Managed Care Litigation: Latest Developments Litigating Issues - PowerPoint PPT Presentation

Essential Health Benefits February 25 2013 HHS Final Rule (45 CFR §§ 147 155 156) February 25, 2013 HHS Final Rule (45 CFR §§ 147, 155, 156) Actuarial Value • F For purposes of determining whether a plan offers essential health benefits, f d t i i h th l ff ti l h lth b fit the final rule contains requirements for health insurance issuers to determine actuarial value • Actuarial Value (AV) is a measure of the percentage of expected health care costs a health plan will cover for a standard population . For example, if plan has an AV of 60 percent, patient would be responsible for 40 percent of the cost of benefits covered by the plan • Beginning in 2014, health plans must meet an AV that matches up to a Beginning in 2014, health plans must meet an AV that matches up to a specified level of coverage – bronze (60 percent), silver (70 percent), gold (80 percent), or platinum (90 percent) . Rule permits a plan to qualify for a particular "metal level" if the difference in • the true dollar value is within 2 percentage points the true dollar value is within 2 percentage points. 14

Essential Health Benefits February 25, 2013 HHS Final Rule (45 CFR §§ 147, 155, 156) February 25 2013 HHS Final Rule (45 CFR §§ 147 155 156) Non ‐ Discrimination in Essential Health Benefits Final Rule: prohibits benefit design, or the implemental of benefit design, that l l h b b f d h l l f b f d h • discriminates based on an individual's age, expected length of life, present or predicted disability, degree of medical dependency, quality of life, or other health conditions. Id. § 156.125(a) ea t co d t o s d § 56 5(a) • PHSA § 1302: In defining essential health benefits, the Secretary shall: o “not make coverage decisions, determine reimbursement rates, “ k d d b establish incentive programs, or design benefits in ways that discriminate against individuals because of their age, disability, or expected length of life” o “ensure that health benefits established as essential not be subject to denial . . . on the basis of the individuals’ age or expected length of life or of the individuals’ present or predicated disability degree of medical dependency or quality of life disability, degree of medical dependency, or quality of life 15

Essential Health Benefits Essential Health Benefits • What about Utilization Review Criteria? o Alcoholism as a criteria for liver transplants? Alcoholism as a criteria for liver transplants? o Advanced age as a criteria for transplants or major surgery? o Expected length of survival or quality of life as criteria for p g q y transplants? o End of life decisions such as DNR? • Permissible to use improvement as basis for medical necessity? • Will the Act alter criteria used in the practice of medicine and in utilization review? • Permissible to distinguish “coverage” as an insurance policy term versus individual medical/utilization decisions? 16

Essential Health Benefits February 25, 2013 HHS Final Rule (45 CFR §§ 147, 155, 156) February 25 2013 HHS Final Rule (45 CFR §§ 147 155 156) • Habilitative services o Many plans do not identify habilitative services o States may define these services if they are not included in benchmark plan o If state does not define habilitative services, issuers must provide coverage at parity with rehabilitative services or as determined by the issuer and reported to HHS • Example of Habilitative Services Definition: California SB 951 o Medically necessary health care services that assist in acquiring or improving skills and functioning necessary to address a health condition, and needed for functioning in interaction with an individual’s environment i di id l’ i t o Excluding: respite care, day care, recreational care, residential treatment, social services, custodial care, or education services of any ki d i kind, including, but not limited to, vocational training l di b t t li it d t ti l t i i 17

Federal Mental Health Parity Act of 1996 (29 U S C § 1185a; 42 U S C § 300gg 26) U.S.C. § 1185a; 42 U.S.C. § 300gg ‐ 26) • Effective January 1, 1998 • Applied to employer ‐ sponsored group health plans • Did not apply to individual insurance market, small employers between 2 and 50 employees group plans that experienced between 2 and 50 employees, group plans that experienced at least a 1% cost increase from compliance • Required parity in annual and lifetime limits between medical/surgical and mental health benefits for plans that offered both types of benefits • Did not mandate that plans offer coverage for mental health Did not mandate that plans offer coverage for mental health benefits at all 18

State Mental Health Parity Acts State Mental Health Parity Acts • States enacted their own parity legislation • Parity acts varied by state o Some limited parity to certain enumerated mental o Some limited parity to certain enumerated mental health conditions o Annual and lifetime limits o Financial and non ‐ financial treatment limitations o Exclusion of certain plan types o Exclusion of certain plan types 19

2008 FedMHPA Expands Coverage Mandates p g 2008 Mental Health Parity And Addiction Equity Act (26 USC § 9812; 29 USC § 1185a; 42 USC § 300gg ‐ 26) ( Effective October 3, 2009) ) • Applies to plans sponsored by private and public sector employers with more than 50 employees , including self ‐ insured p y p y , g and fully ‐ insured arrangements, and health insurance issuers who offer or provide coverage to employers with more than 50 employees employees • Exempt: individual insurance market; employers with 50 or fewer employees • As with the 1996 MHPA, does not require group health plan to A i h h 1996 MHPA d i h l h l provide mental health benefits • Extends parity to substance use disorder benefits 20

2008 FedMHPA Expands Coverage Mandates p g 2008 Mental Health Parity And Addiction Equity Act (26 USC § 9812; 29 USC § 1185a; 42 USC § 300gg ‐ 26) ( Effective October 3, 2009) ) • Required that treatment limitations and financial requirements for mental health and substance use disorder benefits be no more restrictive than those for medical and surgical benefits o Treatment limitations: limits on frequency of treatment, number of visits, days of coverage, or other limits on scope and duration of treatment o Financial requirements: deductibles, co ‐ payments, coinsurance, and out ‐ of ‐ pocket expenses, excluding annual and lifetime limits • Required parity in coverage by out ‐ of ‐ network providers for med/surg and mental health/substance use disorder benefits d/ d l h l h/ b di d b fi 21

FedMHPA Joint Regulations Broaden Concept of “treatment limitations” (75 FR 5410 Feb 2 2010) “treatment limitations” (75 FR 5410, Feb. 2, 2010) • Statute: Treatment limitation includes limits on the frequency of treatment, number of visits, days of coverage or similar limits on , , y g the scope or duration of treatment • Regulations expand treatment limitations to nonqualitative treatment limitations, 45 CFR § 146.136(c)(4)(ii): o Any processes, strategies, evidentiary standards , or other factors used in applying the nonquantitative treatment limitations with respect to mental health or substance use disorder benefits must be respect to mental health or substance use disorder benefits must be comparable to, and applied no more stringently than , the processes, strategies, evidentiary standards, or other factors used in applying the limitation with respect to medical/surgical benefits, except to the extent that recognized clinically appropriate standards of care may extent that recognized clinically appropriate standards of care may permit a difference 22

