Federal Trade Commission Reaches Agreement to Halt Promotion of Medical Discount Cards
On November 13, 2015, the Federal Trade Commission (“FTC” or “Commission”) announced that it had concluded a settlement agreement in a civil enforcement action to enjoin the promotion and sales of medical discount cards. The settlement was with three of the five defendants named in an FTC complaint alleging violations of the Federal Trade Commission Act (“FTCA”) and the FTC’s Telemarketing Sales Rule (“TSR”). Litigation is continuing with the remaining two named-defendants in the FTC enforcement action.
The FTC enforcement action was commenced on August 25, 2014 by filing a civil action, Federal Trade Commission v. Partners In Health Care Association, Inc., et al.,[i] alleging unfair and deceptive practices by offering for sale and promoting a medical discount card misrepresenting the discount card as providing comprehensive health insurance coverage.
In its Complaint For Permanent Injunction and Other Equitable Relief (“complaint”), the FTC named as defendants two corporate entities, as well as individual corporate officers of the entities who were responsible for establishing and directing the illicit marketing scheme. Specifically, the complaint named as defendants Partners In Health Care Association, Inc. (“Partners in Health Care”), d/b/a Partners In Health Care, Inc., a for-profit Wisconsin corporation, and United Solutions Group Inc. (“United Solutions Group”). d/b/a Debt Relief Experts, Inc., a for-profit Florida corporation. The individual named defendants were the president of Partners in Health Care (Partners in Health Care and president collectively as the “Seller Defendants”), and the president as well as the owner/marketing director of United Solutions Group (United Solutions Group, the president and owner/marketing director collectively as “Marketer Defendants”).
The FTC sought a preliminary, temporary and permanent injunction, as well as rescission or reformation of contracts, restitution and refund of monies paid, disgorgement and other equitable relief.
The FTC brought the civil action alleging that the defendants, through their scheme to market the medical discount cards, violated Section 5(a) of the FTCA[ii] and the FTC’s TSR[iii] promulgated under the Telemarketing and Consumer Fraud and Abuse Prevention Act.[iv]
Statutory and Regulatory Regime
Section 5(a) of the FTCA declares as unlawful, in pertinent part, “unfair or deceptive acts or practices in or affecting commerce.”[v]
The Eleventh Circuit made clear in FTC v. Peoples Credit First,[vi] that to determine whether an act or practice is deceptive, the inquiry is whether it involves a material misrepresentation or omission, such that consumers are likely to be misled, or deceived, who act reasonably under the circumstances. “Express claims, or deliberately made implied claims, used to induce the purchase of a particular product or service are presumed to be material.”[vii] Courts consider the overall “net impression” of a solicitation to determine whether the solicitation is likely to mislead consumers.[viii]
Additionally, the TSR proscribes certain acts in telemarketing. The provisions under the TSR that are cited in the FTC complaint were:
• 16 C.F.R. § 310.3(a)(2)(iii):
This subsection prohibits “[m]isrepresenting, directly or by implication, in the sale of goods or services. . . [a]ny material aspect of the performance, efficacy, nature, or central characteristics of goods or services that are the subject of a sales offer.”
• 16 C.F.R. § 310.3(a)(4):
This subsection prohibits “[m]aking a false or misleading statement to induce any person to pay for goods or services. . . .”
• 16 C.F.R. § 310.3(b):
This subsection reads that “[i]t is a deceptive telemarketing act or practice and a violation of…[the Telemarketing Sales Rule]…for a person to provide substantial assistance or support to any seller or telemarketer when that person knows or consciously avoids knowing that the seller or telemarketer is engaged in any act or practice that violates” the Telemarketing Sales Rule.
The TSR defines “telemarketing” as, in part:
“[A] plan, program, or campaign which is conducted to induce the purchase of goods or services…by use of one or more telephones and which involves more than one interstate telephone call.[ix]
Both Section 5(a) of the FTCA and several of the provisions under the TSR, noted above, were the subject of the FTC action as alleged in the FTC complaint.
