Rule 12(g) Doesn’t Bar Defense Available on Earlier MTD If Court Didn’t Reach Merits — Failure to Perform Contract= RICO Injury — Corp + Subs ≠ Enterprise — Providing Services & Knowledge ≠ Operation & Mgmt. — Reliance, Good Quotes

In re Aetna UCR Litig., 2015 U.S. Dist. LEXIS 84600 (D.N.J. June 30, 2015):

This matter comes before the Court on three separate motions: (1) plaintiffs' motion for leave to file a third amended consolidated complaint; (2) defendant Aetna's motion to dismiss the second and third amended consolidated complaint; and (3) the motion brought by defendants UnitedHealth Group, Inc. and Ingenix, Inc. (together, "UHG defendants") to dismiss the second and third amended consolidated complaint. At issue are plaintiffs' allegations that Aetna1 failed to reimburse insurance subscribers and health care providers properly for out-of-network medical services ("ONET" or "ONS"). The crux of plaintiffs' allegations is that Aetna-along with the UHG defendants-orchestrated a scheme to artificially reduce and fix "usual, customary, and reasonable" ("UCR") schedules for out-of-network reimbursements using information from a flawed database that was maintained by Ingenix. Subscribers-and by extension, providers-were allegedly promised a "usual, customary, and reasonable" rate of reimbursement for services rendered by non-participating providers, but were underpaid due to the defendants' intentional scheme. Having considered the papers filed and heard oral argument, and for the reasons expressed below, the Court grants plaintiffs' motion to amend; grants in part and denies in part Aetna's motion to dismiss; and grants in part and denies in part UHG defendants' motion to dismiss.

1 Aetna defendants include Aetna Health Inc. PA, Corp., Aetna Health Management, [*2]  LLC, Aetna Life Insurance Company, Aetna Health and Life Insurance Company, Aetna Health, Inc., and Aetna Insurance Company of Connecticut (together, "Aetna").

I.  FACTUAL BACKGROUND

The subscribers here ("insureds" or "subscriber plaintiffs") were insured by Aetna under plans that provided for reimbursement to out-of-network health care providers. Aetna, like many other health insurers, offers insurance plans that differentiate between coverage for medical treatment from (a) in-network providers who have negotiated discounted rates with the insurer, and (b) out-of-network providers who charge insured consumers their usual, non-discounted rates. The subscriber plaintiffs agreed to pay higher premiums in exchange for that flexibility and the right to obtain out-of-network benefits. (TAC ¶¶ 3-4.) The portions of ONET charges not paid by Aetna are not credited toward deductibles or out-of-pocket maximums, which [*3]  limit the total amount a plan member has to pay for medical services over a given time period. (TAC ¶ 98.)

Aetna agreed to reimburse subscriber plaintiffs for ONET services at the lesser of (a) the billed charge or (b) the UCR amount for that service in the geographic area in which it was performed. "Because reduced fees are not negotiated with out-of-network providers, Aetna will calculate reimbursement based on the usual, customary and reasonable charge," defined as "the amount customarily charged for the service by other providers in the same Geographic area (often defined as a specific percentile of all charges in the Community)." (TAC ¶¶ 20-21.)

To determine the UCR, Aetna relied (at least in part) on a proprietary database licensed by Ingenix. Ingenix is a wholly-owned subsidiary of UHG that licenses cost data and "customized fee analyzers" to medical providers, healthcare insurers and automobile liability insurance companies. (TAC ¶ 99.) "Essentially, Ingenix creates 'modules' or uniform pricing schedules, that provide whole dollar payment amounts for each percentile (for instance, the 80th percentile) for given medical procedures in various locations." (TAC ¶ 99.) Ingenix entered [*4]  this data market through two acquisitions in the late 1990s: In 1997, Ingenix acquired Medicode, Inc., which sold a provider charge database known as Medical Data Research ("MDR") and, one year later, Ingenix purchased the Prevailing Health Charges System ("PHCS") database from the Health Insurance Association of America ("HIAA"), a trade group for the insurance industry. (TAC ¶ 100.)

The PHCS database was developed by HIAA2 in 1973 to aggregate historical charge data for surgical and anesthesia procedures from data contributors like health insurance companies, third-party payors, and self-insured companies. (TAC ¶ 101.) This database later expanded to include data regarding dental, medical and drugs/medical equipment rates. (TAC ¶ 101.) The information HIAA compiled consisted of four data points-the date of service, the Current Procedural Terminology ("CPT") code, the billed charge, and the geozip.3 (TAC ¶ 108.) As part of the PHCS sale, members of HIAA, including Aetna and UHG, were permitted to participate in an ongoing "Ingenix PHCS Advisory Committee," which provided for industry input into how Ingenix acquired and managed its data. (TAC ¶ 331.) HIAA also entered into a ten-year [*5]  cooperation agreement with Ingenix, which guaranteed HIAA's continued input into the management of the Ingenix database in the form of a joint "Liaison Committee." (TAC ¶ 331.)

2 HIAA, now known as America's Health Insurance Plans, markets itself as a national association representing providers of health benefits. (TAC ¶ 103.) According to plaintiffs, the Board of Directors at AHIP included "executives of Defendants and their Co-Conspirators including, but not limited to, the Chairman, President and CEO of Aetna, the CEOs of WellPoint and UHG, and the president and CEO of Cigna." (TAC ¶ 104.)

3 Plaintiffs allege that Ingenix divided all states into "geozips" composed of "cities and towns sharing three-digits of postal zip codes, which were then grouped together by not only geographical proximity, but also by what Ingenix arbitrarily decided were 'data similarities.'" (TAC ¶ 134.)

When Ingenix acquired both MDR and PHCS, it merged the underlying data. But because the databases used different methodologies to produce their ultimate outputs, the dollar amounts differed for individual procedure codes at reported percentiles. (TAC ¶ 114.) Ingenix allegedly attempted to cure this discrepancy [*6]  and merge the databases themselves through the "DataSpan" initiative. DataSpan, plaintiffs claim, was intended to be a "statistically valid" scientific database that "would be subject to peer review of methodology, white papers, documentation of the methodology and results, and periodic external review." (TAC ¶ 115.) According to plaintiffs, the DataSpan project uncovered flaws in the databases, but was ultimately shelved after roughly three years. (TAC ¶ 116.)

Ingenix continued to operate the database (the "Ingenix database" or the "database"), marketed by UHG as the "industry standard," and entered into licensing agreements with health insurers, including Aetna and UHG. These agreements, among others, allowed Ingenix to (1) "obtain data concerning billing rates and information from those health insurers" and/or (2) "provide UCR information pricing schedules to those same health insurers ... for their use in billing ONET services." (TAC ¶ 118.) Ingenix offered access to the database at a discounted price to insurers in exchange for their submission of health care cost data-the amount of the discount was based on the amount of data Ingenix accepted and used. (TAC ¶¶ 118, 335.) Aetna and [*7]  UHG were significant contributors. Their data accounted for approximately 70% of the total submissions during the class period. (TAC ¶ 337.)

Plaintiffs claim that health insurers, like Aetna, used the Ingenix data to determine UCR rates for ONET "even though Ingenix broadcasts that it is not endorsing, approving or recommending the use of the Ingenix data for UCR rates." (TAC ¶ 119.) Specifically, with each production of information, Ingenix states that its data is "provided to subscribers for informational purposes only" and that it "disclaims any endorsements, approval, or recommendation or particular uses" of the data. According to Ingenix, "[t]here is neither a stated nor an implied 'reasonable and customary charge' (either actual or derived)." (TAC ¶ 119.)

Plaintiffs argue, however, that Aetna's use of the database was entirely reflexive: "Aetna's computer system automatically adjudicates claims for the vast majority of ONET claims. The Ingenix Database [was] automatically applied" and "[n]o human intervention was necessary to evaluate the individual claims or the accuracy of the UCR provided by Ingenix." (TAC ¶ 140.) This allegation notwithstanding, plaintiffs themselves suggest [*8]  a more varied process for determining reimbursement. Plaintiffs allege that Aetna independently selected the Ingenix Database percentile it would apply when it utilized the Database for ONET reimbursement. (SAC ¶¶ 323, 344.) Plaintiffs also allege that they were under-reimbursed for ONET services even when Aetna did not utilize the Ingenix Database at all, including when Aetna utilized Medicare rates (SAC ¶¶ 33, 35, 60, 358, 402, 445; TAC ¶ 172), in-network fee schedules (SAC ¶¶ 33, 60), or in some cases "some other faulty methodology" (SAC ¶ 432; TAC ¶ 307). In all cases, however, plaintiffs allege that that Aetna "prevented [them] ... from knowing ... the actual methodologies used ... to determine the UCR rate." (SAC ¶ 508; see also TAC ¶ 367.)

