The Settlement Benefits - What You Get

A. What Does the Settlement Provide?

In a settlement agreement dated March 13, 2008 (the “Settlement Agreement”), the Representative Plaintiffs, Class Counsel, and Health Net, Inc. and its subsidiaries and affiliates have agreed to settle all claims that were or could have been asserted against Health Net in the actions, in exchange for monetary consideration and business practice initiatives. The terms of the Settlement Agreement are summarized in this notice, and a copy of the entire executed Settlement Agreement (along with the Complaints and certain other court filings) may be reviewed at www.healthnetclassaction.com.

B. The Cash Settlement Fund

Health Net has agreed to establish a Cash Settlement Fund of $175,000,000.00. From the Cash Settlement Fund will be subtracted $15,000,000.00 to be paid by Health Net as a result of the New Jersey Department of Banking and Insurance (“DOBI”) Audit (which Health Net has acknowledged is due in part to the actions), escrow agent expenses, tax and other administrative expenses associated with the Settlement Fund, attorneys’ fees and expenses, and incentive payments to the Representative Plaintiffs as approved by the Court. All other costs of administration, including notice and claims administration costs, except for certain costs for obtaining and submitting required proof for Group Band C Claims as set forth in the Settlement Agreement and the Plan of Allocation, are the responsibility of Health Net and will not be charged against the Cash Settlement Fund. Health Net, Inc. deposited the Cash Settlement Fund into an interest bearing escrow account on January 28, 2008, as set forth in the Settlement Agreement.

C. The Prove-Up Settlement Fund

In addition to the Cash Settlement Fund. Health Net will provide eligible Class Members up to an additional $40,000,000.00 (the “Prove-Up Settlement Fund”). The eligibility requirements for making a claim from the Prove-Up Settlement Fund are set out in the Settlement Agreement, the Plan of Allocation and the. Proof of Claim and Release Form.

D. Business Practice Initiatives

As part of the Settlement, Health Net will initiate certain business practices for the benefit of Class Members that, had the Settlement Agreement not been executed, Health Net would have been under no obligation to undertake. A complete description of the Business Practice Initiatives is found in the Settlement Agreement and may be reviewed at http://www.healthnetclassaction.com/.

These Business Practice Initiatives may be summarized as follows:

1. Health Net will eliminate the use of the Ingenix databases to calculate UCR for determining payment for Covered ONET Services or Supplies, except where such a database is required by law or regulation, is approved by a state regulator, or specifically requested by a plan sponsor, and will eliminate the use of a UCR methodology for determining such payments. subject to regulatory approval and its marketing of new agreements, and will revise all EOCs to describe any new methodology.

2. For current contracts that utilize an Ingenix database to make UCR determinations, until regulatory approval is received and marketing of the new agreements is complete to permit the elimination of Ingenix for this purpose, Health Net will utilize the current Ingenix database, pay its portion of the Allowable Amount, and add an additional ]4.5% of the Allowable Amount as payment or as a credit for the deductible, up to the provider’s billed charges. This payment is called the “Adjusted Allowable Amount.”

3. During the period of time in which Health Net pays the Adjusted Allowable Amount, Health Net will also establish a Special Appeal Process that a member may be eligible to use if the Member’s claim meets the requirements set forth in Section 12.8(e) of the Settlement Agreement, which may be reviewed at http://www.healthnetclassaction.com/. Under this Special Appeal Process, a member may submit any information that the member believes justifies a higher level of reimbursement, up to billed charges, in writing to an independent arbitrator, chosen jointly by Health Net and Class Counsel to which Health Net may respond. This independent arbitrator will use his or her judgment as to whether an additional amount of reimbursement is warranted, and neither the member nor Health Net will have the burden of proof. If the independent arbitrator determines than an additional amount is warranted, Health Net will pay this amount to the member subject to a reduction for coinsurance that is the responsibility of the member. Information concerning some of the information the member may provide will be contained in a web portal, or be available by toll-free telephone number.

4. Health Net will revise the content of its forms of Evidence of Coverage (“EOCs”) applicable to plans with ONET Benefits to include the circumstances under which ONET Benefits are available, and the financial implications to the member when receiving Covered ONET Services or Supplies.

5. Health Net will state in its EOCs that it uses Medicare guidelines for determining the circumstances under which claims for multiple surgeries performed by ONET Providers will be eligible for reimbursement in accordance with Health Net’s normal claims filing requirements. Plaintiffs have alleged in these actions that in certain of its plans, Health Net applied a multiple surgery rule that could have resulted in an improper reimbursement amount.

