Vindication!

In a major victory for ERISA plans and other payors, the Fifth Circuit recently overturned a district court’s notorious decision in favor of a healthcare provider and reinstated a plan administrator’s ability to guard against healthcare billing fraud, waste, and abuse.

Vindication! Fifth Circuit Reverses Notorious District Court Health Care Fraud Decision

By Seyfarth Shaw LLP on February 13, 2018

By: Ryan Pinkston and Jon Braunstein

Seyfarth Synopsis: In a major victory for ERISA plans and other payors, the Fifth Circuit recently overturned a district court’s notorious decision in favor of a healthcare provider and reinstated a plan administrator’s ability to guard against healthcare billing fraud, waste, and abuse.

On December 19, 2017, the United States Court of Appeals for the Fifth Circuit issued its decision in Connecticut General Life Insurance Co. v. Humble Surgical Hospital, LLC, 878 F.3d 478 (5th Cir 2017), reversing a highly publicized trial court decision that threatened the ability of ERISA plans, insurers, and other payors to safeguard their coffers from providers engaged in healthcare fraud, waste, and abuse.

As described by the Court of Appeals, between 2010 and the initiation of litigation in 2016, Humble Surgical Hospital (“Humble”), a physician-owned hospital in Harris County, Texas, performed hundreds of non-emergency services on members of ERISA and welfare benefit plans administered by Connecticut General Life Insurance Company and its parent corporation (together, “Cigna”). After processing an expensive claim from Humble for what appeared to be a noncomplex outpatient surgical procedure, Cigna increased its scrutiny of Humble’s claims and surveyed plan members whom Humble had treated. Based on its analysis, Cigna concluded that Humble was engaged in “fee-forgiving” (i.e., waiving patients’ co-insurance or deductible fees) and also intentionally inflating its charges to increase reimbursements.

Cigna then sued Humble to recover over $5 million in alleged overpayments. In response, Humble asserted counterclaims against Cigna for nonpayment or underpayment of claims, breach of fiduciary duty, and failure to comply with requests for plan documents. After a bench trial, the district court concluded that Cigna’s claims and defenses failed as a matter of law. The district court also awarded Humble nearly $11.4 million in damages based on Cigna’s underpayment of claims, nearly $2.3 million in statutory penalties based on Cigna’s failure to provide plan documents upon request, and over $2.7 million in attorneys’ fees based on Humble’s success in the litigation. Cigna appealed.

On review, first, the Fifth Circuit reversed the award to Humble of nearly $11.4 million in damages based on underpaid claims and Cigna’s purported breach of fiduciary duties. Notably, the Fifth Circuit held both that the plans at issue vested Cigna with discretionary authority to determine eligibility for benefits and also that Cigna’s interpretation of plan provisions to prohibit “fee‑forgiving” was not arbitrary or capricious. The Court of Appeals also determined that Cigna’s decision was supported by substantial evidence, namely, the survey responses from plan members indicating that Humble had informed the members that they would not be charged for any of the services at issue. This conclusion affirms that courts should defer to a plan administrator’s interpretation of the terms of its own plan.

Second, the Fifth Circuit reversed the approximately $2.3 million awarded to Humble as statutory penalties, because Cigna was not an “administrator” as defined by ERISA. The Fifth Circuit also joined at least eight other circuits in rejecting the notion that a person or entity may become a de facto administrator for notice or statutory penalty purposes. The Court of Appeals’ decision supports the proposition that courts should adhere closely to the express language of the relevant ERISA provision when resolving a dispute, and it also provides welcome comfort to third party claims administrators and other “non-designated” persons or entities that they cannot be held liable for ERISA statutory penalties.

Third, the Fifth Circuit reinstated Cigna’s fraud claims on the ground that the district court failed to address Cigna’s argument that Humble affirmatively misrepresented actual charges by overbilling Cigna. The court’s decision is a reminder that a trial court should examine carefully all of the ways in which a fraudulent scheme may be perpetrated before dismissing a plan’s fraud claims. Finally, based on the foregoing outcomes, the Fifth Circuit vacated the award of attorneys’ fees to Humble and remanded the issue for reconsideration in light of the appellate decision. It remains to be seen whether the trial court will award Cigna its attorneys’ fees in light of its significant success before the appellate court.

Healthcare litigation is on the rise, especially reimbursement disputes. In this instance, Cigna filed suit against Humble in hopes of protecting itself — and health plans for which it serves as claims administrator — from healthcare fraud and abuse. In exchange, Cigna faced a judgment against it in excess of $16 million. The Fifth Circuit’s decision vindicating Cigna’s position constitutes a significant victory for ERISA plans, insurers, and other payors, both for its affirmation of ERISA principles and also for its reversal of a trial court decision that had gained some notoriety for its slant in favor of healthcare providers.

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