When the Ingenix Database was used to determine ONET reimbursement, plaintiffs claim that the data was flawed upon submission. Specifically, plaintiffs submit that Aetna and other contributors "scrubbed" the data they contributed to Ingenix by removing the highest charges for particular services. "From 1980 until the termination of its licensing of the Ingenix Database, without substantial change, Aetna applied certain profiling rules (the 'Profiling [*9]  Rules') to determine whether or not it would collect and send the charge data for a particular claim to Ingenix. If a claim 'profiles,' it is collected by Aetna as UCR data. If a claim does not 'profile,' it is not collected or sent to Ingenix." (TAC ¶ 128.) Plaintiffs argue that, during all or part of the class period, Aetna "used its profiling rules to pre-edit its charge data to remove valid high charges prior to sending the remaining charges to Ingenix for inclusion" in the Database.4 (TAC ¶ 129.)

4 As of 2005, Ingenix required its data contributors to certify with each submission that the data provided was complete and not pre-edited or otherwise manipulated. Plaintiffs claim that, despite submitting certifications to that effect, Aetna did not change its submission practice and "knew [*11]  that the certifications were false and misleading." (TAC ¶ 130.)

Plaintiffs also take issue with the manner in which Ingenix solicited and collected its data. In arguing that the four data points solicited from insurers were insufficient, plaintiffs contend that the information received "did not identify the provider, the patient (including age and condition), the type of facility where the services were performed, any adjustment factors for cost of living, the specific provider-type performing the services, the provider's usual charge and licensure, the type of facility where the service was performed ..., or the prevailing fee or charge level for any provider or service in a particular geographic region." (TAC ¶ 131.) Additionally, plaintiffs argue [*10]  that, once Ingenix received the data from its contributors, "it further 'scrubbed' the pooled data to remove high-end values but not low-end so-called outliers[,] so as to lower the percentile amounts used to determine UCR." (TAC ¶ 137.)

Plaintiffs allege that the "end result" of this process was a database that "produced flawed uniform pricing schedules that systematically resulted in the under-reimbursement for ONET by Aetna." (TAC ¶ 151.) The flaws in this process, according to plaintiffs, include the following:  (a) questionable accuracy of the underlying data; (b) no inquiry into whether all of the contributors were using the same criteria and coding accurately and consistently; (c) Ingenix's practice of aggregating data from other codes when there was insufficient charge data to provide a statistically valid sample for a CPT code; (d) a combination of geozips to determine what Ingenix considered to be a "sociodemographic region" when there was no verification for such regions; (e) scrubbing and editing of data by individual data contributors, including Aetna, before the data was sent to Ingenix; (f) further scrubbing and editing of data by Ingenix; (g) the absence of an appropriate statistical methodology, which resulted in data that was inappropriately biased downward; (h) inclusion of charges for procedures in non-comparable geographic areas; (i) failure to segregate procedures performed by providers of the same or similar skill; (j) inclusion of discounted in-network data; and (k) failure to distinguish between the number of medical providers whose charges are reflected. (TAC ¶ 151.) These purported flaws notwithstanding, plaintiffs contend that "the uniform pricing schedules created by the Ingenix Database were automatically relied upon to determine UCR rates despite the fact that Ingenix actually informed insurance companies (including Aetna) that it was not endorsing, approving or recommending use of it to determine UCR rates." (TAC ¶ 147.)

This system of ONET reimbursement eventually became the subject [*12]  of an investigation by the New York Attorney General. The NYAG investigative task force determined that health insurers who participated in the Ingenix data collection maintained an incentive to provide artificially low claims information, thus producing a "garbage in, garbage out" effect. On January 13, 2009, the NYAG issued "Health Care Report: The Consumer Reimbursement System is Code Blue," which concluded that the Ingenix database was an "industry-wide problem," a "rigged system," "fraudulent," and "critically ill." (TAC ¶ 159.) The NYAG also found that use of the Ingenix Database resulted in a substantial reduction of reimbursement for ONET care-the report "ultimately revealed that insurers systematically under-reimburse[d] their insured patients for doctors' office visits in New York by 10-28%, and that up to 110 million Americans [were] harmed by" their conduct. (TAC ¶ 158.) Aetna and UHG settled with the NYAG for $20 million and $50 million, respectively, and those funds were earmarked for the creation of an independent organization, FAIR, which will own and operate a new database for UCR calculations. (TAC ¶ 163.)

Defendants' conduct also has been challenged in other civil [*13]  actions. Parallel litigations against related entities have been filed in the District Court of New Jersey in Franco v. Connecticut General Life Insurance, Co., No. 07-6039 (D.N.J.) and in the Central District of California in In re WellPoint, Inc. Out-of-Network "UCR" Rates Litigation, No. 09-2074 (C.D. Cal.). InFranco, similarly situated plaintiffs asserted claims against Connecticut General Life Insurance ("Cigna") and the UHG defendants for their role in the alleged scheme to manipulate ONET reimbursements. Judge Chesler partially granted defendants' motion to dismiss in that action, dismissing all of the claims raised by provider plaintiffs and association plaintiffs, several claims raised under ERISA, and all of plaintiffs' antitrust claims. He subsequently denied class certification, and granted summary judgment for Cigna against the plaintiffs' RICO claims and contract-based claims. In WellPoint, in a series of three decisions, Judge Gutierrez dismissed with prejudice all of the plaintiffs' antitrust and RICO claims, and a number of the ERISA claims, and on September 3, 2014, denied plaintiffs' motion for class certification.

II.  PROCEDURAL HISTORY

This action began back in July [*14]  2007, when Michele Cooper of Short Hills New Jersey filed a class action complaint against Aetna, acting on behalf of herself and a putative class of similarly situated subscribers to Aetna group health plans. [D.E. 1.] Very soon afterwards, attorneys for Aetna filed a Notice to the Judicial Panel on Multi-District Litigation that Cooper might be a tag-along action to In re Managed Care, MDL No. 1334, then pending in the Southern District of Florida. This engendered a letter response from Cooper's co-counsel to the MDL Panel providing a rationale for not considering Cooper as a potential tag-along case [D.E.10], which was followed by Aetna's formal motion to transfer [D.E. 32] filed in October 2007.

While this motion was being briefed [D.E. 34, 44], counsel for Cooper filed a first amended complaint in October [D.E. 36] and a second amended complaint in November 2007. [D.E. 49.] In December 2007, the MDL Panel issued an order [D.E. 63] that denied the motion to transfer on grounds that the multidistrict litigation In re Managed Care had consolidated cases that were brought by providers, whereas the Cooper litigation was brought on behalf of subscribers. Also, the order noted, Cooper [*15]  was "similar to other actions currently pending in ... New Jersey involving the Ingenix, Inc., system."

Thereafter, Aetna moved to dismiss the second amended complaint. [D.E. 58.] The motion was briefed [D.E. 70, 78, and 79] and on February 14, 2008, plaintiffs gave notice that they intended to add a plaintiff who would be seeking injunctive relief, requiring the filing of a third amended complaint. Ultimately this was done [D.E. 83], and Aetna moved to dismiss in March 2008. [D.E. 89.] This motion was fully briefed [D.E. 89-1, 96, and 104.]

Contemporaneously, pretrial orders were filed setting dates for ongoing discovery and any related motions. In December 2008, Aetna sought an order from the MDL Panel consolidating Cooper with a case then pending in the District of Connecticut, Weintraub v. Ingenix, Inc., which also named UnitedHealth Group as a defendant. In its motion to transfer [D.E. 129], Aetna described the Cooper and Weintraub plaintiffs as seeking to represent "overlapping classes with millions of common class members ...." and argued for the benefits of "a rational, sequenced pretrial program that [would] streamline discovery, minimize witness inconvenience and overall discovery [*16]  expense, reduce the opportunities for conflicting rulings, preserve judicial resources, and generally permit all parties to benefit from the economies of scale that MDL proceedings uniquely facilitate." UHG and the Weintraub plaintiffs opposed; the Cooper plaintiffs responded by proposing to add four other pending cases, three in the District of New Jersey and one in the Southern District of New York. While the parties awaited a ruling from the MDL Panel, plaintiffs sought leave to file a fourth amended complaint, which added new plaintiffs and new allegations. [D.E. 154.]

