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Franco v. Connecticut General Life Insurance Co.

United States District Court, D. New Jersey

June 24, 2014

DARLERY FRANCO, Plaintiff,
v.
CONNECTICUT GENERAL LIFE INSURANCE CO., et al., Defendants.

OPINION

STANLEY R. CHESLER, District Judge.

This matter comes before the Court upon two motions: the motion for summary judgment filed by Defendant Cigna[1] [docket entry 755] and the motion for partial summary judgment filed by Plaintiffs Darlery Franco, David Chazen and Camilo Nelson[2] (collectively, "Plaintiffs") [docket entry 761]. Both motions have been opposed and fully briefed, and the Court proceeds to rule on the papers submitted by the parties, and without oral argument, pursuant to Federal Rule of Civil Procedure 78. Cigna's motion for summary judgment will be granted, terminating all claims, and Plaintiffs' motion for partial summary judgment will denied.

As the following discussion will explain, none of the Plaintiffs may proceed with their ERISA and RICO claims for various reasons. Chazen and Nelson assert ERISA claims based on Cigna plans that expressly required Cigna to use the provider charge database maintained by Ingenix in processing ONET claims. In light of that, the evidence proffered by Plaintiffs is insufficient to allow a reasonable factfinder to conclude that Cigna abused its discretion by using information drawn from the Ingenix database. Moreover, § 502(a)(1)(B), which provides the legal framework for Plaintiffs to challenge benefit determinations, authorizes Plaintiffs to seek recovery of unpaid benefits due under plan terms. Neither Franco, Chazen nor Nelson point to evidence in the record that could establish that, on any challenged benefit decision, Cigna's conduct (using Ingenix) deprived them of benefits to which they were entitled. Additionally, Franco's individual claims are moot based on Cigna's payment of her providers' charges after this lawsuit was initiated. Though Franco previously pursued her own claims and those of a putative class, certification of the class has been addressed twice and denied twice since the time of the 2008 payment made by Cigna. Cigna has, moreover, demonstrated that Nelson is barred from pursuing this ERISA action, proffering uncontroverted evidence that he failed to exhaust his administrative remedies. Finally, the RICO claims asserted by Franco and Chazen, which are predicated on mail fraud and wire fraud must fail. Plaintiffs have not demonstrated a contested issue of fact as to either Cigna's intent to defraud them or their having sustained a loss to business or property by virtue of Cigna's alleged misconduct.

I. BACKGROUND

This action, as the parties know, revolves around the alleged underpayment of benefits to subscribers of ERISA-governed healthcare plans funded and/or administered by Cigna. It was filed as a putative class action a decade ago and has a long procedural history, involving various dispositive motions and two unsuccessful motions for class certification, among others. Three claims remain active: an ERISA claim to recover unpaid benefits pursuant to ERISA § 502(a)(1)(B), a civil RICO claim pursuant to 18 U.S.C. § 1962(c), and a conspiracy to violate RICO claim pursuant to 18 U.S.C. § 1962(d).[3] Plaintiffs Franco and Chazen continue to pursue all three of these claims, while motion practice has left Nelson with only the ERISA claim. At this point in the litigation, the case proceeds as the individual action of the named Plaintiffs only, who have failed in their attempt to litigate their ERISA and RICO claims on behalf of other Cigna plan subscribers. Given the numerous written decisions issued in this action, including several published opinions, the Court assumes the parties' familiarity with the facts. It sets forth only those facts that are particularly relevant for deciding the motions at bar.

The Plaintiffs each dispute reimbursements made by their plans for services Plaintiffs obtained from healthcare providers who did not participate in Cigna's provider networks.[4] The managed care industry's shorthand for such nonparticipating providers is "nonpars." Because the services were obtained from providers who were "out of network" ("ONET"), the claims based on those services were payable according to the ONET benefits provision of each Plaintiff's respective plan. Broadly speaking, the provisions stated that the allowed amount an ONET claim would be the lesser of the provider's "normal charge" for the service or some amount representing the charge most often made for such service in the provider's geographical area. As the Court has observed in previous Opinions, the standard of paying ONET claims according to some prevailing charge benchmark has been broadly referred to as "UCR" in this litigation, an acronym which stands for "usual, customary and reasonable" amount billed by providers for a service. (Consolidated Amended Class Action Complaint [docket entry 242] ("Compl.") ¶ 6.) The precise language varies, and each Plaintiff's plan provision will be quoted below in the relevant analysis section.

