Opinion
Civil No. 00-1163 ADM/AJB
August 28, 2003
Wood R. Foster, Jr., Esq., and Jordan Lewis, Esq., Siegel, Brill, Greupner, Duffy Foster, P.A., Minneapolis, MN, appeared for and on behalf of Plaintiffs.
William F. Hanrahan, Esq., and Thomas F. Fitzgerald, Esq., Groom Law Group, Washington, D.C., appeared for and on behalf of Defendants.
MEMORANDUM OPINION AND ORDER
I. INTRODUCTION
The above-entitled matter came before the undersigned United States District Judge on the cross Motions for Summary Judgment of Plaintiffs Scott Smith ("Smith") and Jennifer L. Brodt ("Brodt"), on behalf of themselves and all persons similarly situated, (collectively, "Plaintiffs") [Docket No. 54], and Defendants United HealthCare Services, Inc. and United HealthCare Insurance Company (collectively, "UHC" or "Defendants") [Docket No. 57]. Plaintiffs have also brought a Motion to Strike [Docket No. 50]. Both parties seek summary judgment in favor of their respective positions based on the interpretation of the contractual language central to the dispute. In the alternative, Defendants contend Plaintiffs' suit requesting equitable restitution fails to state a claim on which relief can be granted. Lastly, Defendants assert the applicable statute of limitations prohibits recovery for claims that arose more than two years prior to the filing of this action. For the reasons set forth below, Plaintiffs' Motion for Summary Judgment is granted and Defendants' Motion is denied. Plaintiffs' Motion to Strike is denied.
II. BACKGROUND
In their suit for enforcement of rights, pursuant to the Employee Retirement Income Security Act of 1974 ("ERISA"), Plaintiffs seek, on behalf of themselves and the certified class, as defined by previous Order of this Court, a declaration of their entitlement to reimbursement for alleged prescription drug overcharges and an attendant monetary recovery. See 29 U.S.C. § 1129(a)(1)(B).
The February 5, 2002 Order certified as a class:
All Members (subscribers, participants and beneficiaries) of ERISA-covered health plans controlled, underwritten or administered by [United HealthCare Insurance Company] or [United HealthCare Services, Inc.] or their subsidiaries, where the applicable plan language provided that the Member should pay the lesser of the "Prescription Drug Cost" (sometimes called "cost" or "actual cost"), or the fixed dollar co-pay when purchasing prescription drugs at point of sale, but who in fact were charged an amount greater than the "Prescription Drug Cost" or the "actual cost" when the "Prescription Drug Cost" (or "actual cost") was less than the fixed dollar co-pay.
Order of 2/5/02 at 11 [Docket No. 36].
Defendants deny Plaintiffs paid incorrect amounts and both parties move for summary judgment. The parties agree that central to the resolution of the case is the interpretation of a key phrase in Plaintiffs' plans, and that the only material dispute is the proper meaning to be assigned to "contracted reimbursement rate." Defendant United HealthCare Services, Inc., a Minnesota corporation, owns or controls HMOs in many states. It also owns Defendant United HealthCare Insurance Company, a health insurance provider. The named Plaintiffs, Smith and Brodt, were participants in UHC health insurance plans that were supplemented in 1997 with new prescription drug riders (collectively, "riders" or "rider") outlining patients' benefits and co-payment responsibilities when filling a drug prescription. Smith's plan contains the following provision:
The basic draft of the rider, primarily written by then-UHC vice president of Pharmacy Management, Eric Bergen, was custom-edited for use in different markets with varying state regulations, resulting in minor variations in terminology in some of the riders. See Bergen Dep. 16, 206-07 (Schultz Summ. J. Aff. Ex. 12); Smith-Williams Dep. at 55-57 (Watson Summ. J. Aff. Tab H). The parties make no claim that these distinctions are relevant to this dispute.
When a Network Pharmacy is used, the Covered Person pays the Copayment. Copayment amounts are shown above [Generic Drug $5, Brand Name Drug $10].
If the Prescription Drug Cost is less than the Copayment, the Copayment does not apply and the Covered Person pays the Prescription Drug Cost.
Watson Summ. J. Aff. Tab 4 at 31 (Globe Manufacturing Corp. 1999 plan).
Similarly, the rider accompanying Brodt's plan sets forth the co-payment amounts, "$5 per . . . Generic Prescription Drug Product" and "$10 per . . . Brand-name Prescription Drug Product, and then states:
Brodt participated in two different employer plans during the relevant period, both administered by UHC of New England, a UHC affiliate.
A Covered Person is responsible for payment of the following:
• The lesser of the Copayment or the Prescription Drug Cost. . . .Id. Tab 5 (UHC of New England prescription drug rider p. 3). The plans define "Prescription Drug Cost" as "the PLAN's contracted reimbursement rate, including any sales tax, with the Participating Pharmacy where a Prescription Drug Product is dispensed." Id. The parties dispute the proper interpretation of this key language of Plaintiffs' prescription drug benefits.
The language of Smith's plan differs slightly, using "Company" in place of "PLAN" and "Network Pharmacy" instead of "Participating Pharmacy." Watson Summ. J. Aff. Tab 4 at 33.
Concurrent with the introduction of the 1997 riders, upon UHC's request, its pharmacy benefit manager, Diversified Pharmacy Services, Inc. ("DPS"), developed a national retail pharmacy network dedicated and specific to UHC. Bergen Dep. at 49, 235. This "Preferred Network" was created by adding a separate pricing attachment, applicable only to transactions between Preferred Network participating pharmacies ("Network Pharmacies") and UHC affiliates, to the standard pharmacy contracts then in place. Id. at 237; Madsen Dep. at 55-56. Through this network structure and the pricing arrangement, UHC received a discounted rate on prescription drugs in exchange for a large volume of customers. See Madsen Dep. at 30-31, 52; Defs.' Mem. in Supp. at 8. The formula for the discount rate established between the Network Pharmacies and UHC is set forth in the pricing attachment ("Pricing Attachment") to the Diversified Participating Pharmacy Agreement. As exemplified in the Brooks Pharmacy agreement, it states in pertinent part:
Although UHC maintained other contractual network arrangements with certain pharmacies, because the prescription benefits involved in nearly all relevant networks were processed by DPS, under the same discount pricing structure, the UHC pharmacy contracts at issue will be referred to and discussed collectively as the Preferred Network. See Defs.' Mem. in Supp. at 6-8.