As of March 2009, the fully briefed motion to dismiss the third amended complaint was pending, various motions directed toward appointment of interim lead counsel were also pending, and an order was signed that permitted a fourth amended complaint [D.E. 164] to be filed. On April 8, 2009, the MDL consolidated the Cooper and Weintraub litigations. In June 2009, the first Case Management Order was issued in what was now MDL No. 2020, In re Aetna UCR Litigation. A consolidated amended complaint was filed on July 1, 2009 [D.E. 219], which was later superseded on December 24, 2009 by the second consolidated amended complaint [*17]  [D.E. 319]. Defendants moved to dismiss on two separate occasions, but neither motion was adjudicated.

Instead, the parties made known that they were actively engaging in settlement discussions, both directly and in more than ten mediation sessions with the Hon. Nicholas Politan, since deceased. The result was a settlement between the majority of the plaintiffs and Aetna, which this Court preliminarily approved. [D.E. 899.] In the settlement agreement [D.E. 839-2], Aetna reserved the right to terminate settlement if "the aggregate difference between charges billed for Covered Services or Supplies from Out-Of-Network Health Care Providers or to Subscriber Class Members who were mailed the Mailed Notice and submitted Opt-Out requests, and the corresponding Allowed Amount for those Covered Services or Supplies [under the settlement] exceeds $20 million." [D.E. 839-2, Section 7.3(iii).] In what counsel acknowledged was an unusual and unexpected development, the Opt-Out levels exceeded the agreed upon threshold by hundreds of millions of dollars and Aetna filed a notice of termination.

On July 11, 2014, plaintiffs moved for leave to file a third amended joint consolidated complaint ("TAC") [D.E. 979], which [*18]  purports to assert the following causes of action: (1) claims for unpaid benefits under group plans covered by ERISA, under which plaintiffs also seek declaratory relief "related to enforcement of the plan terms, and to clarify rights to future benefits"; (2) breach of the plan provisions for benefits in violation of ERISA Section 502(a)(1)(B); (3) failure to provide accurate Evidence of Coverage and Summary Plan Description, under which plaintiffs seek "appropriate relief under ERISA, including declaratory relief, surcharge and profits"; (4) violation of fiduciary duties of loyalty and due care, under which subscriber plaintiffs seek "declaratory relief, removal as a breaching fiduciary, surcharge and profits"; (5) breach of fiduciary duties of loyalty and due care in violation of ERISA Section 404, under which provider and association plaintiffs seek declaratory relief and any other available equitable relief; (6) failure to provide full and fair review of denied claims; (7) declaratory relief relating to Aetna's violation of ERISA; (8) violations of RICO, 18 U.S.C. § 1962(c), based on predicate acts of mail and wire fraud; (9) embezzlement and/or conversion in violation of 18 U.S.C § 664; (10) RICO conspiracy under 18 U.S.C. § 1962(d); (11) violation of Section 1 of the Sherman Act; [*19]  and by plaintiff Weintraub, (12) violation of New York's General Business Law § 349, which prohibits deceptive acts or practices in the conduct of any business in the state of New York; (13) breach of contract; (14) breach of the implied covenant of good faith and fair dealing; and (15) unjust enrichment.

Aetna and the UHG defendants separately opposed plaintiffs' motion for leave to amend and cross-moved to dismiss most of the claims. [D.E. 995 and D.E. 996, respectively.] UHG and Ingenix move to dismiss all claims raised against Ingenix and UHG (whether in the second amended complaint or proposed third amended complaint) because neither complaint states a viable claim against them. Aetna moves to dismiss all causes of action, with the exception of the claims for benefits, maintaining that the arguments set out in its motion all apply with equal force to the second amended consolidated complaint ("SAC") and to the TAC. The Court held oral argument with regard to these motions on October 27, 2014.

For the reasons that follow, the Court grants plaintiffs' motion for leave to amend and, as to the TAC, grants in part and denies in part Aetna's cross-motion to dismiss, and grants in part and denies in part UHG defendants' [*20]  cross-motion to dismiss.

DISCUSSION

III.  MOTION FOR LEAVE TO AMEND

Initially, the parties dispute whether the motion for leave to amend should be reviewed under Fed. R. Civ. P. 15(a)(2) or the more demanding Rule 16.

Rule 16(b) requires, among other things, that scheduling orders include a time limit for amended pleadings and, once that time has passed, that the moving-party demonstrate "good cause" for leave to amend. Citing a pretrial scheduling order dated December 15, 2008, which provides that "[a]ny motion to add claims or defendants shall be filed by April 9, 2009," UHG defendants argue that Rule 16 applies and therefore plaintiffs must show good cause before the amended complaint may be considered. As plaintiffs argue, however, that "ship has sailed." (Plaintiffs Opp. at 2.) At the March 18, 2014 conference before this Court, the parties convened to develop the plan for going forward following the collapse of the proposed settlement and the Court directed them to work out dates for motion practice. The parties agreed on a motion schedule, which contemplated plaintiffs' motion for leave to amend to be filed by June 16, 2014- a deadline later extended, with approval of the Court, to June 30, and then to July 11. [D.E. 976, 978.] [*21]  The time has therefore passed to suggest that the motion now before the Court violates a scheduling order entered into over six years ago. The motion for leave to amend was timely filed under the Court's direction, and its merits will be considered under Rule 15(a)(2), not Rule 16.

The decision to grant or deny leave to amend pleadings under Rule 15(a)(2) is committed to the sound discretion of the Court. Gay v. Petstock, 917 F.2d 768, 772 (3d Cir. 1990). Leave to amend is freely granted "when justice so requires," but may be denied where there is "undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, [or] futility of the amendment." Foman v. Davis, 371 U.S. 178, 182 (1962). Defendants argue that leave to amend should be denied based on the first and last Foman criteria- undue delay and futility.

With regard to timeliness, proof of delay alone is insufficient; courts will deny a request for leave to amend only where the delay becomes undue, such as when the amendment will create an "unwarranted burden on the court." Adams v. Gould, Inc., 739 F.2d 858, 868 (3d Cir. 1984). Plaintiffs need only "demonstrate that its delay in seeking to amend is satisfactorily explained," Harrison Beverage Co. v. Dribeck Importers, Inc., 133 F.R.D. 463, 468 (D.N.J. 1990) (citations omitted), and [*22]  the record here provides satisfactory grounds for plaintiffs' latest application. They filed their second amended consolidated complaint on December 24, 2009, around which time the parties "began a rather long process of settlement discussions, which ultimately led to [a] settlement in principle in February 2012." (Plaintiffs Br. at 6.) The settlement agreement was submitted to the Court for preliminary approval in December 2012, but because "of the various objections to the proposed settlement, and Judge Chesler's recusal, final approval of the proposed settlement was not scheduled until March 18, 2014." (Plaintiffs Br. at 6.) The settlement was terminated at around the same time, and discussions regarding the litigation's future course of action-including amendments to the then-operative pleading-began almost immediately. The delay was thus not "undue" and the timeliness of plaintiffs' request is not cause for denial.

Defendants also argue that the proposed amended complaint is "futile" because it fails to state a viable claim for relief. The Court, in its discretion, will not consider this argument in connection with its review of the motion for leave to amend. Defendants have cross-moved [*23]  to dismiss and made clear that all of the arguments apply with equal force to both the second and third amended complaint. Accordingly, the Court declines to engage in a detailed futility analysis at this juncture. Such arguments are better suited for consideration of defendants' cross motions to dismiss. See Strategic Envtl. Partners, LLC v. Bucco, 2014 WL 3817295 at *2 (D.N.J. Aug. 1, 2014) (Clark, Mag. J.) (preserving futility argument for anticipated motions to dismiss); Diversified Indus., Inc. v. Vinyl Trends, Inc., 2014 WL 1767471 at *1 n.1 (D.N.J. May 1, 2014) (Simandle, J.) (finding, "in the interest of judicial economy and in the absence of prejudice," that the amended counter-claim should be treated as the operative pleading for the purposes of motion to dismiss despite the fact that the Court had not yet granted leave to amend). The Court therefore grants plaintiffs' motion for leave to amend, and considers defendants' motions to dismiss as directed to the third amended consolidated complaint-the operative pleading in this action, hereinafter referred to as the complaint.5

5 Plaintiffs argue that Rule 12(g) "precludes [d]efendants from raising certain arguments that they could have asserted in their earlier motions to dismiss but did not." (Plaintiffs Opp. at 8.) Plaintiffs contend that the "rule provides that a party must not make a successive [*24]  Rule 12 motion raising a defense or objection that was available and omitted from an earlier motion." (Plaintiffs Opp. at 8). Plaintiffs' position is contrary to the law of this circuit, Knight v. ChoicePoint, Inc., 2010 WL 2667410, at *2 (D.N.J. June 28, 2010) (Hillman, J.) (finding that Rule 12(g) does not apply where the court "never reached the merits of Defendants' first motion to dismiss"), and is also inconsistent with the Court's instruction to "attack everything at once." (UHG Reply Br. at 1) (citing July 29, 2014 Hearing Tr. at 8).

