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Supreme Court dismisses appeal of historic verdict
SCOTT PIEPHO
Legal News Reporter
Published: March 29, 2013
The Ohio Supreme Court last week unanimously dismissed an appeal of a $10 million award in a lawsuit between two hospitals in Canton.
Mercy Medical Center had won $6 million in compensatory damages and $4 million in attorney fees from Aultman Hospital in a case alleging that Aultman illegally paid insurance brokers to encourage them to sell insurance coverage that benefited various Aultman entitites.
According to Mercy attorney Lee Plakas, the $6 million dollar compensatory award represents the largest business litigation verdict and the longest running jury trial in Stark County.
“We are also pretty confident this is the first time a nonprofit hospital was found to have violated the equivalent of RICO,” said Plakas, who is managing partner in the Canton-based firm of Tzangas Plakas Mannos Ltd.
The Supreme Court of Ohio had accepted Aultman’s appeal of six of seven asserted propositions of law. After briefing, which included appearances by 11 amicus curiae, Mercy filed a motion to dismiss the appeal as improvidently granted. The high court granted the motion without comment, dismissing the appeal.
The case, captioned #### CSAHA/UHHS-Canton, Inc. dba Mercy Medical Center v. Aultman Health Foundation et al, arose from a program of payments that Aultman created to encourage insurance brokers to sell clients AultCare coverage.
The Aultman defendants included McKinley Life Insurance Company, AultCare Corporation (a third-party health insurance administrator), Aultman Hospital and Aultman Hospital Foundation. Aultman and Mercy are in direct competition to provide health care services. AultCare––a name used to refer to both McKinley and AultCare Corporation––administers a health care network for which Aultman is the only in-network hospital. Mercy accepts health insurance coverage from a number of insurers, but not AultCare.
In the health insurance industry, customers––usually employers––buy insurance from independent brokers. Theoretically, brokers function independently, selling a particular customer insurance products that meet their needs. Brokers are paid via commissions from health insurance providers based on a percentage of the insurance premium the insurer receives.
Beginning in 1997, AultCare began a program of bonus payments to insurance brokers called the Conversion Support Program. Under the program, a broker could receive up to $200 for every “life” moved to AultCare. For instance, if an employer switched to Aultcare, the broker received a bonus for each employee that AultCare would then be covering.
Brokers received 60 percent of the bonus in the first year after the conversion and the remaining 40 percent only if the customer renewed for an additional two years. In addition, brokers were penalized $40 per life if the broker did not retain up to 97 percent of the Aultcare lives he had sold.
From the time this program was created until 2004, the payments were confidential and brokers faced additional penalties for disclosing the payments. At trial, Mercy showed that Aultman hid the payments in its publicly-available tax returns, first as “supplies,” then as “research and development.”
Mercy filed suit in 2007 and amended its complaint in 2008. In all, Mercy alleged eight causes of action including antitrust, tortious interference with business relations, deceptive trade practices, unfair competition, civil conspiracy and violations of Ohio’s Corrupt Practices Act. The Aultman defendants counterclaimed, alleging defamation, unfair competition and frivolous litigation.
After a nine week trial, the jury found for Mercy on the Corrupt Practices Act claim and for the Aultman defendants on all other claims. The jury also found against Aultman’s counterclaims. The jury awarded Mercy $6,148,000 in damages and $4 million in attorney fees.
A unanimous panel of the 5th Circuit Court of Appeals upheld the jury verdict and award. On appeal, the court noted that to find for Mercy under the Corrupt Practices Act the jury had to find that the payment plan violated provisions of federal ERISA law that prohibit giving money to persons who provide services to an ERISA benefit plan where the payments are intended to influence the person’s decision and are not “bona fide compensation for services rendered.”
The key issue was whether the payments to brokers constituted bona fide compensation. The court found that Mercy presented sufficient evidence that the payments were not for services rendered. The court concluded that “Aultman used charitable assets from its tax-exempt Aultman Health Foundation to make the secret CSP payments even though the Aultman Health Foundation does not sell insurance or administer health plans, a practice that is not standard, but rather unique, to the industry.”
The Aultman defendants filed for leave to appeal to the Supreme Court of Ohio who granted jurisdiction. In its motion to dismiss the appeal, Mercy argued that most of the issues raised in the merit briefs amounted to arguments over the sufficiency of the evidence, not legal questions. Mercy also argued that some legal questions raised had been waived in proceedings below and in one case, that Aultman was collaterally estopped from raising the issue.
Since the trial concluded, Judge Frank Forchione ordered an independent accounting firm to monitor Aultman’s practices as part of the equitable relief granted. According to Plakas, “based on the review [of the monitor] we are hopeful that past practices have stopped.”
Reflecting back on the trial, Plakas recalled a poster that Aultman had prepared for internal meetings. The poster showed a gorilla and reference Aultman as the 800 pound gorilla in health care.
“We blew up that poster . . . and suggested to the jury that for a decade Aultman acted like an 800 pound gorilla would act.”
In statements to other news outlets, attorneys for the Aultman defendants said that they were weighing their legal options. Attempts to reach Aultman’s attorneys for comment for this story were unsuccessful.