Judge Rebuffs Attempt to Narrow Lawsuit Alleging Surgical Centers Defrauded Aetna

July 1, 2013

A lawsuit accusing seven San Francisco Bay Area outpatient surgical facilities of fraudulently overcharging health insurer Aetna by more $20 million has survived a second attempt by defendants to dismiss claims against them.

The case has potentially wide-ranging implications, owing both to the nature of the claims and the potential impact of these types of alleged overpayments on a healthcare system struggling to control costs.

Berman DeValerio represents Aetna Life Insurance Company in the case, which alleges that defendants inflated medical fees by a whopping 771% through a scheme by which Aetna-insured patients were unnecessarily referred to the “out-of-network” facilities run by the defendants.

The Complaint alleges that patients never questioned the referrals because physicians who were invested in the defendant companies fraudulently waived the patients’ co-payments, a fact defendants hid from Aetna in order to jack up their profits.

The lawsuit claims the physician-investors were motivated to make the out-of-network referrals not by medical considerations but by profit, since the surgery centers based their compensation on the volume of billings those referrals generated. Aetna contractually controls fees charged by medical providers in its network, but not those provided out-of-network. Thus, the same procedure performed by the same Aetna in-network physician on the same Aetna-insured patient can cost Aetna vastly more at an out-of-network facility.

“Defendants have implemented an illegal scheme through which [Aetna] has been injured, and defendants enriched, by defendants’ unlawful, unfair and fraudulent business practices, resulting in massive overpayments,” Aetna said in court papers. “In the end, the costs of overpayments such as these are being borne by the healthcare system, to the detriment of all patients with medical insurance.”

On June 14, 2013, Santa Clara County Superior Court Judge James P. Kleinberg denied defendants’ attempt to dismiss certain of the claims, known under California law as overruling their demurrers. Judge Kleinberg had previously sided with Aetna and refused to dismiss most of its claims in October 2012.

The defendants are Bay Area Surgical Management, LLC (“BASM”), six surgery centers managed by BASM, and three individuals who run the company; and Pacific Heights Surgery Center. The case is Aetna Life Insurance Company v. Bay Area Surgical Management LLC, et al., 1-12-CV-217943.

The complaint asserts claims of unfair competition, intentional interference with Aetna’s contractual relations with its members and with its in-network participating providers, fraud, declaratory judgment and unjust enrichment.

*In August 2017, our firm name changed to Berman Tabacco. Case references and content published before that date may refer to the firm under our prior name, Berman DeValerio.