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UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF WASHINGTON
 
 

RICHARD J. PETERSON, on behalf of himself and all others similarly situated,

Plaintiffs,

v.

KAISER FOUNDATION HEALTH PLAN, INC., d/b/a KAISER PERMANENTE, KAISER FOUNDATION HOSPITALS, d/b/a KAISER PERMANENTE, THE PERMANENTE MEDICAL GROUP, d/b/a KAISER PERMANENTE, KAISER FOUNDATION HEALTH PLAN OF THE NORTHWEST, d/b/a KAISER PERMANENTE, and KAISER DOES 1-100, INCLUSIVE.

Defendants.

No. C00-5370

FIRST AMENDED CLASS ACTION COMPLAINT

JURY TRIAL DEMANDED

 

Plaintiff Richard J. Peterson, by and through his undersigned attorneys, brings this action individually and as a class action pursuant to Rule 23 of the Federal Rules of Civil Procedure on behalf of himself and all others who are participants in health maintenance organizations ("HMOs"), preferred provider organizations ("PPOs") and/or point-of-service plans ("POSs") operated by Defendants Kaiser Foundation Health Plan, Inc., Kaiser Foundation Hospitals, The Permanente Medical Group, and the subsidiaries they own, operate or control, including Kaiser Foundation Health Plan of the Northwest, and Kaiser Does 1-100 (hereinafter "Kaiser Permanente" or "Kaiser"), and who obtained such coverage as a benefit through their employers’ ERISA-governed health benefit plans. In support thereof, Plaintiff avers upon information and belief, except as to the allegations that pertain to the representative plaintiff and his counsel, as follows:

I. INTRODUCTION
 

This case is brought pursuant to the Employee Retirement Income Security Act ("ERISA") to enforce the obligations imposed by that statute upon Kaiser to disclose and to accurately represent all material facts relating to the insurance benefits (coverage) provided by Kaiser to Plaintiff and the Class. Plaintiff does not challenge the legitimacy or wisdom of "managed care" as a means of delivering health services in the United States. 
 

Kaiser Permanente provides both health insurance and medical services through the partnering entities that comprise it. Kaiser Foundation Health Plan, Inc. ("KFHP") operates HMOs, PPOs and POSs (collectively "health plans") and provides benefits to Plaintiff and the Class pursuant to an agreement between Kaiser (or its subsidiary) and Class members. Kaiser Foundation Health Plan of the Northwest is a subsidiary of KFHP. The Permanente Medical Group, Inc. ("PMG"), in turn, are the physicians who provide medical services to Kaiser participants. Kaiser participants are PMG’s sole patients and sole source of income. A third entity, Kaiser Foundation Hospitals ("KFH"), provides medical facilities to Kaiser participants. Together, KFHP, PMG, and KFH do business as Kaiser Permanente and work together through interlocking committees and/or boards to increase membership and to increase revenue and profit.
 

To promote its insurance products, and in fulfillment, inter alia, of its fiduciary duty under ERISA to inform participants of all material terms regarding its health insurance coverage, Kaiser prepares and issues to members handbooks and other literature describing the level of care received by Kaiser participants. These documents uniformly represent or imply that coverage decisions will be based on the physician’s independent medical judgment as to whether medical services are medically necessary. Kaiser defines medical necessity as:

A medically appropriate course of treatment required to prevent adverse consequences to a member’s health, as determined by a Kaiser Permanente physician.
 

In fact, however, Kaiser’s financial partnership with its physicians impose an array of restrictions which are intended to, may in fact, and in certain instances do in fact, discourage the physicians from referring their patients for, and from prescribing for their patients, the optimal form of medical care which would be dictated by the physician’s independent medical judgment. In particular, certain kinds of care and/or medication are discouraged altogether, while in other instances Kaiser gives its physicians financial and utilization incentives to deviate from their own independent medical judgment.
 

Other decision makers with the ability to affect the nature of health care actually provided to Kaiser health plan members, and decision makers with the ability to affect the nature of the health benefits covered by Kaiser’s health plans, also have contractual relationships with Kaiser which provide such decision makers with financial and utilization incentives to provide a level of care, or a level of insurance coverage, other than that which would be dictated solely by the independent medical judgment of the member’s treating physician(s).
 

