Thank you for sharing!

Your article was successfully shared with the contacts you provided.
A federal judge has greenlighted a proposed class action RICO suit against Capital Blue Cross and its HMO, Keystone Health Plan Central, brought by doctors who say they are being cheated out of their rightful fees. In the suit, the doctors accuse Keystone of “shaving” their monthly capitation payments by under-reporting the number of patients enrolled in the doctors’ practice groups, and “manipulating” the coding system used to reimburse for services in order to decrease the amount of reimbursements. The 88-page decision in Grider v. Keystone Health Plan Central Inc.by U.S. District Judge James Knoll Gardner is packed with significant rulings. Although Gardner pruned some of the claims from the suit, most of the important rulings went in favor of the plaintiffs. Significantly, Gardner found that such a Racketeer Influenced and Corrupt Organizations Act claim by doctors against an HMO is not barred by either the McCarran-Ferguson Act or the U.S. Supreme Court’s 2000 decision in Pegram v. Hedrich. Gardner also rejected a 2002 holding by the Pennsylvania Superior Court and predicted instead that the state Supreme Court would allow health care providers to pursue a private claim under the Pennsylvania Quality Health Care Accountability and Protection Act. “We do not believe that the Pennsylvania General Assembly went through the effort to enact a statute requiring health care providers to be paid on undisputed claims in a timely manner, setting forth a specific sanction for failing to do so, without implying that a private cause of action exists for the collection by health care providers of the amount of the undisputed claims and the interest due and owing on those claims if not paid within 45 days,” Gardner wrote. Saying he disagreed with the Superior Court’s decision in Solomon v. U.S. Healthcare Systems of Pennsylvania Inc., Gardner concluded instead that “the Supreme Court of Pennsylvania would recognize an implied private remedy under the Pennsylvania Quality Health Care Accountability and Protection Act.” Although he dismissed RICO claims for “aiding and abetting,” Gardner found that the plaintiffs had stated valid RICO claims for fraud, extortion, bribery and violations of the Travel Act and Hobbs Act. And in a significant hurdle for any RICO plaintiff, Gardner also found that the plaintiffs had properly pleaded a RICO enterprise. The decision is a victory for plaintiffs’ attorneys Kenneth A. Jacobsen, Joseph A. O’Keefe and Francis J. Farina. The plaintiffs in the suit are Dr. Natalie M. Grider and her medical practice, Kutztown Family Medicine, P.C., which claims to provide medical services to 4,000 patients who are insureds of defendant Keystone Health Plan Central. The suit says Grider and her practice entered into an HMO-physician agreement with Keystone in December 1998 that promised three methods of compensation — “capitation” payments in which doctors are paid set fees for each patient enrolled under a health plan; fee-for-service payments; and bonuses. Grider claims in the suit that Keystone systematically cheats doctors in all three methods of compensation. The suit says doctors submit the fee-for-service claim using a form created by the Health Care Financing Administration that asks for a “CPT” code — short for “current procedure terminology” — to describe the services performed. The suit alleges that Keystone defrauds doctors by manipulating CPT codes to decrease the amount of reimbursements. It also alleges that Keystone violated federal bribery laws by providing incentives to claim reviewers to deny valid claims. Ruling only on the plaintiffs’ theories, Gardner found that the suit alleged numerous valid claims for fraud, including the claims that the capitation payments are routinely “shaved” and that CPT codes are routinely manipulated. Gardner also found the plaintiffs had valid fraud claims on the grounds that the agreements they signed omitted significant facts, including that Keystone allegedly provide incentives to claim reviewers to delay or deny payments; developed or purchased systems designed to manipulate CPT codes; and automatically “downcodes” claims. The plaintiffs also alleged a valid claim of extortion under the Hobbs Act, Gardner found, by alleging that Keystone threatened to withhold bonuses to which doctors were entitled unless they stopped complaining about the “shaving” of their capitation payments. Keystone’s lawyers — Elizabeth K. Ainslie, Steve D. Shadowen, Anne E. Kane and Scott M. Brevic of Schnader Harrison Segal & Lewis — argued that the entire suit was barred by the U.S. Supreme Court’s 2000 decision in Pegram v. Herdrichin which, they argued, the justices held that challenges to