In re Managed Care Litig.,
No. 00-1334-MD-MORENO (S.D. Fla. Feb. 20, 2002)

Subscribers to medical insurance coverage provided by multiple national managed care insurance companies ("MCOs") sued the MCOs, alleging violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO") and the Employee Retirement Income Security Act ("ERISA"). The subscribers alleged that (1) the MCOs did not properly notify subscribers of internal cost reduction practices that did or could affect professional medical judgment regarding the provision of medical treatment and the granting or denial of policy claims; (2) the MCOs allegedly induced their customers to enroll and re-enroll through the use of standardized misrepresentations contained in various disclosure materials; (3) the MCOs applied the term "medical necessity" in a manner that conflicts with the definition stated in membership materials and common usage in the medical profession; and (4) the MCOs allegedly require gag clauses in their contracts with physicians whereby the physicians are penalized if they communicate certain plan information with patients.

Following the United States District Court for the Southern District of Florida's dismissal without prejudice of nearly all of the subscribers' RICO claims for failure to properly plead mail and wire fraud with particularity, the subscribers amended their RICO claims. The MCOs again objected.

With respect to the RICO claims, the court ruled that: 1. the subscribers had standing to bring their RICO claims; 2. the subscribers pled sufficient facts showing proximate cause – a requisite element of a RICO claim; 3. because there are no employer plaintiffs, the subscriber plaintiffs are "the injured parties ‘most likely to press their claims with the vigor that the [RICO] treble-damages remedy was intended to promote'"; 4. the McCarran-Ferguson Act precludes the RICO claims of plaintiffs from states that provide no private cause of action to victims of insurance fraud; and 5. the fact that each MCO created and openly celebrates its respective network of physicians, hospitals, pharmacies, and health care professionals is sufficient to show "adequate structure" of the alleged enterprise under the RICO statute, and the subscriber plaintiffs have adequately shown that the MCOs operate or manage each respective enterprise.

The subscriber plaintiffs asserted all of their ERISA claims under the "catch all" provision of ERISA, 29 U.S.C. §1132(a)(3). The court ruled that the claims which could have been brought under other provisions of ERISA had to be dismissed, including the breach of fiduciary duty claims for alleged misrepresentations of the medical necessity definition and the claims for equitable relief for alleged flaws in the summary plan description documents. The misrepresentation of "medical necessity" breach of fiduciary duty claims of those plaintiffs who no longer subscribe to the MCOs were allowed to remain in the suit, but the court cautioned that those claims are very "fragile."

In response to the subscribers' argument that pursuing administrative remedies would have been futile and inadequate, the court held that the subscribers' complaint does not suggest that they conducted a good faith inquiry into the applicability or adequacy of the administrative proceedings.

The court also held that the ERISA claims, alleging interference with physician-patient communication as a breach of fiduciary duty based on purported gag clauses that directed the physicians not to discuss, among other things, the physicians' financial incentives under the plans and the scope or terms of the subscribers' coverage, were well pleaded and they were not dismissed.

The court also dismissed the subscribers' common law civil conspiracy claim that alleged that particular MCOs agreed with other entities not named in the complaint not to disclose cost containment strategies to each of their participants because the complaint did not expressly state what substantive law the MCOs conspired to violate. Lastly, the court dismissed the subscribers' common law claim of unjust enrichment, in which they merely incorporated all of their preceding allegations.