Healthcare Related Cases

Healthcare law is always changing and the attorneys of the Law Offices of Steven M. Ziegler are diligently staying on top of changes in the law to minimize the risk to our clients.  Listed below are recent healthcare decisions as reported in Health Law Digest, a publication of the American Health Lawyers Association:

U.S. Court In Mississippi Finds Claims That Insurer Misrepresented Coverage Are Not Preempted By ERISA

The U.S. District Court for the Southern District of Mississippi found December 30 that a plaintiff's claims for negligent misrepresentation against her former insurer were not preempted under the Employee Retirement Income Security Act of 1974 (ERISA).

According to the court, plaintiff's claims did not "relate to" an ERISA plan, were not premised on the existence of an ERISA plan, and did not directly affect relationships among traditional ERISA entities.

Theresa Hall was employed by Ethyl Corporation, a subsidiary of NewMarket Corporation. She was covered by an employee benefits plan administered by Aetna.

After Hall stopped working at Ethyl, she paid a premium to Aetna for continuing health coverage until December of 2004. In July 2005, Hall started coverage with Blue Cross Blue Shield.

In 2007, Hall underwent a double-lung transplant at Barnes-Jewish Hospital.

A hospital employee ran a routine check to determine Hall's health insurance coverage and was informed that Aetna was an insurer for the plaintiff.

According to Hall, she also contacted Aetna herself on several occasions to inquire into her health coverage. She alleged she was told that Aetna represented to her and to the hospital, both orally and in writing, that she was still insured by Aetna and that the double-lung transplant was a covered procedure under the plan.

Hall alleged that in reliance on the representations made by Aetna, she discontinued her insurance policy with Blue Cross Blue Shield.

After the surgery was performed and the bills were sent to Aetna, Hall was informed that she was not covered under the Aetna plan. She was told that Aetna inadvertently failed to cancel her coverage after she ceased paying premiums.

Hall sued Aetna and NewMarket under Mississippi state law for equitable estoppel, promissory estoppel, negligent misrepresentation, and negligent infliction of emotional distress. She sought all past and future expenses relating to her double-lung transplant and related condition, damages for mental and emotional distress, and punitive damages.

Defendants moved to dismiss all claims on the basis of ERISA preemption.

In determining whether plaintiff's claims "relate to" a plan under ERISA Section 514, the court noted that Hall did not make a claim for benefits due under an ERISA plan, did not claim any rights under a plan, and did not claim any breach of the plan contract. In addition, she did not seek to enforce or modify the terms of a plan.

"The fact that the damages she seeks overlap with benefits she might have been able to receive if an ERISA plan which covered her actually existed, as allegedly represented to her by the defendants, does not mean that she is seeking benefits under an ERISA plan," the court said.

Further, the court explained, none of plaintiff's claims required interpretation of plan documents, determinations about the rights of participants or beneficiaries, or determinations about the duties of a fiduciary, employer, sponsor, or plan administrator.

Accordingly, "plaintiff's state law claims do not arise due to her coverage under an ERISA plan," and thus were not preempted, the court held.

The court also added that plaintiff was not a beneficiary or a participant and did not have standing to bring suit under ERISA, which also led to the conclusion that ERISA did not preempt her state law claims.

Hall v. NewMarket Corp. No. 5:09-cv-41 (S.D. Miss. Dec. 30, 2009)

Eleventh Circuit Says Nationwide Settlement Bars Physician's Tort Claims Against BCBSA Plan

The Eleventh Circuit held January 20 that a district court erred in refusing to enjoin a physician from prosecuting his tort claims against a Blue Cross Blue Shield Association (BCBSA) plan, finding the claims of tortious interference and defamation were released pursuant to a nationwide class action settlement.

According to the appeals court, the claims were related to matters addressed in the class action and, as the physician failed to timely opt out of the settlement, he was barred from filing or prosecuting released claims.