Section 1. Pharmacy Payment for Pharmaceutical Services. Unless otherwise specified in this Agreement, Payor shall pay Pharmacy a Pharmacy Payment for Pharmaceutical Services provided by Pharmacy to Covered Persons, where the Pharmacy Payment is equal to the following: any sales tax, where applicable, plus the lesser of (A) the Customary Charge or (B) the sum of the Drug Acquisition Cost plus the Professional Dispensing Fee. The Drug Acquisition Cost and the Professional Dispensing Fee are defined as follows:
(a) The "Drug Acquisition Cost" . . . shall be defined to equal the lesser of the following amounts . . .:
(i) 85% of the Average Wholesale Price for such Pharmaceutical Product . . .
(ii) The maximum allowable cost for such Pharmaceutical Product . . . or
(iii) The ingredient or product cost billed by Pharmacy. . . .
(b) The "Professional Dispensing Fee" shall equal:
(i) $1.50 for each [brand name drug]; or
(ii) $2.00 for each [generic drug].
Pricing Attachment (Watson Summ. J. Aff. Tab 1); see Madsen Dep. at 36, 52 (confirming this document to be UHC's national network pricing agreement).
Beginning in 1997, DPS implemented the Preferred Network on a plan-by-plan basis. It typically administered pharmacy benefits for UHC affiliates by processing the claim through an on-line DPS computer connection in the Network Pharmacy, which would relay to the pharmacist the amount of co-payment to be collected from, or "passed" to, the customer. Madsen Dep. at 68. With this online claim adjudication system, DPS calculated the price of the drug according to the discount formula outlined above and transmitted this information to the Network Pharmacy. The pharmacy would then collect the customer's co-payment and bill the UHC plan "for the balance of the discounted price." Defs.' Mem. in Supp. at 8.
When the amount the pharmacy is contractually entitled to be paid by a UHC affiliate for the particular prescription, pursuant to the pricing agreement, is less than the member's fixed co-payment, a "zero balance due" ("ZBD") claim results. This is the type of claim that is the focus of the lawsuit. This situation is referred to as "zero balance due" because there is no additional amount owed for the UHC plan to reimburse to the pharmacy. Id.
As DPS added an affiliate to the Network, a computer setting known as "Edit 61" was switched to an "on" position for that plan. Id. at 93-95. Whether Edit 61 was set to "on" or "off" directly affected the amount of co-payment passed to the customer in a ZBD situation. When on, this function transmits to the pharmacist for collection the lesser amount of the of the co-pay or the usual and customary ("U C") charge for the drug. In contrast, when switched off, the DPS computer reflects the lesser of the co-pay, retail price, or UHC's discounted rate. Thus, when Edit 61 was turned off, plan participants received the benefit of the discount rate. Plaintiffs claim the terms of the 1997 riders require that Edit 61 be turned off for the processing of all ZBD claims.
In pharmaceutical terminology, "usual and customary" is synonymous with the retail price of a drug. Esensten Dep. II at 192 (Watson Summ. J. Aff. Tab E). These terms are used interchangeably within this Order.
III. DISCUSSION
A. MOTION TO STRIKE
Plaintiffs move to strike two items of documentary evidence proffered by Defendants in support of summary judgment. They assert that Defendants unfairly delayed production of a September 1998 contract between UHC and CVS pharmacy ("CVS Contract") and a "Dear Pharmacist" form letter and attached model agreement dated July 25, 1997 ("Wisconsin Letter"). See Aylward Aff. Ex. G; Edwards Aff. Ex. A. Plaintiffs argue the lateness in receiving these documents after many requests for this information, and the resultant prejudice, warrant striking the exhibits from the record. Federal Rule of Civil Procedure 37(c)(1) provides that "[a] party that without substantial justification fails to disclose" required discovery information will not be allowed to use such material in further litigation of the case "unless such failure is harmless." Fed.R.Civ.P. 37(c)(1). Plaintiffs argue they repeatedly requested Defendants to identify and submit any manuals and agreements supporting its assertion regarding the proper payment amount in ZBD claims, and that Defendants continuously refused to comply, denying knowledge of any such documents. Defendants, however, maintain that they promptly provided Plaintiffs with template contract exemplars containing the identical language to that found in the CVS contract and the Wisconsin Letter, and further, that the parties specifically extended by agreement the discovery period for UHC to continue to search for the requested evidence. Therefore, they argue, Plaintiffs were neither prejudiced nor unfairly surprised by the belated disclosure of these items.
Rule 12(f) of the Federal Rules of Civil Procedure, governing motions to strike matter from pleadings, is not applicable under the present circumstances. See, e.g., Big Stone Broadcasting, Inc. v. Lindbloom, 161 F. Supp.2d 1009, 1013-14 (D.S.D. 2001) (citing from the "overwhelming weight of authority" holding that summary judgment motions, memoranda and materials are not properly challenged under 12(f)).
