Pacific Recovery Solutions v. United Behavioral Health

Background

Pacific Recovery Solutions and the other plaintiffs brought a putative class action against United Behavioral Health and MultiPlan, Inc. The plaintiffs are out-of-network providers that supplied intensive outpatient program services to patients with insurance policies administered by United. They alleged that United represented during verification-of-benefits calls that it would reimburse services at a percentage of the usual, customary, and reasonable rate, but instead used a database and pricing tool to generate rates that resulted in under-reimbursement.

The amended complaint asserted claims under Section 1 of the Sherman Act and the Racketeer Influenced and Corrupt Organizations Act (RICO), along with California claims for unfair competition, intentional misrepresentation and fraudulent inducement, negligent misrepresentation, civil conspiracy, breach of oral or implied contract, and promissory estoppel. The defendants moved under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint adequately states a legal claim. They argued that the federal claims failed for lack of statutory standing, that the state-law claims were preempted—displaced by federal law—under the Employee Retirement Income Security Act (ERISA), and that the claims remained inadequately pleaded.

Sherman Act claims

The court held that the plaintiffs did not have antitrust standing, meaning the necessary connection between an alleged antitrust violation and the plaintiff’s injury. The plaintiffs’ allegations indicated that their losses arose from patients’ failure to pay amounts remaining after United’s reimbursement, rather than directly from the defendants’ alleged conspiracy. The court also found the alleged injury was not the type the antitrust laws were intended to prevent, was too speculative, and created a risk of duplicate recoveries if both providers and patients sued over the same conduct.

The court therefore granted the defendants’ motions to dismiss the Sherman Act claim with prejudice. Because the lack of antitrust standing required dismissal, the court did not reach the defendants’ alternative arguments concerning that claim.

RICO claims

The plaintiffs alleged that the defendants used mail and wire fraud to under-reimburse them and violated RICO sections 1962(c) and 1962(d). The court held that the plaintiffs lacked RICO standing because their alleged business or property injury was derivative of, and too remote from, the injuries allegedly suffered by their patients. The court also emphasized the risk of duplicative recoveries and noted that the patients had filed a separate related lawsuit asserting RICO claims based on the same alleged enterprise.

The court granted the defendants’ motions to dismiss the RICO claims with prejudice. Because the plaintiffs lacked RICO standing, the court did not address the defendants’ alternative arguments about whether the RICO claims were adequately pleaded.

California claims and ERISA preemption

The court ruled that the state-law claims depended on the existence and terms of the patients’ healthcare plans. To the extent the allegedly under-reimbursed services were covered by ERISA plans, the claims were preempted under ERISA Section 514(a). The court granted the motions to dismiss those state-law claims with prejudice.

The amended complaint also alleged that a large percentage of the plans were not covered by ERISA, but it did not identify which claims involved plans outside ERISA’s scope or explain why. The court granted the motions to dismiss the state-law claims involving plans outside ERISA’s scope with leave to amend. The court stated that plaintiffs could try to plead facts identifying those claims and supporting liability under California law, but could not reassert claims dismissed with prejudice, repeat rejected theories, or add new claims.

Other ruling and disposition

The court granted the plaintiffs’ motion for leave to file a sur-reply. It allowed the plaintiffs 30 days from filing of the order to submit an amended complaint and allowed defendants 30 days after that filing to respond. Judge Yvonne Gonzalez Rogers ordered that the motions and the sur-reply motion were terminated.