Appellate Division, Second Department, Brooklyn, New York.(Photo: David Handschuh/ALM) Appellate Division, Second Department, courthouse in Brooklyn (Photo: David Handschuh/ALM)

Despite a major health insurer's arguments to the contrary, New York's Appellate Division, Second Department, has ruled that a pharmaceutical company did not commit fraud or tortiously interfere with the health care contracts involving several chronically ill patients who needed expensive out-of-network treatments.

In the decision, a unanimous affirmation of a 2017 ruling from Suffolk County Supreme Court, Justices Alan Scheinkman, Leonard Austin, Sylvia Hinds-Radix and Hector LaSalle effectively dismissed the suit filed by Oxford Health Plans of New York in 2010 against Biomed Pharmaceuticals.

Andrew Kratenstein of McDermott Will & Emery, which represented Biomed in the case, said he and his colleagues dove into the data in the case to understand how the billing process actually worked. Biomed had granted financial hardship waivers to some patients, which Oxford described in its filings as "sham" waivers.

"Oxford made an argument that, if it had only known that patient responsibility was being waived, it would have been tipped off immediately to lower the amounts of the reimbursements," Kratenstein said. "And facially or superficially, that argument may have had some appeal, but when you actually dug into it with the client and the actual data, it didn't."

Instead, Kratenstein said, Oxford and Biomed were using entirely different formulas for reimbursement, which ruled out the "justifiable reliance" element of fraud.

The Second Department justices agreed in a decision handed down March 18.

"Irrespective of hardship waivers, the plaintiffs based their reimbursement decisions on [usual, customary and reasonable] rates that had no relevance to the [average wholesale price] submitted on the defendant's claim forms," the justices wrote. "Accordingly, because the plaintiffs paid the defendant based upon the UCR amount regardless of what AWP rate was cited in the defendant's claim submissions, the plaintiffs in determining reimbursement did not rely—justifiably or otherwise—on the AWP rate billed by the defendant."

Kratenstein said he wondered if the discrepancy could have been resolved without going to court.

"At oral argument I told the Second Department, quite candidly, this was probably a case that didn't have to happen, because if Oxford didn't like the way that Biomed was doing its financial hardship waivers, all they really had to do was call up, tell Biomed that and agree on a procedure for doing it," he said. He added that Oxford and Biomed did work out a procedure in at least one case, but the parties ended up in court anyway.

Michael Bernstein of Robinson & Cole, which represented Oxford, did not respond to a request for comment Wednesday.

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