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Darlery Franco, Individually and On Behalf of All Others Similarly Situated v. Connecticut General Life Insurance Co.

January 16, 2013

DARLERY FRANCO, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS,
v.
CONNECTICUT GENERAL LIFE INSURANCE CO., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Chesler, District Judge

OPINION

This matter comes before the Court on the motion by Plaintiffs for class certification pursuant to Federal Rule of Civil Procedure 23(b)(3). Defendant Cigna ("Defendant" or "Cigna") has opposed the motion. The Court has opted to rule on the motion without oral argument, pursuant to Federal Rule of Civil Procedure 78. For the reasons set forth below, the motion will be denied.

I. BACKGROUND

Many health benefits plans insured or administered by Cigna distinguish between in-network and out-of-network ("ONET") providers in setting coverage levels for services obtained by subscribers and other plan beneficiaries. For a claim based on a service rendered by a provider who participates in Cigna's provider network ("in-network provider" or "Par"), that is, has agreed to negotiated rates of reimbursement from Cigna, Cigna's plans provide that the "allowed amount" -- i.e., the portion of the provider's charges that the plan will cover -- is the rate set by the contract between the provider and Cigna. The in-network provider, in other words, has agreed to accept a negotiated rate as payment in full for the service, and the plan member will be responsible only for any applicable deductible or co-payment under the plan. In contrast, the allowed amount for a service rendered by an ONET or non-participating provider ("Nonpar"), is not tied to any contract between Cigna and the provider. A healthcare benefit plan may define the allowed amount for an ONET service in any number of ways, such as using a fee schedule or linking coverage to some percentage of Medicare rates. This case focuses on Cigna plans which, during the putative class period, set the allowed amount for ONET claims at the "usual, customary and reasonable" ("UCR") amount for the service.*fn1 The claims for relief revolve around the alleged denial of ONET benefits as a result of Cigna's use of an allegedly flawed database, operated by a third party known as Ingenix, to determine UCR.

A. Facts Relating to Named Plaintiffs' Alleged Adverse Benefit Determinations

Named Plaintiffs Darlery Franco ("Franco"), David Chazen ("Chazen"), and Camilo Nelson Sr., Shahidah Nelson and Camilo Nelson, Jr. (collectively "the Nelsons") are, or were at all relevant times, participants or beneficiaries of employer-sponsored health benefit plans insured and/or administered by Cigna. For the sake of maintaining the continuity of labels used in previous opinions, the Court will generally refer to the named Plaintiffs collectively as "Subscriber Plaintiffs." In brief, the facts giving rise to the Subscriber Plaintiffs' claims are as follows:

Franco was a member of an ERISA-governed health plan fully-insured by Cigna. She underwent complex facial reanimation surgery in 2003 and again in 2005 to correct facial paralysis caused at birth. The surgery was performed in stages by ONET providers. Cigna processed these ONET claims using Ingenix to determine the UCR. The plan applicable to Franco's subject ONET claims provides:

A charge will be considered Reasonable and Customary if: it is the normal charge made by the provider for a similar service or supply; and it does not exceed the normal charge made by most providers of such service or supply in the geographic area where the service is received, as determined by [Cigna]. (Quackenbos Decl., Ex. 3 at 93.) With regard to both the 2003 and 2005 ONET claims, Cigna determined the ONET benefit to be less than the provider's billed charge, explaining that the benefit payment reflects the prevailing charge for the service. Cigna points out that it had authorized both the 2003 and 2005 surgeries as in-network procedures, advising Franco that she would only be responsible for her co-pay and coinsurance amount, as if the providers were not Nonpars, and instructing her to contact Cigna's member services department if she did receive a balance bill from the Nonpar. Cigna asserts that it only learned of the balance bills in the discovery phase of this litigation and, in response, increased its benefit payment to cover the Nonpars' full charges.

Chazen, a New Jersey resident, is a beneficiary of an ERISA healthcare benefits plan fully insured by Cigna. Because the employer sponsoring Chazen's plan employs less than 50 people, the plan is considered a "small employer health plan" under New Jersey insurance regulations.

N.J.S.A. 17B:27A-17. Chazen underwent shoulder surgery with a Nonpar in 2006. His claims for benefits relating to the services provided by the Nonpar were paid by Cigna using Ingenix to determine UCR. Chazen's plan required ONET claims to be paid based on the "Maximum Reimbursable Charge." His plan states, under the heading "Maximum Reimbursable Charge" as follows:

In-network services are paid based on the fee agreed upon with the provider. Out-of-network services are paid based on the Maximum Reimbursable Charge. For this plan, the Maximum Reimbursable Charge is calculated at the 80th percentile of all charges made by providers of such service or supply in the geographic area. (Quackenbos Decl., Ex. 4 at 12.) The plan section setting forth definitions of various terms states:

The Maximum Reimbursable Charge is the lesser of

1. the provider's normal charge for a similar service or supply; or

2. the policy-holder selected percentile of all charges made by providers of such service or supply in the geographic area where it is received.