The discovery chronology reflects reluctance on the part of UHC to answer Plaintiffs' requests or attempt to locate the documentation sought. See generally Watson Aff. in Supp. of Pls.' Mot. to Strike (attaching discovery requests and exchanges). Defendants produced only two pharmacy contracts prior to the October 1, 2002, close of discovery established in the Scheduling Order, and despite multiple, specific solicitations from Plaintiffs' counsel, failed to admit to or identify the Pricing Attachment. Id. ¶ 3, Tab 14 (Scheduling Order of 4/9/02), Tab 10 (answers to Interrogatories). The totality of the circumstances, however, does not support striking the challenged documents.
Plaintiffs concede Defendants timely produced an unexecuted copy of a standard Network Pharmacy agreement, which contains essentially the identical terms regarding ZBD payments as the disputed documents, and Plaintiffs deposed Regional Pharmacy Manager for UHC of New England, Kevin Aylward, on the precise issue of ZBD claim handling pursuant to this draft contract. See Schultz Aff. in Opp'n to Mot. to Strike Exs. 3 (amendment to UHC pharmacy agreement), 9 (Aylward Dep. at 51-52, 56-58). Plaintiffs were thus apprised of this language and how Defendants' interpreted and applied the ZBD provisions.
Plaintiffs' allegations of tardiness and resultant prejudice are somewhat diminished by the parties' agreement to extend discovery beyond October 1, in part to allow Defendants more time to search for additional Network Pharmacy agreements. See id. Ex. 4 (letter from Foster to Hanrahan of 11/4/02). While Plaintiffs' frustration at receiving the CVS Contract and the Wisconsin Letter just days before and nearly one month after, respectively, the serving of their Summary Judgment Motion and brief is understandable, Defendants did disclose these sources prior to inclusion of this new material in their responsive papers and in support of their own Motion for Summary Judgment. Because the content of these documents does not significantly differ from that of previously discovered evidence and was at least arguably anticipated by the parties' agreement to continue some discovery for UHC to obtain "other Network Agreements and Manuals," the Motion to Strike is denied. Id.
Not lost on the Court is the fact that the agreement also reflects that UHC affirmatively represented at the time of the November 4, 2002 letter that it was "unaware of any documents not already produced . . . that support [its] defenses in this case or otherwise undermine [Plaintiffs'] claims." Schultz Aff. in Opp'n to Mot. to Strike Ex. 4 (letter from Foster to Hanrahan of 11/4/02). However, striking any use of the items is overly harsh.
B. SUMMARY JUDGMENT
1. ERISA § 502(a)(1)(B)Defendants argue Plaintiffs' statutory authority, 29 U.S.C. § 1132(a)(1)(B), ERISA § 502(a)(1)(B), does not provide a cause of action for restitution and therefore the suit fails to state a legally cognizable claim.
Defendants urge that Great-West Life Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002), requires proof of unjust enrichment, such that Plaintiffs must establish they conferred a benefit on Defendants that is wrongfully in Defendants' possession. Because Plaintiffs are not seeking restoration of particular funds or property, Defendants argue, but rather damages for alleged contractual liability, they cannot maintain a claim under § 502(a)(1)(B). Plaintiffs respond that Great-West confirms rather than detracts from the viability of Plaintiffs' claim. They argue their claim is one for legal, as opposed to equitable, restitution, and is therefore explicitly permissible within the dictates of Great-West.
In Great-West, the Supreme Court enunciated the previously unaddressed distinction between equitable and legal restitution under ERISA, stating that the latter occurs where the plaintiff seeks to impose personal liability and recover monetary damages, rather than specific property.Id. at 213. The plaintiffs in that case sought to enforce a plan reimbursement provision, based upon ERISA § 502(a)(3). Id. at 208. In rejecting the claim, the Court explained that the invoked ERISA provision, § 502(a)(3), authorizes only equitable remedies, and that although the plaintiffs demanded "restitution," the "kind of restitution [they were requesting was] not equitable — the imposition of a constructive trust or equitable lien on particular property — but legal — the imposition of personal liability." Id. at 210, 214. Noting that "not all relief falling under the rubric of restitution is" characterized as equitable, the Court categorized the plaintiffs' suit by examining the nature of the remedy sought. Id. at 212. Because the plaintiffs asserted contractual entitlement "to some funds for benefits that they conferred," rather than specific money or goods, their suit was for "restitution at law," and therefore not authorized by § 502(a)(3). Id. at 214 (emphasis in original); see also Black's Law Dictionary 6th ed. at 1313 (defining "restitution" as, among other things, "Act of restoring . . . the act of making good or giving equivalent for any loss, damage or injury" and "[c]ompensation for the wrongful taking of property," and noting its applicability in tort, contract and criminal law).
Here, Plaintiffs' cause of action is for enforcement of rights under § 502(a)(1)(B), which does not contain the "equitable relief" limitation found in § 502(a)(3) and at issue in Great-West. 29 U.S.C. § 1132(a)(3), (a)(1)(B); Great-West, 534 U.S. at 221 (expressing that § 502(a)(1)(B) permits a participant to bring "a civil action `to enforce his rights under the terms of the plan,' without reference to whether the relief sought is legal or equitable"); see also Ross v. Rail Car Am. Group Disability Income Plan, 285 F.3d 735, 741 n. 7 (8th Cir. 2002) (stating that after the Court's "narrow reading of equitable relief available under [502](a)(3)" in Great-West, "to obtain complete relief, a successful plaintiff may need to assert claims under both . . . §§ 1132(a)(1)(B) and (a)(3)"). The nature of the claim at issue in this suit is essentially the same as plaintiffs' claim inGreat-West: "to impose personal liability on [defendants] for a contractual obligation to pay money." Great-West, 534 U.S. at 210. However, unlike the circumstances of Great-West, Plaintiffs explicitly disavow any reliance on § 502(a)(3) and base their claim on (a)(1)(B). The Supreme Court expressly noted that § 502(a)(1)(B) "authorize[s] ` a participant or beneficiary' to bring a civil action to `enforce his rights under the terms of the plan,' without reference to whether the relief sought is legal or equitable," distinguishing this provision from the statutory restrictions on actions by fiduciaries under § 502(a)(3). Id. at 221 (emphasis added). Therefore, pursuant to § 502(a)(1)(B) and the Supreme Court's clarification that this subsection extends both legal and equitable relief to plan participants, Plaintiffs may maintain their claim for enforcement of rights under the plan. See Great-West, 534 U.S. at 221.
