Health Net 2002 Annual Report Download - page 78

76 | HEALTH NET, INC.
IN RE MANAGED CARE LITIGATION
The Judicial Panel on Multidistrict Litigation (JPML) has
transferred various class action lawsuits against managed
care companies, including us, to the United States District
Court for the Southern District of Florida for coordinated
or consolidated pretrial proceedings in In re Managed Care
Litigation, MDL 1334. This proceeding is divided into two
tracks, the subscriber track, which includes actions brought
on behalf of health plan members, and the provider track,
which includes suits brought on behalf of physicians.
Subscriber Track
The subscriber track includes the following actions
involving us: Pay v. Foundation Health Systems, Inc. (filed
in the Southern District of Mississippi on November 22,
1999), Romero v. Foundation Health Systems, Inc. (filed
in the Southern District of Florida on June 23, 2000, as an
amendment to a suit filed in the Southern District of
Mississippi), State of Connecticut v. Physicians Health
Services of Connecticut, Inc. (filed in the District of
Connecticut on September 7, 2000), and Albert v. CIGNA
Healthcare of Connecticut, Inc., et al. (including
Physicians Health Services of Connecticut, Inc. and
Foundation Health Systems, Inc.) (filed in the District of
Connecticut on September 7, 2000). The Pay and Romero
actions seek certification of nationwide class actions,
unspecified damages and injunctive relief and allege that
cost containment measures used by our health mainte-
nance organizations, preferred provider organizations and
point-of-service health plans violate provisions of the
federal Racketeer Influenced and Corrupt Organizations
Act (RICO) and ERISA. The Albert suit also alleges viola-
tions of ERISA and seeks certification of a nationwide
class and unspecified damages and injunctive relief. The
State of Connecticut action asserts claims against our
subsidiary, Physicians Health Services of Connecticut, Inc.,
and us that are similar, if not identical, to those asserted in
the previous lawsuit which, as discussed above, the United
States Court of Appeals for the Second Circuit affirmed
dismissal of on March 27, 2002.
We filed a motion to dismiss the lead subscriber track
case, Romero v. Foundation Health Systems, Inc., and on
June 12, 2001, the court entered an order dismissing all
claims in that suit brought against us with leave for the
plaintiffs to re-file an amended complaint. On this same
date, the court stayed discovery until after the court ruled
upon motions to dismiss the amended complaints and any
motions to compel arbitration. On June 29, 2001, the
plaintiffs in Romero filed a third amended class action
complaint which re-alleges causes of action under RICO,
ERISA, common law civil conspiracy and common law
unjust enrichment. The third amended class action
complaint seeks unspecified compensatory and treble
damages and equitable relief. On July 24, 2001, the court
heard oral argument on class certification issues. On
August 13, 2001, we filed a motion to dismiss the third
amended complaint in Romero. On February 20, 2002, the
court ruled on our motion to dismiss the third amended
complaint in Romero. The court dismissed all claims
against us except one ERISA claim. The court further
ordered that plaintiffs may file amended complaints, but
that no new plaintiffs or claims will be permitted without
prior leave of the court. Both plaintiffs and defendants
filed motions for reconsideration relating to various parts
of the court’s dismissal order, which motions were denied.
On March 25, 2002, the district court amended its
February 20, 2002 dismissal order to include the following
statement: “This Order involves a controlling question of
law, namely, whether a managed-care subscriber who has
not actually been denied care can state a claim under
RICO, about which there is substantial ground for differ-
ence of opinion and an immediate appeal may materially
advance the ultimate termination of this litigation.” On
April 5, 2002, we joined in a petition to the United States
Court of Appeals for the 11th Circuit for permission to
appeal the question certified by the district court. On
May 10, 2002, the 11th Circuit denied the petition. On
June 26, 2002, the plaintiffs filed with the Court a notice
that they will not file an amended complaint against the
Company. Health Net filed its answer on July 26, 2002.
On July 29, 2002, the Court ordered that the stay of
discovery is lifted effective September 30, 2002.
On September 26, 2002, the Court denied plaintiff
Romero’s motion for class certification. The Court initially
scheduled plaintiff Romero’s individual case for trial in
May 2003. On October 1, 2002, the Court issued an order
referring plaintiff Romero’s individual case to mediation.
On October 10, 2002, plaintiff Romero filed a motion
requesting that the Court reconsider its decision to deny
class certification. On November 25, 2002, the Court
denied plaintiff Romero’s motion for reconsideration. The
deadline for plaintiffs to appeal to the 11th Circuit the
district court’s denial of class status expired on December
10, 2002. On January 16, 2003, the district court moved
the trial date from May to September 2003.