6. Health Net will state in its EOCs that it uses Medicare guidelines for determining the circumstances under which claims for Assistant at Surgery Services and Co-Surgeon and Team Surgeons will be eligible for reimbursement in accordance with Health Net’s normal claims filing requirements. Plaintiffs have alleged in these actions that in certain of its plans, Health Net applied protocols that could have resulted in an improper reimbursement amount.

7. Health Net will state in its EOCs that it uses Medicare guidelines for identifying which procedures billed by ONET Providers are eligible for separate professional and technical components. Plaintiffs have alleged in these actions that in certain of its plans, Health Net applied protocols that could have resulted in splits between professional and technical components that were different, and that could have resulted in an improper reimbursement amount.

8. Health Net will state in its EOCs that it will adhere to the “prudent layperson standard” for all ONET emergency room (“ONET ER”) services where state law, regulations or regulators require the application of this standard. In all other states, Health Net will not deny reimbursement for ONET ER services based exclusively on CPT codes, diagnostic codes or on the grounds that a condition is not “life threatening.” Plaintiffs have alleged in these actions that in certain of its plans, Health Net may not have applied the “prudent layperson standard” in every instance where required, and may have denied or lowered reimbursement based on diagnostic or other codes.

9. Health Net will state in its EOCs that third party vendors may process and pay ONET Benefits, and will either endeavor to require such vendors to agree in all future contracts to adhere to the terms of the Settlement Agreement relating to Business Practices Initiatives or with respect to services involving UCR determinations utilizing an Ingenix database, will assume the responsibility to make all final ONET UCR determinations by administering the Special Appeal Process. Plaintiffs have alleged in these actions that in certain of its plans, Health Net may have contracted with third party vendors who made ONET Benefit determinations based on a number of factors that may have lowered the reimbursement amount.

10. Health Net will identify in its Explanation of Benefits (“EOBs”) the use and description of adjustment codes used for ONET claims determinations. Plaintiffs have alleged in these actions that in certain of its EOBs, some adjustment codes may not have been described with specificity.

11. Health Net will permit members to request an estimate of the reasonable and customary fee for certain specific professional services identified by CPT code and which an ONET Provider intends to perform, and will base its reimbursement determination for the CPT code identified on the amount of this estimate, subject to certain limitations.

12. Health Net will permit members to utilize a fee negotiation unit to allow Health Net to attempt to negotiate on a pre-service single case basis with an identified ONET Provider where such fees are projected to be greater than $15,000.

13. Health Net will audit a sample of adjudications of ONET claims payments on a periodic basis to ensure that ONET claims payments are consistent with revisions to its policies and procedures as set forth in the Settlement Agreement, and will provide a summary of the audit report to Class Counsel. Health Net will also continue to develop a compliance program to achieve improved oversight, hire a new Chief Compliance and Ethics officer, and has agreed to expand its compliance staff.

14. For Health Net members who received a Covered ONET Service or Supply based on UCR determined by using an Ingenix database where the claim was paid after the end of the Scharfman class period of July 31, 2007, and before Health Net implements the Adjusted Allowable Amount process, Health Net will notify such members of their eligibility potentially to receive a retroactive payment for the Adjusted Allowable Amount and provide a claim form for members to obtain this payment.

15. The parties estimate that the total direct and indirect cost to Health Net for these Business Practice Initiatives ranges from $26 million to $38 million.

E. How Will the Cash Settlement Fund and Prove-Up Settlement Fund be Allocated?

Class Members, other than those who have validly excluded themselves from the Wachtel, McCoy, or Scharfman Classes, who timely file a valid Proof of Claim and Release Form (“Claim Form”), shall receive their payment from the Settlement Account or have their claims discharged from the Prove-Up Settlement Fund based upon the category and amount of their claim set forth in the Settlement Agreement. Set forth below is a statement contained in a Plan of Allocation, which outlines the operational process by which claims will be handled and paid. However, the Plan of Allocation is not part of the Settlement Agreement and the Settlement Agreement should be consulted with respect to your right to receive benefits under this Settlement.

1. Unpaid Benefits. For purposes of this Plan of Allocation, a claim for Unpaid Benefits arises when a Class Member received Covered ONET Services or Supplies and the claim for those Covered ONET Services or Supplies was processed by Health Net with a check payment date in the claims system on or before July 31, 2007, such that the Allowable Amount is greater than zero, but less than the ONET Provider’s billed amount. Class Members’ Claims for Unpaid Benefits may fall into Group A, Band/or C as set forth below. A Class Member may have claims included in more than one group if such claims meet the definition for each such group.