The FTC’s Allegations
In its complaint, the FTC alleged that the Seller Defendants have been engaged since 2010 in a marketing scheme that misrepresented to consumers a medical discount card as providing “traditional health insurance, or the equivalent”[x] thereof, affording “comprehensive health insurance,”[xi] including coverage for physician visits, hospital stays, laboratory services, emergency room visits and prescription drug benefits. The FTC asserted that the medical discount card provided no such coverage, but instead was “worthless.”[xii] The Commission characterized the defendants’ scheme as one that “preys on consumers” in need of health insurance,”[xiii] and that the Marketer Defendants “failed to disclose” to those who were targets of marketing efforts, “in a clear and conspicuous manner,” the true nature of the product they were purchasing.[xiv]
Various other false representations were made in the marketing campaign, including that the discount card is a “qualified health insurance plan under the Patient Protection and Affordable Care Act.”[xv] The complaint averred that defendants marketed the discount card by telling consumers that comprehensive health insurance, or “health insurance plan,”[xvi] would be available for a one-time enrollment fee, and a monthly payment.[xvii] The target audience for the illicit scheme were individuals without health insurance, or those who were paying excessively high monthly premiums for insurance due to pre-existing health conditions.[xviii]
The Commission further alleged that to implement the fraudulent scheme, Partners In Health Care entered into marketing agreements with various marketers, including the Marketer Defendants, requiring the prior approval by Partners In Health Care of all marketing activities for the discount card.[xix] The Commission identified various avenues used to further the marketing scheme, including the internet, phone calls as well as Spanish-language radio advertisements and television advertisements.[xx]
Partners In Health Care charged the bank accounts and credit cards of consumers who purchased the medical discount card an initial enrollment fee, and recurring monthly charges. In turn, the Marketer Defendants were paid a part of the enrollment fee and recurring monthly fees.[xxi]
The FTC complaint asserted that Partners In Health Care engaged in a pattern of deceit by disclosing to consumers, after the purchase of the discount cards, for the first time, the true nature of the product. In printed materials that accompanied the discount cards mailed to purchasers, mention was made that the discount card was not health insurance, but rather offered more limited coverage, “pre-negotiated discounts for health services.”[xxii] “The cards. . .include the written disclaimer: “Not Insurance.”[xxiii] Further, consumers were thwarted in their efforts to return the discount cards upon learning of the true nature of the discount cards as offering something considerably less than promotional efforts suggested. “Consumers encountered significant obstacles to obtain a refund.”[xxiv]
The complaint asserted that the defendants’ fraudulent marketing scheme was national in scope, and that they maintained a “substantial course of trade in or effecting commerce,” as defined in the FTCA.[xxv] The FTC alleged in Count I of the complaint that defendants’ marketing campaign was “false and misleading,” and constituting a “deceptive act or practice” in violation of Section 5(a) of the FTCA.[xxvi] Count I pertains to both the Seller Defendants and the Marketer Defendants.
Separately, the complaint alleged two counts pertaining to violations of the Telemarketing Sales Rule. Specifically, in Count II, the FTC asserted that the Seller Defendants, Partners In Health Care and its president, in connection with the telemarketing and sale of the health discount card, engaged in misrepresentations, that the discount card was health insurance, or the equivalent thereof. Such acts were “deceptive telemarketing acts or practices,” in violation of the TSR, 16 C.F.R. §§ 310.3(a)(2)(iii) and (a)(4).[xxvii]
In Count III, the FTC asserted that the Seller Defendants, Partners In Health Care and its president, “provided substantial assistance or support”[xxviii] to telemarketers of the discount cards, and both defendants “knew or consciously avoided knowing” that the promotion of the discount cards by telemarketers was in violation of the TSR. Such actions were “deceptive telemarketing acts or practices,”[xxix] in violation of the TSR, at 16 C.F.R. § 310.3(b).[xxx]
Concurrent with the filing of the civil complaint, the FTC filed an ex parte motion for a temporary restraining order against the defendants which was granted by the district court on August 25, 2014. In the FTC’s Memorandum In Support of Plaintiff’s Motion For Ex Parte Temporary Restraining Order, the government argued that the defendants’ marketing practices were “egregious,” injuring consumers in a national marketing campaign which was ongoing.[xxxi]
Subsequently, on September 10, 2014, the court entered a stipulated preliminary injunction against defendants United Solutions Group and, its president as well as its owner/marketing director. The preliminary injunction against these defendants provided for, among other things, a freeze of defendants’ assets and the appointment of a Receiver.
On September 11, 2014, the district court entered a Corrected Preliminary Injunction against Partners In Health Care and its president, which provided for, among other things, a freeze of defendants’ assets, and for the appointment of a Receiver.