FedMHPA Joint Regulations Broaden Concept of “treatment limitations” (75 FR 5410 Feb 2 2010) “treatment limitations” (75 FR 5410, Feb. 2, 2010) • Potentially problematic nonquantitative t treatment limitations : t t li it ti o Different standards for determining medical necessity or whether the treatment is necessity or whether the treatment is experimental or investigative o Requiring concurrent review for mental health q g conditions, but only retrospective review of med/surg conditions o Different standards for provider admission to Diff t t d d f id d i i t network 23

ACA Expands Mental Health Benefits Beginning i 2014 in 2014 • February 25, 2013 Final Rule for Essential Health Benefits: o Beginning in 2014, non ‐ grandfathered health plans in the individual and small group markets must o Cover mental health and substance use disorder services as part of the package of Essential Health Benefits. o Comply with requirements of the FedMHPA in covering p y q g mental health and substance use disorder services included in Essential Health Benefits. 24

ACA Abrogates Lifetime and Annual Limits Beginning in 2010 Beginning in 2010 • ACA prohibits lifetime limits on essential health benefits for group health plans and a health insurance issuer offering group or individual health insurance coverage issued or renewed on or after September 23, 2010. 42 USC §300gg ‐ i d d ft S t b 23 2010 42 USC §300 11 • ACA restricts and phases out annual limits for essential health benefits for all group health plans and health insurance issuers offering group or individual health insurance coverage issued or renewed after March 23, 2010 Plan year or policy year 9/23/10 to 9/22/11: Annual limit less than $750,000 prohibited o Plan year or policy year 9/23/11 to 9/22/12: Annual limit less than $1.25 million prohibited o Plan year or policy year 9/23/12 to 1/1/14: Annual limit less than $2 million prohibited o January 1, 2014: Annual dollar limit prohibited o Does not apply to “grandfathered” individual pla ns D t l t “ df th d” i di id l l o • Eliminates FedMHPA rules permitting parity in annual and lifetime limits for any essential health benefits 25

Autism and Other Behavioral Health Services Suits Suits • Medical services for ASDs are covered • ABA often excluded as: o Experimental o Habilitative/non ‐ restorative b l / o Non health care (educational) o Not provided by licensed providers o Not provided by licensed providers • ST/OT treatments for ASD often excluded as: o Habilitative/non ‐ restorative o Habilitative/non ‐ restorative o Non health care (educational) 26

ASD Class Actions • Johns v. Blue Cross Blue Shield of Michigan , E.D. Mich, No. 08 ‐ 12272 08 12272 o ABA Coverage denied as experimental o Court denied class certification for lack of evidence of typicality and adequacy, as plan terms on exclusions could differ among putative class members’ plans (March 2009) o Settled in June 2009, but provided no prospective relief, and , p p p , settlement class redefined. Reimbursement of all class members who paid for ABA from May 2003 through June 2009. Nearly 100 families received almost $1 million in aggregate Nearly 100 families received almost $1 million in aggregate reimbursement 27

ASD Class Actions • Potter v. Blue Cross Blue Shield of Michigan , E.D. Mich., No 10 ‐ 14981 No. 10 14981 o ABA Coverage denied as experimental o Court rejected BCBS’s failure to exhaust argument, because of BCBS’s alleged policy that ABA treatment is experimental policy that ABA treatment is experimental o Court certified entire requested class, finding that the common issue for the class, whether ABA could be denied as experimental, predominated over individual damages issues o Cross ‐ motions for SJ filed on whether ABA is experimental o Court denied BCBS’s SJ motion and granted Plaintiffs’ SJ motion on March 30, 2013 o Court ordered that BCBS’s characterization and exclusion of ABA therapy as experimental or investigative, as applied to the claims of the class members, was, and is, arbitrary and capricious o Court remanded the class members’ claims for coverage of ABA therapy to BCBS for readministration readministration 28

Additional ASD Class Actions dd t o a S C ass ct o s • Arce v. Kaiser Foundation Health Plan , Superior Court of the State of California, County of Los Angeles, JCCP 4585: Certification , y g , granted. Kaiser MSJs pending based on (1) mootness in light of newly enacted ASD services mandate bill (SB 946) and (2) exclusion of members of government plans subject to exclusive administrative remedies. Churchill v. CIGNA Corp. , 2011 WL 356489 (E.D. Pa. 2011): p , ( ) • Certification granted for class of persons actually denied ABA on the grounds that it is experimental • Graddy v. Blue Cross Blue Shield of Tennessee, Inc. , 2010 WL 670081 (E.D. Tenn. 2010): Certification denied for overbroad class 29

ASD Merits Ruling: Denial of ABA on experimental & non ‐ licensure bases: D.F., et al. v. Washington State Health Care Authority , Superior Court of Washington for King County, No. 10 ‐ 2 ‐ 29400 ‐ 7 SEA • Washington State Health Care Authority (HCA) contended that there was no scientific evidence establishing a significant improvement in children who have undergone ABA therapy, and it is not covered because it is provided by unlicensed providers th d it i t d b it i id d b li d id • Class action suit brought under Washington MHPA, which provides that all health benefit plans offered by health maintenance organizations that provide coverage for medical and surgical services shall provide : . . . (c) For all health benefit plans delivered, issued for delivery, or renewed on or after July 1, 2010, coverage for (i) Mental health services . . . . • Suit sought declaratory and injunctive relief requiring HCA to cover ABA for children with autism when medically necessary • Court found: Court found: ABA is beneficial for some children o HCA not in compliance with Washington MHPA insofar as it imposes a blanket exclusion of ABA, even o when provided by licensed therapists Court could not determine as matter of law that HCS is required to cover ABA provided by certified Court could not determine as matter of law that HCS is required to cover ABA provided by certified o o or registered providers, because it was not clear from record if HCA covers health services provided by counselors or therapists who hold certifications or registrations, but not licenses It was also not clear whether a national certification by ABA providers is equivalent to certifications o for providers of mental health services covered by HCA 30

ASD Merits Ruling: Denial of ABA on experimental, educational, and non ‐ licensure bases: McHenry v. Pacificsource Health Plans , 679 F.Supp.2d 1226 (D. Oregon 2010) ERISA plan administrator denied coverage for ABA based on plan exclusion for • experimental treatments, and academic or social skills training, and because the ABA provider, a BCBA, was not a medically trained clinician • Court held that ABA “is not an experimental or investigational procedure” and rejected denial on that ground rejected denial on that ground • Court found that exclusion for educational intervention did not apply because it only applied if provided by a school or halfway house, and plaintiff’s services were provided by a private company p y p p y • Court found that ABA is not primarily academic or social skills training, and rejected denial on that ground • BUT: Court upheld denial of coverage because there was no evidence that a non ‐ licensed, but BCBA ‐ certified provider, qualified as an eligible provider authorized for reimbursement under Oregon law 31

