Battle-weary Sovereign Health claims boost from state in fierce fight for millions from Health Net

Orange County Register (CA)

May 03-- May 3--Sovereign Health is cast as villain in many personal dramas -- by hundreds of workers who lost jobs when it shut down, by former clients who complain they didn't get the care they were promised, by parents whose children died on the company's watch.

But in its long, drawn-out fight with insurance giant Health Net, Sovereign casts itself as David battling Goliath. And despite FBI raids of Sovereign facilities, hundreds of pending unpaid wage claims and dozens of lawsuits in myriad courts, the now-defunct Sovereign could get its hands on millions of Health Net dollars with an outside assist from the California Department of Insurance.

Sovereign, once a prominent addiction treatment and behavioral health provider in Southern California and several other states, sued Health Net in 2016 because the insurer refused to pay for treatment already provided to Health Net customers.

Health Net owed Sovereign $55 million back then -- and, with statutory interest, that has ballooned to $80 million, according to Sovereign's court filings.

This fight rages in suits and counter-suits, in state and federal courts, each side accusing the other of craven and contemptible behavior that endangers vulnerable people at the height of the opioid crisis.

But even as Sovereign accuses Health Net of purposefully dragging out the litigation for years -- in a further attempt to cripple it -- Sovereign points to the under-the-radar proceedings at the California Department of Insurance, and harbors hope for victory.

'Unfair settlement'

The state Department of Insurance received hundreds of complaints from out-of-network residential treatment centers -- like Sovereign -- about how Health Net handled claims in 2015 and 2016, the agency said in an "order to show cause" and notice of noncompliance issued to Health Net last year.

Faced with suddenly ballooning bills for addiction treatment after mandatory coverage requirements kicked in under the Affordable Care Act, Health Net sent letters to providers in January 2016 demanding "extensive documentation" of fees before any payments would be made, resulting in "illegitimate denials and delayed payment of claims," the Department of Insurance said.

Health Net's obligation was to pay 75% of charges billed by the providers, CDI said, but "Health Net did not pay their claims pursuant to the terms of the policy, instead using an improper methodology not supported by the terms of the policy."

This, the agency said, "resulted in the underpayment and unfair settlement of claims."

It hit people getting addiction and behavioral health treatment under individual-market PPO policies. The insurer violated the California Insurance Code, the Department of Insurance said, engaging in acts "constituting unfair competition and/or unfair or deceptive practices."

Sovereign first to sue

Sovereign, led by Tonmoy Sharma, was the first to sue Health Net over all this in July 2016.

In its suit, Sovereign alleged the insurer "engaged in a disgraceful scheme to enrich themselves by backtracking on their insurance promises to recovering addicts and the mentally ill," adding that its "misconduct is part of a sad pattern of prioritizing dollars over decency."

Health Net has told its shareholders it put aside $300 million to pay claims like Sovereign's as it faces lawsuits "from waves of cheated providers," Sovereign said in court filings.

"The opioid epidemic is real; its victims need help from trained providers; and insurers that cover such treatment cannot walk away from their promises," Sovereign argued.

Sharma believes Health Net orchestrated the FBI raids on its facilities nearly two years ago, playing law enforcement like a fiddle. The ensuing trauma to patients and staff -- and extreme negative publicity -- led to the collapse of Sovereign's business, the company claims. Last July, Sovereign closed its doors and laid off hundreds of employees who still haven't been paid.

Sovereign has not, however, filed for bankruptcy. Sharma intends to collect what Health Net owes and use it to pay his workers, he said.

"We have been fighting now for more than three years," said Lisa Kantor, one of Sovereign's attorneys. "There are people who are owed money and wages, and they shouldn't have lost their jobs. They shouldn't have lost money. All this stress -- from what we believe to be a fraudulent approach to the payment of claims."

'Massive fraud'

Health Net has a vastly different perspective. In a counter-suit, it argued that Sharma and his companies engaged in massive fraud that harmed all consumers.

In 2013 -- before coverage for addiction treatment was mandated under Obamacare -- Health Net paid $251,000 to out-of-network treatment providers like Sovereign. In 2015, it paid them more than $190 million, "an almost 1,000-fold increase in just two years," it said.

Within the span of a single year, monthly billings from Sovereign's companies to Health Net climbed from less than $50,000 to more than $13 million, Health Net said.

Treatment providers "abused the Affordable Care Act in a manner that threatens the ongoing viability of health insurers," Health Net said. "This scheme, which involves fraudulently obtaining insurance policies and the submission of thousands of false and fraudulent claims, also raises the costs of healthcare coverage to consumers, who ultimately will have to pay higher insurance premiums."

Sovereign and other clinics "engaged in a sophisticated fraud involving paying kickbacks to 'buy' hundreds of patients from teams of brokers, or 'cappers,' who find the patients in 12-step programs, AA meetings, homeless shelters and jails, often from outside California, and then 'sell' them for cash to the highest-bidding clinic," its suit said.

"Because the prospective patients typically would not be able to afford private health insurance or the cost-sharing obligations associated with receiving services from an out-of-network provider -- and who should therefore be enrolled in state-funded or subsidized health care programs such as Medicaid -- the providers, including (Sovereign), offer the patients financial kickbacks and inducements."

The primary inducement is the offer of free care, Health Net charged. Sovereign, and providers like it, get preferred provider insurance policies for clients. The providers -- not the clients -- paid the premiums. Then the providers either waived -- or paid -- the patients' out-of-pocket deductibles and co-pays, which Health Net said violated the policy terms.

Sovereign and the others recouped their cash outlays by billing massive amounts -- often for services that were never rendered, were not medically necessary or were not covered, the counter-suit said.

Settlement with state

Health Net entered into a settlement agreement with the Department of Insurance in January, fully resolving the order to show cause with no adverse findings against Health Net. As part of the resolution, Health Net agreed to pay $1 million to the agency, plus $25,000 to cover its costs related to the inquiry.

Health Net has resolved all but seven of existing complaints made to the department, the settlement agreement said. Six of those were in settlement negotiations; the seventh, apparently, is Sovereign.

"Health Net continues to cooperate with the department to address provider fraud, waste and abuse as appropriate," spokesman Ken Muché said by email.

What's next?

Health Net wrongly equates the rise in coverage claims with misconduct, Sovereign's lawyers argue.

What it really shows "is that providers like Sovereign have stepped forward to provide desperately needed care to patients finally able to access health insurance and treatment. In its effort to paint Sovereign and other clinics as sinister, Health Net ignores the overwhelming demand for substance-abuse treatment."

The law does not prevent third parties from paying health insurance premiums for people, Sovereign argues. The PPO policies involved didn't have deductibles or co-pays to waive. And, while denying that "body brokering" took place, they argue it wasn't illegal in the addiction treatment realm until a new law kicked in on Jan. 1 anyway.

More legal skirmishing is slated for this month, with a hearing set for June 14.

"We will not only be defending ourselves against the allegations in the complaint, but also prosecuting our cross-complaint against these same parties for fraud, interference with contractual relations and violation of California's unfair and illegal business practices act," Muché said.

"Health Net believes fraud and abuse threaten our state's healthcare system and the many consumers who rely on it. Those engaging in fraudulent practices should never have automatic access to healthcare dollars. Our commitment to root out this behavior remains as strong as ever."

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