Federal Judge Certifies Physicians' Class Action Case Against HMOs

In an historic ruling, U.S. District Judge Federico Moreno certified the "Provider Track" of the RICO litigation as a class action on Sept. 26, 2002, just as full discovery was scheduled to commence on Sept. 30, 2002.  Limited discovery was allowed previously for the purpose of ruling on class certification.  Then, the case had been but on hold for over a year while the defendants appealed Judge Moreno's order limiting the application of the arbitration clauses allowing much of the case, including the RICO claims, to go forward.  The appeal was unsuccessful and the case is back on track with a trial date set for May 19, 2003.

TMA: "A great victory for physicians and their patients."

The classes certified include:

• The Global Class: All medical doctors who provided services to any person insured by any Defendant from August 4, 1990 to September 30, 2002, with respect to RICO claims.  
• National Subclass:  Medical doctors who provided services to any person insured by any Defendant, when the doctor has a claim against such Defendant and is not bound to arbitrate the claim, with respect to RICO, breach of contract, quantum merit, unjust enrichment and state prompt pay claims. any Defendant where the doctor was not bound to arbitrate the claim being asserted, with respect to California Business & Professions Code Section 17200 claims.  
• California Subclass : Medical doctors who provided services to any person insured in California by any Defendant where the doctor was not bound to arbitrate the claim being asserted, with respect to California Business & Professions Code Section 17200 claims.

Judge Moreno's ruling, following his review of the initial evidence, clearly establishes the propriety of class litigation in this case.  As Judge Moreno states:

"Here, the Provider Plaintiffs have done more than just allege a common scheme, they have demonstrated facts which support its existence."  Slip Opinion at 32 .

After noting the Plaintiff's allegations that the Defendants "have engaged in a conspiracy and have aided and abetted each other in implementing and continuing a common fraudulent scheme designed to systematically obstruct, reduce, delay and deny payments and reimbursements to health care providers," Judge Moreno outlines the evidence that he finds to support these allegations:

Defendants meet via trade associations, joint health plan provider organizations and a corporation established and financed by managed care entities, specifically to discuss and develop common plans regarding the processing of provider claims. Slip Opinion at 32 .

Judge Moreno further finds that the HCFA 1500 form, CPT and ICD codes are:

... what allows for automated logic to be applied across the board to physicians. The data contained an HCFA 1500 form are simply code numbers that do not contain anything that would allow a benefit analyst or claims processor to make a distinction between the different codes.  Thus, this "medical review" based on the HCFA 1500 form is illusory.

Defendants have implemented systematic claims processes whereby Defendants have the ability to manipulate CPT codes, downcode and bundle claims, delay and wrongfully deny payments.  Slip Opinion at 32-33.

Judge Moreno also identified the following common questions of fact concerning the Defendants':

• Common automated bundling practices
• Common automated downcoding practices  
• Common systematic practice of making medical necessity determinations based on non-medical criteria  
• Automated systems to identify physicians as "outliers"  
• The payment of bonuses or other incentives to claims employees  
• The failure to pay claims within the applicable contract and statutory time periods, and  
• The common failure to place patients on physicians' capitation rolls until treatment is sought, depriving a physician of a portion of capitation payment." Slip Opinion at 33-34.  

Thus, Judge Moreno finds that the class action mechanism is appropriate and indeed the best mechanism for resolving this dispute, noting among other things:

Numerous issues are common to all claims and, in fact, predominant in this action including Defendants' medical necessity requirements, Defendants use of actuarial guidelines, Defendants use of automated claims system and comparable software capable of adjusting CPT codes and reimbursement rates and automatically delaying and denying claims as well as other uniform activities designed to deny, delay or decrease reimbursement or payments to physicians. Slip Opinion at 37.

Concomitantly with this order, Judge Moreno issued an aggressive schedule for the litigation, including a January 20, 2003 cutoff for non-expert discovery, an

April 18, 2003 May 19, 2003

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