Seyfarth Synopsis: Insurer gets to pick its remedy when hospital engages in dishonest billing and illegal kickbacks…to the tune of $41 million.

Judge Lynn Hughes of the U.S. District Court for the Southern District of Texas closed out the year with a bang in Aetna Life Insurance Company v. Humble Surgical Hospital, LLC, No. Civil Action H-12-1206 (S.D. Tex. Dec. 31, 2016). The not-so-appropriately-named Humble Surgical Hospital, LLC (“Humble”) was sued by insurer Aetna for allegedly waiving patient fees and paying kickbacks to referring physicians through an elaborate, but ultimately not-so-clever, shell game in which the providers created shell LLCs and paid $3,500 annually in “administrative fees” to participate in the 300-bed hospital’s scheme.

In a scathing opinion, the court explained the scheme as follows, “Because no economically rational patient would choose [Humble] over an in-network provider, Humble paid referral fees to doctors, waived patient costs, and submitted inflated bills to Aetna.”

In a three-year period from 2010 to 2013, Humble managed to bill $41 million in fees paid by Aetna. The Court found that Humble had enticed patients with promises that their out-of-pocket costs would be equal to or less than the cost of using in-network services. Yet Humble was not part of the Aetna network, nor did it charge Aetna for services at the in-network negotiated rates. Humble also enticed the doctors with a 30% kickback–representing nearly $12 million in fees.

Clearly illegal, right? Comically, Humble attempted to argue that Aetna was not entitled to recovery because it knowingly paid Humble the amounts it charged without challenging the charges. Because Aetna did not know of the scheme, the Court said that the voluntary payment rule did not apply.

Humble also attempted to argue defenses based on preemption. The Court found that ERISA is silent regarding overpayment by providers and that recovery actions for fraud are not attempts to enforce the applicable plans. As such, the Court found that Aetna’s claims were not preempted.

Humble even attempted to argue the defense of unclean hands. The Court made short work of that: “Humble has no defense . . . [it] is filthy up to the elbows from lies and corrupt bargains.”

In the end, the Court gave Aetna a choice between three remedies:

• $12 million – to recover the kickbacks Humble unlawfully gave to providers
• $20 million – to recover the difference between the out-of-network fees paid and the in-network equivalents, OR
• $41 million – to recover the total amount paid by Aetna to Humble during the three year period from 2010 to 2013.

Which would you choose?