Significantly, all the cases cited by Defendants to support their contention that the Courts of Appeals have held § 502(a)(1)(B) claims to be exclusively equitable in nature were decided prior to Great-West.See Defs.' Reply Mem. at 22 n. 11. In fact, as referenced above, post-Great-West, the Eighth Circuit alluded to the availability of legal remedies under § 502(a)(1)(B), given the Supreme Court's distinction between the language of § 502(a)(3) and that of (a)(1)(B). Ross v. Rail Car Am. Group Disability Income Plan, 285 F.3d 735, 741 n. 7 (8th Cir. 2002). Our Circuit's recent dicta casting doubt on the ability of a plaintiff to "recover legal restitution under § 1132(a)(1)(B)" through a claim "for benefits due `under the terms of the plan'" does not defeat Plaintiffs' case, as several factors distinguish the instant suit fromGeissal v. Moore Medical Corp., Nos. 02-2255, 02-2256, 2003 WL 21755925, at *3 (8th Cir. July 31, 2003). First of all, the plaintiff in Geissal sought monetary "restitution" from a plan for benefits paid to medical care providers by another health plan. Id. at *1-2 (emphasis added). Thus, Geissal was attempting to recover damages for expenses paid on her husband's behalf by a third party. Id. In contrast, here, Plaintiffs plainly seek recovery of funds paid directly out-of-pocket. Secondly, Geissal's action was for benefits due under the terms of the plan, which could not be sustained where "the plain language" of the terms of the relevant plan explicitly exempted the payment of the benefits Geissal asserted a right to. Id. at *3. The instant Plaintiffs' claim to enforce their rights, while obviously defined by the terms of their plans, does not invoke the same contradiction as Geissal's claim for "restitution" of "benefits due," which were actually fully paid for by another entity. See Id.
2. Plan Interpretation
The crux of the case at bar is the interpretation of the phrase "contracted reimbursement rate," the definition of "Prescription Drug Cost" set forth in Plaintiffs' ERISA plans. Plaintiffs assert this term refers to the formula in the Pricing Attachment, or alternatively, is inherently ambiguous and therefore calls for consideration of extrinsic evidence, which conclusively establishes the proper meaning to be UHC's discounted rate. Defendants counter that no ambiguity exists, and accordingly, that the Court must adopt as reasonable their interpretation that "contracted reimbursement rate" means the lower of the retail cost or the co-payment amount in a ZBD situation.
Where the terms of an ERISA plan vest the fiduciary with discretion to determine benefit eligibility or interpret the plan, courts apply an abuse of discretion, rather than a de novo, standard of review. Firestone Tire Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989); Jackson v. Metropolitan Life Ins. Co., 303 F.3d 884, 887 (8th Cir. 2002). According to this standard, the court is to uphold the fiduciary's interpretation of the plan if it is reasonable. Id. However, a less deferential, sliding scale of review will be employed if the plaintiff establishes that "a palpable conflict of interest or a serious procedural irregularity" caused a significant breach of the fiduciary duty owed to plan participants. Woo v. Deluxe Corp., 144 F.3d 1157, 1161 (8th Cir. 1998). The second component of this test, breach of duty, is satisfied by a showing that "the conflict or procedural irregularity has `some connection to the substantive decision reached.'" Id.
Additionally, an ERISA plan must be interpreted from the perspective of "an average plan participant." Delk v. Durham Life Ins. Co., 959 F.2d 104, 105-06 (8th Cir. 1992) (referencing 29 U.S.C. § 1022(a)); see also Melvin v. Yale Indus. Prods., Inc., 197 F.3d 944, 947 (8th Cir. 1999) ("[W]e give the language `its common and ordinary meaning as a reasonable person in the position of the [plan] participant, not the actual participant, would have understood the words.'"). If the text of the plan is clear and subject to only one interpretation, the inquiry is ended.Bill Gray Enters., Inc. Employee Health and Welfare Plan v. Gourley, 248 F.3d 206, 218 (3d Cir. 2001). If, however, the language is ambiguous, courts may look to extrinsic evidence to determine its proper meaning. Id.; see also Stearns v. NCR Corp., 297 F.3d 706, 712 (8th Cir. 2002) (stating, with respect to a reservation-of-rights provision, that facial ambiguity permits the court to consider extrinsic evidence);Farley v. Benefit Trust Life Ins. Co., 979 F.2d 653, 657 (8th Cir. 1992) (commenting that the rule of use of extrinsic evidence to resolve ambiguity "is applicable even to contracts governed by ERISA").
Plaintiffs' plans provide UHC with discretionary authority. Application of the attendant deferential standard of review, however, is somewhat dubitable under the circumstances because UHC did not render a formal interpretation of the plan language during the period in which the 1997 riders were in effect. The record reveals a distinct separation in the parallel developments of the 1997 prescription benefit modifications and the Preferred Network. When drafting the riders, Eric Bergen ("Bergen"), UHC Vice President of Pharmacy Management and author of the language at issue, had not seen the Pricing Attachment and did not render or request an interpretation of the rider. Bergen Dep. II at 251, 253. Similarly, Greg Madsen ("Madsen"), the Director of Retail Services for DPS and the person charged with implementing the Preferred Network and governing Pricing Attachment, never reviewed the rider terminology during the relevant period. Madsen Dep. at 78-79. Thus, there is no evidence of an evaluation of the interaction and effect of the operative terms of each document being conducted at the time of the alleged overcharges. Without an authoritative construction of the benefit scheme, traditional principles of contract interpretation may provide a more appropriate standard than the deferential review applied where ERISA plans confer discretionary authority. However, even accepting the construction now proffered by UHC as the relevant plan interpretation, its conflict with the plan language renders it unreasonable. Therefore, Plaintiffs' argument for application of the Woo sliding scale of review or alternate standard need not be addressed, as the Court finds Defendants' construction unsupported even under the more strict abuse of discretion analysis.
