ERISA and Insurer Fraud Suits Against Health Care ProvidersJanuary 5, 2015 | |
One of the significant legal issues facing an insurance company that brings a federal lawsuit to recover allegedly improper payments that it has made to a health care provider under an employee benefit plan is whether the carrier’s complaint is preempted by the federal Employee Retirement Income Security Act of 1974 (ERISA). A finding of preemption would doom the action before it has a chance to proceed on the merits.
The recent decision by U.S. District Judge Leonard D. Wexler of the Eastern District of New York in Connecticut General Life Ins. Co. v. Advanced Chiropractic Healthcare1 reinforces the general rule in the U.S. Court of Appeals for the Second Circuit that lawsuits brought in federal court by insurance companies against health care providers that allege fraud or fraudulent misrepresentation, among other things, will not be dismissed on ERISA preemption grounds.
Connecticut General Life Insurance Company, a claims administrator on behalf of self-funded plans, which also acts as an insurer for employer-sponsored benefit plans, alleged in the lawsuit it filed against Advanced Chiropractic Healthcare and Dr. Raymond Omid that Omid managed and controlled Advanced Chiropractic and that Omid, his associates, and Advanced Chiropractic provided medical services to patients enrolled in Connecticut General medical insurance plans. In particular, the insurer asserted that, since about 2004, Advanced Chiropractic maintained its own medical benefits plan for its employees through Connecticut General (the Advanced Chiropractic plan) and that from 2005 to 2010, Advanced Chiropractic submitted approximately $2 million in out-of-network claims to Connecticut General, including claims for services provided to its own employees.
Connecticut General asserted that, in light of the “unusually” high number of claims submitted by Advanced Chiropractic, it conducted a review and found that claims submitted either were for services not covered or were coded improperly as types of services other than those rendered. For example, Connecticut General alleged that it discovered that Omid had received chiropractic care and services approximately one to two times per week from 2006 through 2010, and that Advanced Chiropractic (or a predecessor plan) had submitted 290 claims to Connecticut General totaling $97,450 for services provided to Omid.
Connecticut General contended that it paid $66,744.20 to Advanced Chiropractic for services provided to Omid, but that an independent chiropractic advisor subsequently determined that these services either were not medically necessary or were not covered under the Advanced Chiropractic plan. The insurer alleged that these services were duplicates and did not indicate required assessments, and that it was “highly unlikely” that Omid had paid his share of the services because “he either performed these services on himself as a professional courtesy to himself, or did not receive the services at all.” The insurer also alleged that the high volume of services indicated the services were not “restorative” as required by the Advanced Chiropractic plan.
Connecticut General’s complaint contained similar allegations with respect to a number of other Advanced Chiropractic employees. It alleged damages including $2 million in overpayments to the defendants and asserted claims for fraud, unjust enrichment, and money had and received. In response, the defendants moved to dismiss, claiming that ERISA preempted the insurer’s claims.
The Court’s Decision
The court denied the motion to dismiss, finding that neither ERISA §514(a)2 nor ERISA §502(a)3 preempted Connecticut General’s claims.
In its decision, the court explained that a claim is preempted by Section 514(a) if it “relates to” the plan or involves the issue of a member’s rights or benefits under the plan. The court added, however, that certain state law claims—including “garden variety” fraud claims4—are not preempted by ERISA.5 Indeed, the court continued, the Second Circuit has ruled that although state common law claims of fraudulent misrepresentation are preempted by ERISA if the false representation concerns the existence, terms, or benefits of an ERISA plan, a fraudulent misrepresentation claim is not preempted if “neither the existence of an ERISA plan nor the interpretation of any such plan’s terms is material to the claim.”6
The court then held that Connecticut General’s claims were not preempted by Section 514(a). It found “a distinction” between claims that truly “relate to” an ERISA plan and that should be preempted for the sake of uniformity and consistency across the country, and those allegedly based on fraud. The court decided that Connecticut General’s allegations that Advanced Chiropractic’s medical service providers had defrauded the insurer by billing and getting paid for medical services that fraudulently had been provided to Omid, other doctors, and other employees fell in the latter category.
