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On Feb. 2, Judge Stephen J. Bernstein of the Superior Court in Essex County, N.J., approved the class action settlement in the case of Sutter v. Horizon Blue Cross Blue Shield of New Jersey. The settlement marks the end of nearly five years of this class action litigation. It is significant because it requires Horizon to reform its business practices relative to the payment of claims for physician services. The settlement has not, however, been without controversy. The settlement was proposed by the parties in October 2006, on the eve of trial. In a class action suit, inapposite to traditional litigation, New Jersey R. 4:32-4, like Federal Rule 23(e), requires that the court must approve settlement between the parties, as a protection to the members of the class. A hearing was held in December 2006, wherein the parties asserted their arguments in favor of the settlement. Several individual physicians and medical societies objected to the proposed October settlement and presented their views and objections at the hearing. By his Feb. 2 order, Bernstein ultimately approved the settlement agreement approved by the parties. Case Background The case was filed in April 2002 by John Ivan Sutter on behalf of a class of New Jersey health care providers who rendered medical services to Horizon Blue Cross Blue Shield of New Jersey patients. The complaint alleged that Horizon delayed making payments to physicians for medical claims; improperly “bundled” the claims so that physicians received reduced payment on claims for services and procedures performed on the same day; “downcoded” procedural codes to those of less complexity unilaterally and retroactively; and refused to recognize modifiers added to complex or unrelated conditions for additional compensation. The class consisted of health care providers rendering services to any patients covered by Horizon at any time between April 12, 1996, and Oct. 24, 2006. In addition there were three subclasses: the prompt pay subclass; the contract claim subclass; and the capitation subclass. Bernstein’s order of Feb. 2 permanently certified the class and subclasses. Settlement Details In summary, Bernstein’s order and opinion of Feb. 2 permanently certified the classes; retained jurisdiction for the court of any later controversies over the settlement agreement; approved the settlement agreement reached in October; approved the attorney fees application by plaintiffs’ counsel; released Horizon from future claims; and dismissed the action with prejudice. A great deal of the controversy surrounding the settlement agreement centers on the fact that Horizon is released of claims against it in exchange for changes in business practices. There is no cash payout to the plaintiff class members. The settlement requires Horizon to implement 13 business practices. These business practices include the following: Disclosing significant edits resulting in lower claims payment on Horizon’s Web site for participating physicians; Implementing a greater notice period (90 days) when Horizon intends to change the terms of a contract in a way materially adverse to participating physicians and groups; Providing monthly capitation reports for participating physicians and groups; Establishing an e-mail address for a liaison at Horizon dedicated strictly to answering questions about capitation inquiries and capitation payment inquiries; Horizon will not prevent individual and groups of physicians from closing their practice to all new Horizon patients; Providing complete access to fee information and applicable fee schedules for participating Horizon physicians and groups by CD-ROM or electronically; Establishing and maintaining one or more standard fee schedules for fee-for-service payments; Establishing a 30-day notice period for seeking overpayment recovery and Horizon is barred for seeking overpayment recovery more than 18 months old; Absent “evidence of fraud, material error, or material change in the condition of a patient prior to service,” Horizon cannot revoke a Medical Necessity determination; Horizon is barred from including “most favored nations” clauses in its contracts, except for individually negotiated contracts; Horizon is prevented from including “gag clauses” in its contracts; and Horizon cannot require the use of pharmacy risk pools. Under the terms of the settlement agreement, there is no cash payout to the class members. The plaintiffs’ expert, however, valued the worth of the change in business practices to be not less than $39 million. In addition, the settlement agreement allows class members to benefit from any collection in the case of Love v. Horizon Blue Cross Clue Shield Association, a federal class action pending in the Southern District of Florida, from which they otherwise may have been divested from recovering. In his 16-page opinion, Bernstein analyzed the terms of the settlement agreement under the nine-factor Girsh test, from Girsh v. Jepson, for whether the settlement agreement was “fair, reasonable and adequate.” Some of the factors that weighed in favor of approving the settlement were the following: The distinct possibility that the case would drag on for years and through many appeals; the material risk that there would be no recovery by the plaintiff class; although there is some discrepancy about how many members there are of the plaintiff class, at worst, the negative reaction only comprised about 5.588 percent of the class; after years of litigation, and copious discovery, the parties are adequately apprised of the case to negotiate settlement properly; a present risk of de-certification of the class and a risk posed by settlement of the Love case; and the value of the mandated business reforms is adequate and plaintiffs are still permitted to recover in the Love action. The only factor Bernstein weighed in favor of not settling was that there was no risk that the defendant would not be able to sustain any judgment assessed against it in the event the plaintiffs were to win at trail. Arguably the most contentious point of the settlement agreement, Horizon is required to pay plaintiffs’ attorney fees in the amount of $6.5 million ($6 million in attorney fees and $500,000 in costs). Bernstein addressed this contention in his opinion. The argument by objectors was essentially that the plaintiffs’ counsel was being “bought off” to settle the case. Bernstein analyzed the request by the preferred 3rd U.S. Circuit Court of Appeals method: the percentage of recovery method. Under this method, the court is to value the proposed settlement and determine the percentage of the proposed settlement to be awarded as attorney fees. In his opinion, Bernstein stated that there is no magical appropriate percentage number, but that percentage awards have ranged from 19 to 45 percent of settlement funds. Using the plaintiffs’ expert’s valuation of $39 million, Bernstein valued the attorney fees as 16.7 percent using the full attorney award and 15.3 percent if the $500,000 in costs are subtracted. Either way, Bernstein wrote, “the percentage falls squarely within the range of reasonable fees in class action cases.” He also stated that even more importantly, the award did not in any way reduce the benefits received by the plaintiffs. Bernstein also considered the attorney fee provision under the Gunter factors, which are: “The size of the fund created and the number of persons benefited; the presence or absence of substantial objections by members of the class to the . . . fees requested by counsel; the skill and efficiency of the attorneys involved; the complexity and duration of the litigation; the risk of nonpayment; the amount of time devoted to the case by plaintiffs’ counsel; and the awards in similar cases.” Bernstein’s conclusion was that overall the Gunter factors weighed in favor of awarding the fee application. Bernstein declined, in his opinion, to approve the list of class members or make a determination of which members had properly opted out, as there is still dispute over the timeliness of some of the opt-outs and over whether one may opt out on behalf of others. The full settlement agreement is available online at www.msnj.org/ Insurance/ Class_Action_Lawsuits/sutter%20v%20horizon.pdf. Bernstein’s order and opinion can be found at http://pdfserver.amlaw.com/nj/sutter.pdf. VASILIOS J. KALOGREDIS is president and founder of Kalogredis Sansweet Dearden & Burke, a health care law firm, and Professional Practice Consulting Inc., a health care consulting firm in Wayne, Pa. Among his areas of expertise are group practice arrangements, practice sales and mergers, doctor contract drafting and negotiation, tax and retirement planning for physicians, joint ventures, fraud and abuse matters, and evaluation of practice options for physicians. He can be contacted at 800-688-8314 or by email at [email protected].

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