IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF MISSOURI
ST. JOSEPH DIVISION
RightCHOICE Managed Care, Inc.; Blue Cross
of California, Inc. d/b/a Anthem Blue Cross;
Anthem Blue Cross Life and Health Insurance
Company; Rocky Mountain Hospital and
Medical Service, Inc. d/b/a Anthem Blue
Cross and Blue Shield; Anthem Health Plans,
Inc. d/b/a Anthem Blue Cross and Blue
Shield; Blue Cross and Blue Shield of Georgia,
Inc.; Blue Cross Blue Shield Healthcare Plan of
Georgia, Inc.; Anthem Insurance Companies,
Inc. d/b/a Anthem Blue Cross and Blue
Shield; Anthem Health Plans of Kentucky, Inc.
d/b/a Anthem Blue Cross and Blue Shield;
Anthem Health Plans of Maine, Inc. d/b/a
Anthem Blue Cross and Blue Shield; Healthy
Alliance Life Insurance Company; HMO
Missouri, Inc.; Anthem Health Plans of New
Hampshire, Inc. d/b/a Anthem Blue Cross
and Blue Shield; Empire HealthChoice
Assurance, Inc. d/b/a Empire Blue Cross and
Blue Shield; Community Insurance Company
d/b/a Anthem Blue Cross and Blue Shield;
Anthem Health Plans of Virginia, Inc. d/b/a
Anthem Blue Cross and Blue Shield; HMO
Healthkeepers, Inc. d/b/a Anthem Blue Cross
and Blue Shield; Blue Cross Blue Shield of
Wisconsin d/b/a Anthem Blue Cross and Blue
Shield; Compcare Health Services Insurance
Corporation d/b/a Anthem Blue Cross and
Blue Shield,

COMPLAINT

JURY TRIAL DEMANDED

CIVIL ACTION NO. ______________

Plaintiffs,

2269380.1

Case 5:18-cv-06037-DGK Document 1 Filed 03/30/18 Page 1 of 58

 v.
Hospital Partners, Inc.; Hospital Laboratory
Partners, LLC; RAJ Enterprises of Central
Florida, LLC d/b/a Pinnacle Laboratory
Services; LifeBrite Laboratories, LLC;
Empower H.I.S. LLC; David Byrns; and Jorge
Perez,
Defendants.

Plaintiffs RightCHOICE Managed Care, Inc. (“RightCHOICE”); Blue Cross of
California, Inc. d/b/a Anthem Blue Cross; Anthem Blue Cross Life and Health
Insurance Company; Rocky Mountain Hospital and Medical Service, Inc. d/b/a
Anthem Blue Cross and Blue Shield; Anthem Health Plans, Inc. d/b/a Anthem Blue
Cross and Blue Shield; Blue Cross and Blue Shield of Georgia, Inc.; Blue Cross Blue
Shield Healthcare Plan of Georgia, Inc.; Anthem Insurance Companies, Inc. d/b/a
Anthem Blue Cross and Blue Shield; Anthem Health Plans of Kentucky, Inc. d/b/a
Anthem Blue Cross and Blue Shield; Anthem Health Plans of Maine, Inc. d/b/a
Anthem Blue Cross and Blue Shield; Healthy Alliance Life Insurance Company; HMO
Missouri, Inc.; Anthem Health Plans of New Hampshire, Inc. d/b/a Anthem Blue Cross
and Blue Shield; Empire HealthChoice Assurance, Inc. d/b/a Empire Blue Cross and
Blue Shield; Community Insurance Company d/b/a Anthem Blue Cross and Blue
Shield; Anthem Health Plans of Virginia, Inc. d/b/a Anthem Blue Cross and Blue
Shield; HMO Healthkeepers, Inc. d/b/a Anthem Blue Cross and Blue Shield; Blue
2

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 Cross Blue Shield of Wisconsin d/b/a Anthem Blue Cross and Blue Shield; Compcare
Health Services Insurance Corporation d/b/a Anthem Blue Cross and Blue Shield
(collectively, the “BCBS Plans”), by and through the undersigned counsel, hereby
commence this action against Defendants Hospital Partners, Inc.; Hospital Laboratory
Partners, LLC; RAJ Enterprises of Central Florida, LLC d/b/a Pinnacle Laboratory
Services; LifeBrite Laboratories, LLC; Empower H.I.S. LLC; David Byrns; and Jorge
Perez (collectively, “Defendants”).
The BCBS Plans further state and allege as follows:
NATURE OF THE ACTION
1.

Since at least 2016, Defendants have engaged in an illegal and fraudulent

scheme with Putnam County Memorial Hospital (“Putnam”) to enrich themselves at
the BCBS Plans’ expense by billing for laboratory services that were not payable by the
BCBS Plans, were fraudulent, were in violation of RightCHOICE’s contract with
Putnam, and were otherwise unlawful.
2.

Plaintiffs are subsidiaries of Anthem, Inc., an independent licensee of the

Blue Cross and Blue Shield Association.
3.

Putnam is a 15-bed hospital located in Unionville, Missouri.

4.

In late 2016, Putnam’s Board of Trustees (the “Putnam Board”) entered

into a series of agreements with Hospital Partners, Inc. (“Hospital Partners”) and its
affiliates that allowed Hospital Partners, its affiliates, and other non-participating
laboratories that it engaged (the “Pass-Through Labs”), to use Putnam to bill for testing
3

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 performed by the Pass-Through Labs, even though the patients receiving the testing
were never present at Putnam, were never seen by healthcare providers credentialed at
Putnam, and were located in areas outside of those serviced by Putnam.
5.

Because of those agreements, Defendants caused claims to be submitted to

RightCHOICE under Putnam’s name, National Provider Identifier (“NPI”), tax
identifier, billing information and— most importantly— pursuant to Putnam’s
favorable contracted reimbursement rates and participating status with RightCHOICE.
6.

The claims at issue include, but are not limited to, substantial numbers of

urine drug testing (“UDT”) claims.
7.

To maximize their profits, Defendants leveraged nationwide networks of

healthcare providers and laboratories, who provided their patients’ urine specimens.
8.

Upon information and belief, some of the referring healthcare providers

and laboratories provided their patients’ specimens in exchange for a cut of the amount
that Putnam was reimbursed by RightCHOICE.
9.

Defendants retained a substantial percentage of the amounts reimbursed

by the BCBS Plans for these laboratory services.
10.

The patients were never present at Putnam, were never treated by

Putnam-credentialed healthcare providers, and were located in areas not serviced by
Putnam. Instead, their only connection to Putnam was that their UDT was billed

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 through Putnam in order to take advantage of Putnam’s participating status and
favorable reimbursement rate with RightCHOICE.
11.

Had the claims been billed directly by Defendants, most never would

have been paid by RightCHOICE, and those that were paid would have been paid at
substantially lower rates.
12.

Defendants misrepresented the testing as being conducted at Putnam

because they knew that RightCHOICE was more likely to pay for the tests if performed
at a participating hospital (as opposed to by a non-participating Pass-Through Lab), and
because Putnam’s contract with RightCHOICE entitled it to substantially higher rates
than the Pass-Through Labs would receive if they billed the claims directly.
13.

Tellingly, Defendants began billing RightCHOICE through Putnam for

testing immediately upon signing the agreements in late 2016, even though Putnam’s own
laboratory was not yet operational.
14.

In spite of this fact, the claims submitted to RightCHOICE since the start

of the scheme represented (falsely) that the testing was conducted at Putnam.
15.

Since August 2016, the BCBS Plans have paid Putnam more than $60

million for testing that it was not entitled to, much of which was then distributed
amongst the Defendants.
16.

The increased volume of UDT claims billed to RightCHOICE because of

this scheme is staggering. In the first six months of 2016, before the scheme was in
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 place, Putnam billed RightCHOICE only 85 total claims for UDT. On the other hand, in
the first six months of 2017, after the scheme was in place, Putnam billed RightCHOICE
more than 37,000 claims for UDT, an increase of more than 43,000%.
17.

This was done in spite of the fact that Defendants knew that the claims

they submitted to RightCHOICE were not payable by RightCHOICE, were fraudulent,
were in violation of Putnam’s contract with RightCHOICE, and were otherwise
unlawful.
18.

The purpose of the scheme was to increase the amount that Defendants

received from RightCHOICE, without regard to the reasonableness or medical necessity
of the underlying testing.
19.

This arrangement has been investigated by the Office of the Missouri State

Auditor (the “State Auditor”).1 The State Auditor described the Defendants’
arrangement as “a billing scheme,” where “the vast majority of billings were for
patients who had never been to or received services from [Putnam].” Instead, it noted,
Putnam “submits the bills for [the Pass-Through Labs’] services to the insurance
companies, funneling millions of dollars through the hospital and reducing it to what is

1

The State Auditor’s report, which is incorporated herein, is accessible via the following link:
https://www.auditor.mo.gov/content/auditor-galloway-uncovers-evidence-90-million-billing-scheme-putnamcounty-memorial-hospital (last visited Feb. 22, 2018). The State Auditor’s press release announcing its findings
is available via the following link: https://auditor.mo.gov/content/auditor-galloway-uncovers-evidence-90million-billing-scheme-putnam-county-memorial-hospital (last visited Feb. 22, 2018).

