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Timestamp: 2019-04-20 08:55:00+00:00

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CIGNA HEALTH AND LIFE INSURANCE and OPTUMRX, INC., Defendants.
Warren W. Eginton Senior United States District Judge.
In this putative class action, plaintiffs Kimberly Negron, Daniel Perry, Courtney Gallagher, Nina Curol and Roger Curol allege that defendants Cigna Health and Life Insurance Company (“CIGNA”) and OptumRx, Inc., have violated the Employee Retirement Income Security Act (“ERISA”) and the Racketeer Influenced and Corrupt Organizations Act (“RICO”). Plaintiffs allege that defendants have artificially inflated prescription drug costs in violation of the terms of their health insurance policies.
In count one, plaintiffs assert their action against defendants pursuant to ERISA § 502(a)(1)(B), which provides that a participant or beneficiary may bring an action to enforce rights under the terms of the plan. In counts two and three, plaintiffs assert violations of ERISA's prohibited transactions enumerated in ERISA § 406(a) and (b). In count four, plaintiffs allege that defendants have breached their fiduciary duties of loyalty and prudence in violation of ERISA § 404(a)(1). In count five, plaintiffs allege that defendants violated ERISA's antidiscrimination provision of ERISA § 702(b). In counts six and seven, plaintiffs allege that defendants are liable as co-fiduciaries or non-fiduciaries based on knowing participation in the asserted breaches of fiduciary duty. In counts eight through ten, plaintiffs assert RICO claims against defendants.
For purposes of ruling on a motion to dismiss, the Court accepts all allegations of the 1 At the hearing, the Court had indicated it would rule on only the issue of exhaustion. However, the Court finds that judicial economy is served by consideration of all of the issues in this ruling. complaint as true. The Court assumes familiarity with the allegations of the complaint. However, the Court will include this brief factual background.
Plaintiffs receive prescription drug benefits through individual or group health plans issued or administered by defendants. Cigna offers both administrative services only (“ASO”) plans and insured plans. Both types of plan offer the same range of administrative services.
Cigna has an in-house pharmacy benefit manager known as Cigna Pharmacy Management that provides and administers health and pharmacy benefits to patients. Cigna Pharmacy Management outsources certain functions to other providers, including defendant OptumRx and another entity known as Argus Health Systems Inc. Cigna utilizes OptumRx's technology and service platforms, retail network contracting and claims processing services. Argus was the primary pharmacy benefit manager prior to 2013, and it remains part of Cigna's pharmacy benefits delivery system. Plaintiffs allege that Argus and OptumRx have been directed by Cigna and are involved in administering pharmacy benefits for the relevant plans.
Plaintiffs assert that defendants and other co-conspirators engaged in a scheme to defraud patients by overcharging for the cost of medically necessary prescription drugs. Patients allegedly pay excess charges to participating pharmacies in exchange for receiving their prescription drugs. Defendants allegedly misrepresent the costs of the prescription drugs in the form of increased charges to patients and then “clawback” from the pharmacies a large portion of the patients' payments.
In their complaint, plaintiffs have included an example of the asserted Clawback scheme applied to a prescription Vitamin D that a pharmacy purchased from the manufacturer or wholesaler for $0.60. Pursuant to the Phamacy Benefit Manager Pharmacy Agreement (PBM Pharmacy Agreement), defendants' pharmacy benefit manager paid the pharmacy 0.96 for the Vitamin D, a fulfillment fee of $1.40, and $0.21 in tax. Thus, in accordance with the PBM Pharmacy Agreement, the contracted charge made by the pharmacy was $2.57. The PBM Pharmacy Agreement required the pharmacy to charge the patient a $7.68 “copayment” for the prescription Vitamin D, which represents almost 300% of an overcharge. The PBM-Pharmacy Agreement then required the pharmacy to pay the PBM or insurer the “Spread” between the contracted fee and the “copayment” amount collected from the patient. Thus, plaintiffs allege that defendants received a $5.11 Clawback. The PBM Pharmacy Agreement prohibited the pharmacy from disclosing to the patient the amount paid to the pharmacy or the Clawback.
Plaintiffs allege that the relevant plans provide that “[i]n no event will” a copayment or coinsurance amount paid by an insured exceed the amount paid by the plan to the pharmacy.2 However, plaintiffs assert that contrary to the plan provisions, defendants have forced network pharmacies to charge patients unauthorized and excessive amounts for prescription drugs that far exceed the charges made by the pharmacy under their agreements; and that defendants have “clawed back” some or all of the excessive charges by forcing the pharmacies to pay the unauthorized charges to defendants after collecting them from the patients.