These incentives and restrictions can have a direct and very significant impact on decisions made by physicians regarding the nature and extent of the medical care provided by Kaiser physicians and other contracting medical care providers, and on the extent of benefits allowed by Kaiser’s health plans. The existence and nature of these restrictions and incentives are therefore material facts which a reasonable person would find important in deciding whether to subscribe to Kaiser’s health insurance.
 

In addition, even for those individuals who would continue to subscribe to Kaiser’s health plans, if all such incentives and restrictions were disclosed or accurately represented, an awareness of the existence and nature of these provisions would enable participants to, inter alia, weigh their physician’s recommendations more accurately, to investigate treatment options more aggressively, and to exercise more intelligently their right to pay out of their own pocket for medical care, such as hospitalization, medication, or a specialist’s examination, if (for example) their primary care physician refused to refer the member for such treatment to be covered under Kaiser’s health plans.
 

Kaiser has also failed to disclose or accurately represent the nature, and in some cases, the existence, of the criteria and procedures it actually uses to make decisions about coverage, including decisions about coverage requests and reimbursement of claims. 
 

The existence and nature of such criteria and processes are material facts that a reasonable participant or potential participant is entitled to know. 
 

By means of the affirmative nondisclosures described more fully below, Kaiser intended to and did provide Plaintiff and the Class he represents with health insurance coverage of lesser value than promised. Kaiser unjustly enriched itself by millions of dollars at the Class’s expense.
 

As set forth below, Defendant Kaiser has breached the fiduciary duties it owes to Class members and has violated the disclosure provisions of ERISA. Pursuant to ERISA, Plaintiff and the Class seek equitable relief, including corrective disclosures, as provided by ERISA.

II. PARTIES
 

Plaintiff Richard J. Peterson is a resident of Camas, Washington. Mr. Peterson purchased health insurance from Kaiser from February 1991 to December 1998 through his employers.
 

Mr. Peterson was an employee of California Carpet, Inc. from February 1991 through March 1995. During this time, Mr. Peterson was a resident of California. His insurance coverage with Kaiser began at or about the time he began his employment at California Carpet. Mr. Peterson paid for such insurance with his labor and with salary deductions of approximately $14 per week.
 

Mr. Peterson began working for his current employer, Consolidated Freightways, in March 1995. His insurance coverage started concurrently with his employment. Mr. Peterson paid for such insurance with his labor. Mr. Peterson discontinued his Kaiser coverage on December 31, 1998 following the unsatisfactory treatment that his son Connor Peterson received for a broken tibia at a Kaiser facility.
 

Kaiser Permanente is an international health care conglomerate consisting of fully integrated operations of various non-profit and for-profit business entities which operate on a consolidated basis as a for-profit enterprise generating over $16 billion in annual revenues in 1999. 
 

Kaiser Permanente, with corporate headquarters at Lake Merritt in Oakland, California, is comprised of three primary entities: Kaiser Foundation Health Plan, Inc., a tax-exempt public benefit corporation incorporated in California and licensed as a health care service plan; Kaiser Foundation Hospitals, a tax-exempt California public-benefit corporation licensed to operate health care facilities; and The Permanente Medical Group, Inc., a private, for-profit California corporation which provides medical services to Kaiser plan members. Through these entities and the subsidiaries which they control, Defendants KFHP, PMG, and KFH do business as Kaiser Permanente and operate HMOs, PPOs and POSs that encourage or require the use of providers who make up a part of the Kaiser Permanente conglomerate. Kaiser Permanente provides health care to approximately 8.6 million members nationwide. 
 

Additional Kaiser entities doing business as Kaiser Permanente are identified as "Kaiser Does 1-100." Kaiser Does 1-100 provide medical services to Kaiser plan members on substantially the same terms and conditions as Kaiser Foundation Health Plan of the Northwest. Many, if not all, of these entities are listed below in paragraph 17. The exact names and numbers of the Kaiser Does are unknown to Plaintiff at this time and can only be ascertained through appropriate discovery.
 

