The Ohio Supreme Court upheld a $10 million jury verdict against a hospital that secretly paid brokers to steer their employer group clients to the hospital health system.
Aultman Health Foundation, a nonprofit organization, paid millions of dollars to a group of independent insurance brokers to convert their clients to Aultman's captive insurance company, which required all in-network users to be treated at Aultman Hospital, a fully owned subsidiary of the Foundation, according to court documents.
The secretive Conversion Support Program, which began in 1997, paid brokers up to $200 for every insured person they converted to an AultCare health plan, in addition to $2,000 for signing the required confidentiality agreement, according to court documents.
The CSP payments were in addition to commissions and bonuses ordinarily paid to brokers, who were not permitted to inform their clients of the compensation from Aultman.
In 2004, Aultman lifted the secrecy provision.
The brokers converted more than 1,700 employer groups covering 65,000 insured lives to the health plan, and failed to disclose its broker payments on federal tax returns, later mischaracterizing them as "supplies," according to documents.
A lawsuit alleging antitrust violations and deceptive business practices was filed against Aultman in 2007 by Mercy Medical Center, the only other full-service hospital in the five county area surrounding Canton, Ohio.
Following a nine-week trial in 2010, the jury awarded Mercy $6 million in damages and $4 million in legal costs, finding that Aultman violated the Ohio Pattern of Corrupt Activities statute, which is patterned on the federal Racketeer Influenced and Corrupt Organizations (RICO) Act.
During the trial, Burke Christiansen, a professor of insurance law at Eastern Kentucky University, testified on behalf of Mercy, noting that the CSP payments did not reward brokers for doing their jobs of finding the best insurance products for employers.
In fact, brokers were not permitted to tell their clients of the payments and were penalized if they did not maintain a retention rate between 90 percent and 97 percent, according to court documents. Payments to brokers totaled up to $9 million over seven years, according to reports.
The U.S. 5th Circuit Court of Appeals upheld the award in March 2012, and the Supreme Court of Ohio subsequently unanimously dismissed Aultman's appeal.
Aultman contended its payments were not improper.
--By Anne Freedman
May 1, 2013
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