ASD Merits Ruling: Denial of ABA as educational, not medically necessary, and not medical service: Hummel v. Ohio Dept. of Job & Family Serv ., 844 N.E.2d 360 (Ohi Ct A 360 (Ohio Ct. App. 2005) 2005) • Plaintiff with autism eligible to receive benefits through Medicaid program administered by Ohio Department of Job & Family Services Ohi D f J b & F il S i • Treating physician found that ABA was medically necessary Local provider rejected request for ABA as neither medically necessary nor a medical service. • State hearing upheld local provider g p p • Common pleas court reversed, and State department appealed on grounds that ABA was not a reimbursable “medical service” but rather an educational program or behavior modification technique • • Court of Appeal affirmed common pleas court: Court of Appeal affirmed common pleas court: Treating physician classified ABA as medically necessary, and other reports and articles suggested o that ABA was generally accepted and appropriate for treating autism Medical service is a synonym for medically necessary service. Alternatively, meaning assigned to o “medical services” through ordinary usage would be an act helpful to healing or treatment medical services through ordinary usage would be an act helpful to healing or treatment “Medically necessary service” encompasses “medical service,” and court of common pleases did not o err in determining that ABA qualified for reimbursement 32

ASD Merits Ruling: Denial of ST, PT, and OT as educational, developmental and non ‐ restorative: Markiewicz v. State Health Benefits Comm. , 390 N.J. Super. 289, 915 A.2d 553 (N.J. App. 2007); Micheletti v. State Health Benefits Comm. , 389 N.J. Super. 510, 913 A.2d 842 (N.J. ( pp ); , p , ( App. 2007) • Cases concerned denial by State Health Benefits Commission (“SHBC”) of ST, PT and OT for two children, one with autism and one with PPD ‐ NOS, on grounds that services were excluded as educational, developmental, or non ‐ restorative State 1999 MHPA required SHBC to cover biologically ‐ based mental illness (“BBMI”) under the • same terms as provided for any other sickness under contract • • Court rejected SHBC’s position that coverage for PT OT and ST could be excluded as educational Court rejected SHBC s position that coverage for PT, OT and ST could be excluded as educational, developmental or non ‐ restorative services on grounds that such exclusions applied equally to mental and physical conditions • Court held that parity act mandated coverage for ST, PT and OT for autism and PPD Court found persuasive insurance regulation under private insurer parity law, which regulation o prohibited carriers from applying any exclusion in a health insurance policy for services medically necessary for the treatment of covered persons with BBMIs, specifically listing exclusions for non ‐ restorative PT, OT and ST, and for treatment of developmental disorders or developmental delay Court found that denying coverage would be unreasonable and contrary to purpose of the o parity act 33

ASD Merits Rulings: Denial of ST as habilitative/non ‐ restorative: Z.D. by and through J.D. and T.D., et al v. Group Health Co ‐ op , W.D. Wash., No. 2:11 ‐ cv ‐ 01119 ‐ RSL RSL Class action against Group Health Options, which insures and administers • Washington ERISA plans. GHO denied coverage for ST for plaintiff, who had speech delays, at age 7 • Plan covered therapy to “restore function following illness, injury or surgery” • Plan excluded therapy for “degenerative or static conditions when the expected outcome is primarily to maintain the Member’s level of functioning,” excepting coverage under the “Neurodevelopmental Therapies for Children Age Six (6) and Under” Subsection • Court granted SJ for plaintiff. (June 1, 2012). State MHPA “plainly imposes a baseline coverage requirement” requiring coverage for medically necessary treatment for DSM mental health conditions “without any regard for whether that treatment is restorative or non ‐ restorative .” 34

ASD Merits Rulings: Experimental and habilitative denial of ABA addressed in granting injunction: K.G. by Garrido v. Dudek , 839 F.Supp.2d 1254 (S.D. Fla. 2011); K.G. by Garrido, et al. v. Dudek , 2012 WL 1438974 (S.D. Fla. 2012) • Florida Medicaid agency (AHCA) denied ABA as experimental and non ‐ restorative/habilitative restorative/habilitative o Suit based on Medicaid mandate for “early and periodic screening, diagnostic and treatment services” (EPSDT) for children under age 21. 42 U.S.C. § 1396a(a)(10)(A) EPSDT catchall provisions requires coverage of “other necessary health care, diagnostic services, treatment , • and other measures [described in § 1396d(a)] to correct or ameliorate defects and physical and mental [ § ( )] p y illnesses .” 42 U.S.C. § 1396d(r)(5) • §1396d(a)(13) requires coverage of “other diagnostic, screening, preventive, and rehabilitative services, including any medical or remedial service . . . recommended by a physician or other licensed practitioner . . . for the maximum reduction of physical or mental disability and restoration of an individual to the best possible functional level .” o Court found plaintiff had regressed and ABA was needed to restore to prior functional level • However, citing Parents League for Effective Autism Services , 565 F.Supp.2d 905 (S.D. Ohio 2008), court noted that other courts interpreting §1396d(a)(13) found that it does not require restoration of previously achieved functional level, but only requires that licensed clinician find service medically necessary to help improve f l l l b l h l d l f d d ll h l functional level o AHCA acted unreasonably in determining that ABA is experimental o Court granted injunction requiring AHCA to provide ABA 35

Suits Under FedMHPA: New York State Psychiatric Association, Inc. v. UnitedHealth Group , No: 1:13 ‐ cv ‐ 01599 ‐ CM (S.D.N.Y. filed Mar. 11, 2013) • Putative class action brought by NY Psychiatric Association on behalf of members and their patients, as well as individual plaintiffs, alleging violations of the FedMHPA • Allegations: – United allegedly applies different medical necessity definitions to mental health care than to medical/surgical care – United allegedly imposes preauthorization and concurrent review requirements on mental health services that are not imposed on analogous medical/surgical services – United allegedly applies proscribed fail first policies and step therapy protocols to mental health treatments at all levels of care – With respect to one plan United allegedly applies a categorical exclusion of out of network residential With respect to one plan, United allegedly applies a categorical exclusion of out ‐ of ‐ network residential treatment for mental health and substance abuse, when the medical ‐ surgical portion of the plan provides for the full scope of out ‐ of ‐ network, inpatient services to treat medical ‐ surgery conditions – United allegedly reimburses services rendered by mental health professionals at lower rates than identical services rendered by non ‐ mental health providers – With respect to one plan, United allegedly applies precertification policies to outpatient mental health services that are not comparable to and are more stringent than the policies for medical/surgical services United allegedly limits access to psychotherapy, which imposes limits on mental health care more stringent – than limits on analogous medical/surgical services 36

