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Judge Weighs 'Bizarre' Contract Dispute Between Delta Retirees, Insurer

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In a dispute between a unit of UnitedHealth Group Inc. and the trust that provides health insurance for retired Delta Air Lines employees—over what the trust says is more than $5 million in drug rebates it is owed—the judge overseeing the case expressed astonishment Monday that the insurer provided benefits for well over a year while it wrangled over the terms the contract and that the issue of the rebates was still open to interpretation.

During a lengthy hearing on competing motions for summary judgment, U.S. District Judge Mark Cohen also weighed UnitedHealth’s request that he dismiss the case as a sanction for some of the trust’s board members’ destruction of copies of meeting materials after the suit was filed. The insurer argued the shredded documents might contain notes or comments reflecting the board’s understanding of the refund issue.

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Cohen noted that other copies of the information packages had been turned over to the trust as requested.

“I have a real concern about what happened … I think it’s unconscionable,” said Cohen. But under the circumstances, “if I granted a motion to dismiss, the 11th Circuit [Court of Appeals] would reverse me in about two minutes.”In 2015, the Insurance Trust for Delta Retirees, which serves more than 900,000 retirees, sued UnitedHealth in federal court in Atlanta saying the insurer had agreed in 2012 to offer the same terms regarding refunds and rebates as had been provided by the trust’s prior carriers, Medco and The Hartford.

The Medco contract credited the trust for any refunds, including drug rebates, as well as other refunds required under Medicare regulations.

In court filings, the trust says it is owed $5,584,284 United pocketed in 2013 and 2014 instead of crediting it to the trust as it agreed to do.

Cohen said the contract the parties signed was either remarkable for its ambiguity or directly opposite of what the trust said it had requested be included when it agreed to hire UnitedHealth.

“It’s amazing how a multimillion-dollar agreement that has no real agreement can go forward for this amount of time,” said Cohen, describing the arrangement as “bizarre.”

“The question,” he said, “is whether the plain language means what it says.”

Bendin Sumrall & Ladner partner Roger Sumrall, representing the Insurance Trust for Delta Retirees, said the insurer had ignored instructions in the trust’s request for proposal that the contract include language crediting it for any rebates from drug manufacturers and drafted a deliberately ambiguous contract.

“A real essential theme is whether United knew what they were doing,” said Sumrall, pointing to email evidence indicating that the insurer was still grappling with whether the rebates would be included with the other refunds throughout 2013. “United contends that they knew all the time the rebates were not going to be deducted,” he said. If so, he said, the insurer was “intentionally vague” in accepting the trust’s request for proposal.

UnitedHealth attorney William Jordan of Alston & Bird said the plain language of the contract indicated that the rebates were not included, and argued that the trust saved a bundle by switching to United in any case.

The trust, he said, was seeking a “windfall” by demanding the rebated funds on top of the savings it enjoyed after switching to United.

Cohen asked whether it was “standard operating procedure for United to respond to a request for proposal that was a little vague” by beginning to perform on it before the terms of the contract were settled. “It’s not SOP,” said Jordan, “but it’s not uncommon … it was more common in the past.”

“Both sides were working to move it forward,” said Jordan, conceding that the result was less than satisfactory.

“Lesson learned, but we are where we are,” he said.

Cohen said the agreement’s language could be read to support either side’s contentions regarding the rebates, and faulted both United and the trust’s adviser who negotiated the contract.

“If this were a case for incompetence, I’d probably grant summary judgment to both of you,” he said with smile.

— Read Gilead Executive Says Pharmacy Benefit Managers Keep Prices High on ThinkAdvisor.