Kaiser Permanente includes the following subsidiaries that provide underwriting or health care services, including without limitation:
 

Southern California Permanente Medical Group; 
Northwest Permanente, P.C.; 
Hawaii Permanente Medical Group, Inc.; 
Ohio Permanente Medical Group, Inc.; 
Colorado Permanente Medical Group, P.C.; 
Capital Area Permanente Medical Group, P.C.; 
Permanente Medical Association of Texas; 
Northeast Permanente Medical Group; 
The Carolina Permanente Medical Group, P.A.; 
The Southeast Permanente Medical Group, Inc.; 
Permanente Medical Group of Mid-America, P.A.; 
Kaiser Foundation Health Plan of the Northwest; 
Kaiser Foundation Health Plan of Ohio; 
Kaiser Foundation Health Plan of Colorado; 
Kaiser Foundation Health Plan of the Mid-Atlantic States, Inc.; 
Kaiser Foundation Health Plan of Texas; 
Kaiser Foundation Health Plan of Connecticut, Inc.; 
Kaiser Foundation Health Plan of New York; 
Kaiser Foundation Health Plan of Massachusetts, Inc.; 
Kaiser Foundation Health Plan of North Carolina; 
Kaiser Foundation Health Plan of Georgia, Inc.; 
Kaiser Foundation Health Plan of Kansas City, Inc.; 
Community Health Plan in New York; 
Oak Tree Assurance, Ltd. (Vermont); 
Camp Bowie Service Center (formerly Consolidated Service Center); 
Community Health Plan; 
CHP Companies, Inc.; 
Kaiser Foundation International; 
Kaiser Health Plan Asset Management, Inc.; 
Kaiser Foundation Insurance Company (California); 
Kaiser Foundation Added Choice Health Plan, Inc.; 
Kaiser Health Alternatives; 
Kaiser Properties Services, Inc.; 
Kaiser/Group Health; 
Kaiser Permanente Ventures; 
Kaiser Permanente International; 
Kaiser Hospital Asset Management, Inc.; 
The Permanente Medical Group in Northern California; and 
Mid-Atlantic Permanente Medical Group. 

Unless otherwise specified, KFHP, PMG, and KFH, as well as entities owned, operated and/or controlled by KFHP, PMG, and KFH, are collectively referred to herein as "Kaiser."

III. JURISDICTION AND VENUE
 

This Court has jurisdiction over the subject matter of this case by operation of 28 U.S.C. 1331 (federal question jurisdiction) and 29 U.S.C. 1132.
 

Venue lies in this district by operation of 28 U.S.C. 1391 inasmuch as a substantial part of the events and omissions giving rise to the claim occurred in this district.

IV. FACTUAL ALLEGATIONS
 

Kaiser offers health insurance to the public through HMOs, PPOs and POSs operated by subsidiaries which Kaiser owns and controls. For a fixed fee per period, Kaiser, acting directly or through such subsidiaries, provides insurance covering certain medical care and treatments consumers may need.
 

The insurance offered by Kaiser through its health plans, and subscribed to by Plaintiff and members of the Class, is provided in the form of an "employee welfare benefit plan" or "welfare plan" within the meaning of 29 U.S.C. 1002(1).
 

Plaintiff and members of the Class he seeks to represent are "participants" within the meaning of 29 U.S.C. 1002(7).
 

To reduce the cost of the medical services it insures, Kaiser covers the medical care of its HMO insureds only if they seek treatment from and/or through its medical service providers. The only exceptions to this requirement are for emergencies or in the rare case that Kaiser authorizes treatment by a physician not within its network—something Kaiser does only on an individual basis. These facts are disclosed by Kaiser to actual and prospective HMO participants.
 

Kaiser promotes its insurance products by, inter alia, advertising the quality of care prescribed, recommended, and provided by its physicians as well as touting the independence of its physicians in making medical necessity determinations.
 

In fact, however, the nature and extent of care recommended and/or prescribed by Kaiser physicians is often significantly limited or affected by the incentives and restrictions imposed by certain provisions of the contracts between, and policies set by, Kaiser and its physician groups or between Kaiser and other medical care providers. Thus, these incentives and internal policies create a material risk that the medical treatment prescribed or recommended for a Kaiser member, and/or the treatment such member actually receives, will differ significantly and materially from the treatment that would be dictated by the independent medical judgment of the treating physician(s). For example, Kaiser provides financial incentives to its physicians for meeting certain performance targets that have been set for a particular year, goals such as maintaining low hospital admissions and hospital days or goals such as maintaining a low number of a specified medical procedure. Periodic reports are then distributed throughout the year reinforcing the targets set and informing physicians of their status in meeting those targets. Such incentives may affect, and possibly do affect, the medical necessity determinations made by the treating physicians.
 