6

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 essentially a shell organization for labs across the country.” In exchange, the State
Auditor continued, “the hospital gets a cut of the insurance payouts.”
20.

Through this civil action, the BCBS Plans seek compensation for the

injuries they have incurred because of Defendants’ conduct. In addition, the BCBS Plans
seek punitive damages and injunctive relief prohibiting Defendants from further
perpetrating the scheme.
JURISDICTION AND VENUE
21.

This Court has subject-matter jurisdiction under 28 U.S.C. § 1331 because

this action presents a federal question.
22.

The Court has supplemental jurisdiction over the state law claims

pursuant to 28 U.S.C. § 1367, because the state law claims are so related to the claims
within the Court’s original jurisdiction that they form part of the same case or
controversy under Article III of the United States Constitution.
23.

Venue is proper in this District under 28 U.S.C. § 1391(b)(2) because a

substantial part of the events or omissions giving rise to the claims asserted herein
occurred in this District.
THE PARTIES
PLAINTIFFS
24.

Plaintiff RightCHOICE Managed Care, Inc. is a Delaware corporation

headquartered in St. Louis, Missouri.
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 25.

Plaintiff Blue Cross of California d/b/a Anthem Blue Cross is

incorporated and headquartered in California.
26.

Plaintiff Anthem Blue Cross Life and Health Insurance Company is

incorporated and headquartered in California.
27.

Plaintiff Rocky Mountain Hospital and Medical Service, Inc. d/b/a

Anthem Blue Cross and Blue Shield is incorporated and headquartered in Colorado.
28.

Plaintiff Anthem Health Plans, Inc. d/b/a Anthem Blue Cross and Blue

Shield is incorporated and headquartered in Connecticut.
29.

Plaintiff Blue Cross and Blue Shield of Georgia, Inc. is incorporated and

headquartered in Georgia.
30.

Plaintiff Blue Cross Blue Shield Healthcare Plan of Georgia, Inc. is

incorporated and headquartered in Georgia.
31.

Plaintiff Anthem Insurance Companies, Inc. d/b/a Anthem Blue Cross

and Blue Shield is incorporated and headquartered in Indiana.
32.

Plaintiff Anthem Health Plans of Kentucky, Inc. d/b/a Anthem Blue

Cross and Blue Shield is incorporated and headquartered in Kentucky.
33.

Plaintiff Anthem Health Plans of Maine, Inc. d/b/a Anthem Blue Cross

and Blue Shield is incorporated and headquartered in Maine.
34.

Plaintiff Healthy Alliance Life Insurance Company is incorporated and

headquartered in Missouri.
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 35.

Plaintiff HMO Missouri, Inc. is incorporated and headquartered in

Missouri.
36.

Plaintiff Anthem Health Plans of New Hampshire, Inc. d/b/a Anthem

Blue Cross and Blue Shield is incorporated and headquartered in New Hampshire.
37.

Plaintiff Empire HealthChoice Assurance, Inc. d/b/a Empire Blue Cross

and Blue Shield is incorporated and headquartered in New York.
38.

Plaintiff Community Insurance Company d/b/a/ Anthem Blue Cross and

Blue Shield is incorporated and headquartered in Ohio.
39.

Plaintiff Anthem Health Plans of Virginia, Inc. d/b/a/ Anthem Blue

Cross and Blue Shield is incorporated and headquartered in Virginia.
40.

Plaintiff HMO HealthKeepers, Inc. d/b/a Anthem Blue Cross and Blue

Shield is incorporated and headquartered in Virginia.
41.

Plaintiff Blue Cross Blue Shield of Wisconsin d/b/a Anthem Blue Cross

and Blue Shield is incorporated and headquartered in Wisconsin.
42.

Plaintiff Compcare Health Services Insurance Corporation d/b/a Anthem

Blue Cross and Blue Shield is incorporated and headquartered in Wisconsin.
DEFENDANTS
43.

Defendant Hospital Partners, Inc. is a Florida corporation headquartered

in Florida. Hospital Partners took over management of Putnam in late 2016.2

2

On November 29, 2016, the Putnam Board agreed to begin transferring operational ownership of
Putnam to Hospital Partners. In a Registration of Fictitious Names filed by David Byrns and Jorge

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 44.

Hospital Laboratory Partners, LLC (“Hospital Lab Partners”) is a Florida

limited liability company. Upon information and belief, the members of Hospital Lab
Partners are residents of Florida or Georgia. Hospital Lab Partners was contracted by
Hospital Partners to, among other things, engage and coordinate the Pass-Through
Labs.
45.

LifeBrite Laboratories, LLC (“LifeBrite Labs”) is a Georgia limited

liability company. Upon information and belief, the members of LifeBrite Labs are
residents of Florida or Georgia. LifeBrite Labs is one of the Pass-Through Labs.
46.

RAJ Enterprises of Central Florida, LLC d/b/a Pinnacle Laboratory

Services (“Pinnacle Labs”) is a Florida limited liability company. Upon information
and belief, the members of Pinnacle Labs are residents of Florida. Pinnacle Labs is one
of the Pass-Through Labs.
47.

Empower H.I.S. LLC (“Empower H.I.S.”) is a Florida limited liability

company. Upon information and belief, the members of Empower H.I.S. are Florida
residents. Empower H.I.S. was contracted to provide billing and other logistical
support once Hospital Partners took over management of Putnam. Upon information
and belief, Empower H.I.S. facilitated the substantial financial transactions flowing
between the various entities involved in this pass-through scheme.

Perez with the Missouri Secretary of State on April 24, 2017, Byrns is listed as owning 51 percent of
the business operating as Putnam County Memorial Hospital, with Jorge Perez owning the remaining
49 percent. However, as of late 2017, the Missouri Department of Health and Senior Services had not
received an official change of ownership request relating to Putnam.

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 48.

Defendant Jorge Perez is a Florida resident and the Vice President of

Hospital Partners. Upon information and belief, Jorge Perez has an ownership or
pecuniary interest in Hospital Partners, Hospital Lab Partners, LifeBrite Labs, and
Empower H.I.S.
49.

Defendant David Byrns is a Florida resident and was, during times

relevant hereto, the President and Chief Executive Officer of Hospital Partners.
THE BLUECARD PROGRAM
50.

Plaintiffs are subsidiaries of Anthem, Inc., an independent licensee of the

Blue Cross and Blue Shield Association (“BCBS Association”).
51.

Plaintiffs are participants in the BCBS Association’s BlueCard program,

which allows members of one BCBS Association licensee’s health plans to obtain
healthcare services in another BCBS Association licensee’s service area (e.g., where a
member is traveling or living outside of their home plan’s service area).
52.

Because Putnam was a participating provider with RightCHOICE, and

was located in RightCHOICE’s service area, services billed by Putnam for any BCBS
Association licensee’s members were billed to RightCHOICE.
53.

RightCHOICE then reconciled the cost of the services billed by Putnam

with the BCBS Association licensee responsible for each member.3

3

For example, if a BCBS Illinois member receives treatment in Missouri from a provider that is in-network with
RightCHOICE, the BCBS Illinois member would be treated as in-network by the Missouri provider. Under the
BlueCard program, the Missouri provider would submit its claim to RightCHOICE. RightCHOICE would pay
the provider for services rendered, and would then reconcile the cost of those services with BCBS Illinois.

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 54.

As a result, each of the BCBS Plans was harmed by the fraudulent scheme

alleged herein.
MANAGED CARE AND THE BCBS PLANS
55.

The BCBS Plans are insurers and third-party claims administrators for

group health plans that provide benefits to their covered individuals and dependents.
56.

The BCBS Plans may insure group health plans directly (the “Fully-

Insured Plans”). For these plans, the BCBS Plans resolve claims and make benefit
payments from their own assets.
57.

The BCBS Plans also provide administrative services to self-funded group

health plans (the “Self-Funded Plans”). The BCBS Plans deliver these services
pursuant to Administrative Services Agreements between the BCBS Plans and the
health plan’s sponsor (usually an employer), which identify the rights and obligations
of each party. Many of the health plans sponsored by private employers are governed
by ERISA, 29 U.S.C. § 100 et seq. The BCBS Plans provide insurance and/or
administrative services to these employer-sponsored health plans, including the
processing of claims for reimbursement of medical services provided to the individuals
covered by these benefit plans.
58.

The BCBS Plans paid claims to Putnam on behalf of a number of self-

funded plans, and seeks redress in this lawsuit for those Self-Funded Plans.
59.

The BCBS Plans’ Administrative Service Agreements state:
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 Pursuant to Section 405(c)(1) of ERISA, Employer delegates to
Anthem fiduciary authority to determine claims for benefits
under the Plan as well as the authority to act as the
appropriate fiduciary under Section 503 of ERISA to
determine appeals of any adverse benefit determinations
under the Plan. Anthem shall administer complaints, appeals
and requests for independent review according to Anthem’s
complaint and appeals policy, and any applicable law or
regulation unless otherwise provided in the Benefits Booklet.
In carrying out this authority, Anthem is delegated full
discretion to determine eligibility for benefits under the Plan
and to interpret the terms of the Plan.
60.

Accordingly, each of the Self-Funded Plans delegated to the BCBS Plans

the discretionary authority to determine claims for benefits.
61.