For purposes of a request by the FTC for a temporary restraining order, and preliminary injunction, the district court must: (1) determine the likelihood that the FTC will ultimately succeed on the merits; and (2) balance the equities.[xxxii] Irreparable injury is presumed.[xxxiii] Applying this standard of review, the district court granted the relief sought by the FTC.
On November 9, 2015, the district court entered a Stipulated Order for Permanent Injunction and Monetary Judgment for defendants United Solutions Group and its president as well as the owner/marketing director. Thus, the FTC concluded its action against those named-defendants. The Stipulated Order imposes a number of restraints and requirements on United Solutions Group and its principals. It permanently enjoins the defendants from advertising or otherwise promoting or offering for sale any healthcare-related products. The defendants are further enjoined in making any misrepresentations, directly or indirectly, or assisting others, in the marketing of any good or service. The defendants are prohibited from disclosing, using or benefiting from customer information. The Stipulated Order also enters judgment against the defendants in the amount of $2,114,882. Defendants are required to make an initial payment of $17,616 , and they agreed to make certain asset transfers to a designated Receiver, upon which time the remainder of the money judgment may be subject to suspension, as specified in the Stipulated Order. Provision is made in the Stipulated Order that all payments made thereunder are to deposited into an escrow fund for equitable relief, including where possible consumer redress. There is also provision for compliance reporting.
The matter involving Partners In Health Care Association and its sole officer is currently being separately litigated.
With the passage of the Patient Protection and Affordable Care Act, the incidence of marketing fraud, misrepresenting products as health insurance, has been on the rise. These scams have been the target of State Attorneys General in separate state actions under state law.
The FTC’s enforcement action in Federal Trade Commission v. Partners In Health Care Association, Inc., et al. is one of a number of such initiatives by the FTC against marketing scams involving medical discount cards fraudulently misrepresenting such products as offering bona-fide health insurance coverage.
The FTC’s efforts, relying on federal law, represent a separate front directed at marketing scams fraudulently promoting health care insurance.
The views and opinions expressed by the author are his own, and cannot be attributed to the Office of the Inspector General.
[i] Federal Trade Commission v. Partners In Health Care Association, Inc. et al., No. 14-23109 (S.D. Fla. filed Aug. 25, 2014).
[ii] 15 U.S.C. § 45(a).
[iii] 16 C.F.R. Part 310.
[iv] 15 U.S.C. §§ 6101-6108.
[v] 15 U.S.C. § 45(a).
[vi] 244 Fed. Appx. 942, 944 (11th Cir. 2007).
[vii] FTC v. Transnet Wireless Corp., 506 F. Supp. 2d 1247, 1266 (S.D. Fla. 2007).
[viii] FTC v. RCA Credit Servs, LLC, 727 F. Supp. 2d 1320, 1329 (M.D. Fla. 2010).
[ix] 16 C.F.R. § 310.2(dd).
[x] FTC Complaint, par. 15.
[xiii] Id. at par. 20.
[xiv] Id. at par. 31.
[xv] Id. at par. 22.
[xvi] Id. at par. 27.
[xvii] Id. at par. 24.
[xviii] Id. at par. 20.
[xix] Id. at par. 18.
[xx] Id. at par. 21, 22.
[xxi] Id. at par. 33, 35.
[xxii] Id. at par. 36.
[xxiii] Id. at par. 36.
[xxiv] Id. at par. 38, 39.
[xxv] 15 U.S.C. § 44.
[xxvi] FTC Complaint, par. 46.
[xxvii] Id. at par. 53.
[xxviii] Id. at par. 54.
[xxix] Id. at par. 55.
[xxx] The Counts II and III of the complaint did not include allegations that United Solutions Group, and its principals, violated the Telemarketing Sales Rule (“TSR”) since, in the Federal Trade Commission’s view, the facts in the case indicated that consumers made inbound telemarketing calls to these defendants in response to general advertisements. See 16 C.F.R § 310.6(b)(5). Defendants Partners In Health Care and its president were charged in the complaint for violations of the TSR since those defendants contracted with outbound telemarketers whose actions fell within the scope of the TSR.
[xxxi] Memorandum In Support Of Plaintiff’s Motion for An Ex Parte Temporary Restraining Order, at 1.
[xxxii] FTC v. Univ. Health, Inc., 938 F.2d 1206, 1217 (11th Cir. 1991).
[xxxiii] Id. at 1218.