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Neufeld v. Cigna Health and Life Insurance Co.

United States District Court, D. Connecticut

August 30, 2018

JEFFREY NEUFELD and AUBREY SREDNICKI, individually and on behalf of all others similarly situated, Plaintiffs,



         Plaintiffs Jeffrey Neufeld and Aubrey Srednicki, who received health benefits through group health plans issued and administered by Cigna Health and Life Insurance Company and its controlled subsidiaries (“Cigna”), bring this action on behalf of themselves and a Class and Subclass of similarly situated persons alleging (a) violations of the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq., and (b) violations of the Racketeering Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961, et seq., resulting from Cigna's common fraudulent and deceptive scheme to artificially inflate medical costs causing consumers to pay more than they should have paid for medically necessary products and services.

         Cigna has moved to dismiss plaintiffs' complaint. For the following reasons, Cigna's motion will be granted in part and denied in part.


         For purposes of deciding defendants' motion to dismiss, the following allegations from plaintiffs' amended complaint are accepted as true.

         Defendant Cigna has engaged in a scheme to defraud patients by overcharging for the cost of medically necessary services and products. Patients, including plaintiffs and the Class and Subclass, paid undisclosed excess charges in exchange for receiving these products and services. Unbeknownst to the Class and Subclass members, Cigna misrepresented the purported costs of these products and services in the form of invoices for increased charges to patients. Am. Compl. ¶ 7 [ECF No. 29].

         Plaintiff Neufeld's plan provides that he is required to pay a “portion of Covered Expenses for services and supplies” that is a “Copayment, Coinsurance or Deductible.” “Covered Expenses” are “expenses” for “charges” for these services or supplies. “Charges” are the amount “the provider has contracted directly or indirectly with Cigna . . .” Since a “portion” is a “share, ” the patient, at most, should pay only a share of the amount the provider contracts to be paid for products or services. Id. at ¶ 8.

         Contrary to the express language of the plans, Cigna and its agents exercised their unilateral discretion to charge patients unauthorized and excessive amounts for products and services that exceeded the charges by providers. Id. at ¶ 9.

         For example, on June 22, 2017, plaintiff Neufeld purchased a disposable CPAP filter from J&L Medical Services (“J&L”), an authorized CareCentrix provider, pursuant to his plan. CareCentrix sent plaintiff Neufeld an invoice for the filter listing total charges of $25.68 that plaintiff was required to pay towards his deductible. J&L, the provider, had contracted directly with CareCentrix and indirectly with Cigna to provide the filter for only $7.50, and was in fact paid only $7.50 for the filter. Id. at ¶ 10.

         Hidden from plaintiff Neufeld, Cigna and its agents unilaterally charged plaintiff an unlawful $18.18 spread over J&L's contracted charge for the product. Id. at ¶ 11.

         Had Cigna lived up to its obligations and its plan terms, plaintiff Neufeld would not have been billed more than the $7.50 charge that J&L agreed to be paid by Cigna. Instead, Cigna imposed a hidden premium of almost 350% beyond the total amount plaintiff should have paid. Id. at ¶ 12.

         Plaintiff Srednicki's plan similarly provides that she is required to pay a portion of Covered Expenses that is “Coinsurance or a Deductible.” “Covered Expenses” are “Expenses” that are the “charge for a covered service or supply.” Her Explanation of Benefits (”EOB”) further provides that the “Amount Billed” is “[t]he amount charged” by the healthcare provider, and that the “Discount” is “[t]he amount you save” by using a Cigna network provider because “Cigna negotiates lower rates” with “in-network” providers “to help you save money.” Id. at ¶ 13.

         As one example of Cigna's fraudulent scheme as it relates to plaintiff Srednicki, on June 19, 2017, she obtained a blood test from Laboratory Corporation of America Holdings (doing business as “LabCorp”), an in-network provider. The cash price for this test to an uninsured customer of LabCorp was only $449.00. Nevertheless, Cigna listed on the EOB that the provider was “HLTH DIAG LAB”-not the actual provider, LabCorp-and that the “Amount Billed” was an astounding $17, 362.66, almost 40 times greater than the uninsured cash price. Cigna claimed on the EOB that it had provided a “Discount” of $14, 572.66, over 32 times greater than the cash price, and that the “Covered Amount” for the test with a cash price of $449.00 was $2, 787.00, more than 6 times greater than the cash price. Cigna further stated on the EOB that of the “Covered Amount” of $2, 787.00, the plan paid $471.02 (roughly the cash price) and plaintiff Srednicki was required to pay an additional $2, 315.98 in deductible and coinsurance payments. Id. at ¶ 14.