In this capacity, the BCBS Plans has processed claims and administered

appeals on behalf of all of the Self-Funded Plans.
62.

Similarly, all (or nearly all) of the impacted Self-Funded Plans have given

the BCBS Plans the authority and discretion to recover overpayments. Specifically, the
Administrative Service Agreements state:
Employer grants Anthem the authority and discretion to . . .
(1) determine and take steps reasonably necessary and costeffective to effect recovery; (2) select and retain outside
counsel; (3) reduce any recovery obtained on behalf of the
Plan by its proportionate share of the outside counsel fees and
costs incurred during litigation or settlement activities to
obtain such recover; and (4) negotiate and effect any
settlement of the Employer’s and Plan’s rights . . . .
63.

Accordingly, the BCBS Plans have authority to seek recovery on behalf of

the impacted Self-Funded Plans and for payments made by the Fully-Insured Plans.

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 THE BCBS PLANS’ NETWORK OF PARTICIPATING PROVIDERS
64.

The enrollees of the BCBS Plans are considered the BCBS Plans’

“members.”
65.

The BCBS Plans rely upon networks of participating (also known as “in-

network”) healthcare providers. Participating providers contract with BCBS Plans to
accept a negotiated rate for their services, in exchange for, among other things,
increased access to members of the BCBS Plans (due to the savings available to the
BCBS Plans’ members who receive treatment from participating providers) and
increased certainty with respect to the amount that they will receive from the BCBS
Plans for their services.
66.

On the other hand, non-participating (also known as “out-of-network”)

providers have not contracted with the BCBS Plans. The reimbursement rates that the
BCBS Plans are required to pay non-participating providers are often less than the rates
the BCBS Plans are contractually obligated to pay participating providers, and BCBS
Plan members are typically personally responsible for a larger share of the cost of those
services.
67.

Putnam is one of RightCHOICE’s participating providers.

68.

None of the other Defendants is a participating provider, nor do any of

them have contracts with RightCHOICE or the other BCBS Plans.

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 THE RIGHTCHOICE-PUTNAM CONTRACT
69.

Putnam County Memorial Hospital is a public corporation that operates a

15-bed hospital in Unionville, Missouri.
70.

Unionville is the county seat of Putnam County, which has fewer than

5,000 total residents.
71.

On June 10, 2008, RightCHOICE and Putnam entered into a Participating

Hospital Agreement (the “Contract”). A true and correct copy of the Contract, filed
under seal, is attached as Exhibit A hereto.
72.

The effective term of the Contract was one year, but it automatically

renewed for another year upon the same terms and conditions unless terminated
through the process set forth in the Contract.
73.

The Contract contains a number of provisions that make clear that

RightCHOICE contracted to reimburse Putnam only for services provided by Putnam.
74.

For example, Putnam agreed to “provide Hospital Services to Covered

Persons in accordance with and subject to the terms and conditions of [the Contract].”4
(Ex. A at § 2.1 (emphasis added).)
75.

Putnam is explicitly prohibited from billing RightCHOICE for services not

performed by Putnam. The Contract states that Putnam “shall bill only for Hospital

4

The Contract defined “Hospital Services” as “those inpatient and outpatient services, products, and
accommodations and care that are customarily provided or available at or available from [Putnam].” (Ex. A at
§ 1.11.)

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 Services performed by, or under the direction and personal supervision of [Putnam].”
(Ex. A at § 4.1(b).)
76.

Putnam is also “responsible for each claim submitted by, or on behalf of,

[Putnam].” (Ex. A at § 4.1(b).)
77.

Other provisions of the Contract relevant to this action include, but are not

limited to, that:
a.

Putnam is obligated to “participate in, comply with, and provide

Hospital Services in accordance with” RightCHOICE policies, programs, and
procedures, including its provider manual. (Ex. A at § 2.6.)
b.

Putnam, its agents, and employees are required to “comply with

and abide by all state, federal and local laws and regulations relating to the
provision of Hospital Services to Covered Persons.” (Ex. A at § 2.7.)
c.

Putnam certified that “all claims information, encounter data and

other information submitted by or on behalf of [Putnam] to [RightCHOICE] will
be and are accurate, complete, and truthful.” (Ex. A at § 4.1(d).)
d.

Putnam agreed to provide “valid and appropriate billing and

diagnosis codes.” (Ex. A at § 4.2.)
e.

Putnam agreed not to “pay, receive, or offer any incentive, or

participate in any incentive program or arrangement, that provides or would
provide [Putnam] or any other physician or provider with a direct or indirect
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 inducement to provide less than Medically Necessary health care services,
supplies, accommodations, treatments or care to Covered Persons.” (Ex. A at
§ 4.4(c).)
f.

Putnam may not “assign, delegate, or transfer [the Contract] or the

rights or responsibilities provided for [therein] without the prior written consent
of [RightCHOICE].” (Ex. A at § 6.1(a).)
g.

The Contract is “governed by, and construed and enforced in

accordance with, the laws of the State of Missouri.” (Ex. A at § 6.8(a).)
h.

Putnam agreed that only medically necessary services would be

reimbursed by RightCHOICE, and medically necessary was defined as meaning
Covered Services that were:
i.

appropriate and necessary for the symptoms, diagnosis, or

treatment of the medical condition;
ii.

provided for the diagnosis, care and treatment of the

medical condition;
iii.

within standards of good medical practice within the

medical community;
iv.

not primarily for the convenience of the Covered Person, the

attending physician, or another health care provider; and

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 v.

the type, supply or level of service or care which can safely

be provided and that is not more than what is necessary or appropriate.
(Ex. A at § 1.13 & § 1.18.)
78.

The Contract also sets the amount that Putnam receives from

RightCHOICE for the provision of Hospital Services.
79.

Specifically, the Contract sets the “allowed amount” as the lesser of the

Established Charge, which is set in the schedule of reasonable and customary charges
for services and supplies provided by Putnam; or the appropriate amount under the
applicable Prospective Payment Schedule, which is Attachment A to the Contract.5
URINE DRUG TESTING AND PASS-THROUGH BILLING SCHEMES
Urine Drug Testing
80.

Drug tests are laboratory analyses used to aid in the detection of

prescription, recreational, or illicit substances in human specimens. Drug testing may
be used to meet state requirements, evaluate therapeutic compliance and drug aberrant
behavior (e.g., abuse or diversion), or to evaluate for child and elder abuse. It can

5

On March 15, 2017, RightCHOICE sent notice to Putnam that it was amending the rates at which it
would reimburse Putnam. That change became effective on June 15, 2017.

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 include analysis for most drugs, chemicals, and/or plant products that are known to be
misused, including for recreational use.
81.

Although drug tests may be performed on a variety of specimen types,

UDT is the most commonly used because it is widely available, minimally invasive, and
generally the least expensive for drug detection and monitoring.
82.

This is consistent with Anthem’s Clinical UM Guideline, entitled “Drug

Testing or Screening in the Context of Substance Use Disorder and Chronic Pain” (the
“Anthem Drug Testing Policy”), which is incorporated by reference into the Contract,
and which states that “the use of blood samples as an alternative to urine for drug
testing is considered medically necessary when the use of urine is not feasible[.]”
83.

UDT typically falls into two categories of testing: presumptive and

definitive.
84.

Presumptive testing is used, when medically necessary, to determine the

presence or absence of one or more drugs or drug classes. Presumptive testing is
typically performed via immunoassay, and results are expressed as negative, positive,
or numeric. Presumptive testing is also referred to as “screening” or “qualitative”
testing.
85.

Definitive testing is a follow-up test performed on a separate portion of

the original specimen, when medically necessary, to validate the identity and quantity
of a specific drug or metabolite. Definitive testing is typically performed using either
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 gas chromatography-mass spectrometry or liquid chromatography-mass spectrometry,
and results are expressed as a concentration of a particular metabolite or analyte
(e.g., nanograms per milliliter (ng/mL)). Definitive testing is also referred to as
“confirmation” or “quantitative” testing.
86.

Definitive testing is typically reasonable and necessary only in certain

circumstances.
87.

The Anthem Drug Testing Policy states that definitive testing is medically

necessary when all of the following criteria are met:
a.

the presumptive UDT was done for a medically necessary reason;

b.

the presumptive test was negative for prescribed medications,

positive for a prescription drug with abuse potential which was not prescribed,
or positive for an illegal drug (for example, but not limited to, methamphetamine
or cocaine);
i.

the specific definitive test(s) ordered are supported by

documentation specifying the rationale for each [definitive] test ordered;
and
ii.

clinical documentation reflects how the results of the test(s)

will be used to guide clinical care.

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 The Toxicology Laboratory Industry
88.

In recent years, government enforcement efforts, private lawsuits, and

investigative journalism have helped to identify widespread fraud within the
toxicology laboratory industry.
89.

For example, in a November 2014 article about the massive increases in

the amount of UDT being reimbursed by Medicare, the Wall Street Journal summarized
the then-recent history of the industry:
Spending on the [urine drug] tests took off after Medicare
cracked down on what appeared to be abusive billing for
simple urine tests. Some doctors moved on to high-tech
testing methods, for which billing wasn’t limited.
They started testing for a host of different drugs—including
illegal ones that few seniors ever use—and billing the federal
health program for the elderly and disabled separately for
each substance.
Medicare’s spending on 22 high-tech tests for drugs of abuse
hit $445 million in 2012, up 1,423% in five years.6
90.

