Pacific Recovery Solutions v. United Behavioral Health

Background

Pacific Recovery Solutions and the other plaintiffs are out-of-network healthcare providers that supplied intensive outpatient program services to patients whose health-insurance policies were administered by United Behavioral Health. The plaintiffs alleged that, during verification-of-benefits calls, United represented that it would pay a percentage of the usual, customary, and reasonable rates for those services. They alleged that United instead used Viant, a third-party repricer, to negotiate lower reimbursement amounts and then paid the claims at those reduced amounts.

The plaintiffs alleged that United and Viant retained the difference between the amounts they should have paid and the amounts they actually paid. They also alleged that patients remained responsible for unpaid balances, which the plaintiffs sought to collect through balance billing. The complaint asserted claims under Section 1 of the Sherman Act, the Racketeer Influenced and Corrupt Organizations Act, and California law, including misrepresentation, contract, promissory estoppel, civil conspiracy, and unfair competition claims. The plaintiffs brought the claims for themselves and a proposed class of similarly situated out-of-network intensive outpatient providers.

Legal standard

The defendants moved under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not plead enough facts to state a plausible legal claim. The court accepted the complaint’s factual allegations as true for purposes of the motions and considered whether the allegations met the applicable legal requirements.

Sherman Act claims

The plaintiffs alleged that United and Viant participated in a horizontal conspiracy to fix the amounts United reimbursed providers. The court dismissed the damages claim because the alleged injury appeared to arise from patients’ failure to pay unpaid balances, rather than from harm to competition. The court also found the injury appeared derivative of the patients’ alleged injuries, speculative because patients might pay their balances, and subject to risks of duplicative recovery and complicated damages calculations. For those reasons, the plaintiffs had not plausibly alleged antitrust standing—the required connection between the plaintiff’s injury and the antitrust violation.

The court separately concluded that the complaint did not adequately allege the elements of a Section 1 claim. The alleged negotiations suggested that reimbursement amounts varied rather than being fixed. The complaint also did not allege facts showing that United and Viant were competing entities, define a relevant market or its substitutes, allege the competitors’ market power, or show that the alleged conduct unreasonably restrained trade under the rule-of-reason analysis. The court dismissed both the damages and requested injunctive-relief claims.

RICO claims

The plaintiffs alleged that United and Viant operated an unlawful kickback scheme and violated Section 1962(c) of RICO through mail fraud, wire fraud, and specified healthcare-related offenses. The court dismissed the claim for lack of RICO standing because the plaintiffs’ injuries appeared derivative of the patients’ injuries and too remote. The court also found that the complaint did not adequately allege a RICO enterprise, conduct showing that either defendant directed the enterprise’s affairs, or a pattern of racketeering activity.

The court stated that the alleged healthcare offenses were not listed as RICO predicate offenses. It also found that the complaint did not plead at least two qualifying mail-fraud or wire-fraud acts with the required detail, including the time, place, content, and participants in the allegedly fraudulent communications, or facts showing that the communications used interstate mail or wires. To the extent the plaintiffs intended to assert a RICO-conspiracy claim under Section 1962(d), the court dismissed it because the plaintiffs had not adequately pleaded a substantive RICO violation.

California-law claims and ERISA

The plaintiffs’ California-law claims were based on the alleged representations that United would reimburse them at a percentage of the usual, customary, and reasonable rate. The defendants argued that these claims were preempted by ERISA, the federal law governing employee-benefit plans.

The court held that ERISA Section 514(a) preempted the state-law claims because the allegations tied United’s reimbursement obligation to the existence and terms of patients’ ERISA plans. The court emphasized that the plaintiffs did not plausibly allege an agreement with United independent of those plans and appeared to seek additional reimbursement under the plans. The court explained that ERISA Section 502(a)’s separate complete-preemption rule was not at issue because the case had been filed in federal court rather than removed from state court.

Disposition

The court granted the defendants’ motions to dismiss with leave to amend. It allowed the plaintiffs to amend their antitrust and RICO claims to attempt to establish antitrust and RICO standing and otherwise state cognizable claims. It also allowed them to amend their state-law claims to present a theory that avoided ERISA Section 514(a) preemption. The plaintiffs could file an amended complaint within 30 days of the order’s filing, and the defendants could respond within 30 days after that filing. The order terminated Docket Numbers 38 and 39.