10th U.S. Circuit Court of Appeals upholds medical insurance fraud

Journal Record, The (Oklahoma City), Jul 28, 2008 by Marie Price

It was just "a good old-fashioned insurance scam," Oklahoma City attorney Mark Engel said of an Indiana health insurer's undisclosed payment policy that left his Oklahoma client owing thousands of dollars for his cancer diagnosis and treatment.

A federal jury awarded John Cook $1.1 million, split evenly between compensatory and punitive damages.

This week, the verdict was upheld by a three-judge panel of the 10th U.S. Circuit Court of Appeals.

Cook was diagnosed with cancer and underwent surgery in 2004.

Engel said his client's insurance issues surfaced early, with clinic staff indicating there were problems with Medical Savings Insurance Co. when Cook appeared for diagnostic work.

"To get his diagnostic procedures, he had to pay for it with his credit card, because they knew the insurance was lacking," Engel said.

Out of a bill for more than $19,500, Medical Savings Insurance paid only $6,970.

The hospital rejected the payment and billed Cook for the full amount.

According to the court's opinion, the policy was represented as having a $5,000 deductible, which could be funded out of a health savings account, with MSIC paying 100 percent of reasonable and customary medical expenses above the deductible, up to $1 million.

However, as outlined in the decision, the insurer decided in 2001 that for hospital bills totaling more than $3,000, it would pay only the Medicare reimbursement rate plus 26 percent, resulting in an average payment of 30 percent to 40 percent of billed charges.

That was not outlined for consumers, the court said.

"The list of factors MSIC could consider in determining whether a charge was reasonable did not include the Medicare plus 26 percent formula or any other indication that MSIC would only pay according to such a rule," the appeals panel said.

Medical Savings Insurance did not disclose its internal policy until December 2003, after Cook bought the policy, "and then did so only in response to prodding from the Oklahoma Department of Insurance, which had received complaints about MSIC," Circuit Judge Neil Gorsuch wrote for the court.

The Insurance Department forced the insurance company to remove the "reasonable and customary charge" language from its policy, but MSIC's new policy term "reimbursable charge" was defined in much the same way as the deleted language, the court said.

"It was a scam that was in place for several years before he ever bought this insurance," Engel said. "He was just one of the victims of it."

The allegation was that MSIC's undisclosed payment policy was unjustified and intentional, Engel said.

"I think the 10th Circuit could see that plainly in the evidence of the case," he said.

Engel said MSIC executives acknowledged making more than $2 million in Oklahoma from the policy.

"A million of it, they still got to pocket for profit, at the expense of Oklahomans," he said.

"Although they got caught and they got hit hard, it was still a profitable business decision for them to intentionally cheat people."

An attorney for MSIC did not respond to a request for comment.