In another example, in October 2015, the former Millennium Laboratories

agreed to pay $256 million to the U.S. Department of Justice to resolve allegations that it
billed Medicare “many millions of dollars’ worth” of UDT claims that were “not
reasonable and necessary or that were furnished pursuant to prohibited referrals” in
violation of the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b), and other statutes.

6

Christopher Weaver and Anna Wilde Mathews, Doctors Cash In on Drug Tests for Seniors, and Medicare
Pays the Bill, THE WALL STREET JOURNAL, Nov. 10, 2014 (available at: https://www.wsj.com/articles/
doctors-cash-in-on-drug-tests-for-seniors-and-medicare-pays-the-bill-1415676782).

21

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 91.

As a result of concerns about the frequency, cost, and manner with which

toxicology laboratories were billing government and commercial payors, a number of
changes were put into place as to how laboratories test and bill for UDT.
92.

For example, the Centers for Medicare and Medicaid Services (“CMS”)

changed the way that UDT is billed, in part because of a “concern about the potential
for overpayment when billing for each individual drug test rather than a single code
that pays the same amount regardless of the number of drugs that are being tested.”
93.

Because these changes have decreased both the frequency and rate at

which toxicology laboratories are reimbursed for UDT, toxicology laboratories looked
for other ways to gain access to more favorable reimbursement rates, including—as
here—passing their UDT claims through hospitals to take advantage of the hospitals’
participating status and favorable reimbursement rates from payors.
94.

Indeed, the website of one entity that recruited toxicology laboratories to

pass their UDT claims through a network of pass-through hospitals makes clear the
motives of the arrangement:

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 95.

In other words, because of “recurring compliance and quality issues,”

CMS and commercial payors restricted certain toxicology laboratories from their
networks. This led the remaining laboratories—including those who were restricted
from payors’ networks for compliance and quality issues—to rely on health systems
like Putnam to hide the true identity of the laboratory performing the UDT, and take
advantage of the hospitals’ participating status and favorable reimbursement
agreements with payors.

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 THE DEFENDANTS’ PASS-THROUGH SCHEME
Overview
96.

As described herein, Hospital Partners took over the management of

Putnam in order to allow Defendants to use the hospital as a pass-through (i.e., to
camouflage laboratory claims from the Pass-Through Labs so that RightCHOICE would
be more likely to pay them, and would pay them at higher rates, than if the PassThrough Labs billed them directly).
97.

Defendants then split the proceeds, which were substantially greater than

what each party would have received if they billed RightCHOICE only for the tests that
they actually performed, and at the rates to which they were entitled.
98.

To increase the revenues that they could generate from the pass-through

scheme, Defendants relied upon networks of referring healthcare providers who
ordered large volumes of laboratory testing (including pain clinics and drug
detoxification or rehabilitation facilities).
99.

Upon information and belief, to ensure that they received the specimens

referred by these healthcare providers and laboratories, Defendants and other coconspirators paid them kickbacks by, for example, promising them a portion of the
reimbursement that Putnam received for each test, including from RightCHOICE.
100.

Once ordered by a referring healthcare provider, the testing was

conducted by the Pass-Through Labs.
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 101.

After testing, the Pass-Through Lab that performed the testing submitted

information about the testing to Hospital Partners, Hospital Lab Partners, or Empower
H.I.S.
102.

After receiving the claim information from the Pass-Through Lab,

Hospital Partners, Hospital Lab Partners, or Empower H.I.S. prepared the claim, and
submitted the claim to RightCHOICE as if the testing was performed at and by Putnam
and was reimbursable under Putnam’s Contract with RightCHOICE.
103.

These claims contained numerous material misrepresentations intended to

hide the fact that the testing was being performed at the Pass-Through Labs, and not at
Putnam, by Putnam-credentialed providers, or for BCBS Plan members in Putnam’s
service area.
104.

RightCHOICE reasonably relied on the representations that Defendants

made, or caused to be made, on the claims, and paid the claims.
105.

Once Putnam received payment from RightCHOICE, Putnam, Hospital

Partners, Hospital Lab Partners, and Empower H.I.S. divided the proceeds of the
fraudulent claim between themselves and, upon information and belief, the referring
healthcare providers.
Putnam Agrees to Serve as a Pass-Through
106.

In mid-2016, Putnam was in extremely poor financial condition. A news

article published at the end of 2015 described Putnam as a “house of cards.”
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 107.

As a result, the Putnam Board contacted at least three companies to

discuss taking over management and/or ownership of Putnam. Only Hospital Partners
agreed to meet with the Putnam Board.
108.

The Putnam Board felt that, without coming to an agreement with

Hospital Partners, Putnam was “within days of closing.”
109.

As a result, in September 2016, it entered into a management services

agreement with Hospital Partners, which was led by David Byrns and Jorge Perez.
110.

Under the management services agreement, Hospital Partners took over

day-to-day management of Putnam.
111.

David Byrns, Hospital Partners’ President and Chief Executive Officer,

was named Chief Executive Officer of Putnam on September 13, 2016.
Through Putnam, Defendants Engage Other Entities to Facilitate the Scheme
112.

Shortly after David Byrns was made CEO of Putnam, Putnam engaged

Empower H.I.S. to provide logistical support to Putnam, including with respect to
billing and the implementation of electronic health records software.
113.

Jorge Perez is or was an officer of Empower H.I.S., and has a pecuniary

interest in the company.
114.

Jorge Perez previously conspired to implement at least one other known

pass-through billing scheme, at Campbellton-Graceville Hospital in Graceville, Florida.
There, Perez served as Campbellton-Graceville’s CEO after it was acquired by The
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 People’s Choice Hospital, LLC.7 In the case, laboratory tests performed at third party
laboratories were improperly billed to insurers as if performed at and by CampbelltonGraceville Hospital, resulting in more than $50 million in improper reimbursement.
115.

According to public documents, on October 20, 2016, Putnam also

contracted with Hospital Lab Partners, an affiliate of Hospital Partners, purportedly to
operate a clinical laboratory on behalf of Putnam.
116.

The contract between Putnam and Hospital Lab Partners stated that

Hospital Lab Partners was to “provide all personnel, equipment, supplies, and
management support necessary for the comprehensive operation of the hospital’s
clinical laboratory.”
117.

Hospital Lab Partners has a network of non-participating toxicology

laboratories that it uses to perform testing (referred to herein as the Pass-Through Labs).
118.

Putnam’s contract with Hospital Lab Partners made explicit that Putnam

would bill payors, including RightCHOICE, for all testing under the hospital’s name,
regardless of where the testing was performed.
119.

This was done to hide the identity of the Pass-Through Labs from

RightCHOICE, and to take advantage of RightCHOICE’s agreement to reimburse

7

People’s Choice is itself the defendant in separate actions arising from yet more fraudulent billing schemes.
One arose due to its relationship with the Campbellton-Graceville Hospital. See Campbellton-Graceville Hosp.
Corp. v. Peoples Choice Hosp., No. 5:16-cv-00222 (N.D. Fla. filed Aug. 3, 2016). Another scheme was
perpetrated in Oklahoma. See Aetna Inc. v. The People’s Choice Hosp., LLC, No. 2:17-cv-04354 (E.D. Pa. filed
Sept. 29, 2017) (recently transferred to the Western District of Texas).

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 Putnam at higher rates than the Pass-Through Labs were entitled to if they billed
RightCHOICE directly.
The Pass-Through Conspirators Divide the Proceeds of the Scheme
120.

When RightCHOICE relied on the above misrepresentations and paid the

claims, Putnam—under the control of Byrns, Perez, and Hospital Partners—distributed
the proceeds of the scheme to the other Defendants in accordance with their respective
contracts.
121.

Under its contract with Hospital Lab Partners, Putnam was obligated to

pay Hospital Lab Partners 80 percent of any reimbursement it received from payors,
with an additional six percent going to one or more billing companies (including
Empower H.I.S.).
The Pass-Through Conspirators Billed RightCHOICE
before Putnam’s Laboratory was Operational
122.

As soon as the contract between Putnam and Hospital Lab Partners was

signed, Putnam began billing RightCHOICE for testing that it did not perform (and
could not have performed).
123.

This is consistent with the findings reported by the State Auditor, which

noted that Putnam paid Hospital Lab Partners and its subcontracted laboratories $30.4
million in the four-month period from November 2016 to February 2017, in spite of the
fact that Putnam’s laboratory was not yet operational.

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 124.

This suggests that the scheme generated in excess of $36 million from

payors, including RightCHOICE, during those four months.
Putnam Hires Phlebotomists at Healthcare Providers’ Offices
125.

Shortly after Hospital Partners took over management of Putnam, Putnam

began paying approximately $68,000 per month for 33 phlebotomists to facilitate the
scheme.
126.

The phlebotomists were apparently hired by Putnam (which was

controlled by Byrns, Perez, and Hospital Partners) to provide “pre-laboratory services.”
127.

Upon information and belief, Putnam hired the phlebotomists to process

specimens that were tested by the Pass-Through Labs, and classified the phlebotomists
as Putnam hires to make Putnam appear more involved than it actually was.
128.