Suits Under FedMHPA: American Psychiatric Association v. Anthem Health Plans, Inc. , No: 3:13 ‐ cv ‐ 00494 (Conn. Filed Apr. 10, 2013) • Action brought by the American Psychiatric Association, Connecticut Psychiatrist Society and Connecticut Counsel of Child and Adolescent Psychiatry on behalf of their members and their patients • Alleged violation of FedMHPA through imposition of quantitative and non ‐ quantitative treatment limitations on mental health benefits not imposed on, or imposed in manner t eat e t tat o s o e ta ea t be e ts ot posed o , o posed a e not comparable and/or more stringent than, those for non ‐ mental health benefits, including: o Alleged disparity in rates between mental health and medical/surgical services o Alleged failure to recognize CPT codes for certain mental health services o Alleged imposition of double co ‐ payments on psychiatric patients o Alleged reduction in rates for certain mental health services o Alleged failure to pay for psychotherapy for psychiatric physicians 37

Suits Under State MHPA: Harlick v. Blue Shield of California , 686 F.3d 699 (9th Cir. 2012) • Plaintiff diagnosed with anorexia nervosa. Was denied coverage for residential treatment under an exclusion in ERISA plan that applied to both physical and mental care • Ninth Circuit found that the residential exclusion was unambiguous, so that coverage was not available under the Plan document as ot a a ab e u de t e a docu e t However, Ninth Circuit found coverage under the California MHPA by concluding that • the MHPA “mandates that a plan provide all medically necessary treatment,” even if such treatment is not covered for physical conditions . 686 F.3d at 712 ‐ 13, 715 ‐ 16. • The only “parity” that MHPA requires is for the financial limitations like copays and deductibles • Harlick rejected by one California state court: Rea v. Blue Shield of California , Superior Court of the State of California, County of Los Angeles, No. BC468900, Order Sustaining Court of the State of California, County of Los Angeles, No. BC468900, Order Sustaining Defendant’s Demurrer to First Amended Complaint (June 13, 2012) 38

Many Sources Acting Collectively to Expand Coverage of Mental Health Benefits of Mental Health Benefits • Affordable Care Act o Creates Essential Health Benefits that mandates coverage for  mental health and substance use disorder services, including behavioral health treatment  habilitative services and devices o Expands requirements of FedMHPA o Abrogates annual and lifetime limits for “essential health benefits,” effectively eliminating FedMHPA rules permitting parity in annual and lifetime limits for any “essential health benefits” • State and Federal Mental Health Parity Acts and Related • State and Federal Mental Health Parity Acts and Related Litigation • Autism Litigation and State Autism Legislative Mandates • Questions raised regarding types of services: • Questions raised regarding types of services: Residential treatment facilities; unlicensed providers; custodial care o 39

PPACA ‐ related Litigation g • Medical Loss Ratio Requirements • Provider Exclusion from Networks 40

Medical Loss Ratio Under ACA Medical Loss Ratio Under ACA • ACA MLR Summary: y o Health insurance issuers offering group or individual health insurance coverage are required to report their MLR each year g q p y o Minimum MLR for large group market – 85% o Minimum MLR for individual market and small group market – 80% • States are free to adopt higher minimum MLRs • New York, for example, set an 82% minimum MLR • HHS Secretary may adjust the minimum MLR for individual HHS S t dj t th i i MLR f i di id l market to prevent destabilization

Medical Loss Ratio Under ACA Medical Loss Ratio Under ACA • Reporting & Notice o All health insurance issuers must report to HHS by June 1 o Notice to policyholders of MLR rebate by August 1 • Health insurance issuers that fail to meet the minimum MLR required to provide rebates to employer (or policyholder) p y ( p y ) • Statutory Provision: PHSA § 2718 • Key Regulations: 45 CFR §§ 158.110 ‐ 606

ACA Commercial MLR Overview ACA Commercial MLR Overview Incurred Claims (including Change in Contract Reserves) + Quality Improvement Expenses Credibility ACA MLR Adjustment Earned Premiums – Federal Taxes – (State Taxes, Assessments, Fees)

Penalties for Non ‐ Compliance Penalties for Non Compliance • Civil monetary penalties o $100/day for each responsible entity for each individual affected by the violation • No private right of action expressly created under the ACA for failure to meet the minimum MLR or pay a rebate

Medical Loss Ratio: National Trends Medical Loss Ratio: National Trends • HHS Secretary may adjust the minimum 80% MLR for individual market if necessary to prevent destabilization y p • Waivers Rejected Ten states and one territory (Wisconsin, Delaware, Florida, Indiana, Kansas, o Louisiana, Michigan, North Dakota, Oklahoma, Texas, and Guam) had their requests for waivers rejected on grounds that medical loss ratio would not f i j d d h di l l i ld destabilize states’ individual insurance markets • Waivers Granted o Seven states (Georgia, Iowa, Kentucky, Maine, Nevada, New Hampshire, and S t t (G i I K t k M i N d N H hi d North Carolina) had waiver requests granted or partially granted • HHS announced June 21 2012 that rebates of $1 1 billion would HHS announced June 21, 2012 that rebates of $1.1 billion would be paid to 12.8 million policyholders by August 1, 2012 45

Medical Loss Ratio Medical Loss Ratio • Key Defenses to Private Litigation o No Private Right of Action • See GAO Report, Document No. B ‐ 322525 (March 23, 2012) o Filed Rate Doctrine o Filed Rate Doctrine • Are the rebates a “rate”? • “Rebates are essentially a retrospective adjustment or correction to premiums” p • MLR allocations used in initial rate review? • Is there agency review and approval of rebates? o Abstention / Primary Jurisdiction o Abstention / Primary Jurisdiction o Administrative MLR Hearings? o Judicial review proceedings of agency MLR decisions? 46

MLR Case Study: U S v Farha et al (M D Fla 2011) U.S. v. Farha, et al. (M.D. Fla. 2011) March 2011: Five former Wellcare executives indicted • – Allegations involve Florida Medicaid’s 80% MLR Rebate Requirement for behavioral – Allegations involve Florida Medicaid s 80% MLR Rebate Requirement for behavioral health care services provided by managed care plans • Executives alleged to have fraudulently reduced MLR refund by: – Including fraudulent information in worksheets submitted to Medicaid g – Improperly including expenditures for certain types of health care services in Behavioral Health Care Worksheet submitted to Medicaid – Creating a wholly ‐ owned, capitated provider to conceal costs and increase expenditures reported to Medicaid d d d d – Issuing approx. $1 million rebate based on inconsistent and improper methodologies across various reporting periods to avoid scrutiny – Failing to respond truthfully to the Medicaid program’s request for information Failing to respond truthfully to the Medicaid program s request for information regarding MLR 47

