After more than five years in a legal battle, one of Ohio’s largest hospital systems is found guilty of bribing independent insurance brokers for converting clients to its group insurance plan. The Ohio Supreme Court unanimously dismissed an appeal in March by Aultman Health Foundation, ruling in favor of cross-town rival Mercy Medical Center.
In 2010, a Stark County jury found that Aultman violated Ohio’s Pattern of Corrupt Activities (“PCA”) statute and a federal criminal statute, 18 U.S.C. § 1954, by using charitable funds to make secret payments to independent insurance brokers to steer employer-group clients to Aultman’s private insurance plan. Section 1954, a predicate act under Ohio’s PCA statute, prohibits corrupt payments to entities that perform services for employee health plans.
In total, Aultman Health Foundation, a tax-exempt entity, paid more than $9 million to a select group of brokers to convert their clients to AultCare from a Mercy-friendly health insurance plan. These payments were over and above the ordinary commissions and bonuses Aultman’s private insurance company, AultCare, was already paying the brokers. In exchange for these payments, Aultman Health Foundation required the select brokers to sign contracts in which Aultman threatened to impose fines of $40 per insured life if the brokers failed to retain as much as 97% of their AultCare lives on a yearly basis. Ultimately, Aultman converted over 1,700 employer groups totaling more than 65,000 medical lives under this secret program.
According to BakerHostetler, the firm representing Mercy Medical Center in the case, Aultman went to great lengths to conceal these broker payments from consumers and regulators alike. Aultman required the brokers to sign confidentiality agreements that precluded them from telling anyone about the existence of the program. The Department of Labor Form 5500 information sheets Aultman provided to employers disclosed only the ordinary commissions paid to brokers, and not the extra conversion payments. Aultman Health Foundation also failed for several years to show the millions of dollars of conversion payments to brokers as an expense on its Form 990 tax returns, and then listed them for six years as an expense for “supplies.”
In upholding the jury’s $6.1 million verdict, the trial court characterized Aultman’s conduct as resembling a “Soprano enterprise.” The court’s post-trial decision ordered that Aultman begin publicly disclosing all payments and incentives to brokers, and that an independent monitor be appointed to ensure full and proper disclosure of broker payments on Aultman’s tax returns and other governmental documents. The court also awarded Mercy $4 million in attorneys’ fees.
The Ohio Supreme Court originally agreed to hear the case and set it for oral argument in early April. More than 25 briefs were filed with the state’s high court, including 18 friend-of-the-court briefs from healthcare organizations and state and national interest groups. After briefing on the merits concluded, Mercy moved to dismiss the appeal as improvidently granted. The Ohio Supreme Court unanimously granted the motion, effectively ending a five-year legal battle and upholding the jury’s unprecedented verdict.
BakerHostetler partner Scott Holbrook represents clients in class action, breach of contract, banking, insurance, healthcare and securities litigation matters.
BakerHostetler partner Dan Warren focuses on large, complex business disputes. He frequently has the lead role in “bet the company” lawsuits.
BakerHostetler associate Karen Swanson Haan focuses her practice on complex commercial litigation, including intellectual property lawsuits and antitrust litigation.
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