Plaintiffs' plans provide for (1) a claim determination and appeal process relative to coverage claims; and (2) a customer or member service for complaints if the insured has, inter alia, “a concern regarding a person, a service, the quality of care, [or] contractual benefits.” The customer or member service provision instructs that an insured who is not satisfied with the results of a coverage decision “may start the appeals procedure.” The plan provisions relevant to filing a reimbursement or filing a claim for prescription drugs provide that upon purchase of a drug at a retail participating pharmacy, an insured or beneficiary 2 Plaintiffs quote the following relevant language from the plans: “In no event will the Copayment or Coinsurance for the Prescription Drug or Related Supply exceed the amount paid by the plan to the Pharmacy, ” and “In no event will the applicable copay or coinsurance paid by you and your covered Dependent(s) for the Prescription Drug or Related Supply exceed the amount paid by the Plan….” pays an applicable Copayment, Coinsurance or Deductible and does not need to file a claim form.
The function of a motion to dismiss is “merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof.” Ryder Energy Distrib. v. Merrill Lynch Commodities, Inc., 748 F.2d 774, 779 (2d Cir. 1984). When deciding a motion to dismiss, the Court must accept all well-pleaded allegations as true and draw all reasonable inferences in favor of the pleader. Hishon v. King, 467 U.S. 69, 73 (1984). The complaint must contain the grounds upon which the claim rests through factual allegations sufficient “to raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). A plaintiff is obliged to amplify a claim with some factual allegations to allow the court to draw the reasonable inference that the defendant is liable for the alleged conduct. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
With regard to allegations of fraud or fraudulent conduct, a plaintiff must comply with the higher pleading standard required by Federal Rule of Civil Procedure 9. In order to satisfy Rule 9(b), a complaint must: (1) specify the statements that the plaintiff contends were fraudulent; (2) identify the speaker; (3) state where and when the statements or omissions were made; and (4) explain why the statements or omissions were fraudulent. Antian v. Coutts Bank (Switzerland) Ltd., 193 F.3d 85, 88 (2d Cir. 1999). A plaintiff may make general allegations of malice, intent, knowledge or other state of mind, but the facts must give rise to a strong inference of fraudulent intent. Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1128 (2d Cir. 1994). The purpose of the specificity requirement is: (1) to ensure that a complaint provides a defendant with fair notice of plaintiff's claim; (2) to safeguard a defendant's reputation from improvident charges; and (3) to protect defendant from a strike suit. O'Brien v. Nat'l Prop. Analysts Partners, 936 F.2d 674, 676 (2d Cir. 1991).
In count one, plaintiffs allege a claim under ERISA § 502(a)(1)(B), asserting that they have been denied their rights under the plans due to defendants' Clawbacks from the inflated prescription drug costs. Defendants respond that plaintiffs were required to exhaust their administrative remedies by appealing a denial of benefits. Plaintiffs counter that there were no claim denials to appeal; that imposing the exhaustion requirement would be inequitable; and that pursuing administrative remedies would be futile.
Courts have generally required participants to exhaust the administrative remedies prior to filing suit to recover benefits. Heimeschoff v. Hartford Life & Acc. Ins. Co., 134 S.Ct. 604, 608 (2013). Administrative exhaustion serves as a safeguard that encourages “employers and others to undertake the voluntary step of providing medical and retirement benefits to plan participants.” Halo v. Yale Health Plan, Dir. of Benefits & Records Yale Univ., 819 F.3d 42, 55 (2d Cir. 2016). The primary purposes of ERISA exhaustion are “[to] uphold Congress' desire that ERISA trustees be responsible for their actions, not the federal courts; [to] provide a sufficiently clear record of administrative action if litigation should ensue; ... [to] assure that any judicial review of fiduciary action (or inaction) is made under the arbitrary and capricious standard, not de novo[;] ... to help reduce the number of frivolous lawsuits under ERISA; to promote the consistent treatment of claims for benefits; to provide a nonadversarial method of claims settlement; and to minimize the costs of claims settlement for all concerned.” Kennedy v. Empire Blue Cross & Blue Shield, 989 F.2d 588, 594 (2d Cir. 1993). However, the exhaustion requirement is “judge-made” as “ERISA itself does not contain an exhaustion requirement.” Kirkendall v. Halliburton, Inc., 707 F.3d 173, 179 (2d Cir. 2013).