The parties cite no plan or document that defines "contracted reimbursement rate." Though they essentially agree that this phrase calls for reference to the underlying contractual pricing agreement for provision of pharmaceuticals between the Network Pharmacies and UHC, they vehemently disagree as to which precise contract term is the "reimbursement rate."
Plaintiffs define "reimbursement rate" as the discount rate articulated in the UHC Pricing Attachment quoted above. Defendants contend that "reimbursement rate" refers to a collection of documents comprising the overall agreement between the participating Network Pharmacies and UHC affiliates, which must be read cumulatively to extract the "contracted reimbursement rate" for ZBD claims. Specifically, they cite the Pricing Attachment, the underlying Network Pharmacy contracts, into which the Pricing Attachment is incorporated, and the pharmacy manuals, arguing that various provisions of these three sources support their assertion that the Pharmacy was obligated, and had a right to, collect the lower of the retail drug price or co-payment from the member, in the event the discounted rate was less than the co-payment amount. While acknowledging that the Pricing Attachment establishes the discounted rate at which prescription drug charges were billed to its affiliate plans, UHC argues payment of ZBD claims is treated separately in other materials. Beginning with the Pricing Attachment, it asserts that the "Unless otherwise specified in this Agreement" introductory language requires review of the full contract between the Network Pharmacy and the UHC plan. UHC then cites by way of example the following provision of the Brooks Pharmacy Network Agreement:
Section 2.3 Collection of Copayment Charges and Ancillary Charges. Pharmacy shall be responsible for collecting the Copayment Charges, Deductibles, Ancillary Charges, and other charges for Pharmaceutical Services provided by Pharmacy to Members, as may be specified in the Participating Pharmacy Administrative Manual.
Haron Aff. Ex. A at 3. Accordingly, it submits, one must next proceed to the pharmacy manuals, which contain provisions such as those in the cited exemplar:
1. If the claim amount exceeds the Copayment Charge, Pharmacy collects only the amount of the Copayment Charge.
2. If the claim amount is less than the Copayment Charge, Pharmacy collects the Pharmacy's Customary Charge for the Pharmaceutical Service.
1996 UHC of New England Manual at 13 (Haron Aff. Ex. F). In a separate section, entitled "Pharmacy's Responsibilities," this manual provides that the "Pharmacy has agreed to . . . 9. Process Zero Balance Due Claim on line to Diversified. The parameters are set to pass the lesser of the Copayment or Customary Charge." Id. at 4.
Defendants additionally quote the "Copayment Charge" section of the preceding version of this manual:
The amount to be collected from the Member will be represented by one of the following:
1. If the amount of the claim exceeds the Copayment Charge, the Participating Pharmacy shall collect from the Member only the amount of the Copayment Charge.
2. If the amount of the claim is less than the Copayment Charge the Pharmacy shall collect from the Member the Participating Pharmacy's Usual and Customary Charge for the Pharmaceutical Service or copay, whichever is lower.
1993 UHC of New England Manual at 8 (Aylward Aff. Ex. C) (emphasis in original). As previously noted, UHC also relies on the Wisconsin Letter, an unexecuted draft of a contract amendment, and the CVS Contract, both of which essentially combine the above co-payment language and the discount formula of the Pricing Attachment into one document, attached to the Pharmacy Agreement as an Exhibit. See Edwards Aff. Ex. A; Aylward Aff. Ex. G at 10.
Defendants supplement these citations with testimony of Madsen and C. Daniel Haron, a Brooks Pharmacy Vice President, explaining their understanding that the Network Pharmacy was to collect the lesser of the U C or co-payment amount when the discount rate was less than the co-payment. See Madsen Dep. at 57-62, 176-78; Haron Aff. ¶ 7. Madsen stated he made verbal representations and commitments to pharmacy representatives "regarding how the zero balance due claims would be handled" under the Preferred Network. Madsen Dep. at 57.
Based on these printed and oral directions to, and understandings with, the Pharmacies, UHC contends that "contracted reimbursement rate," in ZBD scenarios, refers to the lower of the U C (retail) price or the co-payment.
Plaintiffs assert that the plain language, read from the required perspective of an ordinary plan participant, expresses a "rate" and thus implies usage of a specific formula or percentage, as opposed to a series of documents addressing various co-payment scenarios. Further, they argue, "reimbursement" is defined as repayment for money spent, meaning it refers to the rate at which the pharmacy bills the plan for prescription drugs provided to members, rather than a situation in which no balance remains, and hence there is nothing to "reimburse."
The plan language explicitly states "reimbursement rate." The ordinary, straightforward meaning of these words refutes and renders unreasonable Defendants' contention that one must look to discussions of ZBD claims in various documents, rather than first determining the rate UHC would pay for the particular drug without regard to co-payment. "Reimbursement" contemplates refunding or repayment for a loss incurred.See Webster's New Collegiate Dictionary 974 (1977) (defining reimburse as "to pay back to someone: REPAY" and "to make restoration or payment of an equivalent to"). "Rate" suggests a precise price or standard. Webster's New Collegiate Dictionary defines the noun "rate" as "1a: reckoned value . . . 3a: a fixed ratio between two things b: a charge, payment, or price fixed according to a ratio, scale, or standard. . . ." Id. at 957. Accordingly, the plain meaning of the conjunction of these terms is the amount, or the method by which such amount is determined, that UHC repays the pharmacy for filling a given prescription drug for a UHC member.
