Friday, May 21, 2010

Dentists, Dental Association Failed to Allege Fraud in RICO Claim Against Insurers

This posting was written by Mark Engstrom, Editor of CCH RICO Business Disputes Guide.

Three dentists and the American Dental Association (ADA) failed to assert a plausible class-action RICO claim against five insurance companies that allegedly engaged in a scheme to defraud dentists by reducing payments for dental services through improper bundling, automatic downcoding, and the manipulation of dental procedure codes, the U.S. Court of Appeals in Atlanta has held. The dismissal of the plaintiffs’ RICO claims was therefore affirmed.

Bundling and Downcoding Procedures

The plaintiffs complained that they performed multiple procedures worthy of larger benefit payments, but that the insurers had bundled and “downcoded” those procedures into fewer claims worthy of small payments.

The plaintiffs also alleged that the fraudulent scheme would work only if the insurers had agreed to employ the same devices and tactics.

According to the plaintiffs, the insurers sent out letters and e-mails stating that dental procedures submitted as multiple claims would be grouped together as a single procedure for the purpose of benefits payments.

The plaintiffs failed, however, to (1) identify any specific misrepresentations in the letters and e-mails; (2) connect the allegedly fraudulent communications to particular acts of downcoding or bundling; or (3) allege how the insurers had agreed to employ these procedures as part of a long-term criminal enterprise predicated on mail and wire fraud, the court observed.


Because the allegations in the plaintiffs’ complaint did not support an inference of an agreement to the overall object of the conspiracy—or an agreement to commit at least two predicate acts—the complaint failed to assert a valid RICO conspiracy claim. In the court’s view, the allegations contained only conclusory statements and unwarranted deductions of fact.

Plaintiffs, for example, attempted to bolster their conspiracy claim by describing the defendants’ “collective” or parallel actions, from which they inferred the existence of an agreement. The court noted, however, that the U.S. Supreme Court has stated that “when allegations of parallel conduct are set out . . . they must be placed in a context that raises a suggestion of a preceding agreement, not merely parallel conduct that could just as well be independent action (Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 2007-1 Trade Cases ¶75,709).

Lawful, Independent Conduct

In this case, there existed—for each of the collective actions alleged—an “obvious alternative explanation” that suggested lawful, independent conduct, the appellate court determined. The allegation that the insurers had downcoded and bundled claims, for example, could be attributed to the use of computers, which could process claims efficiently. Downcoding and bundling may be proper in a competitive market, the court reasoned, in order to decrease physicians’ costs and increase corporate profits.

The argument that a conspiracy could be inferred from the insurers’ participation in trade associations and other professional groups was unavailing. According to the court, it was “well settled before Twombly” that participation in trade organizations “provides no indication of a conspiracy.”

The May 14 decision, American Dental Association v. Cigna Corp., appears at CCH RICO Business Disputes Guide ¶11,843.

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