ERISA exhaustion is not a jurisdictional requirement but rather an affirmative defense subject to waiver, estoppel, futility and other equitable considerations. Paese v. Hartford Life and Acc. Ins. Co., 449 F.3d 435, 444-446 (2d Cir. 2006). As the Second Circuit observed, “ERISA seeks to avoid saddling plaintiffs in such circumstances with the burdens and procedural delays imposed by inartfully drafted plan terms.” Kirkendall, 707 F.3d at 181 (“We therefore join the Seventh and Eleventh Circuit in holding that plan participants will not be required to exhaust administrative remedies where they reasonably interpret the plan terms not to require exhaustion and do not exhaust their administrative remedies as a result.”); see also Woerner v. Fram Group Operations, LLC, 658 Fed.Appx. 90, 96 n.6 (3d Cir. 2016) (Plaintiff should be excused from exhaustion where she believed she was not bound by claims procedure.).
Plaintiffs maintain that they are not barred by ERISA exhaustion because the bases of their claims are not a denial of prescription drug benefits. They have alleged that charges for the prescription drug benefits were paid in full and that plaintiffs have received the prescription drugs. The relevant language of the plans provides that an appeal should be initiated within 180 days of notice of the denial. Plaintiffs submit that they had no notice of a denial to trigger the administrative for procedure for a claim denial.
Defendants submit that Court should follow the holding of UnitedHealth Group PBM Litig., 2017 WL 651222, at *5-8 (D. Minn. Dec. 19, 2017), which found that exhaustion was required for Section 502(a)(a) claims asserting entitlement for discounted prescription drug benefits. However, the terms of the plans at issue in UnitedHealth are distinguishable from the terms of the instant plaintiffs' plan. Relevant to prescription drugs, the instant plans provide that, upon purchase of a drug at a retail participating pharmacy, an insured or beneficiary pays an applicable Copayment, Coinsurance or Deductible and does not need to file a claim form. In UnitedHealth Group, the Court found that two of the relevant plans provided procedures specific to challenging coinsurance or copayment calculations; and that the administrative procedures of the other plans provided adequate administrative procedures applicable to copayment and coinsurance disputes. UnitedHealth Group noted that the relevant member handbook explained that the “Grievance procedure” applied to both adverse determinations and “for other issues.” In the instant matter, the plans provide (1) a claim determination and appeal process relative to claims for coverage; and (2) a customer or member service for complaints if the insured has, inter alia, “a concern regarding a person, a service, the quality of care, [or] contractual benefits.” Consistent with the following discussion, this Court finds that plaintiffs have plausibly stated that the plan terms do not set forth administrative procedures that unambiguously address plaintiff's claims of being overcharged for prescription drugs.
Plaintiffs assert that they were not aware that they had been overcharged, and therefore, they could not have filed a claim based on the amount of their copayments or coinsurance. “Because the exhaustion requirement rests on the assumption that notice of denial has been provided, a fiduciary who has not provided notice of a claim for benefits is foreclosed from insisting upon exhaustion of administrative remedies.” Corsini v. United Healthcare Corp., 965 F.Supp. 265, 269 (D.R.I. 1997) (even assuming alleged claim regarding excessive co-payment could be considered a claim for benefits, plan's exhaustion requirement would not apply because defendant had failed to notify plaintiffs of discounted rates paid for medical services). “An adverse benefit” is defined as “[a] denial, reduction, or termination of, or a failure to provide or make payment (in whole or in part) for, a benefit, including any such denial, reduction, termination, or failure to provide or make payment that is based on a determination of a participant's or beneficiary's eligibility to participate in a plan, and including, with respect to group health plans, a denial, reduction, or termination of, or a failure to provide or make payment (in whole or in part) for, a benefit resulting from the application of any utilization review, as well as a failure to cover an item or service for which benefits are otherwise provided because it is determined to be experimental or investigational or not medically necessary or appropriate.” 29 C.F.R. § 2560.503-1(m)(4)(i).
Construing the complaint most liberally for purposes of ruling on this motion to dismiss, the Court finds that plaintiffs have plausibly stated that they did not sustain an adverse benefit determination claim for coverage of prescription drugs that would trigger exhaustion. See Smith v. United HealthCare Svcs., Inc., 2000 WL 1198418, at *4 (D. Minn. 2000).
Further, defendants have not proved as a matter of law that they maintained standard reasonable claim procedures that complied with the DOL regulation. If a plan does not comply with the minimum set forth by the DOL regulation, the plain is not entitled to the protections of the exhaustion requirement and the deferential standard of review by the district court, unless the plan can show that its failure to comply with claims-procedure regulation was inadvertent and harmless. Halo, 819 F.3d at 56.
