Law Firms

Baker & Hostetler helped client conceal 'blatant insurance fraud,' suit alleges

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A bankruptcy trustee has filed a lawsuit alleging that Baker & Hostetler helped a client commit “blatant insurance fraud" and cause several companies to wrongly pay more than $100 million in rebates to pharmacy benefit managers that managed patients' insurance.

The Sept. 26 complaint was filed by a trustee in the bankruptcy for the firm’s former client, Utah pharmacy company Alliance Health., Reuters and Law360 have coverage.

The suit says Alliance Health was charging retail prices in its pharmacies for not-for-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 makers of the test strips to pay more than $100 million in rebates on strips wrongfully designated as retail products and to lose a similar amount in sales of retail strips, the suit says. The rebates were paid for retail products but not the mail-order strips.

Baker & Hostetler “had intimate knowledge of the questionable business practices” gained from performing legal services for Alliance Health and from a partner’s service on the company’s board of directors, according to the suit.

“For more than two years,” the lawsuit says, “Baker helped a series of corporate executives carry out blatant insurance fraud. Baker had purported to offer its client expert counsel in health care law, but when attorneys at the firm learned that their client was engaged in fraudulent activity—a fraud that was highly profitable for the client—the attorneys shirked their ethical duties and instead used their legal skills and national reputation to facilitate the illegal activity.”

According to the suit, Baker & Hostetler intentionally misled auditors and created “a labyrinth of corporate shell companies to hide the extent of, and thereby perpetuate, the fraud.” The firm also installed partner Lee Rosebush on Alliance Health’s board of directors “to cement the close relationship between Alliance and Baker,” the suit says.

The suit alleges that Rosebush was informed of Alliance Health’s business model in a memorandum but counseled the company’s general counsel that it should continue the practice, according to’s coverage of the complaint.

The trustee sued on behalf of Alliance Health’s three largest creditors, blood-glucose strip companies LifeScan Inc., the Roche Diagnostics Corp. and Roche Diabetes Care Inc.

The suit alleges legal malpractice, aiding and abetting breach of fiduciary duty, negligent and fraudulent misrepresentation, and fraud.

Rosebush, meanwhile, has to face a lawsuit filed by the Roche Diagnostics Corp. that alleges a fraud and racketeering scheme in connection with Alliance Health’s billing practices, Reuters reports.

A federal judge in New Jersey on Friday refused to toss the Roche case and a similar suit filed by LifeScan that does not name Rosebush as a defendant. The cases also target former Alliance Health employees and business partners.

Rosebush and Baker & Hostetler did not immediately respond to an email seeking comment.

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