The phlebotomists were located in medical practices throughout the

country, including Alabama (one), Arizona (one), Arkansas (three), California (two),
Georgia (four), Kentucky (three), Louisiana (three), Missouri (two), Oklahoma (two),
Tennessee (five), and Texas (seven).
129.

After being questioned by the State Auditor as to the propriety of Putnam

paying for the phlebotomists, David Byrns stated that Hospital Partners had
reimbursed Putnam for the costs associated with the hiring of these phlebotomists.
However, he was unable or unwilling to provide the State Auditor proof of payment.

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 130.

Upon information and belief, the placement of these phlebotomists in

medical practices was, and was intended to be, a kickback to these medical practices in
order to induce them to refer their patients’ specimens to the scheme.
The Pass-Through Scheme’s Reliance on Over-Testing and Over-Billing
131.

To maximize the revenue that they could extract from the BCBS Plans,

Defendants billed the testing using codes that would maximize the amount likely to be
paid, without regard to whether those codes reflected services that were actually
appropriate or medically necessary, and without regard to appropriate billing practices.
132.

When using the HCPCS codes8 in effect in 2016, a laboratory should have

billed one presumptive code and one definitive code per date of service.
133.

Instead, Defendants often improperly unbundled and billed

RightCHOICE for 15 or more drug testing codes in addition to the HCPCS codes for both
presumptive and definitive testing.
134.

For example, Putnam billed RightCHOICE for UDT purportedly

performed for a BCBS Plan member on December 1, 2016, even though Putnam’s
laboratory was not yet operational.
135.

Nevertheless, for that member, Putnam billed RightCHOICE 23 different

codes, in spite of the fact that two of them—G0479 and G0480—explicitly covered all
presumptive and definitive testing performed for that member on that date of service.

8

“HCPCS” stands for “Healthcare Common Procedure Coding System” and is a code set used by
Medicare and health insurance providers to standardize billing.

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 136.

Of the remaining 21 codes billed to RightCHOICE for this member, a

substantial percentage were codes for definitive testing that Putnam misrepresented as
being for presumptive testing.
137.

The total amount billed for the UDT purportedly provided to this member

was in excess of $4,000.
138.

By comparison, the Medicare Clinical Laboratory Fee Schedule for 2016

was less than $100 each for G0479 and G0480.
The Pass-Through Conspirators’ Efforts to Hide the Scheme
139.

In early 2017, RightCHOICE sought to investigate the claims being

submitted to it by Putnam.
140.

Around the same time, RightCHOICE and Putnam exchanged

correspondence as to the substantial increase in claims for UDT being billed to
RightCHOICE by Putnam.
141.

For example, on March 15, 2017, RightCHOICE notified David Byrns, as

Chief Executive Officer of Putnam, that it was implementing new reimbursement rates
for Putnam, which would go into effect on June 15, 2017.
142.

In a letter dated May 18, 2017, David Byrns wrote that Putnam “works

diligently to provide the valuable medical services necessary for Anthem-insured
patients at Putnam’s clinical laboratory[,]” but, “[o]n occasion, Putnam may experience
operational issues regarding laboratory capabilities, malfunctioning equipment, or
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 other issues that are common amongst medical providers who perform services with
complex instrumentation.” In those cases, he continued, Putnam “must work with
associates intermittently in order to provide services ordered by physicians.”
143.

When Byrns made this statement, he knew that it was false, and made

with the intent to further the fraudulent pass-through scheme.
144.

In the same letter, Byrns described Hospital Lab Partners’ role as

“provid[ing] consultation, guidance, and expertise to Putnam in regards to the
laboratory services and operations performed at Putnam’s laboratory facilities.”
145.

He otherwise refused to divulge the nature of Hospital Lab Partners’

relationship with Putnam, other than to say that it “assist[ed] Putnam in providing
Anthem-insured patients with sound laboratory services.”
146.

Byrns stated that he could not provide additional information about the

nature of Hospital Lab Partners’ relationship with Putnam because he did “not want to
disclose [Hospital Lab Partners’] trade secrets, confidential information, or other
business know-how[.]”
147.

When Byrns made these statements, he knew that they were false and/or

omitted material facts. Specifically, Byrns knew that Hospital Lab Partners was
conspiring with Hospital Partners, Empower H.I.S., David Byrns, Jorge Perez, and the
Pass-Through Labs to bill payors (including RightCHOICE) for testing performed by
the Pass-Through Labs as if performed at and by Putnam.
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 Sample Claims
148.

In early 2017, as part of its investigation into Putnam’s claims,

RightCHOICE requested that Putnam provide all records relating to ten sample claims.
149.

On July 3, 2017, RightCHOICE received a letter from Ricardo J. Perez, on

Empower H.I.S. letterhead, and with an address in Miami, Florida, but signed on behalf
of Putnam County Memorial Hospital.
150.

In his letter, Ricardo Perez said that he was enclosing “all Medical Records

information that we have on file.”
151.

Enclosed with Perez’s letter were documents relating to nine of the ten

sample claims identified by RightCHOICE.
152.

However, the only documents provided for the nine sample claims were

the UDT results (i.e., no office visit notes, treatment plans, or other records were
provided for these patients).
153.

RightCHOICE has identified the following sample claims as illustrative of

Defendants’ scheme.
Sample Claim No. 1
154.

On November 4, 2016, a urine specimen was collected from a BCBS Plan

member by a pain management practice in Ohio, hundreds of miles from Putnam.
155.

The test results provided by Empower H.I.S. have “Putnam County

Memorial Hospital” at the top of the page, but identify “LIFEBRITE LAB” as the
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 “Account.”
156.

None of the tests are identified as being completed by Putnam, which is

consistent with the fact that Putnam’s laboratory was not operational when the
member’s specimen was collected.
157.

Instead, underneath the header, a complete laboratory report from

LifeBrite Labs is reprinted:

158.

The test results show that no drugs were detected in the member’s

specimen, except for Oxycodone, which was prescribed.

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 159.

Because the results of the presumptive test were as expected (i.e., the only

positive was for a prescribed medication), definitive testing was not medically
necessary under the Anthem Drug Testing Policy.
160.

However, Putnam billed RightCHOICE for 20 separate codes, with a total

billed charge of $3,808.
161.

In reliance on the misrepresentations contained on the claim form

submitted by Putnam, RightCHOICE paid Putnam $2,703.68.
162.

This BCBS Plan member was not a Putnam patient, was not treated by a

Putnam-credentialed healthcare provider, and was hundreds of miles outside of
Putnam’s service area.
163.

But for this pass-through scheme, Putnam would not have submitted a

claim for this testing to RightCHOICE and RightCHOICE would not have paid
anything to Putnam for the service.
Sample Claim No. 2
164.

On November 15, 2016, a urine specimen was collected from a BCBS Plan

member by a substance abuse treatment facility in Virginia, hundreds of miles from
Putnam.
165.

The test results provided by Empower H.I.S. have “Putnam County

Memorial Hospital” at the top of the page, but identify “LIFEBRITE LAB” as the
“Account.”
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 166.

None of the tests are identified as being completed by Putnam, which is

consistent with the fact that Putnam’s laboratory was not operational when the
member’s specimen was collected.
167.

Instead, underneath the header, a laboratory report from LifeBrite Labs is

reprinted:

168.

The test results from LifeBrite Labs show that, of the three drugs

identified in the member’s specimen, two were prescribed (Naloxone and
Buprenorphine) and one was not (Gabapentin).
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 169.

Because of the unexpected positive, the Anthem Drug Testing Policy

would have permitted definitive testing to confirm the positive for Gabapentin.
170.

Instead, Putnam billed RightCHOICE for 20 separate codes, with a total

billed charge of $4,138.
171.

In reliance on the misrepresentations contained on the claim submitted by

Putnam, RightCHOICE paid Putnam $2,937.98
172.

This BCBS Plan member was not a Putnam patient, was not treated by a

Putnam-credentialed healthcare provider, and was hundreds of miles outside of
Putnam’s service area.
173.

But for this pass-through scheme, Putnam would not have submitted a

claim for this testing to RightCHOICE and RightCHOICE would not have paid
anything to Putnam for the service.
CAUSES OF ACTION
COUNT I
FRAUD AND FRAUDULENT CONCEALMENT
(Against all Defendants)
174.

The BCBS Plans incorporate by reference all preceding paragraphs as if

fully set forth herein and further allege as follows:
175.

As alleged herein, each of the Defendants, individually and in furtherance

of the fraudulent scheme alleged herein, made, or caused to be made, intentional
misrepresentations of material fact relating to the insurance claims that Putnam
submitted, or caused to be submitted, to the BCBS Plans for reimbursement.
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 176.

When Defendants made these intentional misrepresentations, or caused

them to be made, they did so with the intent to induce the BCBS Plans to rely on those
misrepresentations and pay the insurance claims.
177.

Each Defendant’s participation in the fraudulent scheme includes, but is

not limited to, the following:
a.

Hospital Partners: Hospital Partners was responsible for targeting

and taking over the management of Putnam, which was fundamentally essential
to the scheme, as Putnam’s Contract with RightCHOICE needed to be accessible
to the scheme’s participants. Hospital Partners then engaged the other entity
Defendants, including the Pass-Through Labs and Empower H.I.S., which
Hospital Partners caused to submit the claims to RightCHOICE. When
RightCHOICE relied on Defendants’ material misrepresentations and paid the
claims, Hospital Partners withdrew funds from Putnam’s accounts to pay itself
and the other Defendants for their participation in the scheme. Hospital Partners
was controlled by David Byrns and Jorge Perez, both of whom have or had
pecuniary interests in the company.
b.