As a result of the restrictions and incentives in Kaiser’s policies and its contract with its physicians and other medical care providers, the treatment recommended or prescribed for a Kaiser member, and/or the treatment such member actually receives, may differ from the treatment that she or he would receive according to the dictates of the independent medical judgment of the Kaiser member’s treating physician. A reasonable person would thus deem such restrictions and incentives as material facts when assessing whether to become or remain a Kaiser participant. The fact and nature of these incentives and restrictions are also material facts bearing on the extent to which the treatment recommended or prescribed for a Kaiser member, or the treatment such member actually receives, can be expected to differ from the treatment that a member would receive according to the independent medical judgment of the member’s treating physician. As such, the nature of such incentives and restrictions are also facts which a reasonable person would deem significant in his or her assessment of whether to become or remain a Kaiser participant.
 

None of the material facts identified above is accurately set forth, if set forth at all, in the literature Kaiser makes available to actual or prospective Kaiser members.
 

Kaiser has also failed to disclose or represent accurately the nature, and in some cases the existence, of cost-based criteria and procedures it uses to make decisions about coverage, including without limitation, hospitalizations, referrals, and decisions about coverage requests and reimbursement of claims. These undisclosed cost-based criteria include, without limitation: (i) Interqual Criteria; (ii) Milliman & Robertson guidelines; and (iii) any internal criteria or guidelines, such as those developed through Kaiser’s Technical Evaluation Center. While these undisclosed cost-based criteria vary in detail, they share one critical dimension: in whole or in part, they all base coverage determinations on considerations other than medical necessity. All undisclosed cost-based criteria therefore are designed to reduce the level of medically necessary services available to Class members.
 

The existence and truthful nature of such criteria and procedures thus are material facts that a reasonable participant or potential participant is entitled to know.
 

Kaiser has also failed to disclose or represent accurately to Plaintiff and members of the Class that Kaiser subcontracts to third parties, such as Health Risk Management, Inc., the responsibility and authority to review coverage requests and claims for reimbursement, and manage benefits for certain medical conditions and medical procedures. In making determinations regarding payment eligibility in response to coverage requests and claims submitted by members of the Class, these third parties use criteria and procedures different from, and more restrictive than, Kaiser’s definition of "medical necessity."
 

Kaiser has also failed to disclose or represent accurately to Plaintiff and members of the Class that Kaiser and third parties with whom Kaiser subcontracted allowed persons without appropriate medical training and specialization to make decisions regarding medical appropriateness or medical necessity, as well as coverage requests and claims review determinations.
 

Kaiser fails to adequately disclose to subscribers that their health insurance and health care are provided by "not-for-profit" entities, when in fact important parts of Kaiser are for profit, including The Permanente Medical Group, Inc. 
 

Kaiser further misrepresents that treating physicians’ decisions will be based on the physicians’ independent medical judgment. This representation was an affirmative misrepresentation because Kaiser knows that it (and entities to which Kaiser delegated responsibility for administering its health plans) makes treatment and coverage decisions on the basis of cost-based criteria and financial incentives unrelated to, and more restrictive than, physician’s independent medical judgment, with the effect of reducing the value of the health plans for which the Class paid.
 

Defendant Kaiser exercised and continues to exercise discretion with respect to the nature and extent of the information disclosed to members of the Class regarding Kaiser’s HMO, PPO and POS plans. 

V. CLASS ACTION ALLEGATIONS
 

Plaintiff brings this action on behalf of himself and, under Fed. R. Civ. P. 23(b)(2) and 23(b)(3), as a representative of the Class defined as follows:

All persons who participated in Kaiser health plans through their employers’ ERISA-governed health benefits plans during the period from June 22, 1994 through and after the date hereof until Kaiser’s continuing illegal and wrongful conduct has ceased. Excluded from the Class are Kaiser, its affiliates, subsidiaries, and predecessors in interest, and all officers, directors or employees of any such entity.