The court rejected the defendants’ argument that Connecticut General’s contention that the payments should not have been paid because the services were not “medically necessary,” as defined in the plan, was a claim that “relates to” the plan and, therefore, that should be preempted. Connecticut General’s complaint did not involve the operation and management of the plan, the court decided; rather, the essence of the insurer’s claim was fraud, and the “mere involvement of the definitions of the terms” in the plan did not implicate the plan so as to warrant preemption. The court reasoned that Connecticut General was not a plan participant or beneficiary that ERISA was enacted to protect, but an insurance company trying to recoup money paid for allegedly unnecessary treatment. In the court’s view, this was not a fraud claim concerning the “operation or administration” of an ERISA plan; rather, it was a “garden variety” fraud claim for which the plan provided the context.
The court reached the same conclusion under Section 502(a). It explained that a state law claim that fell “within the scope” of Section 502(a)(1)(B) was “completely preempted” if (i) it was brought by an individual who had standing to assert rights under Section 502(a)(1)(B), and (ii) no other independent legal duty was implicated by a defendant’s actions.
The court observed that Section 502(a)(1)(B) permits a participant or beneficiary to bring a civil action “to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.” It then ruled that Connecticut General was not the type of party that could bring a claim under Section 502(a)(1)(B) because it was not a participant or beneficiary. Accordingly, the court decided, Connecticut General’s claims did not fall within the scope of Section 502(a)(1)(B).
The court also found the existence of an “independent duty,” beyond any obligation under the plan, that required the defendant medical service providers to submit “honest and accurate claims” to Connecticut General. Thus, the court concluded, this requirement for preemption also was not met, and Section 502(a)(1)(B) preemption did not apply.
Insurance fraud raises costs and premiums, harming consumers, insureds, and plan beneficiaries. Allowing insurance companies to assert claims for fraud against health care providers without fear of having those claims deemed preempted by ERISA helps insurers cut down on fraudulent claims, to the benefit of all except those who commit fraud. Judge Wexler’s decision in the Connecticut General case reinforces the ability of insurance carriers to rely on the courts to fight insurance fraud.
1. No. 13-2784 (E.D.N.Y. Oct. 10, 2014).
2. Section 514(a) states that it “shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” 29 U.S.C. §1144.
3. Section 502(a) provides:
A civil action may be brought–
(1) by a participant or beneficiary–
(A) for the relief provided for in subsection (c) of this section, or
(B) to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan;
* * *
(3) by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan;…
29 U.S.C. §1132.
4. Courts in other jurisdictions also have ruled that ERISA does not preempt “garden variety” fraud claims. See, e.g., Trustees of AFTRA Health Fund v. Biondi, 303 F.3d 765 (7th Cir. 2002); Horizon Blue Cross Blue Shield of New Jersey v. Transitions Recovery Program, No. 10-3197 (RBK/KMW) (D.N.J. 2011); Prakash v. Pulsent Corp. Employee Long Term Disability Plan, No. 06-7592 SC (N.D.Cal. 2007); In re Pharmaceutical Industry Average Wholesale Price Litigation, 263 F.Supp.2d 172 (D.Mass. 2003); but, see, D & H Therapy Associates v. Boston Mut. Life Ins. Co., 650 F.Supp.2d 143 (D.R.I. 2009) (finding fraudulent inducement claim preempted by ERISA).
5. See, e.g., DaPonte v. Manfredi Motors, 157 Fed.Appx. 328 (2d Cir. 2005).
6. See DaPonte v. Manfredi Motors, 157 Fed.Appx. 328 (2d Cir. 2005); Geller v. Cnty. Line Auto Sales, 86 F.3d 18 (2d Cir. 1996).
Reprinted with permission from the January 5, 2015 issue of the New York Law Journal. All rights reserved.