         Upon information and belief “HLTH DIAG LAB” is a doing-business-as pseudonym for Cigna-affiliate Cigna Healthcare of Arizona, Inc. Cigna, through yet another business name, “Cigna Medical Group, ” wrongfully and fraudulently “balance-billed” plaintiff Srednicki $2, 315.98. According to a statement at the bottom of its bill, Cigna Medical Group “is the medical group practice division of Cigna HealthCare of Arizona, Inc.” When contacted by plaintiff Srednicki's doctor, the actual lab provider, LabCorp, confirmed orally (but would not do so in writing) that it had been paid in full by Cigna with a payment of $471.02. LabCorp also described the charges on Cigna's fraudulent EOB as “unreasonably high, ” including the “Amount billed” of $17, 362.66 and the supposed “Covered amount” of $2, 787.00. Cigna did not disclose to plaintiff Srednicki in its billing materials the fact that Lab Corp. had been paid in full, or that, in fact, there was no “balance” to bill plaintiff Srednicki. On information and belief, LabCorp's confirmation to plaintiff Srednicki's doctor of these facts was in violation of a “gag clause, ” which explains its unwillingness to confirm certain facts in writing. In short, Cigna knew that the actual cost of plaintiff Srednicki's blood test was no more than the $471.02 paid by the plan, but it employed numerous fraudulent misrepresentations to conceal that fact from plaintiff Srednicki, including a misrepresentation that the $471.02 test had a value of $17, 362.66. Id. at ¶ 15.

         Through this fraudulent billing scheme, defendants overcharged their customers for medical products and services in violation of the plans and defendant's fiduciary duties. Under Cigna's scheme as illustrated by these actual examples, its charges were excessive and unlawful. Id. at ¶ 16.

         Cigna violated the plans and breached its fiduciary duties by secretly determining that plaintiffs must pay inflated deductible and cost-sharing payments, and secretly collecting those inflated payments from plaintiffs. Id. at ¶ 17.

         Cigna utilizes the U.S. Mail and interstate wire facilities to engage in its fraudulent billing scheme in violation of RICO. Defendants represented to plan participants that their payment amounts were based on some portion of the actual cost for the product or service when, in fact, defendants submit false and intentionally misleading invoices and EOBs to patients to cause them to pay more than the actual cost and defendants simply pocket the overpayment in the form of spread. Id. at ¶ 18.

         In furtherance of defendants' fraudulent scheme, defendants' Provider Manual dictates that participating providers like J&L effectively cannot disclose the existence of the excessive charges as further alleged below. As a result of these “gag clauses, ” the spread remains hidden from participants and beneficiaries. Id. at ¶ 19.

         Defendant's fraudulent scheme to artificially inflate the costs of medically necessary products or services, and then to surreptitiously retain those excess amounts, jeopardizes the entire health care delivery system. For one, patients are paying higher amounts than they otherwise would have paid had defendants not artificially inflated the payment amounts. Therefore, patients believe that they are saving money through the use of their health benefits, when, in reality, they are charged excessive amounts beyond what their health plans require them to pay. Id. at ¶ 20.

         ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3), authorizes a participant or beneficiary to bring a civil action: “(A) to enjoin any act or practice which violates any provision of this title or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this title or the terms of the plan.” Id. at ¶ 159.

         With regard to ERISA, under Count I, ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B), provides that a participant or beneficiary may bring an action to enforce his rights under the terms of the plan or to clarify his rights to future benefits under the terms of the plan. Defendants have violated the ERISA Plans by establishing and charging spread and should not be allowed to continue to do so. Id. at ¶ 23.

