Baker & Hostetler helped client cover up ‘gross insurance fraud’, lawsuit alleges
A bankruptcy trustee has filed a lawsuit alleging Baker & Hostetler helped a client commit ‘gross insurance fraud’ and caused multiple companies to wrongfully pay more than $100 million in rebates to property managers. pharmaceutical benefits which managed patient insurance.
The Sept. 26 lawsuit was filed by a trustee in bankruptcy for the company’s former client, Alliance Health, a Utah pharmaceutical company.
Law.com, Reuters and Law360 have coverage.
The lawsuit says Alliance Health charged retail prices at its pharmacies for non-retail blood glucose strips that were packaged as mail-order products for insured customers and purchased on the secondary market. Yet Alliance Health pharmacies were submitting insurance claims for the strips to insurers that covered retail strips, which were more expensive.
The scheme caused test strip makers to pay more than $100 million in rebates on strips mislabeled as retail products and lose a similar amount on retail strip sales, the suit alleges . Rebates were paid for products sold at retail, but not for tapes sold by mail order.
Baker & Hostetler “had intimate knowledge of questionable business practices” gained from performing legal services for Alliance Health and serving as a partner on the company’s board of directors, according to the suit.
“For more than two years,” the lawsuit states, “Baker aided a series of corporate executives in committing egregious insurance fraud. Baker had claimed to be offering his client expert health law advice, but when the firm’s lawyers learned that their client was engaged in fraudulent activity – a very profitable fraud for the client – the lawyers turned away from their ethical duties and instead used their legal skills and national reputation to facilitate illegal activity.
According to the lawsuit, Baker & Hostetler intentionally misled auditors and created “a maze of front companies to hide the extent of the fraud and thereby perpetuate it.” The company also installed partner Lee Rosebush on the board of Alliance Health “to cement the close relationship between Alliance and Baker,” the lawsuit says.
The lawsuit alleges that Rosebush was told about Alliance Health’s business model in a memorandum, but advised the company’s general counsel to continue the practice, according to Law.com’s coverage of the complaint.
The trustee sued on behalf of Alliance Health’s three major creditors, blood glucose test strip companies LifeScan Inc., Roche Diagnostics Corp. and Roche Diabetes Care Inc.
The suit alleges legal professional misconduct, aiding and abetting breach of fiduciary duty, negligent and fraudulent misrepresentation and fraud.
Rosebush, meanwhile, faces a lawsuit from Roche Diagnostics Corp. which alleges a fraud and racketeering scheme in connection with Alliance Health’s billing practices, Reuters reports.
A federal judge in New Jersey declined Friday to dismiss the Roche case and a similar lawsuit filed by LifeScan that does not name Rosebush as a defendant. The cases also target former employees and business partners of Alliance Health.
Rosebush and Baker & Hostetler did not immediately respond to an email seeking comment.