In addition, this action does not seek to remedy claims of personal injury, medical malpractice and/or wrongful death against Kaiser.
 

Class members are numerous and joinder is impracticable. Plaintiff believes that there are millions of Class members as described above. Their exact number and identities are known by Kaiser from its enrollment records.
 

Plaintiff’s claims are typical of the Class members. Plaintiff and Class members were damaged in the same way by the same wrongful conduct of Kaiser.
 

Plaintiff will fairly and adequately protect and represent the interests of the Class. The interests of Plaintiff are coincidental with and not antagonistic to those of the Class.
 

Plaintiff is represented by counsel who are experienced and competent in the prosecution of complex class action litigation.
 

Questions of law and fact common to the Class include, but are not limited to: 
 

whether Kaiser’s agreements with physicians, medical care providers, third parties or Kaiser personnel provide those persons or entities with any financial or utilization incentives to provide medical care or coverage other than that which would be provided according to the dictates of the independent medical judgment of each member’s treating physician(s);
 

whether Kaiser and third parties with whom Kaiser subcontracts allow persons without appropriate medical training and specialization to make decisions regarding medical appropriateness or medical necessity, as well as coverage requests and claims review determinations;
 

whether Kaiser, in certain circumstances, subcontracts the claims review process or management of benefits or coverage requests – and with it, the authority to decide the scope of Class members’ medical coverage – to third parties, who have based claim approval decisions, in whole or in part, on undisclosed criteria, with the purpose of limiting the circumstances under which Kaiser would approve treatment or claims; 
 

whether Kaiser bases coverage determinations on cost-based criteria that are different from or more restrictive than Kaiser’s medical necessity definition and the independent medical judgment of the treating physician;
 

whether Kaiser fails to accurately disclose to subscribers that their health insurance and health care are provided by "not-for-profit" entities, when in fact important parts of Kaiser are for profit, including The Permanente Medical Group, Inc.
 

whether the existence and nature of the above undisclosed practices are material facts that a reasonable person would find important in deciding whether to become or remain a participant in one of Kaiser’s health plans and/or in deciding how to evaluate the advice provided by physicians influenced by such incentives;
 

whether the failure to disclose or accurately represent these facts constitutes a breach of Kaiser’s fiduciary duty to Class members under ERISA;
 

whether the failure to disclose or accurately represent these facts constitutes a violation of Kaiser’s obligations under ERISA to disclose all material information regarding the insurance benefits (coverage) it provides; 
 

whether Kaiser retained the benefits of the above alleged practices which otherwise would have belonged to Class members;
 

whether Plaintiff and the members of the Class are entitled to injunctive relief, including barring Kaiser from continuing to omit from its disclosures to members of the Class material information described herein that has not been disclosed and providing corrective disclosures to members of the Class; and 
 

whether Plaintiff and the members of the Class are entitled to restitution and other equitable relief as a result of Kaiser’s failure to accurately disclose this material information.
 

The above-identified common questions predominate over questions, if any, that may affect only individual Class members. 
 

The prosecution of separate actions by individual Class members would create a risk of inconsistent or varying adjudications, establishing incompatible standards of conduct for Kaiser.
 

Kaiser has acted on grounds generally applicable to the Class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the Class.
 

Class action treatment is a superior method for the fair and efficient adjudication of the controversy, in that such treatment will permit a large number of similarly situated persons to prosecute their common claims in a single forum simultaneously, efficiently, and without the necessary duplication of evidence, effort, and expense that numerous individual actions would require.

VI. BREACH OF FIDUCIARY DUTY UNDER ERISA
 

Plaintiff incorporates by reference all preceding paragraphs as if fully set forth herein and further alleges: 
 

At all relevant times, Defendant Kaiser was a fiduciary under ERISA in as much as Kaiser exercised discretion regarding the nature of the financial and utilization incentives facing health care decision makers within Kaiser, and regarding the nature of the disclosures to subscribers regarding those incentives. For example, as stated in the Evidence of Coverage provided by Kaiser to members of the Class: "we [Kaiser] have assumed the role of a ‘named fiduciary,’ a party responsible for determining whether you are entitled to benefits under this EOC." 

