Supreme Court decisions unleashes RICO threat

A new Supreme Court decision may open the floodgates for a whole new type of whistle blower lawsuit against health care providers. The court gave the go-ahead to a lawsuit by beneficiaries against Nevada-based Humana Health Insurance alleging that the company engaged in a pattern of racketeering activities.

Now, hospitals and doctors who thought the only law they had to worry about was the False Claims Act may be shocked to discover that they too can be hit with the Racketeer-Influenced and Corrupt Organizations Act (RICO), a law originally intended to nail Mafia bosses. Like the False Claims Act, a civil RICO suit allows triple damages. But unlike the FCA, it does not require that the federal government have been defrauded for a suit to be filed, says Will Kemp, the Las Vegas attorney representing the beneficiaries. That makes it a useful tool for patients pursuing non-Medicare cases.

The case, Humana Inc. vs Forsyth, involves a suit filed by beneficiaries of Humana Health Insurance of Nevada. The suit accuses the insurer of cutting a special deal with a hospital owned by its parent company, the Humana corporation. The insurer was supposed to pay 80% of patients’ bills, while the patients picked up the remaining 20%. But Humana Insurance got a discount from the hospital, but allegedly failed to pass that discount on to beneficiaries.

A federal district court had dismissed the case, agreeing with Humana’s argument that the company did not do anything that was prohibited by Nevada insurance law. Humana cited the federal McCarran-Ferguson Act, which bars federal law from interfering with state regulation of insurance.

But the Supreme Court backed a federal appeals court decision that the case could go forward. The high court concluded that applying RICO in this case would not circumvent Nevada insurance laws. Nevada already allows state agencies and private citizens to sue insurers and recover damages that exceed the triple damages allowed under RICO, the justices noted. "When federal law does not directly conflict with state regulation, and when application of the federal law would not frustrate any declared state policy or interfere with a State’s administrative regime, the McCarran-Ferguson Act does not preclude its application," the court unanimously concluded.

In a statement, Humana said it was disappointed with the Supreme Court’s decision. But it also noted that the court did not rule whether the company had done anything wrong.

The company maintains that it just followed industry practices. "Throughout the health insurance industry, it was not uncommon for patients to pay as coinsurance a percentage of the gross hospital bill rather than a percentage of the discounted charges negotiated between the hospitals and health plans," the company says. "In fact, this is the manner in which the federal government settles the claims of providers and beneficiaries who participate in the Medicare program."

While the False Claims Act is likely to remain the law of choice for prosecutors and whistle blowers, the Supreme Court decision will make it easier to file a RICO suit against providers, particularly if private health insurance is involved, argues Kemp.