Pacific Recovery Solutions v. Cigna Behavioral Health, Inc.

Background

Pacific Recovery Solutions, doing business as Westwind Recovery, Miriam Hamideh PhD Clinical Psychologist Inc., doing business as PCI Westlake Centers, Bridging the Gaps, Inc., and Summit Estate Inc., doing business as Summit Estate Outpatient, are four out-of-network behavioral-health providers offering intensive outpatient program treatment. They sought to represent a class of similarly situated providers against Cigna Behavioral Health, Inc. and Viant, Inc.

The providers alleged that, during calls verifying patients’ insurance benefits, Cigna represented that out-of-network claims would be paid at a percentage of the usual, customary, and reasonable rate, calculated under Cigna’s reimbursement methods or based on rates charged by similar providers in a similar geographic area. They alleged that Cigna did not disclose that Viant would reprice the claims and, when asked, said third-party repricing would not apply.

According to the complaint, Cigna sent the claims to Viant, which offered reduced reimbursement rates that were not based on the usual, customary, and reasonable rate, the patients’ plan terms, or language in the insurance plans. Cigna then paid the claims at the reduced rates. The providers alleged that patients were often left responsible for more than 90 percent of the cost and that the providers had to bill patients for the unpaid amounts. The complaint alleged that coverage for the treatment was not disputed; the dispute concerned the amount to be paid.

Claims and motions

The complaint asserted eight claims against both defendants, except that the breach-of-contract claim was asserted only against Cigna: violation of California’s Unfair Competition Law, intentional misrepresentation and fraudulent inducement, negligent misrepresentation, civil conspiracy, breach of oral or implied contract, promissory estoppel, civil racketeering under the Racketeer Influenced and Corrupt Organizations Act, and violation of Section 1 of the Sherman Act.

Cigna and Viant separately moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not state a legally sufficient claim. Cigna argued that the state-law claims were preempted by the Employee Retirement Income Security Act of 1974, or ERISA; that the providers were not entitled to payment of their full billed charges; that the racketeering claim lacked standing and adequate factual detail; and that the Sherman Act claim lacked standing and did not plausibly allege unlawful price fixing. Viant’s arguments were identical or substantially overlapping.

State-law claims and ERISA

The court rejected the defendants’ argument that ERISA’s complete-preemption provision independently required dismissal under Rule 12(b)(6), explaining that complete preemption under ERISA section 502 is principally a jurisdictional doctrine. The court separately considered conflict preemption under ERISA section 514, which generally supersedes state laws that relate to an ERISA employee-benefit plan.

The court held that the state-law claims, as currently pleaded, were preempted. Although the providers did not expressly allege that every patient’s plan was governed by ERISA, the complaint referred to ERISA, patient plans, plan terms, assignments of patient benefits, and Cigna’s obligations under those plans. The court concluded that these allegations showed that the state-law claims depended on ERISA plans and their terms rather than being completely independent promises between the providers and Cigna or Viant.

The court dismissed the state-law claims with leave to amend. It did not reach the defendants’ alternative arguments for dismissing those claims.

Civil racketeering claim

The providers alleged that Cigna and Viant violated 18 U.S.C. § 1962(c) through mail fraud, wire fraud, and federal health offenses. The court dismissed the claim on several independent grounds.

First, the court held that the providers had not shown the direct injury required for civil racketeering standing. Under the complaint’s own allegations, the patients were the more direct victims because they were left with large payment obligations. The providers’ injury depended on whether the patients could pay the amounts not reimbursed by Cigna. The court also found a risk of speculative damages and duplicative recoveries because patients could pursue claims based on the same conduct.

Second, the court held that the complaint did not adequately allege an association-in-fact enterprise. A routine commercial relationship between Cigna and Viant was not enough. The providers did not plead specific facts plausibly showing that the defendants formed an ongoing organization with a shared purpose of fraudulently underpaying claims.

Third, the court held that the complaint did not allege qualifying racketeering acts. The alleged federal health offenses were not listed as racketeering predicates under the relevant statute, and the providers’ money-laundering theory did not appear in the complaint. Although mail fraud and wire fraud can qualify, the complaint did not identify the who, what, when, where, and how of particular fraudulent communications, and it did not sufficiently allege that the defendants acted with the intent to deceive and cheat.

The court dismissed the civil racketeering claim. It also denied the providers’ request for limited discovery, finding that the necessary details about the alleged misrepresentations were not exclusively within the defendants’ knowledge. The conclusion granted leave to amend the non-antitrust claims, including this claim.

Sherman Act claim

The providers alleged a per se violation of Section 1 of the Sherman Act based on an agreement between Cigna and Viant to fix reimbursement prices for out-of-network intensive outpatient services.

The court held that the providers lacked antitrust standing because their alleged injury was derivative of the patients’ injuries, the amount of damages was speculative, and separate suits by patients and providers could create duplicative recoveries. The court also held that the alleged price-fixing theory was not plausible. Cigna and Viant were not competitors, and the complaint did not identify insurance benefits for out-of-network services as a distinct product or service available for purchase and sale at its own price. The complaint also failed to allege a relevant geographic market or sufficient facts showing that defendants had market power.

Disposition

Judge Edward J. Davila ordered that the defendants’ motions to dismiss were granted with leave to amend, except as to the antitrust claim, which was dismissed with prejudice. The court found that the antitrust pleading deficiencies could not possibly be cured by additional facts because Cigna and Viant were not competitors. The amended complaint was due April 19, 2021.