MLR Case Study: U S v Farha et al (M D Fla 2011) (cont’d ) U.S. v. Farha, et al. (M.D. Fla. 2011) (cont’d.) • Indictments of executives follow: o 2008 plea agreement by a former WellCare employee and 2008 l t b f W llC l d o 2009 Deferred Prosecution Agreement entered into by WellCare with United States Attorney • $40 million in restitution • Forfeited an additional $40 million • Executed Corporate Integrity Agreement with OIG that • Executed Corporate Integrity Agreement with OIG that places compliance obligations for five years • The Government concluded that WellCare complied with all requirements of the DPA and dismissed the criminal information 48

MLR Case Study: U S v Farha et al (M D Fla 2011) (cont’d ) U.S. v. Farha, et al. (M.D. Fla. 2011) (cont’d.) • Jury verdicts announced on June 10, 2013 after weeks of d lib deliberations ti 49

MLR Case Study: U.S. v. Farha, et al. (M.D. Fla. 2011) (cont’d.) U S v Farha et al (M D Fla 2011) (cont’d ) • Jury verdicts announced on June 10, 2013 – Guilty verdicts on specified counts, acquittals on others, and mistrial il di ifi d i l h d i i l on still others – Former CEO Todd Fahra convicted on two counts of health care fraud – Former CFO Paul Behrens convicted on two counts of making false statements and two counts of health care fraud – Former Vice President of Harmony Behavioral Health Bill Kale convicted of two counts of health care fraud – Former Vice President of Medical Economics Peter Clay convicted of two counts of making false statements to a law enforcement officer • Defendants have not yet been sentenced. 50

MLR ‐ Litigation Risks MRI Scan Center v Cigna et al (S.D. Fla. 2013) i l ( l ) • Lawsuit brought by a provider as assignee, not by a beneficiary y y • Based on alleged ERISA violations • Allegedly motivated by desire to falsely increase Allegedly motivated by desire to falsely increase MLR for PPACA MLR reporting purposes

MLR ‐ Litigation Risks MRI Scan Center v Cigna et al (S.D. Fla. 2013) $1 850 Billed Charges $1,850 Billed Charges Plaintiff MRI Scan Center $ 325 Contract Rate Intermediaries Intermediaries (National Imaging Associates EOP: $ 325 and Medsolutions) ∆ ∆ = $ 148 $ 8 EOB: $ 473 CIGNA $ 325 paid Beneficiary Beneficiary $ 473 Credit to Deductible

MLR ‐ Litigation Risks MRI Scan Center v Cigna et al (S.D. Fla. 2013) • May 6, 2013 ‐ Court granted motions to dismiss o Plaintiff provider lacked standing under ERISA o Plaintiff provider lacked standing under ERISA o Assignment of benefits limited only to payment for services o Claims against the intermediary National Imaging Associates are subject to arbitration per contract • Court does not address the issue of MLR accounting for intermediaries

MLR ‐ Litigation Risks A Amer. Chiropractic Ass’n v C igna (E.D.Pa. 2012) Chi ti A ’ C i (E D P 2012) • Plaintiffs include a Beneficiary as well as a provider and the provider association • Allege improper MLR reporting based on intermediary provider network • Motions to Dismiss Pending (filed 3/26/13) o Lack of Standing • E.g. , plaintiff is an ASO beneficiary, not subject to MLR o No private right of action under MLR statute h f d o Failure to Exhaust Remedies o Failure by any plaintiff to allege harm F il b l i tiff t ll h 54

MLR ‐ Litigation Risks A Amer. Chiropractic Ass’n v C igna (E.D.Pa. 2012) Chi ti A ’ C i (E D P 2012) $160 Billed Charges $160 Billed Charges Plaintiff Chiropractor $ 88 Contract Rate Intermediary EOP: $ 88 American Specialty Health ∆ ∆ = $ 39 $ 39 EOB: $ 127 CIGNA $ 127 Credit to Deductible $ 127 Credit to Deductible Plaintiff Beneficiary Plaintiff Beneficiary

Provider Exclusion from Networks Provider Exclusion from Networks • Typical vehicles to address: – State any willing provider laws – Federal antitrust laws – Unfair and Deceptive trade practices laws – Tortious interference (with patient relationships) ( p p ) • Is PPACA another weapon in the arsenal of providers? providers?

PPACA Prohibition on Discrimination Against Providers g SEC. 2706 NON ‐ DISCRIMINATION IN HEALTHCARE (a) PROVIDERS. ― A group health plan and a health insurance ( ) g p p issuer offering group or individual health insurance coverage shall not discriminate with respect to participation under the plan or coverage against any health care provider who is acting within the scope of that provider’s license or certification under applicable scope of that provider s license or certification under applicable State law. This section shall not require that a group health plan or health insurance issuer contract with any health care provider willing to abide by the terms and conditions for participation established by the plan or issuer. Nothing in this section shall be bli h d b h l i hi i hi i h ll b construed as preventing a group health plan, a health insurance issuer, or the Secretary from establishing varying reimbursement rates based on quality or performance measures. rates based on quality or performance measures. 57

PPACA Prohibition on Discrimination Against Providers g • Applicability – Non ‐ grandfathered group health plans and health insurance Non grandfathered group health plans and health insurance issuers – Plan years (or policy years) beginning on or after 1/1/2014 • Because DOL also has joint responsibility with HHS for j p y interpretation of § 2706 due to its incorporation into ERISA, DOL issued a FAQ on § 2706 on April 29, 2013 – “The statutory language of PHS Act section 2706(a) is self ‐ implementing” – “Until any further guidance is issued, group health plans and health “U til f th id i i d h lth l d h lth insurance issuers offering group or individual coverage are expected to implement the requirements of PHS Act section 2706(a) using a good faith, reasonable interpretation of the law.” • Similar language has been published on the website of CMS’s l l h b bl h d h b f ’ Center for Consumer Information and Insurance Oversight 58

PPACA Prohibition on Discrimination Against Providers g • We know more about what § 2706 isn’t than what it is. • What § 2706 isn’t: – An any willing provider law – A mechanism to regulate provider rates – A A requirement to “accept all types of providers into a network” (4/29/2013 DOL FAQ at 3.) i t t “ t ll t f id i t t k” (4/29/2013 DOL FAQ t 3 ) • What § 2706 is: A prohibition on discrimination “based on a provider’s license or certification” (Id.) – – A provision that chiropractors can invoke if the plan only covers orthopedists? A provision that chiropractors can invoke if the plan only covers orthopedists? – A boost for alternative medicine practitioners, such as acupuncturists? – A broadly worded non ‐ discrimination statute (“shall not discriminate with respect to participation under the plan or coverage against any health care provider who is acting within the scope of that provider’s license or certification . . .”) that to date lacks necessary agency th f th t id ’ li tifi ti ”) th t t d t l k interpretation 59