The salient detail with respect to Plaintiffs' ERISA and RICO claims is that, according to Plaintiffs, they received insufficient ONET benefits because the UCR amount was determined by using a database of provider charges compiled and maintained by Ingenix, Inc. The subject database, also known as the Prevailing Healthcare Charges System ("PHCS") database, "was a collection of healthcare providers' charges submitted to [Ingenix] by major managed care companies (including Cigna), Blue Cross/Blue Shield plans, third-party administrators, and selffunded groups." (Cigna Mot. at 7.) (The Court will hereinafter refer to this database as the "Ingenix database, " though Cigna notes that Ingenix actually operated two databases: the PHCS database and the MDR database, the latter not being at issue in this case.) The Ingenix database "was divided into modules, each of which reported ranges (broken down into percentiles) of provider charges for procedures performed in various geographic areas." (Id.)

The following is a synopsis of the facts specific to the ONET claims underlying each Plaintiff's causes of action in the instant litigation.

A. Franco

Plaintiff Franco underwent two facial reanimation surgeries while a beneficiary of a

Cigna healthcare benefits plan, one on June 18, 2003 and the other on September 13, 2005. The surgeries were performed by nonpars Dr. Elliott Rose (2003 and 2005 procedures) and Dr. Fred Valauri (2003 procedure). The Cigna plan under which she was covered from 2001 to 2004 provided for reimbursement of ONET charges based on a UCR standard termed "reasonable and customary." The plan provided as follows:

A charge will be considered Reasonable and Customary if:

• it is the normal charge made by the provider for 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 CG [Cigna].
To determine if a charge is Reasonable and Customary, the nature and severity of the Injury or Sickness being treated will be considered.

(Pl. Ex. 73 at 93.) Plaintiffs assert that the Cigna plan in effect in 2005 similarly included "reasonable and customary" language relating to services provided by nonpars. This assertion is not supported by the evidence. As Cigna points out, while the 2005 plan defines the term "reasonable and customary, " the plan did not provide ONET benefits. Rather, the term was applied it in the context of a provision dealing with the coordination of benefits between the Cigna plan and other plans covering a beneficiary. The record clearly shows that Franco's 2005 plan was a Health Maintenance Organization ("HMO") plan, which did not offer ONET benefits.[5]

With regard to the 2003 and 2005 ONET claims giving rise to Franco's ERISA action, the record is mixed as to the manner in which the claims were handled. Plaintiffs assert that Cigna used Ingenix data to determine the UCR amount and paid Franco's ONET claims accordingly. They also assert that the Ingenix-based reimbursement left Franco liable to her providers for many thousands of dollars. Indeed, upon her administrative appeals (made on her behalf by the providers), the benefit amount was increased based on Ingenix data but still left amounts of her providers' bills outstanding. Franco has submitted evidence that she paid her providers for at least part of the bills. Evidence submitted by Cigna, on the other hand, demonstrates that Franco's 2003 and 2005 surgeries were authorized by Cigna to be treated as in-network claims pursuant to Cigna's Non-Participating Offer and Settlement Policy. Under this policy, Cigna offers to pay the nonpar an amount based on Ingenix database percentiles, but in the event the nonpar rejects the offer or balance bills the Cigna plan participant, Cigna will negotiate the reimbursement amount up to full billed charges. The policy further provides that the plan participants shall not incur any out-of-pocket expense in connection with a claim handled in this manner, except for any co-payment or co-insurance responsibility the participant would have for in-network services. Consistent with Cigna's assertion that the claims were not treated as ONET claims, the record shows, among other things, that while Franco's 2003 plan capped ONET benefits at $10, 000 per year, Cigna initially paid her providers over $50, 000 in connection with the 2003 surgery and related pre- and post-operative procedures. Also consistent with Cigna's assertion is the evidence that, although the 2005 plan provided no ONET benefits, Franco's 2005 surgery was nevertheless approved for coverage. Franco bore a coinsurance responsibility of $940 for that surgery, consistent with the plan's annual $1, 000 cap on a participant's out-of-pocket expense. Viewing the facts in the light most favorable to Plaintiffs, and echoing the findings made by this Court in its August 6, 2008 Opinion on Cigna's motion to dismiss Franco's claim for lack of standing, it appears from the record that while Franco's 2003 claims were initially approved for handling pursuant to the Offer and Settlement Policy, they were subsequently processed as ONET claims in her administrative appeals.

