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Morris v. Blue Shield of California

United States District Court, C.D. California

May 1, 2017

Rebecca Morris, et al.
v.
Blue Shield of California, et al.

          Present: The Honorable JOHN A. KRONSTADT, UNITED STATES DISTRICT JUDGE.

          CIVIL MINUTES - GENERAL

         Proceedings: (IN CHAMBERS) ORDER RE PLAINTIFF'S MOTION FOR REMAND (Dkt. 26); DEFENDANT'S MOTION TO DISMISS FIRST AMENDED COMPLAINT (Dkt. 35)

         I. Introduction

         On July 1, 2016, Rebecca Morris and Becky Ebenkamp (collectively, “Plaintiffs”) filed this putative class action in the Los Angeles Superior Court against Blue Shield of California (“Defendant”) on behalf of themselves and all similarly situated Blue Shield subscribers who are residents of California. Complaint, Dkt. 1-1. The operative First Amended Complaint (“FAC”) advances four causes of action: (1) violation of Cal. Bus. & Prof. Code §§ 17200 et seq., (“UCL”) through unlawful activity; (2) violation of the UCL through unfair activity; (3) Violation of the UCL through fraudulent activity; and (4) unjust enrichment. Id. Each of these causes of action is premised on public statements made by Defendant. Dkt. 30.

         On August 8, 2016, Defendant timely removed the action pursuant to 28 U.S.C. § 1441(a). Notice of Removal, Dkt. 1 at 2. On September 16, 2016, Plaintiffs filed a Motion to Remand. Dkt. 26. Plaintiffs filed the FAC on September 28, 2016. Dkt. 30. Defendant filed an Opposition to Plaintiffs' Motion to Remand on October 7, 2016. “Opposition to Remand, ” Dkt. 32. Plaintiffs filed a Reply on October 14, 2016. Dkt. 34.Defendant filed a Motion to Dismiss the FAC on October 1, 2016. Dkt. 35. Plaintiffs opposed that motion on November 7, 2016. Dkt. 42. Defendant replied on November 14, 2016. Dkt. 43. On April 26, 2017, the parties filed a joint request for status conference (“Joint Request” (Dkt. 50)), seeking to address the current status of the case.

         Both motions were taken under submission on November 16, 2016, pursuant to Local Rule 7.15. Dkt. 44. For the reasons stated in this Order, the Motion to Remand is DENIED and the Motion to Dismiss is GRANTED without leave to amend.

         II. Factual and Procedural Background

         A. Rebate Calculations

         Plaintiffs are citizens of California. Dkt. 30 ¶¶ 21-25. Defendant is a health insurance provider based in California that does business throughout the United States. Id. ¶ 27. Plaintiffs have been enrolled in Blue Shield health insurance plans since 2014. Id. ¶¶ 22, 25.

         The Patient Protection and Affordable Care Act (“ACA”), Pub. L. No. 111-148, 124 Stat. 119 (2010), which is codified as Section 2718 of the Public Health Service Act, requires insurers that provide coverage to individuals to provide pro rata rebates to their insureds under certain circumstances. 42 U.S.C. § 300gg-18. The rebates are required when an insurer spends less than 80% of the “total amount of premium revenue” on “incurred claims” and “activities that improve health care quality.” Id. The percentage of premium revenue that an insurer spends on health care and quality improvement activities is deemed its Medical Loss Ratio (“MLR”). Id. The MLR is calculated based on data relating to a three-year period: the year being reported and the two prior years. Id.; 45 C.F.R. § 158.220(b).

         In calculating the MLR, the numerator is the insurer's “incurred claims, ” which is the sum of the amount of the “direct claims” paid to or received by providers, and the amount spent on health care and quality improvement activities. The denominator is the amount paid to the insurer in “premium revenue, ” which consists of all amounts paid by enrollees or subscribers for their coverage. These requirements are set forth in the regulations of the Department of Health and Human Services (“DHHS”). 45 C.F.R. §§ 158.140(a), 158.221, 158.30, and Cal. Code Reg. §1300.67.003(b), 45 C.F.R. § 158.140(b)(3).

         Each year, DHHS requires insurers to complete an “MLR Report.” Cal. Code Reg. §1300.67.003. The MLR Report includes the calculation of the MLR for that year. Id. An MLR Report is also filed annually with California's Department of Managed Health Care (“DMHC”). Id. In completing the MLR Report, an insurer is required to enter on Line 2.6 of Part 1, “any amount excluded from claims for MLR purposes that are normally included in claims for financial statement purposes.” Id.

         B. Settlement Agreement with DMHC and Calculation of 2014 MLR Reimbursements

         In 2014, Defendant entered into a settlement agreement with the DMHC, under which it repaid more than $38, 000 to certain enrollees as “claims adjustments.” Ex. A. to FAC, Dkt. 30-1 at 6 (Settlement Agreement). The Settlement Agreement states that in 2014, Defendant's Provider Directory incorrectly listed certain healthcare providers as participating in the networks that Defendant offered to its individual market enrollees. Id. ¶¶ 13-21. As a result, certain enrollees had sought and received medical care from the identified providers, but had to pay more out-of-pocket for that care than they would have paid for services provided by physicians within Defendant's covered network. Id. The Settlement Agreement required Defendant to reimburse insureds for these additional expenses. Id. at 8. It acknowledges that Defendant paid more than $38 million in “claims adjustments” between June 2014 and June 2015, as well as other amounts prior to and after that time period. Id. ¶ 21, Plaintiffs contend that Defendant erroneously classified the payments made pursuant to the Settlement Agreement as “incurred claims” when it calculated its MLR for 2014. The FAC alleges that, as a result of this miscalculation, the numerator for the 2014 MLR calculation was overstated. This in turn resulted in smaller rebates to Plaintiffs. The allegations with respect to the miscalculation of the numerator are based on the actuarial memorandum that accompanied Defendant's 2016 filing with respect to individual market rates. That memorandum identified $44, 596, 201 of the amount paid in claims in 2014 as “payment errors, ” and stated that it was not expected that these errors would be repeated in 2016. Dkt. 30 ¶ 11. Defendant states that this $44, 596, 201 “payment error” amount included the payments made pursuant to the Settlement Agreement. Dkt. 30 ¶ 11.

         The FAC alleges that, rather than including the amounts paid pursuant to the Settlement Agreement in the calculation of incurred claims, Defendant should have included these amounts in the figure on Line 2.6 of Part 1 of the MLR Report. As noted, Line 2.6 is reserved for “any amount excluded from claims for MLR purposes that are normally included in claims for financial statement purposes.” In Defendant's 2014 form, this line was blank. Plaintiffs allege that it should have included the amounts paid pursuant to the Settlement Agreement, because they were “payment errors.”

         On September 30 of 2015, Ebenkamp received an MLR rebate check from Defendant in the amount of $174.94. Dkt. 30 ¶ 26. In November 2015, Morris received an MLR rebate check from Defendant in the amount of $118.72. Id. ¶ 23. Plaintiffs seek damages of $34, 941, 646 on behalf of all similarly situated insureds. This amount is the alleged difference between the total amount of all MLR rebates that were paid, and the amount that should have been paid. Id. ¶ 44.

         III. Motion to Remand

         A. Legal Standard

         Defendant removed this action based on jurisdiction pursuant to 28 U.S.C. § 1441. It claims that there is federal question jurisdiction under 28 ...


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