Out ‐ of ‐ Network Reimbursement T Trends and Litigation d d Liti ti • UCR Class Actions • Alternatives that have Emerged to Replace Ingenix 60

U&C PRICING & DATABASES 61

AHIP’ R AHIP’s Recent Salvo t S l “For consumers who choose to seek care out ‐ of ‐ network, [AHIP’s] latest survey shows that the charges billed by some out ‐ of ‐ network providers can exceed several hundred or several thousand percent of what Medicare would reimburse for the same service in the same h t M di ld i b f th i i th area.” 62

AHIP’s Argument AHIP s Argument 63

Out ‐ of ‐ network Reimbursement Out of network Reimbursement Payment Measures “Usual, Customary Percent of Billed Charges and Reasonable” In-network rates Medicare or “UCR” • Ingenix •Fair Health F i H lth 64

Out ‐ of ‐ network Reimbursement Out of network Reimbursement • Common scenarios – Emergency Department services E D t t i – Patients with non ‐ emergent hospital stays who encounter non ‐ contracted providers without knowing in advance of non ‐ contracted status • Common issue but significant recent movement – Many (most?) payors have changed payment benchmark in Many (most?) payors have changed payment benchmark in past 3 ‐ 4 years – New PPACA standards with respect to emergency services and preventive services that are unavailable in network and preventive services that are unavailable in ‐ network 65

New York Attorney General Investigation New York Attorney General Investigation y y g g Announced Feb 13 2008 Announced Feb. 13, 2008 • • Findings Issued Jan. 13, 2009 “Assurance of • Discontinuance” (of use of Ingenix) with United of Ingenix) with United executed simultaneously 66

Rockefeller Committee Investigation Rockefeller Committee Investigation Rockefeller Committee Investigation Rockefeller Committee Investigation • Follow ‐ on to the NYAG Follow on to the NYAG investigation • Senate Commerce Committee held two Committee held two hearings in 3/09 • Senator Rockefeller sent i f info requests to 18 18 insurers not covered by NYAG settlements 67

Pending UCR Litigation Pending UCR Litigation • In re WellPoint, Inc. Out ‐ of ‐ Network “UCR” Rates Litigation, No. MDL 09 ‐ 2074 (C.D. Cal.) ( l ) • Franco v. CIGNA, No. 2:07 ‐ cv ‐ 06039 (D.N.J.) • McDonough v. Horizon Blue Cross, No. 2:09 ‐ cv ‐ 571 (D.N.J.) 68

Factual basis for the claims Factual basis for the claims • Plaintiffs allege “flawed data”. Allegations: – Participating insurers “scrub” their data by removing high ‐ P i i i i “ b” h i d b i hi h value claims – Ingenix removes “high ‐ end” values as statistical outliers – Ingenix fails to tabulate data accurately according to geographic area – Insurers do not verify the accuracy of the data Insurers do not verify the accuracy of the data • Plaintiffs’ conclusions: – Insurers violated contractual obligations to pay UCR – Insurers knowingly participated in the manipulation of UCR data 69

Common legal theories alleged Common legal theories alleged • Antitrust • RICO • ERISA ERISA – Claim for benefits – Breach of fiduciary duty Breach of fiduciary duty 70

Status of Cases Status of Cases • Wellpoint UCR MDL – Motion to dismiss fourth amended complaint pending (hearing held 6/12/2013) • Franco v Cigna • Franco v. Cigna – Plaintiffs currently pursuing appeal to 3 rd Circuit of 1/16/2013 order denying class certification / / y g • McDonough v. Horizon Blue Cross – Class certification and cross ‐ motions for summary judgment pending 71

Out ‐ of ‐ Network Reimbursement Alternatives That Are Emerging to Replace Ingenix 72

Fair Health Created To Replace Ingenix • As settlement of NY AG Investigation: – Agreement to shut down Ingenix PHCS and MDR databases – Independent non ‐ profit entity formed to create and administer medical claims database medical claims database – FAIRHealth works with group of academics (Upstate Health Research Network) based at Syracuse University – FairHealth supported partially by State of New York, partially by i l h d i ll b S f k i ll b product sales [Insurers paid $95 million to New York in connection with NYAG settlements] – Release of replacement modules began 2011 73

Fair Health How do results produced through Fair Health methodology differ • f from Ingenix? I i ? • According to http://www.fairhealthconsumer.org, – “The [Upstate Health Research Network’s] testing of the adjusted calculations across all these different procedures and adjusted calculations across all these different procedures and services showed varied results. Sometimes the results calculated using the UHRN methodology were higher than those calculated using Ingenix’s methods, often times they were g g y lower, and sometimes they were the same. But generally the UHRN believes that applying the new methodology can enhance the completeness of the data and the transparency of its development ” development. 74

Payment Methodologies Post ‐ Ingenix y g g • How much traction has Fair Health achieved? • What Fair Health says: 75

Payment Methodologies Post ‐ Ingenix Payment Methodologies Post Ingenix 76

Payment Methodologies Post ‐ Ingenix y g g • “Though the [New York Attorney General” settlement required [insurers] to underwrite the new [Fair Health] i d [i ] t d it th [F i H lth] database with $95 million, it did not obligate them to use it. So by the time the database was finally up and running last year, the same companies, across the country, were rapidly shifting to another calculation method, based on Medicare rates, that usually reduces reimbursement substantially.” rates, that usually reduces reimbursement substantially. New York Times, Apr. 23, 2012 77

Payment Methodologies Post ‐ Ingenix Payment Methodologies Post Ingenix 78

Payment Methodologies Post ‐ Ingenix Payment Methodologies Post Ingenix • Instead of UCR methdologies (either Ingenix or later Fair Health), trend is toward out ‐ of ‐ network reimbursement based on a set fee schedule (either toward out of network reimbursement based on a set fee schedule (either Medicare or a proprietary fee schedule) 79

Payment Methodologies Post ‐ Ingenix y g g • Percent of Medicare reimbursement formulas produce lower fees than UCR UCR • Insurers responding to NY investigation (included Aetna and United) said that OON reimbursements using percent of Medicare range from 80% to 400% with 110% to 150% being most common range 400% with 110% to 150% being most common range • Example: 80

Payment Methodologies Post ‐ Ingenix y g g • Important issue will be what the patient’s plan document say? • This will determine the payment obligation to a provider who • This will determine the payment obligation to a provider who claims under an assignment of benefits • Even if plan administrator implements a percent ‐ of ‐ Medicare methodology plan will have to use Fair Health or other methodology, plan will have to use Fair Health or other charge ‐ based methodology where plan language requires it. 81