To determine if a charge exceeds the Maximum Reimbursable Charge, the nature and severity of the Injury or Sickness may be considered. [Cigna] uses the Ingenix Prevailing Health Care System database to determine the charges made by providers in an area. The database is updated semiannually.

The percentile used to determine the Maximum Reimbursable Charge is listed in the Schedule.

Additional information about the Maximum Reimbursable Charge is available upon request. (Id. at 64.) The billed charges in connection with the 2006 shoulder surgery exceeded the benefits paid by Cigna. Chazen, however, negotiated a discount in the amount balance billed by the Nonpar.

The Nelsons, residents of California, are covered by a healthcare benefits plan administered by Cigna and self-insured by Camilo Nelson Sr.'s employer. They received chiropractic services from Nonpar Stephanie Higashi, doing business as "Mar Vista," and their claims were paid by Cigna based on UCR. The applicable Cigna plan provides that the allowed amount for a claim arising out of a Nonpar's services will be determined according to the "Maximum Reimbursable Charge." The definition of this term in the Nelsons' plan is identical to the one provided in Chazen's plan. (Quackenbos Decl., Ex. 75 at 55-56.) In fact, the entire "Maximum Reimbursable Charge" provision in the Nelson plan is a verbatim copy of the provision in the Chazen plan, with the exception of the explanation of what constitutes the selected percentile of UCR. Rather than stating that the policyholder-selected percentile used to determine the Maximum Reimbursable Charge is set forth in the plan itself, the Nelson plan advises that the percentile "can be obtained by contacting Member Services/Customer Service." (Id. at 56.) Mar Vista's charges exceeded the ONET benefits the Nelsons received under their Cigna plan. It appears that at least some if not all the balances on the charges billed by Mar Vista for the services rendered to the Nelsons were forgiven, that is, written off by the provider. By way of example, the record shows that Mar Vista billed $215 for four services provided to Camilo Nelson, Jr. on October 23, 2006. Cigna allowed $200, leaving a balance of $15, after the applicable co-insurance owed by the patient. Mar Vista's balance sheets, however, show that it adjusted its charges downwards by $55, writing off the $15 balance and the $40 co-insurance that the Nelsons were required to pay under their plan.

B. Summary of Legal Claims

This consolidated action had initially been brought not only on behalf of Cigna plan subscribers, but also on behalf of healthcare providers who treated Cigna plan beneficiaries on an ONET basis and various professional associations of healthcare providers. The Nelson Complaint, filed separately from the Consolidated Amended Complaint, had also named Ingenix and its parent company, UnitedHealth Group, Inc., as defendants. On Cigna's Rule 12(b)(6) motions, the claims of the Provider Plaintiffs and Association Plaintiffs were dismissed for lack of Article III standing. Moreover, all claims against Ingenix and United HealthGroup have been dismissed. Indeed, motion practice has also substantially streamlined the substantive relief at issue in this action. The active claims in this action are those of Franco, Chazen and the Nelsons to recover unpaid benefits under ERISA § 502(a)(1)(B) and to remedy Cigna's alleged violations of its fiduciary duties of loyalty and care under ERISA §§ 404(a)(1)(B) and (D). Also active are the civil RICO and conspiracy to violate RICO claims brought by Franco and Chazen.*fn2

Subscriber Plaintiffs allege that Cigna violated its ERISA plan and statutory obligations when it made benefit determinations based on flawed UCR data. They claim that it was an abuse of Cigna's discretion under the applicable plans and a breach of its fiduciary duty to beneficiaries to use Ingenix data, which they maintain Cigna knew was completely incapable of supplying a UCR figure which complied with the plan standard for paying ONET claims. According to Subscriber Plaintiffs, the flawed nature of Ingenix and its inherent inability to yield an accurate UCR lies, in part, in its use of "contributed" data. Ingenix created a database of provider charges using data contributed by major health insurance companies, including Cigna, and other payors, such as self-funded groups and managed care organizations. Subscriber Plaintiffs take the position that the evidence shows that the database compiled by Ingenix could not satisfy the Cigna plans' UCR definition because it neither captured "all" or "most" amounts charged by providers in any particular geographical area nor based its schedules of provider charges on a random sample from which statistically accurate figures could be inferred. As such, Subscriber Plaintiffs maintain that Cigna failed to pay ONET benefits based on a standard reflecting the "normal charge made by most providers of such service or supply in the geographic area where the service is received" (Chazen and Nelson plan) or "all charges made by providers of such service or supply in the geographic area where it is received " (Franco plan) as the plans' terms expressly require. Their ERISA claims, to recover unpaid benefits and for breach of fiduciary duty, seek relief for the alleged misconduct of "systematically making UCR determinations that reduced the allowable amount without valid or compliant data to support such determinations." (Consol. Am. Compl., ¶ 78.)