The discount rate, as the parties agreed to by contract, governs the cost to UHC of the drugs dispensed by the Network Pharmacies. Madsen Dep. at 52-55; Bergen Dep. at 106-08; Defs.' Mem. in Supp. at 8 n. 8. Defendants do not dispute that the pricing scheme exemplified by the Brooks Pharmacy Pricing Attachment was the discounting formula used to calculate, through the DPS system, the appropriate charge to UHC of the drug, before consideration of patient co-payment. See Pricing Attachment (Watson Summ. J. Aff. Tab 1); Defs.' Mem. in Supp. at 8. Thus, hypothetically, if under the discounting formula the Pharmacy charges UHC $20 for penicillin, the reimbursement rate, or cost to UHC, for that drug is $20.
Obviously, if a member has a $5 co-pay for this prescription, the pharmacy would bill UHC $15, the balance remaining, as opposed to the full $20 cost. Any potential ambiguity created by this difference between "reimbursement rate" and the reimbursed amount is resolved by the language and structure of the members' plans.
Because the plans state that the member pays the lesser of the co-pay or the "prescription drug cost" — the "contracted reimbursement rate" — the natural reading of this prescription benefits provision requires assessment of the reimbursement rate without consideration of the co-payment, in order to determine which is lower, and, correspondingly, whether or not it is a ZBD situation. UHC's interpretation essentially ignores the alternative nature of the plan provision by skipping this step and jumping to manual terms that address payment in what has already been ascertained to be a ZBD claim. UHC's averment that the ZBD and co-payment sections of the manuals establish the reimbursement rate for ZBD claims, though by definition no reimbursement is due and the pharmacy does not bill UHC for these claims, requires an initial assessment of whether or not a claim is a ZBD claim. That is, a number must be computed and generated under the discount formula for comparison to the co-payment amount to see if the latter exceeds the former. Only then would instructions as to ZBD claims come into play.
UHC's position, in essence substituting "retail price" for "contracted reimbursement rate" in the riders, based upon its asserted agreement with the Network Pharmacies, does not comport with the plain meaning or structure of the plan terms. While various manuals, the CVS Contract and similar oral communications to pharmacy representatives may support UHC's belief that the Network Pharmacies were permitted to collect the lesser of U C or co-payment for a ZBD claim, such a tortured interpretation contravenes the terms of the members' prescription drug benefits. Even under the deferential standard of review applicable in ERISA cases involving discretionary authority, an interpretation that "contradicts the plan's clear language" is unreasonable and, therefore, an abuse of discretion. Kennedy v. Georgia-Pacific Corp., 31 F.3d 606, 610 (8th Cir. 1994).
Language in one of the pharmacy manuals relied upon by UHC calls its own interpretation into question, providing that "[r]eimbursement to Participating Pharmacy will be based upon . . . the lowest of:
1. The Average Wholesale Price of the Pharmaceutical Product less the discount as identified in the Participating Pharmacy Agreement; or
2. The maximum allowable cost for the Pharmaceutical Product . . .; or
3. The submitted ingredient cost or product cost as billed by Participating Pharmacy for the Pharmaceutical product.
1993 UHC of New England Manual at 18 (Aylward Aff. Ex. C) (emphasis added). This near verbatim recitation of the cost formula in the Pricing Attachment expressly ties "reimbursement" between the parties to UHC's discount rate. See Pricing Attachment § 1(a).
Despite UHC's purported intent to allow pharmacies to retain the difference between the discount rate and the U C cost in ZBD transactions, the terms of the participants' plans — the controlling documents-explicitly provided a prescription benefit of the lesser of the co-payment or the "contracted reimbursement rate" for the drug. The only reasonable construction of this phrase is UHC's discount rate, the cost calculated pursuant to the formula outlined in the Pricing Attachment. See Pricing Attachment (Watson Summ. J. Aff. Tab 1).
Adopting arguendo the UHC interpretation of "contracted reimbursement rate" at best results in ambiguity as to which contracts and terms the riders reference. From the vantage point of the average plan participant, there is no reference to pricing agreements, manuals or where the "contracted reimbursement rate" could be located. While a member does not need to be able to ascertain the exact of amount of benefit payable in a particular situation to avoid plan ambiguity, the document must be sufficiently clear that she can determine her rights and obligations.Alves v. Harvard Pilgrim Health Care, Inc., 204 F. Supp.2d 198, 209 (D. Mass. 2002). Here, UHC itself has to combine multiple agreements and manuals to achieve its interpretation. These documents are concededly not part, and cannot be considered part, of the members' plans. See Marolt v. Alliant Techsystems, Inc., 146 F.3d 617, 621 (8th Cir. 1998) (reciting the principle that in order to incorporate extrinsic documents into an ERISA plan, the reference must be sufficiently clear that the terms of the outside materials are "known or easily available to" plan members) (quoting Rinard v. Eastern Co., 978 F.2d 265, 269 n. 3 (6th Cir. 1992).
Ambiguity of the essential language calls for further inquiry, including consideration of extrinsic evidence. See, e.g., Bill Gray, 248 F.3d 206, 218 ("[I]n reviewing a plan administrator's interpretation of an ERISA plan we must first determine whether the terms of the plan document are ambiguous."). A review of the extrinsic evidence regarding UHC's South Carolina affiliate militates heavily in favor of Plaintiffs' interpretation. Though Defendants object to the admissibility of this evidence, it may be considered to resolve ambiguity, as discussed below.
a. Rule 407
Plaintiffs proffer numerous communications by UHC and DPS employees in support of their construction of the disputed language. Defendants argue that Federal Rule of Evidence 407 precludes admission of evidence of UHC's dealings with its South Carolina plan in 1998. This rule states:
When, after an injury or harm allegedly caused by an event, measures are taken that, if taken previously, would have made the injury or harm less likely to occur, evidence of the subsequent measures is not admissible to prove negligence, culpable conduct, a defect in a product's design, or a need for a warning or instruction. This rule does not require the exclusion of evidence of subsequent measures when offered for another purpose, such as proving ownership, control, or feasibility of precautionary measures, if controverted, or impeachment.
