers.
Cuomo and his staff conferred privately with lawyers at Wilentz and Pomerantz, and in February 2008 he announced he was investigating the use of Ingenix, saying the gap between claims and payments was troubling. Payments of $77 for procedures reasonably billed at $200 were typical, he said.
Last month, the two-track attack on UHG -- Cuomo's and the class action -- resulted in two separate settlements. Under the deal with Cuomo, UHG will pay $50 million to fund the creation of a perfected database by researchers at an unnamed New York university.
It's the second settlement -- the $350 million deal to end the class action -- that is opposed by Wilentz, led by Barry Epstein and Barbara Quackenbos. They started the UHG case in 2000 with Pomerantz when they were partners at Sills Cummis & Gross in Newark and brought it to Wilentz two years ago.
Epstein said, in a certification filed in all the pending cases, that Pomerantz is advocating a settlement that falls far short of a $900 million demand the firms agreed on in early 2008.
He says a UHG lawyer told him last year that a study of 80 percent of out-of-network services showed that the company paid $3.3 billion less than the amounts billed by doctors. The certification didn't say how long a period was covered or how much of that $3.3 billion the doctors actually deserved.
Epstein was making the point that the case hadn't reached the stage where the plaintiffs could make an accurate assessment of the damages, and therefore that it wasn't ripe for settlement.
"Throughout June 2008 to date, we repeatedly made it clear that Pomerantz should not be proceeding unilaterally with the 'settlement' and that the $350 million was insufficient," Epstein says.
He also says the settlement doesn't provide for reforms achieved in the HealthNet settlement last year and allows UHG to continue using Ingenix rates until a new system is ready. That means the $350 million fund will be spread around further during the interim gap. In the HealthNet settlement, the company agreed to add about 15 percent to its reimbursements during the interim before a new system went into effect.
Pomerantz partner Brian Hufford says that "it's not clear exactly whether there might be a short gap. We know that they are going to be working to get this up as fast as possible." Cuomo's settlement requiring UHG to provide information to make the new database work is a key to the deal, he says, adding, "I think this is sniping on the part of Wilentz to say there might be some gap."
Hufford says the firms worked hard on the case since 2000 but there were adverse rulings for the plaintiffs through the years. "We think it's a strong case but there is a huge amount of risk in this litigation," he says.
Lawyers for both firms say the dispute isn't about fees. Under rules governing class actions, the firm that engineers a settlement is usually named class counsel and is in line for extra fees for its efforts, but the split is determined by a judges who examine hourly billings.
The disagreement over how aggressive the plaintiffs should be has carried over to the Cigna and Aetna cases pending in Newark.
Pomerantz said in a brief to Judge Hochberg in the Cigna case that "the disagreement between Pomerantz and Wilentz has, obviously, impacted the ongoing working relationship and our respective views on how best to serve the interests of the putative class in this matter, as well as the parallel Aetna action."
It's up to Hochberg to figure out how to achieve co-existence between Wilentz and Pomerantz, now that the new actions have been filed by the AMA against Cigna and Aetna. Pomerantz is co-counsel in those new cases with Whatley, Drake & Kallas in New York and Carella, Byrne, Bain Gilfillan, Cecchi, Stewart & Olstein in Roseland.
Though the cases have different plaintiffs, the Carella firm's James Cecchi wrote to Hochberg last week saying he would like "an organizational structure that suggests a cooperative approach amongst counsel."