As to the RICO claims, Subscriber Plaintiffs allege that the insurance companies that contributed data on provider charges to Ingenix are the very same payors to which Ingenix sells the database information for claims processing. They allege that Cigna contributed data to Ingenix containing inaccuracies, such as false information about the geographic area where the service giving rise to the provider charge was performed, and that Ingenix took no steps to audit the data, despite its awareness that it was flawed. They further allege that Ingenix provided discounts on the licensing fee it charged payors, such as Cigna, based on the volume of data contributed by the payor. According to Subscriber Plaintiffs, there is proof of a long-standing contractual relationship between Cigna and Ingenix and of their regular exchange of data, which will demonstrate the existence of the Cigna-Ingenix Enterprise. This Enterprise, according to Plaintiffs, facilitated the creation, use and defense of an invalid database to underpay ONET benefits to Cigna plan subscribers.

C. Classes Seeking Certification

According to Subscriber Plaintiffs' brief, the instant Rule 23 motion requests that the Court certify two classes: a Subscriber ERISA Class and a Subscriber RICO class.

The Subscriber ERISA Class is defined as:

All persons in the United States who are, or were, from March 1, 1998 through the date set by the Court as the outside class date ("class period"), members in [a] group health care plan insured or administered by CIGNA subject to ERISA who received medical services (including hospital, ambulance, physician, mental health, pharmaceutical, or any other type of medical services or supplies) from a Nonpar provider for which CIGNA (or anyone acting on behalf of CIGNA) allowed less than the provider's billed charge. (Consol. Am. Compl., ¶ 348.)

The Subscriber RICO class is defined as:

All persons in the United States who are, or were, from March 1, 1998 through the date set by the Court as the outside class date (RICO Class Period"), members in any health plan insured or administered by CIGNA who received medical services (including hospital, ambulance, physician, mental health, pharmaceutical, or any other type of medical services or supplies) from a Nonpar provider for which CIGNA (or anyone acting on behalf of CIGNA) allowed less than the provider's billed charge. (Id., ¶ 351.)

II. STANDARD FOR CERTIFICATION UNDER RULE 23

Rule 23 of the Federal Rules of Civil Procedure sets forth a two-pronged standard for class certification. To obtain certification, a plaintiff must demonstrate that the putative class meets the threshold requirements of Rule 23(a) as well as one of the three Rule 23(b) categories under which she wishes to proceed on behalf of a class. Fed. R. Civ. P. 23; Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541, 2548-49 (2011). Rule 23(a) requires a showing of: (1) numerosity; (2) commonality; (3) typicality; and (4) adequacy of representation. See Fed. R. Civ. P. 23(a); Behrend v. Comcast Corp., 655 F.3d 182, 189 (3d Cir. 2011), cert. granted in part on other grounds, 80 U.S.L.W. 3442 (U.S. June 25, 2012) (No. 11-864). In this case, Subscriber Plaintiffs move for certification under Rule 23(b)(3), which applies when the putative class primarily seeks monetary relief. Dukes, 131 S.Ct. at 2558. Rule 23(b)(3) sets forth two requirements: (1) "that the questions of law or fact common to class members predominate over any questions affecting only individual members" and (2) "that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy." Fed.R.Civ.P. 23(b)(3). "These requirements are known as predominance and superiority." Behrend, 655 F.3d at 190. Moreover, "[i]t has long been held that Rule 23 implicitly requires that prospective plaintiffs propose a class definition that is readily ascertainable based on objective criteria." Agostino v. Quest Diagnostics, Inc., 256 F.R.D. 437, 438 (D.N.J. 2009).

In moving for class certification, the plaintiff has the burden of proving by a preponderance of the evidence that all requirements of Rule 23 are met.General Telephone Co. of the Sw. v. Falcon, 457 U.S. 147, 161 (1982); In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 307 (3d Cir. 2009). The Supreme Court emphasized in its class certification decision in Dukes that Rule 23 does not set forth a mere pleading standard; the plaintiff must in fact prove that the rule's requirements have been satisfied. Dukes, 131 S.Ct. at 2551. In considering a motion for class certification, the court must conduct a rigorous analysis, which will frequently "entail some overlap with the merits of the plaintiff's underlying claims." Id. (quoting Falcon, 457 U.S. at 160.) "A class certification decision requires a thorough examination of the factual and legal allegations." Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154, 166 (3d Cir. 2001)); see also Dukes, 131 S.Ct. at 2551-52 (holding that Rule 23 analysis generally involves consideration of the factual and legal issues that comprise the plaintiff's cause of action). It is essential that a court evaluate the elements of the legal claims "'through the prism' of Rule 23." Hydrogen Peroxide, 552 ...


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