         Under Count II, ERISA § 406(a), 29 U.S.C. § 1106(a), provides that a party in interest shall not receive direct or indirect compensation unless it is reasonable, and prohibits transfers of plan assets and use of plan assets by or for the benefit of fiduciaries and plan service providers. In setting the amount of and taking excessive undisclosed spread compensation, Cigna allowed and received unreasonable compensation and misused the assets of the ERISA Plans, including participant contributions and the plan contracts that provided defendants with the ability to extract these funds. Id. at ¶ 24. ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3), authorizes a participant or beneficiary to bring a civil action: “(A) to enjoin any act or practice which violates any provision of this title or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this title or the terms of the plan.” Id. at ¶ 159.

         Under Count III, ERISA § 406(b), 29 U.S.C. § 1106(b), provides that a fiduciary shall not deal with plan assets in its own interest or for its own account, act in any transaction involving the plan on behalf of a party whose interests are adverse to participants or beneficiaries, or receive any consideration for its own personal account from any party dealing with such plan in connection with a transaction involving the assets of the plan. In setting the amount of and taking spread compensation, Cigna set its own compensation, received plan assets and consideration for its personal accounts in violation of this provision, and acted under other conflicts of interest. Id. at ¶ 25.

         Under Count IV, ERISA § 404(a)(1), 29 U.S.C. § 1104(a)(1), provides that a fiduciary shall discharge its duties with respect to a plan solely in the interest of the participants and beneficiaries and for the exclusive purpose of providing benefits to participants and beneficiaries and defraying reasonable expenses of administering the plan, and with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. In setting the amount of and taking excessive undisclosed spread compensation, defendants have breached their fiduciary duties of loyalty and prudence. Id. at ¶ 26.

         Under Count V, ERISA § 702, 29 U.S.C. § 1182, prohibits defendants from discrimination and requiring discriminatory premiums and contributions based on health factors. Defendants have required insureds who have medical conditions that require products and services that are subject to defendants' spreads to pay greater premiums and contributions than those patients who do not need products and services that are subject to defendant's spreads for their health benefits. Id. at ¶ 27.

         Under Count VI, ERISA § 405(a), 29 U.S.C. § 1105(a), imposes liability on a fiduciary, in addition to any liability which it may have under any other provision, for a breach of fiduciary responsibility of another fiduciary with respect to the same plan if it knows of a breach and fails to remedy it, knowingly participates in a breach, or enables a breach. Cigna breached all three provisions. Id. at ¶ 28.

         Under Count VII, Cigna had actual or constructive knowledge of and participated in and profited from the prohibited transactions and fiduciary breaches alleged in Counts II-V by those who are found to be fiduciaries, and is liable to disgorge illgotten gains and plan assets and to provide other appropriate equitable relief, pursuant to ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3). Id. at ¶ 29.

         With regard to RICO, under Counts VIII through X, Cigna engaged in a scheme to defraud in violation of RICO, 18 U.S.C. § 1962(c), by overcharging patients for the cost of medically necessary products and services alleged below and is liable for all statutory remedies. Id. at ¶ 30.

         Count XI alleged RICO violations against former defendant CareCentrix. However, the claims against CareCentrix have been withdrawn. Cigna is the only defendant remaining in the case.

         Under Count XII, defendant has engaged in a scheme to defraud in violation of RICO, 18 U.S.C. § 1962(d), by overcharging patients for the cost of medically necessary products and services as alleged below and is liable for all statutory remedies. Id. at ¶ 32.

         Consumers purchase health insurance and enroll in employer-sponsored health plans to protect them from unexpected high medical costs. Patients, including plaintiffs and other Class and Subclass members, at a minimum, expect to pay the same prices or better than uninsured or cash-paying individuals for health care services durable medical equipment and supplies. Otherwise, they not only would receive no benefit from their plans, but also would, in fact, be punished for having a health plan. Therefore, Class and Subclass members reasonably expect to pay less than cash-paying customers who do not have health coverage. Id. at ¶ 43.

         Contractual relationships exist between the employer or individual and the health insurance company that underwrites and/or administers the plan; the insurer/administrator and the manager; and the insurer/administrator/manager and the provider. An employer or individual buys healthcare coverage from a health insurance company to provide a variety of healthcare benefits, including healthcare services, home healthcare and durable medical equipment. Health insurance companies manage the healthcare and medical equipment services offered pursuant to their plans, or they retain managers like CareCentrix to perform these functions. Id. at ¶ 46.