IV. STANDING

Plaintiffs are comprised of the following putative classes: (1) subscriber plaintiffs, individually named and representative of a class that contracted for health insurance plans affected by the alleged under-reimbursement scheme; (2) provider plaintiffs, individually named and representative of a class of out-of-network medical providers that treated members of the subscriber class; and (3) association plaintiffs, including the American Medical Association, American Podiatric Medical Association and the New Jersey Psychological Association, suing individually and on behalf of their members. Defendants argue that, for varied reasons, all putative classes lack standing to assert certain of the claims they raise.

1. Subscriber [*25]  Plaintiffs

The subscriber plaintiffs here include Michele Cooper, Michele Werner, Darlery Franco, Paul and Sharon Smith, Carolyn Samit, John Seney, Alan John and Mary Ellen Silver, and Jeffrey Weintraub. All were insured under an Aetna-sponsored insurance plan, and all received care for ONET services. Of these nine individuals, the UHG defendants contend that plaintiffs Samit, Franco and the Silvers lack standing to pursue their antitrust or RICO claims because they fail to allege out-of-pocket losses resulting from the challenged conduct.

Under both the Sherman Act and RICO, claims may be asserted only if the plaintiff was "injured in his business or property." See Agency Holding Corp. v. Malley-Duff & Assocs., Inc., 483 U.S. 143, 151 (1987) ("Both RICO and the Clayton Act .... compensate the same type of injury; each requires that a plaintiff show injury 'in his business or property by reason of' a violation."); Ethypharm S.A. v. Abbott Labs., 707 F.3d 223, 232 n.16 (3d Cir. 2013) (antitrust); [*26] Maio v. Aetna, Inc., 221 F.3d 472, 483 (3d Cir. 2000) (RICO). This showing requires "proof of a concrete financial loss and not mere injury to a valuable intangible property interest." Maio, 221 F.3d at 483. The UHG defendants maintain that these subscribers have not sufficiently pled that they suffered any injury to property or business "because they do not allege making out-of-pocket payments to their ONET providers by reason of Aetna's supposed under-reimbursement of their medical claims due to the Ingenix Databases." (UHG Br. at 34.) In support, defendants direct the Court to this district's decision in Franco, which relies on Maio.

In Maio, enrollees in an Aetna health maintenance organization ("HMO") sued Aetna over its "failure to disclose its restrictive and coercive internal policies and practices, which render[ed] its advertising, marketing and membership materials false and misleading in violation of RICO." Maio, 221 F.3d at 474. The insureds alleged that Aetna "engaged in a massive nationwide fraudulent advertising campaign designed to induce people to enroll in its HMO by representing that Aetna affirmatively manages its members' health care so as to ... raise the quality of care to a 'level of health care never available under the old fee-for-service system,' when in [*27]  fact, Aetna designed undisclosed internal policies to 'improve defendants' profitability at the expense of quality of care.'" Id. at 474. With regard to the injury to business or property necessary to confer standing under RICO, appellants claimed that "each member of the nationwide class paid too much in premiums for an 'inferior' health care product, i.e., the inferior health insurance they received from Aetna through its HMO plan." Id. at 484. Aetna argued that this showing was insufficient because "the value of appellants' HMO memberships cannot be diminished unless and until appellees' alleged undisclosed policies actually cause a denial of medical care or some other benefit to which appellants are entitled." Id. at 486.

The Third Circuit agreed and affirmed the district court's dismissal of plaintiffs' claims for lack of standing. The court found that, because "appellants' property interests in their memberships in Aetna's HMO plan take the form of contractual rights to receive a certain level (quantity and quality) of benefits from Aetna through its participating providers ..., it inexorably follows that appellants cannot establish a RICO injury to those property rights (which in turn would cause [*28]  financial loss in the form of overpayment for inferior health insurance) absent proof that Aetna failed to perform under their parties' contractual arrangement." Id. at 490. That failure to perform, the court found, would be evidenced by the "receipt of inadequate, inferior or delayed care, personal injuries resulting therefrom, or Aetna's denial of benefits due under the insurance arrangement." Id.

The Maio decision was not predicated solely on the absence of an out-of-pocket loss. See id. at 483 (finding that the "injury to business or property element of [RICO] can be satisfied by allegations and proof of actual monetary loss) (emphasis supplied). Rather, what the court found lacking was, among other things, some concrete, objective basis to find that Aetna failed to perform under the policy by causing inferior care to be provided relative to the price paid. See id. at 496. Appellants in Maio merely claimed that their health insurance was "inferior"-a conclusion supported only by their "subjective determination that the policies and practices [were] so inherently unsound that they inevitably [would] serve as the impetus for physicians to provide substandard health care to their patients at the point [*29]  at which the enrollees actually seek treatment." Id. at 496.

Subscriber plaintiffs here are not alleging injury based on their subjective determination of plan value; they claim to have been harmed by Aetna's underpayment of insurance benefits for ONET services. And while the UHG defendants are correct that plaintiffs Samit, Franco and the Silvers fail to show that they were forced to pay the difference out-of-pocket, the complaint does allege that they suffered "out-of-pocket losses in the form of higher co-payments" and were harmed "by having overpaid for their health insurance plans ... and receiv[ing] policies that were worth less than what they paid." (TAC ¶ 414.) The Court finds that, drawing all inferences in plaintiffs' favor, the subscribers allege an injury that demonstrates-by an objective measure—that Aetna "failed to perform under the parties' contractual arrangement." At this pleading phase, that is sufficient. See Nat'l Org. for Women, Inc. v. Scheidler, 510 U.S. 249, 256 (1994) ("[A]t the pleading stage, general factual allegations of injury resulting from the defendant's conduct may suffice, for on a motion to dismiss we presume that general allegations embrace those specific facts that are necessary to support the claim.").

***

VIII. RICO CLAIMS

Plaintiffs also claim that defendants' conduct violated the Racketeer Influenced and Corrupt Organizations (RICO) Act, 18 U.S.C. § 1962(c). Section 1962(c) makes it unlawful for "any person employed by or associated [*73]  with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity." To plead a RICO claim under this section, "the plaintiff must allege (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity." In re Ins. Brokerage, 618 F.3d at 362. Because this claim is grounded in fraud, the cause of action must be stated with the specificity required by Rule 9(b). See Lum v. Bank of Am., 361 F.3d 217, 223 (3d Cir. 2004) ("Where, as here, plaintiffs rely on mail and wire fraud as a basis for a RICO violation, the allegations of fraud must comply with Federal Rule of Civil Procedure 9(b), which requires that [such allegations] be pled with specificity.")

Plaintiffs contend that defendants undertook an "elaborate fraudulent scheme" to underpay for ONET services rendered to the subscriber plaintiffs and that such conduct constitutes a RICO violation under Section 1962(c). (TAC ¶ 374.) The complaint alleges a two-stage process. First, the insurer defendants and conspirators used "the U.S. mails and interstate wire facilities" to transmit the allegedly flawed data to Ingenix "in order to create the false UCR amounts arrived at by the Defendants and to [*74]  under-reimburse [plaintiffs] for ONET claims." (TAC ¶ 374.) Second, the resulting pricing schedules were provided by Ingenix to the defendants "through the U.S. mails or electronically over interstate wire facilities," and such information was used by defendants to reimburse plaintiffs for ONET claims. (TAC ¶ 374.) Plaintiffs argue that the third amended consolidated complaint plausibly alleges that defendants operated this scheme to defraud them, distinct from the other ordinary commercial dealings each defendant conducted, from approximately 2001 to 2009. (TAC ¶ 377.)

1. Have Plaintiffs Alleged the Existence of an Enterprise?

Plaintiffs must first demonstrate the existence of a RICO enterprise. Section 1962(c) provides that an "enterprise" includes "any individual partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4). Plaintiffs provide three alternate enterprise theories: (1) "single-entity" enterprises, consisting of defendants Aetna, UHG and Ingenix standing alone (TAC ¶ 403); (2) a bilateral association-in-fact enterprise comprised of Aetna and Ingenix (TAC ¶ 402); and (3) an association-in-fact enterprise [*75]  comprised of Aetna, UHG and Ingenix. (TAC ¶ 376). The Court addresses each in turn.