Hospital Lab Partners: Hospital Lab Partners, which appears to be

affiliated with or controlled by Hospital Partners, was engaged by Hospital
Partners to contract with and manage the Pass-Through Labs in furtherance of
the scheme, which it did. Upon information and belief, Hospital Lab Partners
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 was also controlled by David Byrns and Jorge Perez, both of whom have or had
pecuniary interests in the company.
c.

Empower H.I.S.: Empower H.I.S. was engaged by Hospital Partners

to perform billing functions and prepare electronic health records necessary for
the success of the scheme. Specifically, because of the thousands of claims being
passed through Putnam by Defendants, Empower H.I.S. managed and submitted
the resulting claims to RightCHOICE, in addition to managing and responding
to RightCHOICE’s requests for records documenting the nature of the testing
performed by the Pass-Through Labs. Empower H.I.S. was controlled by Jorge
Perez and his family, and he has or had a pecuniary interest in the company.
d.

LifeBrite Labs: LifeBrite Labs was engaged by Hospital Lab Partners

to act as a Pass-Through Lab. Specifically, LifeBrite Labs agreed to conduct
testing on BCBS Plan members’ specimens, and to provide the necessary
information to other Defendants (including Empower H.I.S.), where they would
be billed to RightCHOICE as if performed at and by Putnam. Upon information
and belief, LifeBrite Labs is controlled by Jorge Perez and at least one other
individual. Upon information and belief, Jorge Perez has or had a pecuniary
interest in LifeBrite Labs.
e.

Pinnacle Labs: Pinnacle Labs was engaged by Hospital Lab Partners

to act as a Pass-Through Lab. Specifically, Pinnacle Labs agreed to conduct
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 testing on BCBS Plan members’ specimens, and to provide the necessary
information to other Defendants (including Empower H.I.S.), where they would
be billed to RightCHOICE as if performed by Putnam.
f.

Jorge Perez: Jorge Perez designed and implemented this scheme,

including through the various entity Defendants described herein that he
controlled. Jorge Perez designed and implemented this scheme in such a way
that entities that he controlled each received a cut of any reimbursement paid by
RightCHOICE as a result of the fraudulent scheme (including Hospital Partners,
Hospital Lab Partners, and Empower H.I.S.). Upon information and belief, Perez
owns or controls a network of hospitals, substance abuse facilities, and ancillary
service providers (e.g., Empower H.I.S.), all of which are leveraged to perpetrate
schemes such as the one described herein.
g.

David Byrns: David Byrns worked with Jorge Perez to design and

implement this scheme, including through his dual roles at Hospital Partners
(President) and Putnam (Chief Executive Officer). When installed as Chief
Executive Officer of Putnam, David Byrns signed the contracts with the other
entity Defendants on Putnam’s behalf, which were essential to the success of the
scheme. Upon information and belief, David Byrns was responsible for the dayto-day management of Putnam throughout the pendency of this scheme,
including responding to requests for information from RightCHOICE during its
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 investigation of the scheme. In addition to being responsible for designing and
implementing the scheme, Byrns made material misrepresentations to
RightCHOICE during the course of RightCHOICE’s investigation of the scheme.
178.

Collectively, Defendants concealed information regarding the structure

and role of the entity Defendants in furtherance of the conspiracy, and used the entity
Defendants to hide the existence of this scheme from the BCBS Plans.
179.

The claims submitted by Defendants, or that Defendants caused to be

submitted, included the following material misrepresentations:
a.

provider name (misrepresented as Putnam);

b.

provider address, Tax ID, and NPI (misrepresented as Putnam);

c.

type of bill (misrepresented as “141,” which indicates a specimen

submitted for analysis to a hospital);
d.

admission type (misrepresented as “3,” which indicates an elective

admission, when there was no admission);
e.

source of admission (misrepresented as “1,” which indicates a

physician referral, when there was no admission);
f.

patient discharge status (misrepresented as “01,” which indicates a

discharge to home or self-care, when there was no admission or discharge);
g.

attending physician’s name and NPI (misrepresented as the name

and NPI of the referring healthcare provider);
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 h.

the medical necessity of the testing performed; and

i.

that the information shown on the face of each claim submitted to

RightCHOICE was “true, accurate and complete.”
180.

Defendants also failed to disclose, or caused Putnam to fail to disclose,

material facts relating to the insurance claims that Defendants submitted, or caused to
be submitted, including that:
a.

Putnam was participating in a pass-through scheme designed to

misuse the Contract;
b.

Upon information and belief, that participants in the pass-through

scheme were paying kickbacks to healthcare providers and laboratories in
exchange for referring their patients’ specimens to the Pass-Through Labs, which
in turn were billed to RightCHOICE under the Contract;
c.

Upon information and belief, that participants in the pass-through

scheme waived BCBS Plan members’ copayment and coinsurance obligations, in
violation of the BCBS Plans’ policy, in order to prevent the scheme from being
detected by the BCBS Plans in response to member complaints about owing large
coinsurance or copayment amounts.
181.

Defendants understood that, under the circumstances, and given the

volume of claims received by RightCHOICE from healthcare providers of all types,
Putnam had a special relationship of trust and confidence toward RightCHOICE that
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 gave rise to a duty to speak and disclose material information regarding the claims
submitted.
182.

Defendants’ scheme relied upon this relationship, and the volume of

claims received by RightCHOICE, to hide their fraudulent claims.
183.

Defendants had a duty to disclose to RightCHOICE and the BCBS Plans

information material to the claims that Putnam submitted, or caused to be submitted, so
as not to mislead RightCHOICE and the BCBS Plans.
184.

Defendants took on this obligation every time they filed a claim, or caused

a claim to be filed, as they certified that the claim was not “knowingly or recklessly
disregard[ing] or misrepresent[ing] or conceal[ing] material facts.”
185.

At the time that Defendants submitted the claims, or caused the claims to

be submitted, they knew that the representations described above were false, and that
the claims contained the above-described omissions.
186.

These misrepresentations and omissions were material to RightCHOICE’s

determination of whether the claims were payable.
187.

Defendants intended for RightCHOICE and the BCBS Plans to rely on

their material misrepresentations and omissions, such that RightCHOICE would pay
Putnam for the claims arising from this pass-through scheme.
188.

Defendants knew, or should have known, that this scheme should have

been disclosed to RightCHOICE and the BCBS Plans. Yet, they failed to disclose the
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 scheme.
189.

In failing to disclose the aforementioned material information, Defendants

and Putnam acted in bad faith.
190.

RightCHOICE and the BCBS Plans reasonably relied on the claims

submitted by Defendants, including the misrepresentations and omissions, when
determining whether to pay each claim.
191.

Had RightCHOICE been aware that the claims contained material

misrepresentations, or omitted material information, it would not have made the
payments it did.
192.

Similarly, had Defendants disclosed the aforementioned material

omissions, RightCHOICE would not have made payment on the claims.
193.

Defendants had superior and special knowledge of the pass-through

scheme, as set forth herein, and took steps to prevent RightCHOICE from identifying
the scheme.
194.

As a result, when RightCHOICE received the claims, it was unware of the

pass-through scheme, which was not reasonably discoverable by RightCHOICE.
195.

In reliance on the misrepresentations and omissions, RightCHOICE made

payment on the claims. The BCBS Plans subsequently reconciled some of those
payments with RightCHOICE.

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 196.

Defendants’ conduct was specifically designed to injure the BCBS Plans,

and was done willfully, maliciously, and in disregard of the BCBS Plans’ rights.
197.

As a direct and proximate result of Defendants’ material

misrepresentations and omissions, the BCBS Plans have been damaged in an amount to
be determined at trial.
COUNT II
NEGLIGENT MISREPRESENTATION
(Against all Defendants)
198.

The BCBS Plans incorporate by reference all preceding paragraphs as if

fully set forth herein and further allege as follows:
199.

The claims submitted by Defendants, or caused to be submitted by

Defendants, contained material misrepresentations, including but not limited to those
described in paragraphs 179 and 180, above.
200.

These representations were either false, made without reasonable grounds

for believing them to be true, made without knowledge of their truth or falsity, made
without reasonable care, or made under circumstances in which Defendants ought to
have known their falsity.
201.

Defendants’ misrepresentations were made to RightCHOICE and the

BCBS Plans in the course of Defendants’ business and because of a pecuniary interest.

45

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 202.

Defendants had a duty to disclose to RightCHOICE and the BCBS Plans

information material to the claims that Defendants submitted, or caused to be
submitted, to RightCHOICE, to avoid misleading RightCHOICE and the BCBS Plans.
203.

Defendants took on this obligation every time they filed a claim, or caused

a claim to be filed, as they certified that they were not “knowingly or recklessly
disregardin[ing] or mispresentin[g] or conceal[ing] material facts.”
204.

Defendants failed to exercise reasonable care when making these

representations.
205.