A. The Duty to Disclose Material Information - ERISA Section 404(a)(1) 

By virtue of the conduct described above, Kaiser breached its fiduciary obligations under 404(a)(1) of ERISA, 29 U.S.C. 1104(a)(1), to discharge its duties with respect to the Kaiser benefit plans "solely in the interest" of the participants and beneficiaries, and for the exclusive purpose of providing benefits to participants and beneficiaries and defraying reasonable expenses of administering the plan.
 

Kaiser’s duty of loyalty under ERISA includes the obligation to deal fairly and honestly with all plan members, and to refrain from material misrepresentations with respect to the relevant characteristics of (1) the plan, (2) those who provide services to the plan or, pursuant to the plan, to participants and beneficiaries of the plan, and/or (3) the policies and procedures used to determine eligibility for benefits and services under the plan, to the extent that any of these types of information affect participants’ and beneficiaries’ material interests, when in the exercise of reasonable diligence Kaiser knew or should have known of the existence of such information.
 

As detailed above, Kaiser breached its duty of loyalty by failing to disclose to Class members that Kaiser: (1) uses undisclosed cost-based criteria; (2) provides direct and indirect financial incentives to its physicians, medical care providers and other third parties intended to reduce the amount or level of care provided; (3) contracts with third parties to make coverage determinations; (4) and that Kaiser engages in the other practices detailed above calculated to reduce the extent and value of the coverage provided.
 

The incentives and practices described in the preceding paragraph are material information which ERISA requires Kaiser to disclose to Class members. 
 

By failing to disclose this material information, Kaiser breached its fiduciary duty to Class members.

B. The Duty to Refrain from Misrepresentations - ERISA Section 404(a)(1) 

By virtue of the conduct described above, Kaiser breached its fiduciary obligations under 404(a)(1) of ERISA, 29 U.S.C. 1104(a)(1), to discharge its duties with respect to the Kaiser benefit plans "solely in the interest" of the participants and beneficiaries, and for the exclusive purpose of providing benefits to participants and beneficiaries and defraying reasonable expenses of administering the plan.
 

Kaiser’s duty of loyalty under ERISA includes the obligation to deal fairly and honestly with all plan members, and to refrain from material omissions and misrepresentations with respect to the relevant characteristics of (1) the plan, (2) those who provide services to the plan or, pursuant to the plan, to participants and beneficiaries of the plan, and/or (3) the policies and procedures used to determine eligibility for benefits and services under the plan, to the extent that any of these types of information affect participants’ and beneficiaries’ material interests.
 

In particular, by means of disclosures to Class members that were uniform in all material respects, Kaiser misrepresented that it would provide care and treatment on the basis of the independent medical judgment of treating physicians. As detailed above, Kaiser’s policies and procedures were calculated to significantly limit or affect treating physicians’ "independent medical judgment" through the use of incentives and restrictions imposed by certain provisions of the contracts between, and policies set by, Kaiser and its physician groups or between Kaiser and other medical care providers.
 

Kaiser fails to adequately disclose to subscribers its "not-for-profit" status, as described more fully above in paragraph 34. 
 

By misrepresenting this material information, Kaiser breached its fiduciary duty to Class members.

C. Duty to Discharge Duties With Care, Skill and Prudence – Section 404(a)(1)(B) 

By managing, operating and administering ERISA-governed benefit plans insured by Kaiser health policies in the manner described above, including the failure to accurately disclose the use of cost-based criteria and direct and indirect financial incentives to Kaiser physicians, medical care providers and other third parties to influence coverage decisions, Kaiser failed to exercise the care of an ordinarily prudent person engaged in a similar activity under prevailing circumstances, all in violation of ERISA 404(a)(1)(B); 29 U.S.C.1104 (a)(1)(B).

D. Unjust Enrichment 

By breaching its fiduciary duties as described above, Kaiser was unjustly enriched by receiving unearned premium revenues from the Plaintiff and the Class and Kaiser unjustly retained that enrichment.
 