A. Single-Entity Enterprises

Defendants argue that plaintiffs' so-called "single-entity" enterprises fail as a matter of law because they violate RICO's "separateness" requirement, pursuant to which a plaintiff must "allege and prove the existence of two distinct entities: (1) a 'person'; and (2) an 'enterprise' that is not simply the same 'person' referred to by a different name." Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 161-62 (2001). The Court agrees.

In Cedric Kushner Promotions, plaintiff sued Don King, the president and sole shareholder of Don King Productions, a corporation, claiming that King had conducted the corporation's affairs in part through a RICO "pattern"-"through the alleged commission of at least two instances of fraud and other RICO predicate crimes." Cedric Kushner Promotions, 533 U.S. at 161. In affirming the district court's dismissal, the Second Circuit held that King was an employee of the corporation and, as acting within the scope of his employment, "was part of, not separate from, the corporation." Id. at 161. The Supreme Court reversed, finding that the "corporate owner/employee, a natural person, is distinct from the corporation itself, a legally different entity with different [*76]  rights and responsibilities due to its different legal status." Id. at 158. Underlying its holding was the "distinctiveness" requirement for a RICO enterprise, pursuant to which "one must allege and prove the existence of two distinct entities." Id. at 162.

The distinctiveness requirement has long been recognized by courts of this Circuit. See Jaguar Cars, Inc. v. Royal Oaks Motor Car Co., Inc., 46 F.3d 258, 268 (3d Cir. 1995) ("[A] claim simply against one corporation as both 'person' and 'enterprise' is not sufficient.") Applying this principle, the court in Ass'n of New Jersey Chiropractors v. Aetna, Inc., 2011 WL 2489954 (D.N.J. Jun. 20, 2011) (Pisano, J.) found that "[b]ecause a corporate entity may not be both the person and the RICO enterprise ..., a corporation must associate with others to form an enterprise that is sufficiently distinct from itself" to be liable as a defendant under section 1962(c). Id. at *6. The court then found that the enterprise alleged, "consisting of Aetna Inc., several of its subsidiaries and affiliates, and third-parties acting as Aetna's agents" was "not sufficient to fulfill the distinctiveness requirement of § 1962(c)." Id. at *6. This reasoning is persuasive. Plaintiffs advance identical theories here, each of which violates the Third Circuit's distinctiveness requirement. Consequently, plaintiffs' RICO claims are dismissed to the extent they rely on single-entity [*77]  enterprises.

B. Association-in-fact Enterprises

Plaintiffs do, however, adequately plead both an association-in-fact enterprise comprised of Aetna, UHG and Ingenix, and a bilateral enterprise comprised of Aetna and Ingenix. To state a RICO association-in-fact enterprise, plaintiffs must demonstrate the existence of a "continuing unit that functions with a common purpose." See Boyle v. United States, 556 U.S. 938, 948 (2009). Interpreting this standard, the Third Circuit has found that "the RICO statute defines an 'enterprise' broadly, such that the 'enterprise' element of a Section 1962(c) claim can be satisfied by showing a 'structure,' that is, a [1] common 'purpose, [2] relationships among those associated with the enterprise, and [3] longevity sufficient to permit these associates to pursue the enterprise's purpose.'" In re Ins. Brokerage, 618 F.3d at 368 (quoting Boyle, 556 U.S. at 945). After Boyle, "an association-in-fact enterprise need have no formal hierarchy or means for decision-making, and no purpose or economic significance beyond or independent from the group's pattern of racketeering activity." Id. at 368.

Under Boyle, the Court finds plaintiffs' allegations sufficient to state a RICO enterprise here, either as an association-in-fact enterprise consisting of Aetna, UHG and Ingenix, or, alternatively, [*78]  a bilateral enterprise comprised of Aetna and Ingenix. The enterprise, plaintiffs allege, collectively sought to achieve a dual purpose: (1) "to create a mechanism through which Aetna, UHG and the Insurer Conspirators could under-reimburse subscribers ... for Nonpar services through use of flawed and invalid data" (TAC ¶ 503) and (2) to increase insurer profits by deceptively underpaying ONET benefits to their policy holders. And the conduct attendant to defendants' realization of these goals demonstrates the existence of enterprise relationships. The defendants allegedly "became beneficiaries of [each other's] scrubbed data in the future, after it was processed (and further scrubbed) by Ingenix" and had opportunities to interact regarding their collective purpose through their participations in trade associations, which allegedly played a role in the "management" of Ingenix. (Plaintiffs Br. at 16-17, 36-37.) Finally, as in Franco, the enterprise alleged has demonstrated sufficient longevity to allow its associates to accomplish their alleged intended purpose as it "came into existence in 1998." Id. at 826. The Court finds these allegations sufficient to satisfy Boyle's "low threshold" for [*79]  pleading the existence of an association-in-fact.

2. Did Defendants "Conduct" the Affairs of the Enterprise?

Proof of the entity's structure, however, is not alone sufficient to state a claim under Section 1962(c). Plaintiffs also must show that each defendant "conduct[ed] or participate[d], directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity." This has been described as "a very difficult test to satisfy," Dubai Islamic Bank v. Citibank, N.A., 256 F. Supp. 2d 158, 164 (S.D.N.Y. 2003), because mere association with an enterprise does not violate the statute. See In re Ins. Brokerage, 618 F.3d at 370-71. Rather, the "conduct or participate" element requires a defendant to "have some part in directing those affairs." Reves v. Ernst & Young, 507 U.S. 170, 179 (1993); see also Schmidt v. Fleet Bank, 16 F. Supp. 2d 340, 346 (S.D.N.Y. 1998) ("There is a substantial difference between actual control over an enterprise and association with an enterprise in ways that do not involve control; only the former is sufficient under Reves because 'the test is not involvement but control.") (internal quotation marks omitted). Reves held that plaintiffs must allege that the defendant "participated in the operation [and]management of the enterprise itself" or played "some part in directing the enterprise's affairs." Id. This requires a "showing that the defendant[] conducted or participated [*80]  in the conduct of the 'enterprises' affairs,' not just [its] own affairs." Id. at 185 (emphasis in original).

Plaintiffs claim to satisfy this element through their allegations that "Ingenix owned the Database, it directed the manner of the submission of the data from Defendants and Co-Conspirators, it collected the scrubbed data that it further manipulated and disseminated ..., and it controlled 75-85% of the data market. UHG, in turn, owned Ingenix, and both it and Aetna were vital contributors of scrubbed data and used the data ... to under-reimburse Subscribers." (Plaintiffs Opp. at 34.) Plaintiffs also allege that "Aetna's and UHG's memberships in HIAA/AHIP and positions on HIAA/AHIP's board of directors, gave them additional awareness as to the nature and scope of the scheme and allowed them, through HIAA/AHIP's representatives on the Ingenix Liaison Committee, to participate in the making of decisions concerning the direction and use of the Database as well." (TAC ¶ 393).

Aetna and UHG argue that plaintiffs parrot the statutory language of Section 1962(c), but fail to offer any factual allegations sufficient to suggest that either of them participated in the operation or management of any enterprise. The [*81]  Court agrees. With regard to defendants' submission of flawed data for use in the Ingenix database, plaintiffs point only to Aetna's and UHG's commercial interactions with Ingenix, and assert that such contributions were vital to the enterprise's common purpose. But providing goods or services to an alleged RICO enterprise is insufficient to compel liability. See Reves, 507 U.S. at 179; University of Maryland at Baltimore v. Peat, Marwick, Main & Co., 996 F.2d 1534 (3d Cir. 1993) ("Simply because one provides goods or services that ultimately benefit the enterprise does not mean that one becomes liable under RICO.") And as in WellPoint I, "submission of [their] own data does not plausibly show that [Aetna or UHG] controlled the other members in the associated-in-fact enterprise." WellPoint I, 865 F. Supp. 2d at 1034. In fact, "all it really establishes is that [each insurer] was acting on its own when submitting data to the Ingenix database." Id. at 1034.

Plaintiffs argue that the conduct of each defendant was "integral" to the enterprise's operation, and that Aetna and UHG were "vital contributors" of data and thus necessary to the scheme alleged. They claim to find support in the Third Circuit's decision in In re Ins. Brokerage, which considered, among other things, RICO claims arising out of a bid-rotation scheme whereby "insurers [*82]  furnished purposefully uncompetitive sham bids on policies in order to facilitate the steering of business to other insurer-partners, on the understanding that the other insurers would later reciprocate." The Third Circuit found that, with regard to the conduct element, "if defendants band together to commit [violations] they cannot accomplish alone ... then they cumulatively are conducting the association-in-fact enterprise's affairs, and not [simply] their own affairs." In re Ins. Brokerage, 618 F.3d 300 (quoting Gregory P. Joseph, Civil RICO: A Definitive Guide 106, at 74 (3d ed. 2010)) (emphasis in original). On that basis, the court found that "defendants' alleged collaboration in the Marsh-centered enterprise, most notably the bid rigging, allowed them to deceive insurance purchasers in a way not likely without such collusion."