Payment Methodologies Post ‐ Ingenix y g g 82

Payment Methodologies Post ‐ Ingenix y g g 83

Out ‐ of ‐ network reimbursement take ‐ aways y • Payors will increasingly set reimbursement rates at percent of Medicare levels • The member’s plan (provider steps into the member’s shoes) may provide for more generous reimbursement methodology • But member benefit plans will increasingly reference fee p g y schedule rates rather than UCR • Pre ‐ authorization of services will serve as evidence of payor approval ‐ document it and develop procedures for advance payor approval in all out ‐ of ‐ network cases 84

Key ERISA Litigation Trends Key ERISA Litigation Trends • Class Action Based on Recoupment Practices • Special Attorney ‐ Client Privilege Issues in ERISA Setting • Developing Law on Equitable Relief Under Developing Law on Equitable Relief Under ERISA

Key ERISA Decisions: Class Actions Based on Recoupment Practices Based on Recoupment Practices • Provider and provider organizations have brought putative class actions based on alleged recoupment practices class actions based on alleged recoupment practices o Allege that organizations seek to recoup previously paid benefits that post claims audits determine were non ‐ covered, excessive, fraudulent, unsupported by pertinent documentation, or the result of improper pp y p , p p billing practices o Allege that if benefit not returned organization deducts or offsets the amount from future unrelated claims • Allege recoupment practices violate RICO and ERISA o Decisions allegedly constitute “adverse benefit determination” under ERISA without “full and fair review” (disclosure of plan terms, reason for denial, documentation supporting decision) o Alleged breach of fiduciary duties under ERISA 86

ERISA Recoupment Class Actions : Association of N.J. Chiropractors, et al. v. Aetna Inc ., No. 09 ‐ 3761, D.N.J. l A t I N 09 3761 D N J • Chiropractic associations and individual chiropractors filed putative class action against Aetna in July 2010 • Allege that Aetna’s SIU would recoup overpayments identified in “Post Payment Audits,” in violation of RICO and ERISA, the latter because they allegedly constitute “adverse benefit determinations” made without complying with ERISA p y g o Court dismissed RICO claims (June 20, 2011) o Court denied motion to dismiss ERISA claims, noting that “Aetna has raised questions as to the viability of Plaintiffs’ ERISA claims,” but “that a more complete factual picture . . . is necessary to . . . resolve the issue” p p y • Aetna filed counterclaims for fraud, negligent misrepresentation, and unjust enrichment. Plaintiffs moved to dismiss. Court denied motion to dismiss on May 8 2012 dismiss on May 8, 2012. • Case stayed on May 23, 2012 pending outcome of appeal in Tri3 Enterprises, LLC v. Aetna, Inc., et al. , (D.N.J. No. 11 ‐ cv ‐ 3921) 87

ERISA Recoupment Class Actions : Pennsylvania Chiropractic Ass’n., et al. v. Blue Cross Blue Shield Ass’n. , No. 09C5619, N.D. Ill. l Bl C Bl Shi ld A ’ N 09C5619 N D Ill • Plaintiffs chiropractic physician associations and individual chiropractors filed putative class action on Sept. 10, 2009 against various Blue Cross and Blue Shield entities alleging recoupment practices violate RICO and ERISA entities alleging recoupment practices violate RICO and ERISA • Defendants filed three motions to dismiss, which were granted as to the RICO claims but denied as to the ERISA claims As to RICO clams, the Court held plaintiffs failed to plead predicate acts of racketeering o and proximate cause and proximate cause Defendants moved to dismiss ERISA claims on various grounds, including that Blue o entities were not proper ERISA defendants, failure to identify plan or participants at issue, and failure to exhaust. Court denied motions to dismiss the ERISA claims • Summary judgment granted in favor of defendants on subscriber claims by order dated January 23, 2012 • Plaintiffs’ motions to certify provider classes and motion to certify the Florida discrimination class denied by order entered October 12, 2012 • Order denying defendants’ motion for summary judgment and granting in part and denying in part motion for judgment on the pleadings entered October 12 2012 in part motion for judgment on the pleadings entered October 12, 2012 Bench trial set for December 2, 2013 • 88

ERISA Recoupment Class Actions : Premier Health Ctr., et al. v. United H Health Grp., Inc. , No. 11 ‐ 0425, D.N.J. lth G I N 11 0425 D N J • Plaintiffs chiropractors, chiropractic health care facilities, and chiropractic associations filed First Amended Complaint on April 22, 2011 against UnitedHealth entities OptumHealth Health Net of Northeast and Health UnitedHealth entities, OptumHealth, Health Net of Northeast and Health Net of New York • Recoupment Practices: Plaintiffs allege that recoupment practices constitute adverse benefit determinations and allegedly violate ERISA, and that fiduciary duties under ERISA were breached that fiduciary duties under ERISA were breached • Utilization Review: Plaintiffs allege OptumHealth’s pre ‐ authorization and provider tiering practices violate ERISA as “adverse benefit determinations” without “full and fair review” and because pre ‐ authorizations are allegedly not permitted under plan documents g y p p • UnitedHealth and Health Net filed motions to dismiss. On 3/30/12 the court denied United’s motion to dismiss, and granted Health Net’s motion to dismiss as to all claims pertaining to Health Net of the Northeast, and as to one Count against Health Net or New York • Motion for class certification pending f l f d • United’s motion for summary judgment against named representatives of purposed “ERISA Chiropractor Class” pending 89

Key ERISA Decisions: Attorney ‐ Client Privilege Under ERISA Under ERISA Stephan v Unum Life Ins. Co., 697 F.3d 917 (9th Cir. 2012) Participant in a long ‐ term disability plan insured by Unum • rendered permanently disabled in bike accident. Unum excluded annual bonus in calculation of pre ‐ disability earnings • Ninth Circuit held that internal memos from Unum’s in ‐ house Ninth Circuit held that internal memos from Unum s in house counsel to claims analyst regarding whether to include annual bonus was discoverable under the “Fiduciary Exception” to AC Privilege Privilege Fiduciary exception provides that entity acting as an ERISA fiduciary is o disabled from asserting attorney ‐ client privilege against plan beneficiaries on matters of plan administration p Ninth Circuit held that fiduciary exception applies to insurance o companies serving in the role of ERISA fiduciary 90

Key ERISA Decisions: Attorney ‐ Client Privilege Under ERISA Under ERISA Stephan v Unum Life Ins. Co., 697 F.3d 917 (9th Cir. 2012) • • The AC Privilege applies only after the insurer and beneficiary The AC Privilege applies only after the insurer and beneficiary are sufficiently “adverse” It is not until after the final administrative appeal that the • interests of the plan fiduciary and beneficiary become i t t f th l fid i d b fi i b sufficiently adverse to prevent application of the fiduciary exception o Memos at issue were advice on amount of benefits owed under the plan, M i d i f b fi d d h l before Unum made final determination, and constituted advice on plan administration given before interests of Stephen and Unum became adverse o Receipt of a demand letter from the beneficiary’s attorney did not make the situation sufficiently adverse to protect the insurer’s AC privilege 91