It was foreseeable that RightCHOICE and the BCBS Plans would rely on

Defendants’ representations, given the nature of the claims payment process, and the
fact that they were submitted to RightCHOICE by Putnam.
206.

RightCHOICE reasonably relied on Defendants’ misrepresentations, and

paid the claims.
207.

If RightCHOICE had been aware of the material misrepresentations,

RightCHOICE would not have paid the claims.
208.

As a direct and proximate result of Defendants’ misrepresentations, the

BCBS Plans have been damaged in an amount to be determined at trial.

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 COUNT III
RESTITUTION UNDER ERISA § 502(a)(3)
(Against all Defendants)
209.

The BCBS Plans incorporate by reference all preceding paragraphs as if

fully set forth herein and further allege as follows:
210.

Many of the impacted group health plans are employer-sponsored group

health plans covered by ERISA (the “ERISA Plans”).
211.

The BCBS Plans have been delegated by the plan administrator of each of

the ERISA Plans the discretionary authority to review and decide on claims for benefits
under the ERISA Plans.
212.

The ERISA Plans also delegated to the BCBS Plans the authority to recover

overpayments made by the BCBS Plans on the ERISA Plans’ behalf.
213.

Because of the fraudulent scheme identified herein, the BCBS Plans have

paid millions of dollars in benefits to Putnam, and through Putnam, to Defendants.
214.

The BCBS Plans have standing to sue under ERISA § 502(a)(3) to obtain

appropriate equitable relief to redress violations of the ERISA Plans and to enforce the
terms of the ERISA Plans.
215.

As alleged herein, Defendants have submitted, or caused to be submitted,

misleading and fraudulent claims to RightCHOICE for payment of benefits for charges
related to laboratory services that Defendants represented, or caused to be represented,
were performed by Putnam.
47

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 216.

RightCHOICE relied on the claim information supplied by Defendants, or

that Defendants caused to be supplied, in determining whether to pay the claims.
217.

Had RightCHOICE been aware that the claims misrepresented the

services in order to make them appear payable, when in fact they were not, it would not
have made those payments.
218.

Based upon the fraudulent claims Defendants submitted, or caused to be

submitted, to RightCHOICE, Defendants received payments in excess of the amounts
that they were actually entitled to receive for those services.
219.

Further, even if Defendants did not knowingly and intentionally submit

misleading and fraudulent claims to RightCHOICE, the BCBS Plans are entitled to
equitable relief to enforce the terms of the ERISA Plans, and recover overpayments
made to Defendants.
220.

This is particularly true where Defendants submitted claims, or caused

claims to be submitted, for members of ERISA Plans pursuant to valid contractual
assignments (or authorized representation agreements) received from ERISA Plan
members. In these instances, Defendants accepted the terms of the ERISA Plans and
submitted claims, or caused claims to be submitted, that were subject to those terms.
221.

Further, by knowingly accepting payments from the ERISA Plans,

Defendants became bound by the ERISA Plans’ terms and conditions, including
conditions related to overpayments.
48

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 222.

The ERISA Plans, by their terms, require the return of overpayments and

amounts that were erroneously paid.
223.

Thus, even to the extent that Defendants did not intentionally overcharge

the BCBS Plans, the BCBS Plans are entitled to equitable relief to enforce the terms of
the ERISA Plans and recover these overpayments.
224.

Because of Defendants’ wrongful behavior, the BCBS Plans have paid

millions of dollars in benefits to Putnam, and, through Putnam, to Defendants, that
were not owed under the terms of the ERISA Plans.
225.

The BCBS Plans seek equitable restitution to cover the assets that

Defendants unlawfully obtained because of the conduct described herein.
226.

Specifically, the BCBS Plans seek an Order imposing a constructive trust

on the assets that Defendants received in the form of overpayments, as well as on any
profits or income made by Defendants on those amounts.
227.

The BCBS Plans also seek an Order restoring to the BCBS Plans—

individually and on behalf of the ERISA Plans—the sums held in constructive trust by
Defendants.
COUNT IV
DECLARATORY AND INJUNCTIVE RELIEF
UNDER ERISA § 502(a)(3) AND 28 U.S.C. §§ 2201 AND 2202
(Against all Defendants)
228.

The BCBS Plans incorporate by reference all preceding paragraphs as if

fully set forth herein and further allege as follows:
49

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 229.

The BCBS Plans act as a claims fiduciary for the ERISA Plans.

230.

Therefore, the BCBS Plans have standing under ERISA § 502(a)(3) to

enjoin any acts or practices that violate any provisions of the ERISA Plans, and to obtain
other appropriate relief to redress such violations or enforce plan provisions.
231.

Defendants have engaged in a scheme to defraud RightCHOICE into

paying amounts to Defendants in excess of amounts owed under the relevant ERISA
Plans, and for services that are not covered under the relevant ERISA Plans’ terms, as
described herein.
232.

There is an actual case and controversy between the BCBS Plans and

Defendants as to the claims Defendants submitted, and continue to submit, to
RightCHOICE, all of which arise from the fraudulent scheme described herein.
233.

Defendants’ fraudulent scheme is deceptive, unfair, and unlawful.

234.

No payment is due to Defendants on any claims that are pending, or may

be submitted in the future, where such claims arise from Defendants’ fraudulent
scheme.
235.

There is a bona fide, present, and practical need for a declaration as to the

lawfulness of Defendants’ actions, including whether RightCHOICE has the right to
deny the claims implicated by Defendants’ actions and scheme.
236.

The BCBS Plans are entitled to a judgment declaring that Defendants’

actions and business practices are unlawful, and that any claims for payment of benefits
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 submitted by Defendants to RightCHOICE because of this scheme are non-payable and
void.
237.

The BCBS Plans also seek recovery of their reasonable and necessary

attorney’s fees and costs, pursuant to ERISA § 502(g)(1).
238.

Under the Declaratory Judgment Act, 28 U.S.C. §§ 2201 and 2202, the

BCBS Plans are entitled to a judgment declaring that Defendants’ actions and business
practices are unlawful, even as to the non-ERISA plans impacted by this fraudulent
scheme, and that any claims for payment of benefits submitted by Defendants as a
result of their fraudulent scheme are non-payable and void.
COUNT V
TORTIOUS INTERFERENCE WITH CONTRACT
(Against all Defendants)
239.

The BCBS Plans incorporate by reference all preceding paragraphs as if

fully set forth herein and further allege as follows:
240.

RightCHOICE had a valid and enforceable contract with Putnam (referred

to throughout this document as the “Contract”).
241.

Defendants were aware of the Contract.

242.

Defendants improperly, wrongfully, willfully, and intentionally engaged

in the scheme described in this Complaint. Defendants’ scheme was predicated upon
the repeated breach of the Contract.

51

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 243.

By orchestrating and participating in the fraudulent scheme described

herein, Defendants caused Putnam to breach its contract with RightCHOICE by, among
other things:
a.

Submitting claims to RightCHOICE, or causing claims to be

submitted to RightCHOICE, for services not performed by, or performed under
the direction and personal supervision of, Putnam. (See Ex. A at §§ 1.11, 2.1, and
4.1(b); see also Anthem Blue Cross and Blue Shield Provider and Facility Manual
at 32 (requiring that providers of laboratory services bill only for the components
of the services that they perform).)
b.

Submitting claims to RightCHOICE, or causing claims to be

submitted to RightCHOICE, that Putnam knew were not accurate, complete, and
truthful, including but not limited to claims containing the following
misrepresentations:
i.

Provider name;

ii.

Provider address

iii.

Provider Tax ID and NPI;

iv.

Type of bill;

v.

Admission type;

vi.

Source of admission;

vii.

Patient discharge status;
52

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 viii.

Attending physician’s name and NPI;

ix.

Medical necessity of the testing performed; and

x.

That the information provided on the claim was “true,

accurate and complete.”
c.

Failing to provide “valid and appropriate billing and diagnosis

codes.” (See Ex. A at § 4.2.)
d.

Failing to participate in, comply with, and provide hospital services

in accordance with Anthem policies, programs, and procedures, including the
Anthem Provider Manual and Anthem Drug Testing Policy. (See Ex. A at § 2.6.)
This includes, but is not limited to, billing for components of laboratory testing
not performed by Putnam in violation of the Anthem Blue Cross and Blue Shield
Provider Manual.
e.

Assigning, delegating, or transferring the Contract or Putnam’s

rights and responsibilities under the Contract without the prior written consent
of RightCHOICE. (See Ex. A at § 6.1(a).)
f.

Submitting claims to RightCHOICE, or causing claims to be

submitted to RightCHOICE, that Putnam knew were not reasonable and
medically necessary, as defined by the Contract. (See Ex. A at §§ 1.13 & 1.18.)
g.

Paying, receiving, offering an incentive, or participating in an

incentive program or arrangement that provides another physician or provider
53

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 with a direct or indirect inducement to provide less than medically necessary
health care services, supplies, accommodations, treatments or care to BCBS Plan
members. (See Ex. A at § 4.4(c).)
h.

Failing to refund RightCHIOCE for any overpayment or erroneous

payment no later than 30 days after Putnam became aware of the overpayment
or erroneous payment. (See Ex. A at § 4.4(b).)
244.

Defendants’ interference with RightCHOICE’s contract with Putnam was

without justification.
245.

