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A Philadelphia judge has approved a class action settlement worth $40 million to $60 million in a suit against Independence Blue Cross brought by doctors and other health care providers who complained that the insurer’s reimbursements were unfair and that its secret calculations were impossible to check. Under the terms of the settlement, IBC has agreed to make full disclosure of its fee schedules, to end its practice of “bundling” multiple health care services into a single code for reimbursement, and to begin complying with nationally recognized coding standards. IBC also agreed in the settlement to create a dispute resolution procedure that will be binding on IBC while still leaving doctors free to take IBC to court if they remain unsatisfied with the internal procedure. The ruling is a victory for plaintiffs’ co-lead counsel, Jerome M. Marcus and Jonathan Auerbach of Berger & Montague and David S. Senoff of Billet & Connor, who filed the suit on behalf of any health care provider who was denied payment or received a reduced payment from IBC. Under the settlement, the plaintiffs’ attorneys are entitled to petition for a fee award of up to $5 million. In his 136-page decision in Gregg v. IBC, Common Pleas Judge Albert W. Sheppard Jr. said that while the plaintiff doctors had relinquished all claims for past damages, it was a fair trade-off for the promise of a transparent reimbursement process in the future. “For [health care] providers,” Sheppard said, ” � the disclosure of fee schedules and payment policies required by the class action settlement will ensure that [they] will have the information necessary to know how the defendants should operate, according to the defendants’ own rules � This result is invaluable and cannot be over-estimated in its salutary effect for class members.” Significantly, Sheppard also vacated all “opt outs” after finding that a high number of health care providers had opted out of the suit due to “misleading” and “deceptive” statements made by a group of lawyers who opposed the settlement. Sheppard ordered that new notices be sent to those who opted out, explaining that they must do so a second time due to misleading remarks that skewed the first process. In the suit, the plaintiff doctors said they billed IBC for their services using the CPT codes, named for the American Medical Association’s “Physicians’ Current Procedural Terminology.” But the suit said the doctors were never allowed to see the fee schedules IBC used to establish the dollar amount it would reimburse for the medical services identified by the CPT codes. The lead plaintiff, Dr. John R. Gregg, testified that his investigation of IBC’s payments over a four-year period led him to conclude that the insurer would “pay you bizarre sums of money, it changes from week to week and company to company � You couldn’t understand what was going on.” The suit alleged that IBC was cheating doctors through two practices designed to manipulate their bills — “downcoding” and “bundling.” The suit said “downcoding” occurs when an insurer wrongfully disregards the CPT code in a doctor’s bill and unilaterally changes it to a code which provides for a lower reimbursement rate. “Bundling” occurs, the suit said, when an insurer fails to reimburse a doctor for two or more separate procedures performed simultaneously on the same patient — either by reimbursing only for one procedure or by reducing the reimbursement for the second. The suit accused IBC of violating the Quality Health Care Accountability and Protection Act and included claims for breach of contract, unjust enrichment, conversion and fraud. The settlement requires IBC to follow nationally recognized coding rules on bundling and specifically bars IBC from refusing to recognize the national modifiers used to seek compensation for multiple procedures performed at one time. Sheppard found that, for doctors like Gregg, the settlement provides “the very real benefit of certainty” because IBC has promised to disclose its fee schedule. The settlement agreement says IBC will publish a manual in early 2005 which will explain its policy relating to codes and will also publish quarterly newsletters to notify health care providers of recent policy relating to codes. IBC will also create a password-protected Web site where providers will be able to enter a code and obtain the standard fee which would be reimbursed in connection with that code. At a fairness hearing, an actuary testified that the value of the settlement is at least $53 million. John Ladley, a partner at Ernst & Young who concentrates on health and life insurance company consulting, testified that he collected data from IBC and performed an analysis to evaluate the value of additional payments due to the claims processing changes provided in the settlement. Ladley said he concluded that the value of the claims processing changes is $53.8 million to $63.8 million — a figure that, he said, did not place any monetary value on the dispute resolution process provided in the settlement and did not factor in the cost to IBC in making the claims processing changes. Stephen Scherf, a certified forensic accountant, said he estimated the value of the settlement at $40 million. Sheppard said the plaintiffs also faced considerable risks if they proceeded to trial because the claims of the providers hinged on several uncertain legal principles. “To prove these claims, plaintiffs would have the heavy burden of demonstrating that the defendants actually had contractual obligations to do as the complaints allege they should have done; that defendants breached those obligations; and that it is possible to measure the amount by which health care providers have been damaged by these breaches,” Sheppard wrote. “To establish their right to the injunctive relief sought in the complaints relating to bundling practices, plaintiffs would have to establish that defendants have a legal duty to calculate payments due according to nationally recognized standards even when such standards have not been adopted — and may have been expressly rejected — by defendants,” Sheppard wrote. Likewise, Sheppard said, “to establish their right to disclosure of fee schedules, payment policies, and medical policies, plaintiffs would have to establish that defendants have a legal duty to provide such information, notwithstanding defendants’ contention that much of that information is confidential.” Sheppard concluded that if the case had gone to trial, “the results would be far from risk-free.”

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