Key ERISA Decisions: Attorney ‐ Client Privilege Under ERISA Under ERISA A conflict exists between the 3 rd and 9 th Circuits • • • Wachtel v Health Net Inc 482 F 3d 225 (3d Cir 2007) Wachtel v. Health Net, Inc. , 482 F.3d 225 (3d Cir. 2007) ERISA beneficiaries filed suit under 502 of ERISA alleging that Health Net of New o Jersey relied on antiquated data and improper methods to define UCR charges, allegedly violating New Jersey law and duties as statutory fiduciaries Third Circuit held that fiduciary exception did not apply to communications o between Health Net and its attorneys • Health Net – and not the plan beneficiaries – was the client for whom the legal advice was given. Four factors support this position: whom the legal advice was given. Four factors support this position: • Unity of ownership and management • Conflicting interest regarding profits • Conflicting fiduciary obligations • Payment of counsel with fiduciary’s own funds f l i h fid i ’ f d • The fiduciary’s duty of disclosure did not require that Health Net reveal the advice it obtained from retained counsel 92

Key ERISA Decisions: Attorney ‐ Client Privilege Under ERISA Under ERISA • Sensitize in ‐ house counsel to lack of privilege • Does using outside counsel make a difference? • Is this good “policy” under the law? Is this good policy under the law? o Will it discourage seeking counsel opinion? o Will it have a chilling effect on opinions given by o Will it have a chilling effect on opinions given by counsel? 93

Key ERISA Decisions: Equitable Relief Cigna Corp. v. Amara , 131 S.Ct. 1866 (2011) Pension plan participants brought putative class action against Cigna based on • conversion from traditional defined benefit plan to cash balance plan alleging Cigna failed to give them proper notice of changes to their benefits. • District Court found disclosures violated obligations under ERISA and caused participants “likely harm ” It reformed the new plan and ordered Cigna to pay participants likely harm. It reformed the new plan and ordered Cigna to pay benefits under ERISA § 502(a)(1)(B). • Supreme Court held that § 502(a)(1)(B) did not give District Court authority to reform plan, but relief is authorized by § 502(a)(3) as appropriate equitable relief. p , y ( )( ) pp p q • To obtain equitable relief of surcharge, Supreme Court held that plan participant must show that violation caused injury, but need only show actual harm and causation, not detrimental reliance. District court on remand found that both reformation and surcharge were • appropriate equitable remedies that allowed it to provide plaintiffs with the same form of relief that was previously ordered. 94

Key ERISA Decisions: Equitable Relief U.S. Airways, Inc. v. McCutchen , 133 S.Ct. 1537 (2013) • McCutchen injured in auto accident and Plan paid $66,866 in medical expenses. • • McCutchen sued other driver settled with driver for $10 000 and secured McCutchen sued other driver, settled with driver for $10,000, and secured payment of $100,000 from McCutchen’s own insurer, for total of $110,000. After deduction of attorney’s fees and costs, McCutchen received $66,000. • Plan sued McCutchen under ERISA § 502(a)(3) seeking reimbursement of full § ( )( ) g $66,866 it paid in medical bills. McCutchen claimed that equitable doctrines of double recovery and common ‐ fund rule limited Plan’s recovery. • Supreme Court held that in a § 502(a)(3) based on an equitable lean by agreement the Plan terms govern. Unjust enrichment or other equitable principles cannot override the contract. Equitable defenses may, however, still aid in properly construing a contract. • • Plan was silent regarding allocation of attorney’s fees and the common fund Plan was silent regarding allocation of attorney s fees, and the common ‐ fund doctrine provided the appropriate default. 95

Suits Challenging the Blues Structure and Blues Plans’ Exclusive Service Areas 96

Background and Concept Background and Concept Blue Cross and Blue Shield plans historically competed with one p y p • another • Blue Cross Blue Shield Association (BCBSA) formed in the 1980s • BCBSA owns and licenses the “Blue Cross” and “Blue Shield” BCBSA d li h “Bl C ” d “Bl Shi ld” trademarks and service marks • A given entity (can be non ‐ profit or for profit) holds the “Blue g y ( p p ) Cross” or “Blue Shield” mark in a given geographic region • In the past, some states had more than one Blue plan. Now Blue plans within a state have consolidated to one plan per state plans within a state have consolidated to one plan per state. 97

Nature of Litigation Nature of Litigation • Numerous lawsuits filed on behalf of putative classes, some provider and some subscriber. • Principal claims are antitrust, Sherman Act, § 1 claims (“every contract, combination . . . or conspiracy in restraint of trade or , p y commerce” shall be illegal). • Suits alleged that Blues plans, through the BCBSA, entered in an agreement to divide geographic markets and give plans a agreement to divide geographic markets and give plans a monopoly in a given geography. • Division of geography via the BCBSA licensing procedure alleged to be “a naked territorial restrain[t] on competition in the to be a naked territorial restrain[t] on competition in the market for health insurance.” – Conway v. Blue Cross Blue Shield of Ala. , No. 2:12 ‐ cv ‐ 02532 (N.D. Ala.) consolidated in In re: Blue Cross Blue Shield Antitrust Litig. , MDL No. 2406 (N.D. Ala.) 98

Blues’ Relative Market Power Blues Relative Market Power • • Allegations regarding the Blues plans’ market share are key Allegations regarding the Blues plans market share are key aspect. Market share of relevant Blue plans alleged to be: – Over 73.8% of North Carolina residents who subscribe to full ‐ service commercial health insurance service commercial health insurance • Cerven v. Blue Cross Blue Shield of N.C. , No. 5:12 ‐ cv ‐ 17, consolidated in In re: Blue Cross Blue Shield Antitrust Litig. , MDL No. 2406 (N.D. Ala.) – 68% of Tennessee health insurance market 68% of Tennessee health insurance market – 96% of subscribers of full ‐ service commercial health insurance plans in Alabama small group market • See Conway Compl. See Conway Compl. 99

How Plaintiffs Claim the Conspiracy Works How Plaintiffs Claim the Conspiracy Works The conspiracy, according to plaintiffs, causes 38 Blues plans p y, g p , p • from crossing state lines and competing with one another • Effect of the conspiracy is alleged to be inflated premiums to subscribers and depressed payments to providers subscribers and depressed payments to providers • Examples of allegations from Conway complaint: – “Defendants have conspired to divide the healthcare market in the United States into geographically defined regions in order to allow each BCBS plan an exclusive, competition ‐ free slice of the healthcare market.” (¶ 1.) – “This illegal restraint is implemented through the Blue Cross and Blue Shi ld li Shield license agreements that each licensee has entered into with h h li h d i i h Defendant BCBSA.” (¶ 65.) 100