Embattled Laboratory Seeks Dismissal of Cigna Lawsuit

Health Diagnostic Laboratory Inc. (HDL) is seeking dismissal of an $84 million lawsuit filed against it in October by Connecticut General Life Insurance Co. (Cigna). In a Dec. 8 motion seeking dismissal of the Cigna suit, HDL alleges the claims are not properly founded in Employee Retirement Income Security Act (ERISA) law, claiming that the suit is instead motivated by Cigna’s desire to limit out-of-network providers. ERISA is a group of federal laws designed to protect retirement plan funds. In a 43-page memorandum of law in support of its motion to dismiss, HDL alleges that Cigna brought the complaint in the guise of its purported role as an administrator of certain ERISA-based insurance plans when its real motivation is the support of its own business strategies to control costs by limiting out-of-network providers such as HDL. HDL Paid Referral Sources Collection Fees to Garner Referrals In the original complaint, reported in the October issue of G2 Compliance Advisor, Cigna alleges that HDL operated a scheme to circumvent safeguards designed to prevent unreasonable and excessive charges by forgiving patient copays, coinsurance, and deductibles if they used HDL. Further, Cigna alleges that HDL also paid physicians kickbacks disguised as collection fees if they referred patients to HDL. HDL reportedly is under investigation by the federal government for paying those allegedly disguised kickbacks as well. The federal complaint has not been made public, so there is no way to know exactly what HDL is accused of or if there is any legal action moving forward. HDL Says Cigna Cannot Use ERISA as Basis for Complaint In its motion seeking dismissal of the Cigna lawsuit, HDL alleges the following:

• Cigna lacks standing as a fiduciary under ERISA §502(a)(3) because it improperly seeks the return of funds that it paid in its capacity as an insurer and it otherwise fails to adequately allege facts that identify the benefit plans that it purports to represent;
• Cigna has not afforded the plan’s beneficiaries with the notice and appeal rights as required by ERISA;
• Cigna does not state a claim for violations of ERISA or any terms imposed by ERISA or any plan document that requires HDL to collect copays, coinsurance, and deductibles;
• Cigna’s demand for compensatory damages fails because ERISA allows only equitable relief, which is not established by the Cigna complaint and, according to the HDL memorandum, insurers are not entitled to such relief;
• All of Cigna’s state law claims are preempted by ERISA; and
• Cigna’s allegations regarding a fraudulent scheme fall short of the particularity required by rule 9(b), which says in part that a party must state with particularity the circumstances constituting fraud. According to HDL, the who, what, when, where, and how of the fraud must be stated clearly.

HDL’s memorandum alleges that Cigna’s complaint fails to plead the most important details in the case. Those details include the identity of the plans, the number of plans, how those plans are funded, whether those plans are subject to ERISA, what terms the plans contain, which terms were violated, how such terms were violated, who the real party-in-interest is, and what Cigna’s interest is. Why Should Other Laboratories Care? HDL is a prime example of the state of compliance in health care today and how compliance issues can be affected by other current activities in health care. A drive by the government to foster transparency in health care payment issues resulted in the release of Medicare claims payment files in April. A review and analysis of those files by the Wall Street Journal resulted in a front-page story about HDL and some of the practices that made it a fast-growing health care company. Along the way, the Health and Human Services Office of Inspector General published a fraud alert identifying one of those practices, paying physicians and other referral sources collection fees, as presenting a substantial risk of fraud and abuse under the anti-kickback statute. HDL ceased the practice shortly after the release of the fraud alert, saying the alert constituted new guidance from the government. Recent reports that HDL CEO Tonya Mallory has resigned and that HDL is reducing its workforce serve to illustrate the impact of transparency and bad press. Finally, the Cigna lawsuit, whether it ultimately fails or not, completes the circle. Compliance officers must seriously consider how much risk they are willing to allow their companies to take and how they should operate their compliance programs going forward. Takeaway: The lawsuit by Cigna against HDL demonstrates the creative use of a federal law, ERISA, to recoup money and potentially restrict networks.