The decision in In re Ins. Brokerage is plainly distinguishable. Plaintiffs here allege a scheme that, at its essence, consists of two stages of activity: (1) multiple insurers submit artificially low provider cost data, thus incrementally decreasing the final output they expect to receive and ultimately rely upon; and (2) Ingenix then scrubs that same data to remove high-end outliers, thus [*83]  decreasing the final output once more and only to the extent desired. Viewed in this light, the Court fails to see how an elimination of either stage of conduct would bring about failure of the enterprise overall. The conduct alleged aided the goals of the enterprise only incrementally, and each defendant was free to take such action with or without assistance. Plaintiffs emphasize the significant amount of contributions made by Aetna and UHG to show that their conduct was "vital" to the organization's purpose, but from that fact the Court infers that each insurer could (individually) reduce ONET reimbursements on a significant-though still incremental-basis. Taken together, and assuming the truth of plaintiffs' allegations, the Court finds that the defendants achieved collectively nothing that would have been impossible to achieve individually. And for that reason, plaintiffs' allegations regarding defendants' conduct are insufficient to show that any defendant controlled or directed the alleged RICO enterprise here.

Their allegations regarding the insurer defendants' business relationships with Ingenix fare no better. Plaintiffs submit in their opposition that the third amended complaint [*84]  alleges "HIAA representatives were on the Ingenix 'Liaison Committee,' ... that Aetna and UHG were members of HIAA/AHIP ... that an advisory committee composed of HIAA members was also created ... and that these committees participated in the management of the Ingenix Database." (Plaintiffs Opp. at 36-37.) They also allege that Aetna and UHG executives were members of the board of directors of the HIAA/AHIP for an unspecified period of time. Plaintiffs' focus in this line of argument thus concerns only defendants' membership and participation in the HIAA/AHIP organization-but, as plaintiffs represented to the court in WellPoint, this is an organization in which "virtually every major health insurer in the United States" is a member. See WellPoint III, at *21 ("[T]here is a difference between alleging that WellPoint is an HIAA member and that HIAA members were on the Advisory and Liaison Committees, and specifically alleging that WellPoint was on the Advisory and Liaison Committees.") Accepting plaintiffs' allegations as true, they at best demonstrate that Aetna and UHG, among others, were members in some unidentified capacity of two committees that played some unidentified role in the Ingenix database's maintenance [*85]  and operation. After nearly eight years of discovery, the pleadings critically lack non-conclusory indications that either insurer participated (in any capacity) in the decision-making or direction of a RICO enterprise

To show that Ingenix directed the operations of this enterprise, plaintiffs allege as follows: "[t]he scheme involved Ingenix's obtaining of scrubbed data from Defendants and Co-Conspirators; in return for this submission of the data, Ingenix, after scrubbing the data, disseminated to Defendants and conspirators the false uniform pricing schedules, and gave higher discounted pricing (or subscription) rates to those who supplied Ingenix with greater amounts of data." (TAC ¶ 384.) But plaintiffs' allegation that Ingenix "played an active and crucial role in directing the submission of the data from Aetna, UHG and the Insurer Conspirators," only describes how Ingenix conducted its otherwise legitimate business operations.13 See United Food and Commercial Workers Unions and Employers Midwest Health Benefits Fund v. Walgreen Co., 719 F.3d 849 (7th Cir. 2013) (plaintiffs must allege that the defendants engaged in a degree of cooperation "that fell outside the bounds of the parties' normal commercial relationships.") [*86]  As Ingenix argues, "[its] development and licensing of database products reflects only Ingenix's conduct of its own business affairs, not the operation of some hypothetical RICO enterprise." (UHG Br. at 30) (emphasis in original.) What is missing is some-any-indication that Ingenix guided the alleged scheme to defraud insureds. Plaintiffs fail to allege, for example, that Ingenix instructed the insurers as to the manner in which they should submit flawed data, that insurers were provided greater or different incentives to submit flawed data, or that the insurers were disciplined for utilizing other methodologies in determining ONET reimbursement.

13 For this reason, plaintiffs' lower/upper rung theory of control also fails. Plaintiffs allege in the alternative that Aetna participated in the conduct of the RICO enterprise as a lower-rung participant under the direction of Ingenix. Specifically, plaintiffs maintain that Aetna acted under Ingenix's direction "because Ingenix (1) knew the data submitted by Aetna was flawed and that the pricing schedules disseminated by Ingenix were used by Defendants and Insurer Conspirators to reimburse subscribers for ONET benefits, but (2) nonetheless tacitly approved the submission of such data to it ... and sought the Defendants' reliance upon its pricing schedules to under-reimburse subscribers." (TAC ¶ 386.) Knowledge and "tacit approval" of another's conduct does not amount to direction by "upper management," and, with [*87]  no other factual allegations in support, the Court rejects plaintiffs alternate theory of liability.

The Seventh Circuit's decision in United Food and Commercial Workers Unions and Employers Midwest Health Benefits Fund v. Walgreen Co. is instructive in evaluating the alleged conduct of all entities here. There the plaintiff, an employee benefit plan, sued on behalf of a similarly situated class in a RICO action in which it alleged that Walgreen Company ("Walgreens") and Par Pharmaceutical Companies, a drug manufacturer, engaged in a scheme to defraud insurers by "filling prescriptions for several generic drugs with a dosage form that differed from, and was more expensive than, the dosage form prescribed to the customer." Id. at 850. Par produced two different generic prescription drugs that, because of their high price and consequent unpopularity in the market, received a higher rate of reimbursement from insurers and other [*88]  third-party payors. Realizing that pharmacies stood to profit from this payment structure, Par tried to convince Walgreens to use its products even though they were more expensive. Par's "presentations [to the pharmacies] implied (at the least) that the pharmacies could legally fill prescriptions written for one dosage form with an alternative dosage form without seeking approval from the prescribing physician, a suggestion that directly contravened the FDA's position that the tablets and capsules are not bioequivalent." Id. at 852. Walgreens eventually "reconfigured its internal computer systems so that all prescriptions" were automatically filled with Par's drugs "regardless of the dosage form actually prescribed." Id. This practice continued for some time and, attracting scrutiny from a number of states' attorneys general and the Justice Department, was later described as "false and deceptive" by the Illinois Department of Health.14

In its RICO claims plaintiff alleged that Walgreens and Par "conducted an association-in-fact RICO enterprise for the purpose of overcharging insurers by switching dosage forms of [Par's drugs]." Id. at 853. The district court granted defendants' motion to dismiss [*89]  after concluding that plaintiff failed to allege sufficiently that Walgreens and Par conducted the affairs of the alleged enterprise and the Seventh Circuit affirmed. Despite noting that the plaintiff alleged detailed communications between the entities regarding Par's proposal, that both entities engaged in conduct which seemingly benefited the alleged enterprise-namely, "that Par manufactured the expensive dosage forms and that Walgreens rigged its internal computer systems automatically to switch" prescriptions to Par's product-the court nonetheless found that "nothing in the complaint reveals how one might infer that these communications or actions were undertaken on behalf of the enterprise as opposed to on behalf of Walgreens and Par in their individual capacities, to advance their individual self-interests." Id. at 854-55. This type of interaction "show[ed] only that the defendants had a commercial relationship, not that they had joined together to create a distinct entity for purposes of improperly filling [Par's prescriptions]." Id. at 855-56. The court thus concluded that, without some indication that the "cooperation" alleged "exceeded that inherent in every commercial transaction between a [*90]  drug manufacturer and pharmacy," it could not plausibly infer that "Walgreens and Par were conducting the enterprise's affairs."

This case likewise has a history of investigation, findings, and action by state regulatory authorities-here the New York Attorney General. But as the Seventh Circuit held, "RICO does not penalize parallel, uncoordinated fraud," even where the complaint "describe[d] conduct that might plausibly state a claim for fraud (among other things) against either defendant." Id. at 855.

These plaintiffs have not made factual allegations demonstrating that any defendant knowingly "conducted or participated in the conduct of the 'enterprise's affairs,' [as opposed to its] own affairs," and that it "did so through a pattern of racketeering activity." In re Ins. Brokerage, 618 F.3d at 371-72 (quoting Reves, 507 U.S. at 185) (emphasis in original). This deficiency is fatal to plaintiffs' RICO claims, particularly where, even in the absence of coordination, each defendant maintained an independent [*91]  incentive to engage in the conduct alleged. See Section VIII(1), supra.