2. Prove-Up Settlement Fund. In addition to the Settlement Account, Health Net. Inc. shall provide benefits from a Prove-Up Settlement Fund up to a maximum of Forty Million Dollars ($40,000,000) for payment to “Authorized Claimants” (Class Members eligible to receive monetary benefits) for Group B Claims and the discharge of Balance Bills for Group C Claims pursuant to Sections 8 and 9 of the Settlement Agreement. Any amounts not expended to payor discharge Authorized Claimants with Group B or C Claims will be retained by Health Net, Inc. To be considered for payment or discharge from the Prove-Up Settlement Fund, the amount of the Balance Bill must exceed $100. Group B and Group C Claims where the Balance Bill amount is less than or equal to $100 will be transferred to Group A Claims and be eligible for payment according to the Plan of Allocation for Group A Claims. Health Net shall not have any further administrative or monetary responsibility for such Group B and Group C Claims.

3. Settlement Account. The Settlement Account provides $175 million for payment of Group A, Band C Claims except to the extent Group B and Group C Claims are paid or discharged out of the Prove-Up Settlement Fund, less attorneys fees and costs allowed by the Court, and less $15 million to be paid by Health Net as a result of an audit conducted on behalf of the New Jersey Department of Banking and Insurance (“DOBI”), plus interest.

4. Group A Claims. Class Members have Group A Claims where they have Unpaid Benefits as defined above that do not meet the requirements of Group B Claims or Group C Claims. Class Members with Group A Claims who submit a Claim Form, together with all required documentation and the Blue Sheet(s), and indicate their desire to share in the Settlement Account shall receive their share of the Settlement Account based on the following protocol: Class Members with Group A Claims will be paid a portion of the difference between their Allowed Amount and their Provider’s billed charge, with their proportional share of the net Settlement Account allocated based on the ratio of the Claimant’s Allowed Amounts to the total of all Allowed Amounts of qualified Group A claims, up to a maximum of the Claimant’s ONET Provider’s billed charge(s).

5. Group B Claims. Class Members who paid their ONET Providers for part or all of their Balance Bills, and were not otherwise reimbursed by Health Net, have potential Group B Claims. Group B Claims may be eligible to be reimbursed from the Prove-Up Settlement Fund and the Settlement Account in the order the Claim Forms are received by Health Net from the Claims Administrator, as set forth below. To make a Group B Claim, Class Members must submit a valid Claim Form and the Blue Sheet(s) and provide the required evidence (described in the Claim Form and in the Settlement Agreement) that they paid their ONET Provider within the contractual limitations period specified in their Evidence of Coverage (“EOC”) and on or before April 24, 2008. 

a. Class Members who submit Group B Claims, but do not have the required evidence of payment, may request and authorize the Claims Administrator to contact their ONET Provider(s) to obtain the required proof. The costs of obtaining and submitting such proof will be the responsibility of the Class Members, and shall be charged by Class Counsel against the Settlement Account. Although the Claims Administrator will seek evidence to support undocumented claims, Class Members are not guaranteed that the required documentation will be secured on their behalf or will be sufficient to support a claim. If the Claims Administrator seeks evidence in support of undocumented claims where requested by the Class Member, it will do so in the order in which the Claim Forms were received and logged by the Claims Administrator until the amount of the claims thus qualified and eligible for payment exhausts the balance of the Prove-Up Settlement Fund. Therefore, Group B Claims for which payment to the Class Member’s ONET Provider is not verified based on evidence provided by the Class Member or obtained by the Claims Administrator will be treated as Group A Claims, as set forth above. Health Net shall not have any further administrative or monetary responsibility for such Group B Claims.

b. Authorized Claimants with qualifying Group B Claims will receive reimbursement for the amount of the Balance Bills they paid to their ONET Providers, less: (a) twenty-five percent (25%) of the amount otherwise due to them for their Group B Claims up to a maximum reduction of $3,000 to account for any co-payment, coinsurance or deductible amounts as provided in the Authorized Claimant’s Plan; and (b) all amounts they received through restitution or otherwise for those Covered ONET Services or Supplies, and shall not include payment for any portion of the Balance Bill that does not relate to Covered ONET Services or Supplies (“Reimbursement Amount”). This reimbursement amount will also be reduced by the amount of attorneys’ fees and expenses to be approved by the Court. Health Net, Inc. will deposit one lump sum equal to the total of all the Reimbursement Amounts into the Settlement Account after all Group B Claims have been determined.

c. If, during the process of determining Group B Claims, the Reimbursement Amounts determined by Health Net, Inc. to be payable to Authorized Claimants for qualifying Group B Claims equals the Prove-Up Fund’s maximum $40 million, then all remaining Group B Claims for which no Reimbursement Amount has been determined shall become Group A Claims and be eligible for payment according to the Plan of Allocation for Group A Claims. Health Net shall not have any further administrative or monetary responsibility for such Group B Claims. Once all of the qualifying Group B Claims that are determined eligible for reimbursement in accordance with the Settlement Agreement and the non-qualifying Group B Claims are transferred into Group A Claims, if any amount remains in the Prove-Up Settlement Fund of the $40 million total, then up to the remaining balance shall be used to discharge valid and properly proved Group C Claims in the order in which those Claims were received by Health Net from the Claims Administrator.

