Health Net 2004 Annual Report Download - page 121

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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
health care providers. On September 19, 2003, the Court dismissed the final subscriber track action involving us, The State of
Connecticut v. Physicians Health Services of Connecticut, Inc. (filed in the District of Connecticut on September 7, 2000), on grounds
that the State of Connecticut lacks standing to bring the ERISA claims asserted in the complaint. That same day, the Court ordered
that the subscriber track is closed “in light of the dismissal of all cases in the Subscriber Track.” The State of Connecticut appealed
the dismissal order to the Eleventh Circuit Court of Appeals and on September 10, 2004, the Eleventh Circuit affirmed the District
Court’s dismissal. On February 22, 2005, the Supreme Court of the United States denied plaintiffs’ Petition for Writ of Certiorari on
the Eleventh Circuit’s decision to uphold the dismissal.
The provider track includes the following actions involving us: Shane v. Humana, Inc., et al. (including Health Net, Inc.) (filed
in the Southern District of Florida on August 17, 2000 as an amendment to a suit filed in the Western District of Kentucky),
California Medical Association v. Blue Cross of California, Inc., PacifiCare Health Systems, Inc., PacifiCare Operations, Inc. and
Foundation Health Systems, Inc. (filed in the Northern District of California in May 2000), Klay v. Prudential Ins. Co. of America, et
al. (including Foundation Health Systems, Inc.) (filed in the Southern District of Florida on February 22, 2001 as an amendment to a
case filed in the Northern District of California), Connecticut State Medical Society v. Physicians Health Services of Connecticut, Inc.
(filed in Connecticut state court on February 14, 2001), Lynch v. Physicians Health Services of Connecticut, Inc. (filed in Connecticut
state court on February 14, 2001), Sutter v. Health Net of the Northeast, Inc. (filed in New Jersey state court on April 26, 2002),
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edical Society of New Jersey v. Health Net, Inc., et al., (filed in New Jersey state court on May 8, 2002), Knecht v. Cigna, et al.
(including Health Net, Inc.) (filed in the District of Oregon in May 2003), Solomon v. Cigna, et. al. (including Health Net, Inc.) (filed
in the Southern District of Florida on October 17, 2003), Ashton v. Health Net, Inc., et al. (filed in the Southern District of Florida on
January 20, 2004), Freiberg v. UnitedHealthcare, Inc., et al. (including Health Net, Inc.) (filed in the Southern District of Florida on
February 24, 2004), and Comprehensive Neurosurgical, P.C. v. Physicians Health Services/Health Net of the Northeast (filed in New
Jersey state court in February 2004). These actions allege that the defendants, including us, systematically underpaid providers for
medical services to members, have delayed payments to providers, imposed unfair contracting terms on providers, and negotiated
capitation payments inadequate to cover the costs of the health care services provided and assert claims under the Racketeer
Influenced and Corrupt Organizations Act (“RICO”), ERISA, and several state common law doctrines and statutes. Shane, the lead
provider track action, asserts claims on behalf of physicians and seeks certification of a nationwide class. The Knecht, Solomon,
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shton and Freiberg cases all are brought on behalf of health care providers other than physicians and seek certification of a
nationwide class of similarly situated health care providers. Other than Shane, all provider track actions involving us have been
stayed.
On September 26, 2002, the Court granted plaintiffs’ motion for class certification in Shane. On September 1, 2004, the
Eleventh Circuit issued an opinion affirming in part and reversing in part the District Court’s class certification ruling. The Court
affirmed the certification of a global class involving RICO claims but ruled that the District Court abused its discretion in certifying
the plaintiffs’ state law claims, with the exception of the Section 17200 claims which were not before the Court. On January 10, 2005,
the Supreme Court refused to review the class certification decision.
On September 15, 2003, the District Court entered an order granting in part and denying in part the defendants’ motions to
compel arbitration. In this order, the Court ruled that certain claims must be arbitrated and
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