3. Were Plaintiffs' Injuries Caused by the Alleged Predicate Acts?

Even assuming that defendants were conducting the affairs of the alleged enterprise, plaintiffs fail to show that the scheme proximately caused their alleged harm. A cause of action for RICO violation may be stated only by a person "injured in his business or property by reason of a" RICO predicate act. This phrase-"by reason of"-has been held to require proof that "a RICO predicate offense 'not only was a 'but for' cause of [their] injury, but was the proximate cause as well.'" Hemi Grp., LLC v. City of New York, 559 U.S. 1, 9 (2010).

Plaintiffs allege that their RICO injury was overpaying for health insurance due to false reimbursement rates for ONET services:

Subscriber Plaintiffs were underpaid or under-reimbursed for ONET benefits paid to them as a direct result of the Defendants' pattern of racketeering activity, and thereby suffered direct consequential and concrete financial loss flowing from the injury to their business or property (their health insurance plans) by having overpaid for their health insurance plans (the ONET component of which became compromised and diminished in value as a direct result [*92]  of Defendants' systematic underpayment scheme) and received policies that were worth less than what they paid.

 (TAC ¶ 414.) They argue that the predicate acts of mail and wire fraud causing this harm consisted of "the transmission of data for use in the Ingenix Database ... and related communications including between Aetna's offices in Minnesota or Wisconsin and Ingenix's offices in Utah." (TAC ¶ 405.)

In connection with the causation requirement, the parties first dispute the extent to which plaintiffs must demonstrate reliance, an issue addressed by the Supreme Court in Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639 (2008), which dealt with a bid-rigging scheme to obtain tax liens. The taxing authority in Bridge periodically held auctions for liens on unpaid taxes, and interested purchasers would bid an amount that they were willing to accept from the delinquent taxpayer to clear the lien. Because there frequently were ties for the winning bid-multiple parties willing to accept nothing from the taxpayer to clear the lien-a rotating system was created, in connection with which bidders were required to affirm that the bids were submitted in their own name and that no agent or related entity had submitted a competing bid on their behalf. [*93]  Losing bidders filed a RICO action when it became apparent that the defendants were filing fraudulent affidavits.

At issue was whether the losing bidders themselves were required to demonstrate that they relied on the affidavits in dispute. The Court answered this question in the negative. Rejecting defendants' position that first-party reliance was an express element of a RICO claim, the Court found that "a person [could] be injured 'by reason of' a pattern of mail fraud even if he has not relied on any misrepresentations." Bridge, 553 U.S. at 649. Notwithstanding, "none of this is to say that a RICO plaintiff who alleges injury 'by reason of' a pattern of mail fraud can prevail without showing that someone relied on the defendant's misrepresentation." Id. at 658 (emphasis in original). Significantly, the Court found that "it may well be that a RICO plaintiff alleging injury [*94]  by reason of a pattern of mail fraud must establish at least third-party reliance in order to prove causation." Id. at 658-59 ("In most cases, the plaintiff will not be able to establish even but-for causation if no one relied on the misrepresentation.").

Interpreting Bridge, the WellPoint court found that it was dealing with "a case where proof of reliance, and likely first-party reliance, is a 'mile post on the road to causation.'" WellPoint II, at 903 F. Supp. 2d at 915; see also WellPoint III, at *25 ("[B]ecause Plaintiffs still allege the RICO injury that the Subscriber Plaintiffs overpaid for health insurance coverage due to false reimbursement rates, this requires a showing that someone relied on misrepresentations about reimbursement rates.") (emphasis in original). WellPoint II and III held that plaintiffs failed to show reliance-either first- or third-party-and dismissed plaintiffs' RICO claims on that basis.  See WellPoint III, at *25 ("Plaintiffs have failed to plead that someone relied on Defendants' misrepresentations and therefore cannot sustain a cause of action as to mail fraud.").

Applying these holdings, defendants argue that because plaintiffs fail to allege reliance in any fashion, they cannot prove that their RICO injury was proximately [*95]  caused by the alleged scheme to defraud. This argument goes too far. In Wallace v. Midwest Fin. & Mortg. Servs., 714 F.3d 414, 419-22 (6th Cir. 2013), the court noted that, "[f]or RICO purposes, reliance and proximate cause remain distinct-if frequently overlapping-concepts." Id. at 420. And while reliance is "'often used to prove ... the element of causation,' that does not mean it is the only way to do so, nor does that 'transform reliance itself into an element of the cause of action." Id. at 420 (quoting Bridge, 553 U.S. at 659); see also Bridge, 553 U.S. at 658-59 ("[T]he complete absence of reliance may prevent the plaintiff from establishing proximate cause.") (emphasis supplied).

In an industry where the end consumer generally has no choice but to enter, with little say in the selection process, it strikes the Court as overly harsh to conclude, as defendants insist, that first-party reliance should be incorporated as a necessary "mile post" in the Court's causation analysis. And, given the nature of the scheme at issue (if capable of proof), the same may be true with regard to defendants' argument that the absence of third-party reliance now defeats proximate cause. The Court need not decide, however, because the causal chain is too attenuated to support a finding of proximate causation, separate and apart from the [*96]  issue of reliance.

As the Supreme Court explained in Bridge, proximate cause is a "flexible concept" that demands "some direct relation between the injury asserted and the injurious conduct alleged." Bridge, 553 U.S. at 654. "When a court evaluates a RICO claim for proximate causation, the central question it must ask is whether the alleged violation led directly to the plaintiffs' injuries." Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 461 (2006). "[A] link that is 'too remote,' 'purely contingent,' or 'indirec[t]' is insufficient." Hemi, 559 U.S. at 9. The direct-relation requirement, the Court found, "avoids the difficulties associated with attempting to ascertain the amount of a plaintiff's damages attributable to the violation, as distinct from other, independent factors; prevents courts from having to adopt complicated rules apportioning damages among plaintiffs removed at different levels of injury ...; and recognizes the fact that directly injured victims can generally be counted on to vindicate the law as private attorneys general, without any of the problems attendant upon suits by plaintiffs injured more remotely." Bridge, 553 U.S. at 654-55 (internal quotations and citations omitted).

Plaintiffs claim defendants' racketeering conduct injured them because they were under-reimbursed for ONET benefits [*97]  and, consequently, received health insurance plans that were worth less than what they paid. To show that such harm was proximately caused by defendants' racketeering conduct, plaintiffs must first establish several distinct steps.

First, they must demonstrate that the Ingenix database was the basis on which defendants' calculated the ONET reimbursement. But while plaintiffs allege that this purported scheme involved "use of the Ingenix Database to provide false, artificially low reimbursement amounts for ONET," they make no showing that defendants exclusively relied on this methodology for reimbursement.16 What is more, plaintiffs allege that, in determining ONET amounts, the insurer defendants at times "reimbursed based on a percentage of the Medicare fee schedule" (TAC ¶172), or "some other faulty methodology" (TAC ¶ 307), or "other improper pricing methods." (TAC ¶ 484, 485). And even where the database was used to determine ONET reimbursements, the insurers were free to make independent decisions about reimbursements. The Ingenix database "reported not the amounts to be reimbursed, but a range of provider charge amounts expressed in terms of 'percentiles'" (Aetna Br. at 12), and plaintiffs [*98]  make no allegation that the insurers relied on the same percentile in all cases.17

16 In granting plaintiffs' motion for leave to amend, the Court is limited to the third amended consolidated complaint for the purposes of this analysis, see W. Run Student Hous. Assocs., LLC v. Huntington Nat'l Bank, 712 F.3d 165, 172 (3d Cir. 2013), which asserts that the Ingenix database was "automatically applied" to determine ONET reimbursement-a conclusory allegation that sidesteps what was laid out in the second amended consolidated complaint. Plaintiffs previously alleged in great detail the extent to which defendants used other methodologies to determine ONET amounts, such as Medicare rates (SAC ¶¶ 33, 35, 60, 358, 402, 445), in-network fee schedules (SAC ¶¶ 33, 60), or unidentified means ("some other faulty methodology" SAC ¶432). On those facts, the Court would have no trouble in finding that the causal chain was broken.

17 Defendants also point out that, because of variations in reimbursement terms of certain Aetna health plans, Aetna necessarily "reimburses different amounts under different plan terms, separate and apart from variations in the UCR amount." (Aetna Br. at 12 (citing TAC ¶¶ 204 (Cooper is responsible for 30% [*99]  of the UCR amount as a coinsurance payment), 213-15 (Werner is responsible for 40% of the UCR amount), 301 (Weintraub is responsible for 50% of the UCR amount)).) Such factual allegations highlight the difficulty in ascertaining the extent of harm suffered-a pertinent issue in the proximate cause analysis. See Schrager, 542 F. App'x at 104 (finding "the ease of apportioning damages among other plaintiffs affected by the alleged violation" a point of consideration in analyzing proximate cause.).