6. Group C Claims. Class Members who establish that they received an unpaid Balance Bill from their ONET Provider on or before April 24, 2008 for Covered ONET Services or Supplies provided after May 5, 2005 and for which the check payment date in Health Net’s claims system is on or before July 31, 2007, have potential Group C Claims. Class Members who submit a valid Claim Form and the Blue Sheet(s) and provide the evidence set out in the Claim Form and Settlement Agreement regarding a Balance Bill for Covered ONET Services or Supplies provided after May 5, 2005 and for which the check payment date in Health Net’s claims system is on or before July 31, 2007, but who have not made payment on the Balance Bill, or otherwise had the Balance Bill discharged or released, shall have their Balance Bill discharged by Health Net, subject to the reduction described below, such that the Authorized Claimant shall no longer be responsible for the Balance Bill, provided that, to the extent the Authorized Claimants have already been reimbursed, in whole or in part, through reimbursement or otherwise for the amount of the Balance Bill, or any portion thereof, such amount shall be off-set against the amount, if any remains, required to be discharged by Health Net. Any obligation by Health Net, Inc., to discharge the Authorized Claimant’s Balance Bill from the Prove-Up Settlement Fund shall be reduced by twenty-five (25%) of the amount of the Balance Bill up to a maximum of $3,000 to account for any co-payment, coinsurance or deductible amounts applicable to such a payment provided for in the Authorized Claimant’s Plan and shall not include discharge of any portion of the Balance Bill that does not relate to Covered ONET Services or Supplies (“Discharge Amount”).

a. Group C Claims require evidence of a Balance Bill as described in the Claim Form and Settlement Agreement. Class Members who assert Group C Claims, but do not have the required evidence of a Balance Bill may request and authorize the Claims Administrator to contact their ONET Provider(s) to obtain the required proof. The costs of obtaining and submitting such proof will be the responsibility of the Class Members, and shall be charged by Class Counsel against the Settlement Account. Although the Claims Administrator will seek evidence to support undocumented claims, Class Members are not guaranteed that the required documentation will be secured on their behalf or will be sufficient to support a claim. If the Claims Administrator seeks evidence in support of undocumented Group C Claims where requested by the Class Member, it will do so in the order in which the Claim Forms were received by Health Net from the Claims Administrator until the total amount of the Group B and Group C Claims determined to be eligible for payment and/or discharged exhausts the amount remaining in the Prove-Up Settlement Fund, if any. Group C Claims where a Balance Bill is not verified based on evidence provided by the Authorized Claimant or obtained by the Claims Administrator will be treated as Group A Claims and be eligible for payment according to the Plan of Allocation for Group A Claims. Health Net shall not have any further administrative or monetary responsibility for such Group C Claims.

b. Documented Group C Claims will be qualified, processed and discharged in the order that the Claim Forms are received and logged by the Claims Administrator. The amount actually paid by Health Net, Inc. to an ONET Provider to discharge a Balance Bill shall be deducted from the maximum $40 million amount of the Prove-Up Settlement Fund. Group C Claims that are not discharged because the Prove-Up Settlement Fund is exhausted will be provided to the Claims Administrator to be treated as Group A claims and may be eligible for payment according to the Plan of Allocation for Group A Claims. Health Net shall not have any further administrative or monetary responsibility for such Group C Claims.

c. After all Group B and Group C Claims have been determined eligible for payment or discharged in accordance with the terms of Settlement Agreement, Health Net, Inc., will provide to the Claims Administrator an electronic file listing each Authorized Claimant and his or her Reimbursement Amount and Discharge Amount in accordance with the terms of the Settlement Agreement.

7. Proportional Amount and Distribution. Each Class Member’s distribution will be rounded off to the nearest dollar. All aggregate claims for a Class Member that would result in a payment from the Settlement Account less than $20.00 shall be eliminated, and treated as if no Unpaid Benefits were incurred under the Plan of Allocation.

8. Binding Effect. Class Members who did not incur Unpaid Benefits, or who do not timely file a valid Claim Form will not receive a cash distribution from the Settlement Account, but will be bound by all determinations and judgments of the Court in connection with the Settlement, including being barred from asserting any of the Released Claims against the Released Parties.

9. Modification. The Plan of Allocation may only be modified by further Order of the Court and may be so modified without further notice to members of the Classes. Members of the Classes who desire to be informed of any modification of the Plan of Allocation must request further notification by writing to the Claims Administrator.