Doctors Win Class Action Status In HMO RICO Case

September 26, 2003 ( - Doctors claiming they have been cheated out of the fees they are owed have been awarded class action status in their Racketeer Influenced and Corrupt Organizations (RICO) Act suit against Capital Blue Cross and its HMO, Keystone Health Plan Central.

Based on the contentions made by the class of doctors, US District Judge James Knoll Gardner of the US District Court for the Eastern District of Pennsylvania found significant questions of fact surrounding the fraud claims brought against Keystone in its reimbursement system.   In so ruling, Gardner found either the McCarran-Ferguson Act or the US Supreme Court’s decision in Pegram v Hedrich did not bar the doctors’ claim, as the defense had argued, according to The Legal Intelligencer report.

Gardner first turned to the perceived conflict presented by Keystone’s attorneysthat the RICO claims were “no more than a covert attempt to challenge the very managed care concept endorsed by the Pennsylvania Legislature, and therefore conflict with state insurance regulations.”   This amounted to a conflict between the case and the McCarran-Ferguson Act, the defense said.   However, Gardner found that allowing a RICO claim against an insurer would not violate the Act because it would not “invalidate, impair or supersede Pennsylvania’s insurance laws,” and thus “there is no direct conflict between RICO and state-law remedies addressing the same or similar proscribed behavior.”

Attorneys for the HMO also maintainedthe suit should be dismissed based on the Pegram decision    The ruling in that case held challenges to the concept of managed care are better asserted in state legislatures than in federal courts.

Gardner disagreed with this assertion, pointing instead to the reasoning of US District Judge Federico Moreno of the Southern District of Florida who held that “the court in Pegram did not fashion an all-encompassing cloak of immunity for the health care industry.”   Moreno’s determination was based on his 2001 decision in In Re: Managed Care Litigation , in which he found “the viability of HMO-type structures will not be imperiled if such entities are held accountable for concrete harm flowing from acts of fraud, extortion and breach of contract.”

Further, Gardner found key distinctions in the current case and the suit against Keystone, because “the plaintiffs are providers, not patients; the claims involve RICO, rather than exclusively [Employee Retirement Income Security Act] ERISA; and plaintiffs seek redress under existing statutes for concrete harm, rather than mounting a broad-based attack on the HMO structure itself.”

Case History

Plaintiffs contend their practices entered into an HMO-physician agreement with Keystone in December 1998 that promised three methods of compensation:   “capitation” payments – which pays doctors fees for each patient enrolled under a health plan – fee-for-service payments, and bonuses.  

The suit alleges Keystone sought to undercut the amount of the monthly capitation made to the doctors by underreporting the number of patients enrolled in the doctors’ practice groups.   Additionally, Keystone manipulated the coding system in the fee-for-service reimbursement system to decrease the amount the HMO owed and provided incentives to claim reviewers to deny valid claims, the suit says.

The case is Grider v. Keystone Health Plan Central Inc.