In a separate opinion issued January 21, the appeals court held it lacked jurisdiction to review an order that summarily denied another physician's motion for permission to prosecute a complaint against Blue Cross Blue Shield of Florida, Inc. notwithstanding the permanent injunction barring physicians from prosecuting claims released as part of the settlement.

At issue in both cases was the April 2008 settlement of a nationwide physician class action brought against BCBSA and a number of affiliated plans and subsidiaries. Love v. Blue Cross Blue Shield Ass'n, et al. (S.D. Fla. Apr. 20, 2008 settlement approved).

The settlement resolved claims that BCBSA and its affiliates engaged in a scheme to deny, delay, and reduce payments to physicians. As part of the settlement, Blue Cross agreed to modify certain business practices and establish a fund to pay class members' claims. In exchange, the physicians agreed to release Blue Cross plans from all claims arising from or related to the class action and settlement agreement, and the district court permanently enjoined the class members from prosecuting released claims against Blue Cross plans.

After the settlement, in January 2008, Dr. Robert Kolbusz, a board certified dermatologist, brought a civil action against Health Care Service Corporation (Corporation), a Blue Cross plan, in Illinois court, asserting claims of breach of contract, tortious interference with contractual relationships, tortious interference with prospective economic advantage, and defamation.

The Corporation argued because Kolbusz failed to opt out of the settlement, the permanent injunction entered in the class action barred him from prosecuting his complaint.

The Corporation then filed a motion in federal district court for an order to enforce the permanent injunction against Kolbusz and to show cause why he should not be held in contempt for prosecuting the released claims.

The district court ordered Kolbusz to withdraw his breach of contract claim within 20 days and indicated it would revisit the contempt issue if he failed to do so. The district court also concluded that Kolbusz was not enjoined from prosecuting his tort claims.

Both parties appealed the district court's order.

Although neither party challenged the Eleventh Circuit's jurisdiction to hear the matter, the appeals court addressed this question sua sponte and held while the denial of the Corporation's motion as to Kolbusz's tort claims was appealable, the court's ruling on his contract claims was not.

According to the appeals court, the court's order as to the breach of contract claim was not a "final order" because it left open the possibility of further action if Kolbusz failed to voluntarily withdraw his claim.

Turning to the tort claims, the appeals court held the lower court abused its discretion in denying the Corporation's motion for an order to show cause why Kolbusz should not be held in contempt.

The appeals court agreed with the Corporation that the claims were related to the matters addressed in the class action "because they are based on allegations that the Corporation engaged in improper practices to deny and delay payments to Kolbusz and that these practices caused him to lose existing patients as well as referrals."

The appeals court found the district court erroneously concluded that the tortious interference and defamation claims were unrelated to the class action allegations because they hinged on whether the Corporation "intentionally communicated defamatory and false information to Dr. Kolbusz's patients."

The appeals court said the claim release was broad, extending to "any and all causes of action . . . of whatever kind, source, or character" that are related to matters addressed in the class action, including "antitrust and other statutory and common law claims, intentional or non-intentional. . . ."

The appeals court also held the district court erred in finding the claims were not released because the events at issue took place long after the class action was filed. The effective date of the settlement agreement is the key deadline, not the filing of the class action. Here, the settlement was effective June 19, 2009, long after the acts at issue in Kolbusz's claims.

A second, related opinion involved Dr. Donald W. Robertson, who sought permission from the federal district court to prosecute a complaint against Blue Cross Blue Shield of Florida and its subsidiary, notwithstanding the permanent injunction barring claims released as part of the nationwide settlement.

Robertson sued Blue Cross Blue Shield of Florida and Health Options in a Florida Court in July 2003, two months after the complaint was filed in the national class action. Robertson's complaint asserted claims of tortious interference with a business relationship, unauthorized publication, breach of contract, and violation of the duty of good faith and fair dealing. Robertson also failed to opt out of the settlement agreement.

The district court denied Robertson's motion but did not address the merits, stating only that it "ha[d] considered the motion, response, and the pertinent portions of the record."

