United States District Court, D. Connecticut
JEFFREY NEUFELD and AUBREY SREDNICKI, individually and on behalf of all others similarly situated, Plaintiffs,
CIGNA HEALTH AND LIFE INSURANCE COMPANY, Defendant.
MEMORANDUM OF DECISION ON DEFENDANT'S MOTION TO
W. EGINTON, SENIOR UNITED STATES DISTRICT JUDGE
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.
has moved to dismiss plaintiffs' complaint. For the
following reasons, Cigna's motion will be granted in part
and denied in part.
purposes of deciding defendants' motion to dismiss, the
following allegations from plaintiffs' amended complaint
are accepted as true.
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].
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.
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
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.
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.
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
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.
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.
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
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
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
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.
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.
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.
§ 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.
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.
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.
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.
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.
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.
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
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
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.
XI alleged RICO violations against former defendant
CareCentrix. However, the claims against CareCentrix have
been withdrawn. Cigna is the only defendant remaining in the
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.
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.
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.
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.
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.
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.
the plans expressly granted Cigna broad discretionary
authority under the plans, including the authority to
determine benefit payments. Id. at ¶ 82.
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.
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.
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.
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.
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.
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.
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.
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 ¶
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).
Breach of the Plans