Fed.R.Evid. 407. Relying on a passing reference in Hickman v. Gems Ins. Co., 299 F.3d 1208 (10th Cir. 2002), UHC contends that its treatment of the South Carolina HMO and reimbursement to its plan participants qualify as remedial business decisions subject to Rule 407, and therefore are inadmissible to evaluate the reasonableness of its interpretation. Without further analysis, the Hickman court found that the insurers discontinuance of a payment practice could not be utilized by the plaintiffs "to establish liability [for abuse of discretion] because it is evidence of a subsequent remedial measure under Rule 407," as well as being irrelevant. Id. at 1214.
Federal Rule of Evidence 407 does not apply to the instant fact pattern. The language of the rule requires "injury or harm," as well as a charge of product deficiency, negligence or culpable conduct, but makes no reference to economic loss. Fed.R.Evid. 407. Furthermore, the Advisory Committee Notes explain that the primary policy rational for this rule is safety, emphasizing the focus on bodily harm tort claims. Id. at 1972 Proposed Rules Advisory Committee Notes. Additionally, the Eighth Circuit and other courts have refused to apply Rule 407 in the context of breach of warranty actions because of the absence of allegations of culpability. R.W. Murray, Co. v. Shatterproof Glass Corp., 758 F.2d 266, 274 (8th Cir. 1989); Mowbray v. Waste Mgmt. Holdings, Inc., 45 F. Supp.2d 132, 141 (D. Mass. 1999) (citing Murray and other decisions).
Though not a breach of warranty claim, the analogy is apt here. Despite Defendants' assertion that their actions and the corresponding communications within UHC and the South Carolina HMO are offered by Plaintiffs to establish a breach of fiduciary duty, they acknowledge that fundamentally "[t]his case presents a simple question of plan interpretation." Defs.' Mem. in Supp. at 1. The use of the evidence is not for proving "culpable conduct," but rather to ascertain the proper meaning of disputed, purportedly ambiguous contract terminology. Fed.R.Evid. 407; see Smith v. Miller Brewing Co. Health Benefits Program, 860 F. Supp. 855, 857 n. 1 (M.D. 1994) (stating that the court may consider subsequent remedial measures in evaluating disputed ERISA plan language). Rule 407 does not bar consideration of the evidence of the reimbursement to the South Carolina HMO.
Plaintiffs aver breach of fiduciary duty only in their argument for a lower standard of review pursuant to the sliding scale Woo analysis. Because this level of review is not being employed, the propriety under Rule 407 of an attempt to use the South Carolina evidence to argue a culpable disregard for UHC's duty to its plan members need not be addressed here.
b. The South Carolina Plan
In the fall of 1997, after Edit 61 had been switched to "on" for the South Carolina UHC plan, some members complained of overcharging and this concern was communicated to Bergen by the medical director at the South Carolina affiliate. Bergen Dep. at 82-84. After negotiations between UHC and the South Carolina HMO, Edit 61 was turned off for this plan in May 1998 and approximately 27,000 plan members were refunded a total of more than $300,000. Id. at 267-68; Watson Summ. J. Aff. Tab 9, pp. 1-2. Communications between UHC and DPS about use of Edit 61 in South Carolina are probative of the meaning ascribed to the contract terms at issue in this case.
In a letter to UHC's Lynn Esensten ("Esensten"), DPS representative Sue Crawford ("Crawford") described DPS's response to UHC's legal concern that "[DPS is] not administering the benefit as described in the policy riders." Watson Aff. Tab 11 (Mem. from Crawford to Esensten of 4/16/98). In a memorandum written in May 1998, Bergen referenced the rider language in his discussion of the situation, stating:
[W]e have uncovered a problem with the language in our member pharmacy riders that will not allow us to have Edit 61 (zero balance claims) turned on in the [DPS] system. On the other hand, we have agreed with our pharmacies that were part of our preferred network that we would apply Edit 61. In the long term, we can begin to modify our riders with members to allow us to turn on Edit 61. In the near term, we need to modify our arrangements with our retail pharmacies in our preferred network so that we can turn Edit 61 off and allow members to get the value of our calculated gross cost if it is less than the usual-and-customary or their copayment.Id. Tab 12 (Mem. from Bergen to Poindexter of 5/5/98). In a May 20, 1998 internal DPS message, Crawford advised a coworker that UHC was experiencing a problem with "the Pharmacy rider language. There is a concern that if we don't collect lessor [sic] of U C, copay, or CONTRACTED RATES from the member when there is a zero balance due, we are in breech [sic] of the rider." Id. Tab 14 (Mem. from Crawford to Sutcliffe of 5/20/98) (capitalization in original). In reply to the response she received to this communication, Crawford set forth an example that clearly equates "contracted" to "discounted" rate:
When I say [Edit 61 was] turned off, I mean that the pharmacy will now collect the contracted amount from the member. Examples: . . .
Contracted (discounted) amount: $ 8.00 Pharmacy U C: $ 12.00 Member Benefit (copayment): $ 10.00
With the edit "on", the pharmacy would be able to collect from the member the lessor [sic] of U C or the copayment. . . . With the edit "off", the pharmacy would collect the contracted amount. . . .
Watson Summ. J. Aff. Tab 23, p. 1.
