Healthcare Company Asks its Insurance to Cover Pharmacies’ Misuse of COVID-19 Override Codes

On Thursday, a complaint was filed in the Eastern District of New York by Magellan Health Inc, Merit Health Insurance Company, and Magellan RX Management LLC against their corporate insurance provider Zurich American Insurance Company, regarding a breach of contract in fulfilling their business insurance coverage. 

Specifically, the filing alleged that Zurich has failed to honor claims brought by Magellan regarding fraudulent claims, which wrongly used COVID-19 override codes, that were fulfilled by Magellan from pharmacies in New York.

Magellan RX is the pharmacy benefit manager for Merit Health insurance plans. As a part of this arrangement, Magellan processes and pays claims from Merit Health insurance insureds for prescription drugs. 

During the COVID-19 pandemic, override codes were issued to pharmacies to be used in connection with COVID-19 testing and vaccination, the complaint explained. These codes bypassed certain restrictions that Magellan used to review claims for authorization verification and other fraud control measures. The pharmacies at issue in this complaint used these codes for non-COVID-19 related purchases, resulting in payment for items that would otherwise not have been reimbursed. The pharmacies have been criminally indicted for this fraud.

The Zurich insurance coverage had a specific clause for Computer Fraud, indicating that Magellan would receive up to $15 million dollars in coverage for any claim resulting directly from the use of any computer to fraudulently cause a transfer of money, the filing said. Magellan said they submitted the claims and Zurich denied them, indicating that a review of the claims submitted by the pharmacies by Magellan employees should have caught the fraud, or in the alternative claims that the payments were made voluntarily. 

Magellan disputed that the claims were reviewed by human employees and also that the payments were made voluntarily, indicating that the automation of this portion of the claims process made the payments immediate and automatic, as is required for a computer fraud claim.

Magellan’s complaint alleged breach of contract, declaratory judgment, and breach of duty of good faith and fair dealing, and demanded compensatory and punitive damages. The plaintiffs are represented by the firm of McCarter & English.