The Eleventh Circuit held it did not have jurisdiction to consider the district court's order because it was not final or otherwise appealable.

Thomas v. Blue Cross and Blue Shield Ass'n, Nos. 08-15880 (11th Cir. Jan. 20, 2010)

Thomas v. Blue Cross and Blue Shield Ass'n, No. 08-15881 (11th Cir. Jan. 21, 2010)

Florida Appeals Court Holds Noneconomic Damages Cap Applies Retroactively To Medical Malpractice Award

A Florida appeals court held March 3 that the state's noneconomic damages cap applied to a medical malpractice award even though the plaintiff's injury occurred before the effective date of the statutory limit.

According to the appeals court, retroactive application of the cap was constitutionally permissible because the action at issue was filed after the statute's enactment.

After an extensive review of the case law, both in Florida and in other jurisdictions, the appeals court concluded plaintiffs had no vested right to a specific damages award at the time the injury occurred.

In December 2002, Kimberly Ann Miles was diagnosed with melanoma and had a tumor removed from her leg. Although Miles was told that no melanoma remained, she sought a second opinion from Dr. Daniel Weingrad, who recommended another surgery.

Weingrad performed the surgery in January 2003; later tests revealed Miles had no residual melanoma. Miles developed a serious infection from the second surgery that left her with permanent injuries.

On September 15, 2003, Miles and her husband (plaintiffs) sued Weingrad for medical malpractice and eventually obtained an award of $1.5 million in noneconomic damages.

Weingrad moved to limit the award to the noneconomic damages cap of $500,000 under Fla. Stat. § 766.118, which the legislature enacted two years prior to the date plaintiffs filed their action. The trial court denied the motion, holding that the causes of action accrued prior to the statute's enactment and that applying the cap retroactively would be unconstitutional.

The Florida District Court of Appeal, Third District, reversed.

The appeals court noted that the legislative cap was a substantive, as opposed to a procedural or remedial, statute that could not be applied retroactively absent clear legislative intent.

But the appeals court found the legislature clearly intended the statutory cap to operate retroactively, noting language that Section 766.118 was to apply "to any medical incident for which a notice of intent to initiate litigation" was mailed on or after September 15, 2003.

The appeals court said the Florida high court has refused to apply a statute retroactively, even with clear legislative intent, if doing so "impairs vested rights, creates new obligations or imposes new penalties."

But following a review of the case law, the appeals court determined that a plaintiff does not have a vested right in a tort claim.

Courts have drawn a distinction between cases already filed or a judgment rendered before a statute's enactment and when no complaint had been filed or judgment rendered, the appeals court observed. The appeals court also noted a difference between causes of action that are created by statute rather than by common law.

Here, plaintiffs did not initiate their action until after the statute's effective date and, although the injury occurred before that time, they at most had a "mere expectation" of recovering damages "of an indeterminate amount at an unspecified date in the future."

Weingrad v. Miles, No. 3D08-1592 (Fla. Dist. Ct. App. Mar. 3, 2010)

U.S. Court In Georgia Dismisses ERISA Claims For Failure To Exhaust Administrative Remedies

The U.S. District Court for the Middle District of Georgia dismissed March 4 claims under the Employee Retirement Income Security Act (ERISA), finding the plaintiff failed to exhaust administrative remedies as required under ERISA.

The policies at issue in the case are either Preferred Provider Organization policies or Point of Service policies issued by defendant Blue Cross Blue Shield Healthcare Plan of Georgia (BCBS). Plaintiff Urology Center is not in the BCBS preferred provider network.

Plaintiff alleged that BCBS under its policies must determine reimbursement for out-of-network services based on the "usual, customary, and reasonable rate," or UCR. Plaintiff contended that in January 2007, BCBS cut its reimbursement rate for out-of-network providers by 80%, to a level far below the UCR rate required under its own policy terms.

Urology Center brought a class action against BCBS for breach of contract, violation of ERISA, unfair and deceptive trade practices, quantum meruit, and unjust enrichment.