the concept of managed care are better asserted in state legislatures than in federal courts. But the plaintiffs’ lawyers argued that Pegramdid not grant blanket protection to HMOs from attack under federal statutes. Gardner sided with the plaintiffs, saying he agreed with the reasoning of U.S. District Judge Federico A. Moreno of the Southern District of Florida who held that “the court in Pegramdid not fashion an all-encompassing cloak of immunity for the health care industry.” In his 2001 decision in Re: Managed Care Litigation, Moreno found that “the viability of HMO-type structures will not be imperiled if such entities are held accountable for concrete harm flowing from acts of fraud, extortion and breach of contract.” Gardner found there were “key distinctions” between Pegramand the suit against Keystone, because “the plaintiffs are providers, not patients; the claims involve RICO, rather than exclusively ERISA; and plaintiffs seek redress under existing statutes for concrete harm, rather than mounting a broad-based attack on the HMO structure itself.” Turning to the defense argument that the suit was barred by the McCarran-Ferguson Act, Gardner found that allowing a RICO claim against an insurer would not violate the act because it would not “invalidate, impair or supersede Pennsylvania’s insurance laws.” Defense lawyers argued that the RICO claims were “no more than a covert attempt to challenge the very managed care concept endorsed by the Pennsylvania Legislature, and therefore conflict with state insurance regulations.” But Gardner found that since Pennsylvania allows for bad-faith suits against insurers, “it is clear that the Pennsylvania Legislature has not forbidden or even discouraged private actions in the insurance context.” As a result, Gardner said, “we conclude there is no direct conflict between RICO and state-law remedies addressing the same or similar proscribed behavior.” Defense lawyers also argued that the plaintiffs had failed to allege any viable claim for fraud. Gardner concluded that while some of the claims failed, others survived. “Keeping in mind that allegations of fraud must be pled with particularity under Federal Rule of Civil Procedure 9(b), we conclude that plaintiffs have alleged some specific misrepresentations and omissions pertaining to their claims of mail and wire fraud sufficient to overcome defendants’ motion to dismiss. Others, however, will be dismissed for either lack of particularity or failure to state a claim,” Gardner wrote. Gardner found that the “central assertion” of the plaintiffs’ fraud claims “is that when contracting with plaintiffs, defendants intentionally misrepresented and failed to disclose internal HMO policies and practices that were designed to systematically reduce, deny, and delay payments to plaintiffs and their business.” In the suit, the plaintiffs allege that Keystone and its affiliates refuse to begin paying capitation immediately upon enrollment of the members. “They retain premiums from the members until the members need services from physicians. The failure to assign immediately not only defrauds doctors, but also undermines the actuarial assumptions on which capitated arrangements are purportedly based,” the suit says. “The rationale of capitation is that the doctor services a group of patients, only some of which need services in a given month. The capitated payments for the ‘well’ members is needed to help to compensate for the services provided to the ‘sick’ members. If there are not enough well members, then the doctors provide more services than the capitated payments will support,” the suit says. “Defendants’ delayed assignment of the members until they are sick, clearly is intended to shave monies that they know doctors need to meet their care obligations,” the suit says. Gardner found that the claim of shaving capitation payments was a valid claim of fraud under RICO. “The language of the agreement clearly indicates that primary care physicians would be paid monthly for all enrolled patients and that the number of patients enrolled would be updated monthly. Therefore, plaintiffs’ allegations pertaining to ‘shaving’ patients from the monthly statements allege predicate acts of fraud,” Gardner wrote. (Copies of the 88-page opinion inGrider v. Keystone Health Plan Central Inc. , PICS NO. 03-1479, are available fromThe Legal Intelligencer . Please call the Pennsylvania Instant Case Serviceat 800-276-PICS to order or for information. Some cases are not available until 1 p.m.)

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]

Reprints & Licensing
Mentioned in a Law.com story?

License our industry-leading legal content to extend your thought leadership and build your brand.


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.