Regardless, however, of these facts, the record unequivocally shows that in 2008, several years after Franco initiated this lawsuit, Cigna paid Dr. Rose's and Dr. Valauri's bills in full, less the amount which Franco's plan required her to pay as her in-network cost sharing responsibility. Plaintiffs do not dispute that Franco's providers were paid in full but maintain that Franco has a stake in the litigation based on costs associated with loans obtained to make payments to the providers before Cigna's 2008 payment.

B. Chazen

Chazen disputes the benefits determination on his ONET claim for shoulder surgery performed on August 14, 2006 by Dr. Roger G. Pollock, a nonpar. At the relevant time, Chazen, a New Jersey resident, was covered by a fully-insured Cigna plan designated a Small Employer Health Plan ("SEHP") pursuant to New Jersey's Small Employer Health Benefits Act. See N.J.S.A. 17B:27A-17; see also Franco, 818 F.Supp.2d at 803 & n.2 (D.N.J. 2011). Chazen's plan provides that "[o]ut-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." (Pl. Ex. 76 at CIGCHAZEN00011.) The plan provision defining "Maximum Reimbursable Charge" sets forth as follows:

The Maximum Reimbursable Charge is the lesser of:

1. The provider's normal charge for a similar service or supply; or
2. The policyholder-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. CG uses the Ingenix Prevailing Health Care System 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 CIGCHAZEN00063.) Chazen's plan further provides that ONET claims would be paid at 70% of the Maximum Reimbursable Charge (i.e., imposing a 30% coinsurance obligation on Chazen for the service) and that ONET benefits were subject to an annual deductible of $1, 000 per person. (Id. at CIGCHAZEN00012.)

Chazen's provider, Dr. Pollock, billed $6, 500 for the shoulder surgery and submitted a claim to Cigna for ONET reimbursement on behalf of his patient. Cigna determined the Maximum Reimbursable Charge using the applicable Ingenix schedule for Chazen's surgical procedure and accordingly determined that the allowed amount on the claim was $3, 770. Of that amount, $825 went toward meeting the annual deductible and, of the remaining amount, $883.50 represented Chazen's coinsurance obligation of 30%. Chazen appealed the claim determination, which Cigna denied for failure by Chazen to submit information to substantiate a greater reimbursement amount. His second level appeal was also denied. Dr. Pollock balance billed Chazen for the $4, 438.50 amount which remained outstanding after Cigna's ONET benefit payment. Chazen paid $3, 730.00. Chazen acknowledges that Dr. Pollock stated he would not pursue the remaining $708.50 of the bill.

C. Nelson

Nelson was at all relevant times a resident of California covered at various times from January 1, 2003 through December 31, 2010 by one of four employer-sponsored, self-insured Cigna plans. The plans also provided coverage for Nelson's wife and son. The plan in effect prior to January 1, 2006 provided for coverage of ONET claims according to the "Reasonable and Customary" standard. It provided:

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 CG. To determine if a charge is Reasonable and Customary, the nature and severity of the Injury or Sickness being treated will be considered.

(Def. Ex. 6 at CIG028926288.) The three plans in effect between January 1, 2006 and December 31, 2010 provided for ONET benefits to be paid based on the "Maximum Reimbursable Charge." Each of these 2006 to 2010 plans stated:

The Maximum Reimbursable Charge is the lesser of:

• The provider's normal charge for a similar service or supply; or
• The policyholder-selected percentile of all charges made by providers of such service or supply in the ...

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