The McCarran-Ferguson Act (“MFA”), 15 U.S.C. § 1012, is a federal statute that provides for state dominance in the regulation of the business of insurance by creating a “reverse pre-emption” that prohibits federal law from interfering with state regulation of the business of insurance. Congress passed MFA in 1945 and provided the insurance industry with a limited exemption from federal antitrust laws to the extent that the industry is not regulated by state law. Insurance companies are not exempt from federal sanctions for boycotts, coercion and intimidation, but have a relatively free hand in exchanging pricing and underwriting data that the MFA’s critics claim results in “price fixing” of rates above competitive levels. The insurance industry argues that MFA is pro-competitive because it reduces costs by permitting the sharing of historic experience data.
In Michael A. Genord, M.D. et al v. Blue Cross and blue Shield of Michigan, No. 04-2486, filed March 14, 2006, the Sixth Circuit Court of Appeals determined that a civil action brought by a number of gynecologists under the federal Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1964(c) against Blue Cross and Blue Shield of Michigan was not pre-empted by the McCarran-Ferguson Act. The gynecologists asserted in their claim that the Blues systematically improperly paid the plaintiffs reduced amounts for services provided to Blues policy holders through illegal “predicate acts” of falsely denying claims through the use of the mail and wire. (18 U.S.C. § 1341 for mail fraud and 18 U.S.C. § 1343 for wire fraud.)
The MFA specifically provides 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….” 15 U.S.C. § 1012(b). A federal law that does not specifically relate to the “business of insurance” cannot be construed to “invalidate, impair or supersede” a state law enacted to regulate the business of insurance.The MFA also provides an “antitrust exemption” providing that federal antitrust statutes shall be applicable to the business of insurance to the extent such business is not regulated by state law.
Blue Cross is a healthcare corporation that is extensively regulated by the Michigan Commissioner of Insurance under the Nonprofit Healthcare Corporation Reform Act (“NHCRA”), which among other things required the Blue Cross to enter into reimbursement agreements with healthcare providers like the plaintiffs.
Blue Cross argued that the federal court lacked jurisdiction to hear the plaintiffs’ RICO claims because of the reverse pre-emption of the MFA in that NHCRA was a state law passed to regulate the business of insurance. The Court, in rejecting the Blue Cross argument,relied upon the U.S. Supreme Court case of United Labor Life Insurance Co. v. Pireno, 458 U.S. 119 (1982) which in construing the antitrust exemption set forth three criteria for determining what constitutes the business of insurance:
1. Whether the practice has the effort of transferring or spreading a policy holder’s risk. Here the NHCRA made gynecological services available to its policy holders through reimbursement agreements, but the agreements do not transfer or spread policy holder risk.
2. Whether the practice is an integral part of the policy relationship between the insurer and the insured. Here the court determined that the Blues failed to explain how the NHCRA’s regulation of the billing code invoicing arrangement with healthcare providers furthered the interests of policy holders. Since the claims in dispute were of providers not policy holders, the Court determined the NHCRA did not have the aim of regulating a practice that is an integral part of the policy relationship between insurer and insured.
3. Whether the practice is limited to entities within the insurance industry. The Court held that doctors are not entities within the insurance industry and the NHCRA relating to billing arrangements do not lie at the center of the legislative concern of the MFA.
4.
The Court determined therefore that the physician suit could continue because the civil RICO claim would not “invalidate, impair or supersede” the NHCRA.
It seems odd that the Sixth Circuit Court of Appeals does not even mention the U.S. Supreme Court case of Humana, Inc. v. Forsyth, 525 U.S. 299 (1999), where the Supreme Court similarly permitted a RICO case brought by beneficiaries of Humana Health Insurance of Nevada, Inc. to proceed in an insurance fraud context. There Humana beneficiaries were supposed to pay 20% of hospital charges, while Humana insurance paid 80%. Humana insurance however had a secret agreement with Humana hospitals to receive a significant undisclosed amount on its sharing raising the actual percent of the cost paid by the beneficiaries. The Supreme Court held that because RICO advances the State’s interest in combating insurance fraud and doesn’t frustrate any articulated state policy or administrative regime the MFA does not block recourse to RICO in that case.
RICO is a complex and difficult type of action to plead and sustain. It is generally not favored by judges, but if a case is successful, RICO’s treble damages and attorneys fees provisions could wreak havoc on insurance companies playing out of bounds.
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