In explaining his request for the funds for the negotiated reimbursement, Bergen told a UHC financial employee that the purpose was to refund "affected members for pharmacy claims which were charged at usual-and-customary reimbursement levels rather than contracted rate levels," noting "[t]his error was made by United HealthCare. . . ." Id. Tab 18 (emphasis added). Perhaps most telling with respect to the broader context, Bergen agreed in his deposition that "contracted rate" and "discounted rate" were used interchangeably by UHC personnel, and Esensten similarly testified that "contracted rate" meant "the discounted rate within the pharmacy contract." Bergen Dep. II at 230-31; Esensten Dep. II at 192. Plaintiffs cite numerous additional examples of statements indicating "contracted reimbursement rate" to mean UHC's discount rate. See, e.g., Pls.' Mem. in Supp. at 25 n. 9. UHC challenges the relevancy of this evidence, contending that the South Carolina reimbursement agreement reflected a business decision to appease a customer rather than any admission of overcharging members. UHC argues that it disagreed with the South Carolina interpretation of the riders, but negotiated the reimbursement to "please its customer." Defs.' Mem. in Supp. at 21; Bergen Dep. at 265-67. Plaintiffs counter that all the South Carolina HMO employees were also UHC employees, such that the administrator/owner distinction drawn by UHC between this and other UHC plans is illusory. Further, they argue, during this process, Bergen did not raise the current interpretation of the rider language, but spoke only in terms equating "contracted reimbursement rate" to the discounted rate, proving his agreement with the affiliate's reading of the prescription benefits provision.
Regardless of the nature of the relationship between the South Carolina plan and UHC, statements from UHC speak directly to the proper interpretation of the relevant plan language, and must be considered if accepting UHC's recondite interpretation. These statements manifest an understanding by UHC and DPS personnel of the contracted rate to be UHC's cost pursuant to the Pricing Attachment discount formula. Thus, even adopting UHC's argument that the meaning of the plan terminology in dispute is ascertained through reference to three contractual components, thus rendering it ambiguous, the extrinsic evidence strongly supports Plaintiffs' construction of the relevant policy language. Summary judgment for Plaintiffs is granted.
C. LIMITATIONS PERIOD
Having failed to be awarded summary judgment, Defendants seek to limit the period from which Plaintiffs may recover for overcharges, arguing that Minnesota statutory law, as opposed to Plaintiffs' plan provisions, establishes the appropriate period of limitations.
Defendants contend that the class period is limited to the two years prior to the filing of this action. They assert that Minnesota state law supplies the applicable limitations period for Plaintiffs' claim because the three-year period prescribed in the plans is only relevant where participants have exhausted their administrative remedies prior to filing suit. While acknowledging that the exhaustion provisions do not apply in this case, Plaintiffs maintain that use of the plans' three-year limitation period is nonetheless appropriate. They argue the plans' limitation on legal action is separate from the section dealing with administrative remedies and therefore that the inapplicability of the latter does not affect the former. Additionally, Plaintiffs contend the claims never accrued, such that the state statute of limitations was never triggered.
Because ERISA does not provide a limitations period for § 502(a)(1)(B) actions, courts have looked to the most analogous forum-state limitations statute for these claims. see, e.g., Cavegn v. Twin City Pipe Trade Pension Plan, 223 F.3d 827, 829 (8th Cir. 2000). The Eighth Circuit has determined that Minnesota's two-year contract statute of limitations is to apply to ERISA claims where a contractual limitations period is inapplicable or nonexistent. See Id. at 830; See also Stephan v. Goldinger, 325 F.3d 874, 876 (7th Cir. 2003) (stating that parties may extend state law statutes of limitation by agreement). Federal law, however, governs claim accrual. Cavegn, 223 F.3d at 830. A cause of action accrues for purposes of an ERISA claim for benefits either at the time of a formal denial of benefits or when a clear repudiation of the obligation to pay benefits is made known to the participant. id.
Plaintiffs' action for enforcement of rights regarding benefits that were received rather than denied renders the standard application of the statute of limitations more complex. See Kiefer v. Ceridian Corp., 976 F. Supp. 829, 843 (D. Minn. 1997). Plaintiffs' challenge to the amount of benefits received means no denial or repudiation of benefit claims occurred. See Id. This characteristic of the case requires a retrospective analysis; the limitations periods is calculated backward from the date of the filing of the complaint.
The three-year class period, based on the terms of the Plaintiffs' plans is appropriate. The inapplicability of the administrative process should not invalidate the contractually prescribed period in cases where plaintiffs are receiving benefits but may be unaware of improper calculation and attendant overcharges. Defendants' argument that Plaintiffs believed something to be amiss, and that their claims thus accrued, upon filling their first ZBD prescriptions fails to meet the requirement for ERISA claim accrual that the denial or partial denial "be clearly communicated to the [p]laintiff." Kiefer, 976 F. Supp. at 842. To hold otherwise would demand plan participants be excessively vigilant in monitoring for potential errors, while permitting "the insurer simply to bury a denial of coverage and wait for the statute of limitations to run." Price v. Provident Life Accident, Ins. Co., 2 F.3d 986, 988 (9th Cir. 1993). Though an implicit denial occurred every the time Plaintiffs paid the excess amounts for their prescriptions, the distinct claim of improper calculation of benefits does not involve an express denial of coverage that would normally trigger the notification to the plaintiff. See Kiefer, 976 F. Supp. at 843. Utilizing the three-year limitation period established by the plans is fair and reasonable under these circumstances.
IV. CONCLUSION
Based on the foregoing, and all the files, records and proceedings herein, IT IS HEREBY ORDERED that:
1. Plaintiffs' Motion to Strike [Docket No. 50] is DENIED,
2. Plaintiffs' Motion for Summary Judgment [Docket No. 54] is GRANTED and
3. Defendants' Motion for Summary Judgment [Docket No. 57] is DENIED.
LET JUDGMENT BE ENTERED ACCORDINGLY.