Plaintiffs argue that Medical Mutual, in its processing of insurance claims, violated the federal RICO statute. Specifically, Plaintiffs allege that Medical Mutual “acted to delay, diminish and deny payment of . . . lawful claims of patient-insureds as submitted by out-of-network health providers . . . through a scheme or artifice, utilizing the U.S. Mail and demonstrating a specific intent to defraud the patient-insureds and out-of-network health-care providers.” (Compl. P 51.). . . .

Defendants contend, and the district court agreed, that Riverview’s RICO claims are reverse preempted in accordance with the McCarran-Ferguson Act. Plaintiffs argue that McCarran-Ferguson does not apply to its RICO claims

Riverview Health Inst. Llc v. Medical Mut. of Ohio, 2010 FED App. 0097P (6th Cir.) (6th Cir. Ohio 2010)

This recent unpublished Sixth Circuit opinion applies reverse preemption to defeat the RICO claims of out of network health care providers.

The health care providers advanced seven claims for relief:

(1) conspiracy to violate 18 U.S.C. § 1962(a) in violation of 18 U.S.C. § 1962(d) (RICO);
(2) violation of 18 U.S.C. § 1962(c)(RICO);
(3) conspiracy to violate 18 U.S.C. § 1962(c) in violation of 18 U.S.C. § 1962(d)(RICO);
(4) denial of benefits under the Employee Retirement Income Security Act of 1974 (”ERISA”), 29 U.S.C. § 1132(a)(1)(B);
(5) state-based breach of contract;
(6) state-based common-law fraud; and
(7) state-based tortious interference with business relationships.

Gravamen Of Complaint

The gravamen of the complaint was that Medical Mutual:

  • “acted to delay, diminish and deny payment of . . . lawful claims of patient-insureds as submitted by out-of-network health providers
  • acted unlawfully and inaccurately to underestimate and reduce the [‘usual, customary and reasonable’] amounts due to out-of-network health providers
  • and inappropriately bundled provider services and procedures through scheme or artifice

The district court granted a motion to dismiss, agreeing withe the Defendants that the Plaintiffs’ RICO claims were reversed preempted by the McCarran-Ferguson Act. The other claims were dismissed without prejudice.

The Sixth Circuit panel agreed with the district court that the RICO claims were reversed preempted.

The McCarran-Ferguson Act

The McCarran-Ferguson Act states that “[t]he business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business.” 15 U.S.C. § 1012(a). In the health plan context, the reverse preemption of RICO is triggered when RICO would invade the province of state insurance laws. This is because the McCarran-Ferguson Act declares that “[n]o Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance . . . unless such Act specifically relates to the business of insurance.” Id. § 1012(b).

Ohio Insurance Law

The Court held that the application of federal RICO would impair Ohio’s insurance regulatory scheme. The Plaintiff’s complaint essentially involved the payment of claims and that issue was subject to insurance department authority.

The conduct at the heart of Plaintiffs’ complaint implicates Ohio’s law regarding payment of claims and the Ohio Department of Insurance is charged with administering the applicable state law. In this case, Plaintiffs have no common law remedy or private right of action. The state RICO statute is inapplicable and the damages available pursuant to federal RICO would far exceed the damages contemplated by the Ohio legislature when enacting its insurance regulatory scheme.

Moreover, the State of Ohio has filed a brief as amicus curiae in support of Defendants, arguing that the imposition of the federal RICO statute will impair Ohio’s ability to detect insurance fraud and reverse preemption will not prevent insurers from using state or federal RICO to combat fraud. Accordingly, Plaintiffs’ RICO claims are reverse preempted by the McCarran-Ferguson Act and we, therefore, affirm the district court’s dismissal of Plaintiffs’ RICO claims.

Thus the RICO claims were reversed preempted.

Note: The Court applied several factor-based tests in reaching its conclusions.

Three Factor Reverse Preemption Test – Determining whether the reverse preemption applies involves three questions:

[#1] we must decide “whether the federal statute at issue ’specifically relates to the business of insurance.’” . . . If it does, then the McCarran-Ferguson Act, by its own terms, does not permit reverse preemption. (Neither party disputed that RICO does not specifically relate to the business of insurance.)

[#2]. . . “whether the state statute at issue was enacted . . . for the purpose of regulating the business of insurance” and

[#3] “whether the application of the federal statute would invalidate, impair, or supersede the state statute.”

Three Factor “Business Of Insurance” Inquiry – The Court applied a a three factor test set forth in Union Labor Life Insurance Co. v. Pireno, 458 U.S. 119 (1982) to determine whether an activity is part of the “business of insurance” (#2 above):

(1) “whether the practice has the effect of transferring or spreading a policyholder’s risk,”

(2) “whether the practice is an integral part of the policy relationship between the insurer and the insured,” and

(3) “whether the practice is limited to entities within the insurance industry.”

Seven Factor “Impairment Test – The Court applied the seven factor test articulated by the Supreme Court in Humana Inc. v. Forsyth, 525 U.S. 299 (1999) on the question of impairment (#3 above).  (There the Court held that a federal statute that “proscribes the same conduct as state law, but provides materially different remedies” did not “impair” state law under the McCarran-Ferguson Act.)

The factors are:

(1) the availability of a private right of action under the state insurance scheme;
(2) the availability of a state common law remedy;
(3) the possibility that other state statutes provide the basis for suit;
(4) the availability of punitive damages;
(5) whether the damages available under the state insurance scheme could exceed the damages recoverable under RICO, even taking into account RICO’s treble damages provision;
(6) the absence of a position by the State regarding any interest in state policy or the administrative scheme; and
(7) the fact that insurers have relied on RICO to eliminate insurance fraud.

Estoppel Claim – The Plaintiff’s estoppel claim involves an interesting discussion of anti-assignment clauses and warrants careful review by health care providers and their counsel.  I will likely review that issue in a separate post.