The complaint alleged that some of Urology Center's patients had BCBS policies that were part of employee welfare benefit plans, while others had policies that they purchased individually. Thus, policies that were part of employee welfare benefit plans would be governed by ERISA and the policies that were obtained by individuals would be governed by state law.

Regarding plaintiff's ERISA claims, the court found it failed to exhaust administrative remedies as required under the statute. "Urology Center's Complaint fails to set forth factual allegations of its pursuit of administrative remedies sufficient to raise its right to relief above a speculative level," the court held. There was no indication that Urology Center ever filed a formal grievance or made a written request for relief, the court added.

Rejecting plaintiff's argument that pursuing administrative remedies would be futile, the court found there must be a "clear and positive" showing of futility. Here, the court found insufficient allegations of futility.

"The Court cannot suspend the exhaustion requirement based on 'bare allegations of futility,'" the court held, citing Springer v. Wal-mart Assocs. Group Health Plan, 908 F.2d 897, 900 (11th Cir. 1990).

Finally, the court said it lacked original jurisdiction over the remaining state law claims for breach of contract, quantum meruit, and unjust enrichment, and declined to exercise supplemental jurisdiction over those claims.

Urology Center of Ga., LLC v. Blue Cross Blue Shield Healthcare Plan of Ga., Inc., No. 5:09-cv-161 (M.D. Ga. Mar. 4, 2010)

Eighth Circuit Affirms Grant Of Summary Judgment To Hospital On Breach Of Contract Claim Against Insurer

The Eighth Circuit affirmed March 9 a lower court's grant of summary judgment to a hospital on its breach of contract claim against an insurer.

The appeals court rejected the insurer's argument that it was entitled to rescind its offer to pay for the hospital's services to its insured based on unilateral mistake after realizing that the insured misrepresented his medical history in his application.

Instead, the appeals court found the insurer should have investigated the insured's medical history before making an offer of settlement to the hospital.

Nels J. Hansen was covered under a Medicare supplemental policy issued by United Commercial Travelers of America (UCT). Before his admission to HealthEast Bethesda Hospital, UCT informed HealthEast that Hansen was covered by its policy.

HealthEast billed UCT $331,893.40 for Hansen's care. UCT offered to settle for $265,514.72 and HealthEast accepted.

However, after obtaining Hansen's health records, UCT concluded that Hansen misrepresented his medical history on the insurance application; thus, UCT rescinded the policy and refused to pay HealthEast.

HealthEast sued UCT for breach of contract. Both parties moved for summary judgment. The district court granted summary judgment to HealthEast.

On appeal, UCT argued that it properly rescinded the settlement based on its unilateral mistake.

Generally, a party cannot avoid a contract on the basis of a unilateral mistake unless there is ambiguity, fraud, or misrepresentation, the appeals court explained.

The appeals court rejected UCT's argument that because HealthEast's claim was substantially larger than its rare high claims, it is not a sophisticated party in this case, finding UCT "has sufficient knowledge and experience to evaluate claim settlement issues."

UCT also argued its inaction did not reach the degree of fault required to deny relief, but the court observed that "UCT did not exercise anything approaching ordinary care" in this case. UCT did not investigate Hansen's health history despite having billing information showing Hansen's medical treatment, including that he entered HealthEast shortly after the policy became effective, the appeals court noted.

"Because UCT bore the risk of mistake, the district court properly denied rescission based on unilateral mistake," the appeals court held.

The appeals court rejected as without merit UCT's argument that the court erred by applying principles of mutual mistake to its claim of unilateral mistake, finding, in any event, that the outcome would be the same even under principles of mutual mistake.

UCT's "record of inaction strongly supports the denial of relief under both unilateral and mutual mistake," the appeals court said.

HealthEast Bethesda Hosp. v. United Commercial Travelers of Am., No. 08-3665 (8th Cir. Mar. 9, 2010)