Plaintiffs must also demonstrate that the amount defendants chose to reimburse was incorrect—and, as Aetna argues, that it was incorrect "in a way that made the payment lower than it should have been if Aetna had used some hypothetical 'True UCR' database." (Aetna Br. at 23.) Finally, plaintiffs must demonstrate that the subscribers were balance billed for any uncovered amounts. (TAC ¶ 568 ("Aetna's agreements ... state that the Member is financially responsible for the difference between the allowed expenses and provider's billed charge for ONET.").) Plaintiffs argue that this step is irrelevant to the Court's consideration of proximate cause and claim that the argument "preposterously posits that RICO proximate cause depends not on a direct injury from predicate acts but on the actions of a third party." (Plaintiffs Opp. at 28.) But such third party conduct becomes relevant where it has the potential to disrupt the causal chain, and it stands to reason that if the subscribers here were not billed for the difference owed, they suffered no actionable harm.

Seen in its best light, plaintiffs' causal chain depends on layered contingencies, similar to Hemi Group, LLC v. City of New York, 559 U.S. 1 (2010), in which the City asserted RICO [*100]  mail and wire fraud claims against Hemi Group, an online cigarette retailer. While not required to collect taxes on its sales, Hemi Group did have to submit customer information to the states into which its wares were shipped. The City claimed that Hemi failed to file those statements with the State of New York, and alleged that such failure caused the loss of tens of millions of dollars in unrecovered cigarette taxes. In considering whether the City's injury occurred "by reason of" the defendant's alleged racketeering activity, the Court characterized the causal chain as follows: "Without the reports from Hemi, the State could not pass on the information to the City, even if it had been so inclined. Some of the customers legally obligated to pay the cigarette tax to the City failed [*101]  to do so. Because the City did not receive the customer information, the City could not determine which customers had failed to pay the tax. The City thus could not pursue those customers for payment. The City thereby was injured in the amount of the portion of back taxes that were never collected." Id. at 2. Finding such a theory "too indirect" and "anything but straightforward," the Court held that the City "ha[d] no RICO claim" on that basis. In so holding, the Court was persuaded in part by the fact that "independent factors [] accounted for [the plaintiff's] injury"—specifically, that "[t]he City's theory of liability rest[ed] on the independent actions of third and even fourth parties." Id. at 3.

Such is the case here. Plaintiffs' theory of causation rests on independent action in at least two critical links of the chain. First, the insurers would each need to determine they would strictly use the Ingenix database in making their ONET reimbursements. This is an assumption the Court may not freely make given the presence of contrary findings in the pleadings themselves. And second, the out-of-network physicians would need to bill subscribers for the balance owed on their services in all cases-an expectation [*102]  plaintiffs offer no meaningful allegations about. As such, plaintiffs have not presented an adequate case for proximate cause and, based on all the foregoing, the RICO claims are dismissed.18

18 Aetna also claims that the "indirectness" of this causal chain supports a finding that the association plaintiffs lack standing under RICO, and that the provider plaintiffs lack standing under both RICO and Section 1 of the Sherman Act. See Aetna Br. at 42 (arguing that the association plaintiffs' "daisy chain" of causation "comes nowhere close to establishing RICO standing); Aetna Br. at 38 ("Derivative claims based on injuries from economic ripples emanating from the challenged conduct are insufficient to confer antitrust or RICO standing."). Because the Court has decided that the substantive counts fail on the merits-RICO, in part due to the remote chain of causation-it need not consider whether the directness or indirectness of the injury prevents standing here.

4. Alternative Predicate Acts: Embezzlement or Conversion, 18 U.S.C. § 664

Plaintiffs argue that, in addition to the mail and wire fraud grounds, they state predicate acts of "embezzlement or conversion" under 18 U.S.C. § 664. This section imposes civil RICO liability for "[a]ny [*103]  person who embezzles, steals, or unlawfully and willfully abstracts to his own use or to the use of another, any of the moneys ... or other assets of any employee welfare benefit plan." 18 U.S.C. § 664. This alternative theory of liability fails for the same reasons set forth by the district court decisions in Franco, WellPoint II, and WellPoint III.

Embezzlement involves the conversion or misappropriation of funds belonging to another, and its elements include: (1) the unauthorized (2) taking or appropriation (3) of benefit plan funds (4) with specific criminal intent. See Mehling v. N.Y. Life Ins. Co., 163 F. Supp. 2d 502, 508 (E.D. Pa. 2001) (citing United States v. Adreen, 628 F.2d 1236, 1241 (9th Cir. 1980)). Plaintiffs maintain that Aetna's conduct satisfies the required elements because its under-reimbursements wrongfully converted the assets of the ONET subscribers. "The plan funds that Aetna and Ingenix unlawfully converted and diverted to their use or to the use of another were those plan funds specifically earmarked as guaranteed benefits for Aetna Members, for which Aetna and Ingenix, through the predicate acts, made or knowingly caused to be made a false payment on claims for reimbursement of out-of-network charges." (TAC ¶ 522.) Aetna and Ingenix "caused these funds to be withheld or diverted for their own financial [*104]  gain or to the use of another, and Aetna benefitted from the revenues generated from its administration (either as plan administrator or claim administrator) of certain of Aetna's Healthcare plans." (TAC ¶ 522.) Plaintiffs also claim that, with regard to self-funded plans, Aetna was able to extract additional administrative fees and, through its use of the Ingenix database, "improperly cause self-funded plans to keep rather than pay what the policies required to be paid." (TAC ¶ 523.)

Even drawing all inferences in plaintiffs' favor, however, these allegations state only that the insurer defendants denied them ONET payments to which they may have been entitled. The "common thread" uniting violations of § 664 is that "the defendant, at some stage of the game, has taken another person's property or caused it to be taken, knowing that the other person would not have wanted that to be done." Andreen, 628 F.2d at 1241 (quoting United States v. Silverman, 430 F.2d 106, 126-27 (2d Cir. 1970)). Under this standard, plaintiffs' allegations that the insurer defendants "decreased [their] own expenses, albeit improperly," WellPoint II, 903 F. Supp. 2d at 917, are insufficient. Plaintiffs have not, for example, alleged that the subscriber plaintiffs "paid their premiums into a trust with the understanding that the funds [*105]  paid in were reserved for ONS reimbursements, or that [the insurer defendants'] decision to artificially reduce [their] ONS payments somehow resulted in the improper diversion of moneys from any such funds." Id. at 917.

And while plaintiffs allege funds were "earmarked" for ONET subscribers, the funds in dispute belong to the defendants, not the plaintiffs or some other person or entity. To succeed, the plaintiffs would be required to allege that the funds were "earmarked for an intended recipient" out of plan assets, not the insurer's assets, and then were directed for an alternate purpose.  WellPoint III, *28-29 (citing United States v. Whiting, 471 F.3d 792, 800 (7th Cir. 2006) (holding that contributions withheld from employee paychecks and delivered to the employee's benefit plans were plan assets, not company assets, for purposes of § 664 embezzlement)). Because plaintiffs fail to allege that "the earmarked funds were ... converted from the beneficiaries' assets"-as opposed to Aetna's own assets-the claim for embezzlement and conversion must be dismissed. WellPoint III, at 29. To permit a cause of action for embezzlement on these facts would "open the door to an embezzlement claim every time a participant brought a run-of-the-mill action for nonpayment of benefits under [*106]  ERISA." WellPoint II, 903 F. Supp. 2d at 917.

5. RICO Conspiracy, 18 U.S.C. § 1962(d)

Finally, plaintiffs argue that the complaint plausibly suggests that the defendants knew about and agreed to the requisite scheme to defraud, thus giving rise to a RICO § 1962(d) conspiracy claim. This requires plaintiffs to allege facts sufficient to support the inference that the UHG defendants agreed to facilitate a scheme that includes the operation or management of a RICO enterprise.

As the Third Circuit has made clear, however, a claim under § 1962(d) "must be dismissed if the complaint does not adequately allege an endeavor[,] which, if completed would satisfy all of the elements of a substantive [RICO] offense." In re Ins. Brokerage, 618 F.3d at 373 (quoting Salinas v. United States, 522 U.S. 52, 65 (1997)). Having found that the complaint fails to state an underlying RICO violation, the Court dismisses plaintiffs' conspiracy claim under § 1962(d).

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