Judge dismisses Charlottesville whistleblower lawsuit against Sentara

A whistleblower lawsuit accusing Norfolk-based Sentara Health of exploiting its monopoly to saddle Charlottesville with the nation's highest Affordable Care Act premiums was dismissed Friday as a federal judge ruled that courts cannot second-guess insurance rates approved by state regulators.

"The federal filed-rate doctrine bars the claims here, which directly challenge rates approved by the Virginia Bureau of Insurance," Chief U.S. District Judge Elizabeth Dillon wrote in her 32-page opinion.

Dillon's ruling ends, at least for now, one of Charlottesville's most ambitious civil fraud cases. It drew an all-star legal team led by Rick Mountcastle, the former federal prosecutor whose pursuit of Purdue Pharma over OxyContin was dramatized in Hulu's "Dopesick" miniseries, along with two national law firms fresh off a $1.6 billion False Claims Act victory against a Johnson & Johnson subsidiary.

The three Charlottesville whistleblowers — Ian Dixon, Karl Quist and Sara Stovall — say they will appeal.

"Of course," Stovall texted The Daily Progress shortly after the ruling was issued Friday.

The lawsuit traces back to 2017, when Anthem and Aetna abandoned Virginia's Affordable Care Act marketplace, leaving a large swath of Central Virginia with just a single option: a Sentara subsidiary called Optima Health.

The whistleblowers alleged that Sentara, aided by actuarial consulting firm Milliman Inc., used that monopoly power to dramatically inflate premiums while absorbing federal premium tax credits to cushion consumers from some of the increase.

Still, according to the complaint, Charlottesville's rates became the highest in the nation.

The suit offered an example: A family of four paying $940 a month for Anthem's least expensive plan in 2017 attempting to get insurance the following year would have faced a $2,920 monthly premium for Optima's cheapest plan — along with a $14,400 deductible.

The plaintiffs contended the inflated premiums cost federal taxpayers hundreds of millions of dollars because government subsidies rose with the premiums.

Because the lawsuit was filed under the federal False Claims Act, Dixon, Quist and Stovall stood to receive as much as 30% of any recovery if their case succeeded. Given the damages alleged, their share could have amounted to many millions of dollars, and Sentara now says their potential windfall helps explain the lawsuit.

"This lawsuit was an attempt to misuse the law for personal gain," Sentara spokesman Mike Kafka said in a statement.

Sentara has consistently defended its rates as reasonable given the uncertainties surrounding the then-new Affordable Care Act and the abrupt withdrawal of competing insurers from Virginia's marketplace. The company also has noted that state regulators found the rates actuarially reasonable.

The judge never tested the truth of the fraud allegations. Instead, she concluded that the lawsuit was barred by the filed-rate doctrine, a long-standing legal principle holding that courts may not second-guess rates approved by regulatory agencies such as the the Board of Insurance, or BOI.

"To find that fraud was committed," Dillon wrote, "the court must find that the premium rates approved by BOI were unreasonable. The filed-rate doctrine prohibits it from doing so."

The whistleblowers filed formal complaints with the BOI, prompting regulators to seek additional information from Optima and Milliman, and to revisit at least the 2018 filing. The bureau nevertheless again found the rates reasonable and never withdrew its approval.

Dillon's opinion repeatedly notes those bureau approvals and willingness to reconsider them after the whistleblowers challenged the calculations. Such approvals, Dillon concluded, placed the dispute beyond the authority of the courts.

The judge also rejected arguments that the False Claims Act should override the filed-rate doctrine or that whistleblower lawsuits deserve a special exception.

"The Affordable Care Act does not explicitly override application of the filed-rate doctrine," she wrote.

The decision dismisses the lawsuit with prejudice, meaning it cannot be refiled in district court.

Sentara hailed the ruling.

"We are grateful to the District Court for its dismissal of this case," Kafka said in his statement. "This dismissal reaffirms what we've said from the beginning: the facts and the evidence are on Sentara's side."

For the whistleblowers, however, Friday's decision marked not the end of the case but the beginning of a new fight.

It now appears likely that the 4th U.S. Circuit Court of Appeals will decide whether approval by state regulators is a bar to a federal fraud lawsuit.