As participants in ERISA-governed health benefit plans, Plaintiff and the Class are entitled to appropriate equitable relief under section 502(a)(3) of ERISA, 29 U.S.C. 1132(a)(3) to: (a) redress the violations of section 404 of ERISA, 29 U.S.C. 1104, set forth herein; and (b) recover the amounts by which Kaiser has been unjustly enriched as a result of such violations.
 

In the alternative, as participants in ERISA-governed health benefit plans, Plaintiff and the Class are entitled appropriate relief under 502(a)(2) of ERISA, 29 U.S.C.1132(a)(2), including recovery of unjust enrichment, to redress violations of section 409 of ERISA, 29 U.S.C. 1109, to make good to such Plans any losses to the Plan resulting from each breach of fiduciary duty imposed by ERISA.

VII. BREACH OF DISCLOSURE OBLIGATIONS UNDER ERISA 
 

Plaintiff incorporates by reference all preceding paragraphs as if fully set forth herein and further alleges:
 

ERISA requires that each participant covered by an employee benefit plan be furnished a summary plan description written in a manner calculated to be understood by the average plan participant, sufficiently accurate and comprehensive to reasonably apprise participants of their rights and obligations under the plan and containing, among other things, information regarding: whether a health insurance issuer is responsible for the financing or administration of the plan; the plan’s requirements respecting eligibility for participation and benefits; and circumstances which may result in disqualification, ineligibility or denial or loss of benefits. ERISA, 101(a)(1) and (b), 102, 104, 29 U.S.C. 1021(a)(1) and (b), 1022, 1024. In addition, section 104(b) as amended requires that a summary description of any reductions in covered services must be provided to participants and beneficiaries within 60 days after the changes are adopted.
 

As an ERISA fiduciary administering, managing and controlling the health benefit plans of the Class, acting under the authority vested in it by plan sponsors, Kaiser failed to satisfy the requirements of ERISA 29 U.S.C. 1021-24 because Kaiser failed to disclose in materials provided by Kaiser to participants, the benefit plans’ requirements respecting the rights of participants and beneficiaries under the benefit plans; eligibility for participation and benefits; the circumstances which may result in disqualification, ineligibility or denial or loss of benefits; and the source of financing of the benefit plans and the identity of any organization through which benefits are provided. Because Kaiser failed to make these disclosures, the members of the Class could not know the true nature and extent of their coverage pursuant to their benefit plans.
 

By way of example only, in violation of 102 and 104 of ERISA, 29 U.S.C. 1022 and 1024, Kaiser, as detailed above, failed to disclose to Class members that, among other things:
 

Kaiser applies undisclosed cost-based criteria, using factors different from and more restrictive than the independent medical judgment of the treating physician and the criteria described in Kaiser’s medical necessity definition, to determine coverage of claims submitted by Class members;
 

Kaiser provides financial incentives to its doctors, medical care providers and other third parties involved in the process of approving or denying medical services of members of the Class, and those incentives are designed to cause a decrease or stabilization in utilization rates even for services that would otherwise satisfy the independent medical judgment of the treating physician and Kaiser’s medical necessity definition disclosed in Kaiser’s summary plans and other disclosure documents furnished to Class members;
 

Kaiser subcontracts to third parties the review of claims and the management of the utilization of services for certain medical conditions;
 

In determining payment eligibility for claims submitted by Class members, Kaiser, as well as third parties with which Kaiser subcontracts, used both physicians and non-physicians who lacked the training and specialization necessary to determine whether coverage for services should be provided in accordance with the Kaiser medical necessity definition furnished to Class members in materials provided to the Class.
 

By failing to notify Class members from time to time when coverage was reduced through the application of undisclosed cost-based criteria and other means, Kaiser violated 104(b) of ERISA, 29 U.S.C. 1024(b), requiring such notification within 60 days of the effective date of such reductions.
 

Under 502 of ERISA, 29 U.S.C. 1132(a)(3), Class members are entitled to appropriate equitable relief including injunctive and restitutionary relief to redress the violations set forth above of the reporting and disclosure requirements of ERISA.