         The terms of the plans-and more importantly, how these plans are administered by Cigna, its controlled subsidiaries, affiliates, and providers-do not differ materially across plans. Accordingly, upon information and belief, the rights relevant to the claims alleged herein are shared by all members of the Class and Subclass regardless of the funding arrangement underpinning the health plan benefits that defendants offer and administer. Id. at ¶ 69.

         Plaintiffs and the members of the Class and Subclass are participants in employee welfare benefit plans as that term is defined in 29 U.S.C. § 1002(1)(A), insured or administered by defendants to provide participants with medical care. Id. at ¶ 77.

         ERISA requires every plan to provide for one or more named fiduciaries who will have “authority to control and manage the operation and administration of the plan.” ERISA § 402(a)(1), 29 U.S.C. § 1102(a)(1). Id. at ¶ 78.

         Moreover, the plans expressly granted Cigna broad discretionary authority under the plans, including the authority to determine benefit payments. Id. at ¶ 82.

         The spread is additional “premium” within the meaning of ERISA § 702, for the provision of coverage that was collected by defendants that was neither disclosed to nor agreed to by the participants and beneficiaries that were required to make these additional contributions to receive their healthcare services or durable medical equipment. Cigna had and exercised discretion to determine the amount of and require the payment of this additional undisclosed premium payment, as well as whether to disclose it-or require its concealment. ERISA § 3(21)(A)(i), (iii), 29 U.S.C. § 1002(21)(A)(i), (iii). Id. at ¶ 84.

         Cigna is also a fiduciary because it exercised discretion to set the prices that the Class and Subclass were and are required to pay for their healthcare products and services. Cigna is required to act in the best interests of the Class and Subclass, but by allowing participants and beneficiaries of ERISA plans to be subject to the fraudulent billing scheme described herein, Cigna has breached its fiduciary duties. Id. at ¶ 87.

         Cigna is aware of the effect the fraudulent billing scheme is having on the Class and Subclass. Nevertheless, it has maximized and continues to maximize its revenues at the expense of the Class and Subclass by engaging in the illegal conduct described herein. Id. at ¶ 88.

         Plaintiff Srednicki fully exhausted her administrative remedies and was summarily rejected by Cigna. On September 25, 2017, plaintiff Srednicki appealed the decision of Cigna as set forth in her EOB. In connection with that appeal, she set forth in detail all of the material facts concerning her claim as set forth above and she attached supporting documentation. Id. at ¶ 124.

         On October 30, 2017, Cigna summarily denied the appeal with a form letter that did not even address the merits of her claim as set forth above. Cigna further stated as follows:

This decision represents the final step of the internal appeal process. However, if your plan is governed by ERISA, you also have the right to bring legal action under Section 502(a) of ERISA within three (3) years.

         To the extent that Cigna's internal appeals process even applies, this action is the “legal action” that Cigna recognized in its internal appeal process. Id. at ¶ 125.

         It is not clear that Cigna's administrative claims procedures would or could contemplate the return of an overpayment because there has been no denial of benefits, or adverse benefit determination. But even if it could apply, making administrative claims should not be required of plaintiffs and the Class and Subclass. Even utilizing defendants' claims procedures, if they were available or valid under these circumstances, which they were not, would not make plaintiffs or the Class or Subclass whole. First, as is evident from the perfunctory, non-responsive denial of plaintiff Srednicki's administrative claim, it is clear that this procedure would not result in a refund, and is therefore futile and unnecessary. Second, even if defendants' claims procedures could provide a spread reimbursement, plaintiffs and the Class and Subclass are entitled to more, including disgorgement of profits, treble and punitive damages, and injunctive relief. In this regard as well, utilizing a claims procedure would be futile and unnecessary. Id. at ¶ 131.

         Correcting the prices paid by patients on an individualized basis would inevitably result in further unfair, disparate, and discriminatory treatment among those Class and Subclass members who have been reimbursed for the overcharges and those who have not. A far more equitable and cost-effective way to adjudicate overpayments made by the Class and Subclass is for defendants to disgorge in full these amounts pursuant to their own records that can track such payments for everyone in the Class and Subclass. Id. at ¶ 133.


         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 Distribution 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');">550 U.S. 544, 556 (2007). A plaintiff is obliged to amplify a claim with some factual allegations in those contexts where such amplification is needed to render the claim plausible. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

         I. Breach of the Plans

         A. ...

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