In accordance with 29 C.F.R. § 2560.503-1(b), every plan must “establish and maintain reasonable procedures governing the filing of benefit determinations, and appeal of adverse benefit determinations.” The regulation provides further: “In the case of the failure of a plan to establish or follow claims procedures consistent with the requirements of this section, a claimant shall be deemed to have exhausted the administrative remedies available under the plan and shall be entitled to pursue any available remedies under Section 502(a) of the Act on the basis that the plan has failed to provide a reasonable claims procedure that would yield a decision on the merits of the claim.” 29 C.F.R. § 2560.503-1(1). The plan bears the burden of proof on this issue. Halo, 819 F.3d at 57.
Generally, the DOL regulation defines a claim for benefits as “a request for a plan benefit or benefits made by a claimant in accordance with a plan's reasonable procedure for filing benefit claims.” 29 C.F.R. § 2560.503-1(e). The regulation “requires notice of an adverse benefit determination within a reasonable time with a “written or electronic notification” that sets forth the specific reasons for the adverse determination, references the specific plan provisions, and describes additional material necessary and the plan's review procedures; further, the regulation provides that “[e]very employee benefit plan shall establish and maintain a procedure by which a claimant shall have a reasonable opportunity to appeal an adverse benefit determination” and sets forth specific provisions regarding timing and opportunities for claimants' comments and access. 29 C.F.R. § 2560.503-1(b)-(j). Additionally, reasonable claims procedures should “not contain any provision, and [should not be] administered in a way, that unduly inhibits or hampers the initiation or processing of claims for benefits.” 29 C.F.R. § 2560.503-1(b)(3).
Defendants argue that the plaintiffs should have exhausted their administrative remedies by calling “Customer Service” to complain about the overcharges. However, defendants have not shown how the “Customer Service” process, which applies to complaints about “a person, a service, the quality of care, choice of or access to providers, provider network adequacy or contractual benefits, ” is unambiguously applicable to exhaustion of claims regarding prescription drug overcharges. In ruling on this motion to dismiss for failure to exhaust, the Court is mindful that defendant bears the burden of proof on this affirmative defense. See Hardaway v. Hartford Public Works Dep't., 879 F.3d 486, 490-491 (2d Cir. 2018) (defendant bears the burden of proof on affirmative defense). Accordingly, the Court should not resolve the ambiguity as to whether plaintiffs' claims should have been exhausted through the Customer Service procedure.
Plaintiffs have alleged plausible claims that they complied with the claim procedure relevant to prescription drugs, received their benefit of the prescription drugs, and that the pharmacy received the payment for the charges. At a minimum, plaintiffs have plausibly alleged that they did not receive notice of an adverse benefits determination that complies with the DOL regulation; that defendants administered the claims procedure in a way that inhibited or hampered plaintiffs' ability to initiate a claim procedure to recover the inflated cost of the prescription drugs; and that defendants did not establish a reasonable claims and appeals procedure in compliance with DOL regulations relevant to their overcharge claims. 3 Defendants have failed to prove as a matter of law that plaintiffs' claims are barred due to failure to satisfy their administrative remedies. The Court will allow plaintiffs' claims to proceed beyond the motion to dismiss. The Courts' consideration of defendants' affirmative defense of exhaustion is more appropriate on summary judgment.
Defendants maintain that plaintiffs' counts two through seven--which all assert ERISA breach of fiduciary duty--should be dismissed for failure to establish any plausible fiduciary duty under ERISA. Defendants maintain that neither Cigna nor OptumRx were acting as fiduciaries when engaging in the plan design decisions and business conduct alleged to be in violation of ERISA.
Congress intended that the term “fiduciary” be broadly construed. LoPresti v. Terwilliger, 126 F.3d 34, 40 (2d Cir. 1997). A person or entity is a fiduciary under ERISA if: (1) that person or entity exercises any discretionary authority or discretionary control respecting management of such plan; (2) exercises any authority or control respecting management or disposition of its assets; or (3) has any discretionary authority or discretionary responsibility in the administration of such plan. 29 U.S.C. § 1002(21)(A). An entity “may be an ERISA fiduciary with respect to certain matters but not 3 Accordingly, the Court need not consider plaintiffs' argument as to exhaustion futility. others.” Patrico v. Voya Financial, Inc., 2017 WL 2684065, at *2 (S.D.N.Y. June 20, 2017).
Plaintiffs argue that, pursuant to contracts between Cigna and the employers, defendants exercised discretionary authority concerning computation of payments under the plans; that regardless of any specific grant of fiduciary authority, defendants exercised authority or control over the management of plans by dictating the amount pharmacies charged patients for prescription drugs, and by requiring pharmacies to collect the Spread; that defendants exercised discretion to set and take their own compensation for services performed by dictating Spread and taking Clawbacks; and that defendants exercised authority or control over plan assets.

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