The BCBS Plans have been damaged by Defendants’ acts of interference in

an amount to be determined in this litigation.
COUNT VI
CIVIL CONSPIRACY
(Against all Defendants)
246.

The BCBS Plans incorporate by reference all preceding paragraphs as if

fully set forth herein and further allege as follows:
247.

Defendants and others known and unknown, including Putnam and other

Pass-Through Labs, committed torts against the BCBS Plans by fraudulently and
negligently misrepresenting their practices, claims for insurance, and by interfering
with the Contract.
248.

Defendants formed agreements amongst themselves and the above-

named parties, and others unknown, directly or indirectly, to commit the unlawful acts
54

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 described in this Complaint.
249.

The above-named parties committed wrongful acts in furtherance of their

common scheme.
250.

The BCBS Plans have been injured by the wrongful scheme in a significant

amount to be determined in this litigation.
COUNT VII
AIDING AND ABETTING A TORT
(Against all Defendants)
251.

The BCBS Plans incorporate by reference all preceding paragraphs as if

fully set forth herein and further allege as follows:
252.

Defendants committed torts against the BCBS Plans by fraudulently and

negligently misrepresenting their practices, claims for insurance, and by interfering
with the Contract.
253.

Each Defendant knew that the conduct described in this Complaint was

occurring and was a breach of duty.
254.

Each Defendant actively participated in various aspects of the scheme

described in this Complaint. Each Defendant also gave substantial assistance or
encouragement to other participants in the scheme.
255.

The BCBS Plans have been damaged by the scheme in an amount to be

determined in this litigation.

55

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 256.

Because each Defendant knew of the scheme and gave substantial

assistance to further the scheme, each Defendant is subject to liability for the torts
committed in furtherance of the scheme.
COUNT VIII
UNJUST ENRICHMENT
(Against all Defendants)
257.

The BCBS Plans incorporate by reference all preceding paragraphs as if

fully set forth herein and further allege as follows:
258.

Defendants fraudulently submitted, or caused the submission of, claims to

RightCHOICE for services that were not performed at or by Putnam, or on behalf of
Putnam patients.
259.

RightCHOICE, relying on Defendants’ misrepresentations, issued

reimbursements to Putnam, which were shared with the other Defendants.
260.

Each Defendant, therefore, received a benefit from the BCBS Plans in the

form of a share of reimbursements for services that should not have been reimbursed.
261.

The BCBS Plans conferred those benefits in reliance on the reasonable

belief that the reimbursements were properly owed.
262.

Each Defendant appreciated the benefit conferred by the BCBS Plans.

263.

Each Defendant has unjustly accepted and retained those benefits.

264.

Each Defendant should be required to make restitution for the benefits it

received, retained, and appropriated because justice and equity require such restitution.
56

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 265.

Restitution is required by public policy to promote the stability of

insurance markets and to avoid the continuing unjust enrichment of unscrupulous
providers at the expense of insurance companies and patients.
266.

The BCBS Plans are entitled to restitution in an amount to be determined

at trial, including but not limited to all amounts Defendants received from
RightCHOICE because of Defendants’ scheme.
PRAYER FOR RELIEF
WHEREFORE, the BCBS Plans respectfully request judgment in their favor
granting the following relief:
a)

Actual and consequential damages in an amount to be determined at trial,
plus interest;

b)

An order obligating Defendants to disgorge all revenues and profits
derived from their scheme;

c)

An injunction prohibiting Defendants from continuing their scheme;

d)

An award of the BCBS Plans’ costs, including reasonable attorney’s fees, in
accordance with contractual provisions and ERISA § 502(g)(1);

e)

Punitive damages;

f)

Equitable relief, as described herein; and

g)

Any other relief deemed just, proper, and/or equitable.

57

Case 5:18-cv-06037-DGK Document 1 Filed 03/30/18 Page 57 of 58

 DATED: March 30, 2018

By:

/s/ Neal F. Perryman
LEWIS RICE LLC
Neal F. Perryman, #43057MO
Michael L. Jente, #62980MO
600 Washington Avenue, Suite 2500
St. Louis, Missouri 63101
T: (314) 444-7600
nperryman@lewisrice.com
mjente@lewisrice.com
-andROBINS KAPLAN LLP
Jeffrey S. Gleason (pro hac vice motion
forthcoming)
Randall Tietjen (pro hac vice motion
forthcoming)
Jamie R. Kurtz (pro hac vice motion
forthcoming)
Nathaniel J. Moore (pro hac vice motion
forthcoming)
800 LaSalle Avenue
Minneapolis, Minnesota 55402
T: (612) 349-8500
F: (612) 339-4181
jgleason@robinskaplan.com
rtietjen@robinskaplan.com
jkurtz@robinskaplan.com
nmoore@robinskaplan.com
Attorneys for Plaintiffs

58

Case 5:18-cv-06037-DGK Document 1 Filed 03/30/18 Page 58 of 58

 3/25/2018

Missouri Western Civil Cover Sheet

JS 44 (Rev 09/10)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF MISSOURI
CIVIL COVER SHEET
This automated JS-44 conforms generally to the manual JS-44 approved by the Judicial Conference of the United States in September
1974. The data is required for the use of the Clerk of Court for the purpose of initiating the civil docket sheet. The information contained
herein neither replaces nor supplements the filing and service of pleadings or other papers as required by law. This form is authorized for
use only in the Western District of Missouri.

The completed cover sheet must be saved as a pdf document and filed as an attachment to the Complaint
or Notice of Removal.
Plaintiff(s):

Defendant(s):

First Listed Plaintiff:
RightCHOICE Managed Care, Inc.
County of Residence: City of St. Louis

First Listed Defendant:
Hospital Partners, Inc. ;

Additional Plaintiff(s):
Blue Cross of California, Inc. d/b/a Anthem Blue Cross
Anthem Blue Cross Life and Health Insurance Company
Rocky Mountain Hospital and Medical Service, Inc. d/b/a Anthem Blue Cross and Blue Shield
Anthem Health Plans, Inc. d/b/a Anthem Blue Cross and Blue Shield
Blue Cross and Blue Shield of Georgia, Inc.
Blue Cross Blue Shield Healthcare Plan of Georgia, Inc.
Anthem Insurance Companies, Inc. d/b/a Anthem Blue Cross and Blue Shield
Anthem Health Plans of Kentucky, Inc. d/b/a Anthem Blue Cross and Blue Shield

County of Residence: Outside This
District
Additional Defendants(s):

Hospital Partners, Inc.; Hospital
Laboratory Partners, LLC; RAJ
Enterprises of Central Florida, LLC
d/b/a Pinnacle Laboratory Services;
LifeBrite Laboratories, LLC;
Empower H.I.S. LLC; David Byrns;
and Jorge Perez

Anthem Health Plans of Maine, Inc. d/b/a Anthem Blue Cross and Blue Shield
Healthy Alliance Life Insurance Company
HMO Missouri, Inc.
Anthem Health Plans of New Hampshire, Inc. d/b/a Anthem Blue Cross and Blue Shield
Empire HealthChoice Assurance, Inc. d/b/a Empire Blue Cross and Blue Shield
Community Insurance Company d/b/a Anthem Blue Cross and Blue Shield
Anthem Health Plans of Virginia, Inc. d/b/a Anthem Blue Cross and Blue Shield
HMO Healthkeepers, Inc. d/b/a Anthem Blue Cross and Blue Shield
Blue Cross Blue Shield of Wisconsin d/b/a Anthem Blue Cross and Blue Shield
Compcare Health Services Insurance Corporation d/b/a Anthem Blue Cross and Blue Shield

County Where Claim For Relief Arose: Putnam County
Plaintiff's Attorney(s):

Neal F. Perryman (Counsel for all Plaintiffs)
Michael L. Jente (Counsel for all Plaintiffs
Lewis Rice

Defendant's Attorney(s):

600 Washington Avenue, Suite 2500
St. Louis, Missouri 63101
Phone: (314) 444-7600
Fax: (314) 612-7600
; Email: nperryman@lewisrice.com

Case 5:18-cv-06037-DGK Document 1-1 Filed 03/30/18 Page 1 of 2

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 3/25/2018

Missouri Western Civil Cover Sheet

Basis of Jurisdiction: 3. Federal Question (U.S. not a party)
Citizenship of Principal Parties (Diversity Cases Only)
Plaintiff: N/A
Defendant: N/A

Origin: 1. Original Proceeding
Nature of Suit: 370 Fraud Actions
Cause of Action: Fraud and Fraudulent Concealment; Negligent Misrepresentation; Restitution under ERISA
§ 502(a)(3); Declaratory and Injunctive Relief under ERISA § 502(a)(3) and 28 U.S.C. §§ 2201 and 2202;
Tortious Interference with Contract; Civil Conspiracy; Aiding and Abetting a Tort; Unjust Enrichment
Requested in Complaint
Class Action: Not filed as a Class Action
Monetary Demand (in Thousands): $64,000,000-plus
Jury Demand: Yes
Related Cases: Is NOT a refiling of a previously dismissed action

Signature: /s/ Neal F. Perryman
Date: 3/30/2018
If any of this information is incorrect, please close this window and go back to the Civil Cover Sheet Input form to make the correction and generate the updated
JS44. Once corrected, print this form, sign and date it, and submit it with your new civil action.

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