VIII. FAILURE TO PROVIDE BENEFITS DUE UNDER ERISA
 

Plaintiff incorporates by reference all preceding paragraphs as if fully set forth herein and further alleges:
 

In the alternative, if it is determined that Plaintiff’s and the Class’s remedy is more in the nature of a benefit due under the terms of their benefit plans, Plaintiff and the Class hereby request relief under 502(a)(1)(B) of ERISA, 29 U.S.C. 1132(a)(1)(B). Plaintiff and Class members were entitled to a benefit consisting of coverage for services described in Kaiser’s medical necessity definition. This coverage (which is a benefit) is distinct from individual claims for the payment of the medical losses incurred by Class members. This coverage was of value to Class members and was purchased by them, directly or indirectly, with their cash, salaries, and personal services. Class members paid for the coverage whether or not they ever submitted claims for medical losses. 
 

As a result of the conduct and practices described in detail above, the coverage actually provided to all Class members under their benefit plans was different from the coverage represented in Kaiser’s medical necessity definition set forth in documents distributed to members of the Class. Class members purchased an ERISA-governed benefit – coverage for medically necessary services as described and defined in Kaiser’s health policies – which they were due under the terms of their benefit plans. Through the consistent and exclusive application of undisclosed cost-based criteria and the other conduct and practices described above, Kaiser denied all Class members the coverage they had purchased and that was due under the terms of their benefit plans.
 

Pursuant to 502(a)(1)(B) of ERISA, 29 U.S.C. 1132(a)(1)(B), Class members are entitled to recover benefits due to them under the terms of their Plans and can enforce their rights under the terms of their Plans. The Class in this action is entitled to restitution of past coverage-benefits payments in an amount, to be determined at trial, equal to the difference between the value of coverage purchased and the value of coverage actually provided. The Class is also entitled to an injunction requiring adherence to the terms of the benefit plans as written and embodied in the documents describing coverage under the benefit plans issued by Kaiser.

IX. DEMAND FOR JURY TRIAL
 

Plaintiff demands a trial by jury on behalf of himself and the Class.

X. PRAYER FOR RELIEF

WHEREFORE, Plaintiff, on behalf of himself and the Class, prays for judgment as follows:
 

Declaring this action to be a proper class action pursuant to Rule 23 of the Federal Rules of Civil Procedure, and that Plaintiff is a proper representative of the Class;
 

Awarding Plaintiff and the members of the Class injunctive relief barring Kaiser from continuing the material omissions and misrepresentations described herein;
 

Awarding Plaintiff and the Class restitutionary relief for the wrongs alleged in the complaint;
 

Awarding Plaintiff and the other members of the Class disgorgement of the amounts by which Kaiser was unjustly enriched as the result of the wrongs alleged in the complaint;
 

Awarding Plaintiff and the other members of the Class pre-judgment and post-judgment interest as a result of the wrongs complained of herein;
 

Awarding Plaintiff and the other members of the Class their costs and expenses in this litigation, including reasonable attorneys’ fees and experts’ fees and other costs and disbursements; and
 

Awarding Plaintiff and the other Class members such other and further relief as may be just and proper under the circumstances.

Dated: July __, 2000.
 

Respectfully submitted,
______________________________
 

Lynn Lincoln Sarko 
Gretchen Freeman Cappio
KELLER ROHRBACK L.L.P.
1201 Third Avenue, Suite 3200
Seattle, Washington 98101-3052
Telephone: (206) 623-1900
Fax: (206) 623-3384

David Boies
Stephen R. Neuwirth
Kent K. Anker
BOIES, SCHILLER & FLEXNER LLP
80 Business Park Drive
Armonk, NY 10504
Telephone: (914) 273-9800
Fax: (914) 273-9810

Richard Drubel
Kimberly Schultz
BOIES, SCHILLER & FLEXNER LLP
26 South Main Street 
Hanover, NH 03755
Telephone: (603) 643-9090
Fax: (603) 643-9010

H. Laddie Montague, Jr.
Jerome M. Marcus
Jonathan Auerbach
BERGER & MONTAGUE, P.C.
1622 Locust Street
Philadelphia, PA 19103-6365
Telephone: (215) 875-3000
Fax: (215) 875-4604

Theodore J. Leopold
RICCI, HUBBARD, LEOPOLD,
FRANKEL & FARMER, P.A.
Mellon United National Bank Tower
Suite 250
West Palm Beach, FL 33401
Telephone: (561) 684-6500



 

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