:: Balance Billing Practices May Constitute Breach of Contract
rThe Hornings contend that their contract with the PPO provides that in return for the premiums they pay, the PPO makes payments to the providers on their behalf in accordance with the PPO’s contract with the provider. Moreover, the contract the PPO has with the provider ensures that the provider accepts payment at a discounted rate in consideration of the PPO’s referral of patients to the provider. In sum, a reasonable inference can be drawn from the allegations in the complaint that the Hornings were the intended third-party beneficiaries of the contract between Labcorp and the PPO. Therefore, the Hornings may sue for what they perceive as a breach of the PPO-Labcorp agreement.
Horning v. Lab. Corp. of Am., 2009 U.S. Dist. LEXIS 80866 (N.D. Ill. Sept. 3, 2009)
This district court opinion holds interest for health care providers and benefit fiduciaries alike.
As against a motion to dismiss, the district court holds that the plaintiff’s have stated a cause of action against the health care provider for balance billing, i.e., billing the balance “owed” after their health plan paid the PPO discounted rate.
According to the allegations of the underlying action, Patricia Horning had laboratory tests performed by Labcorp under a United Healthcare Preferred Provider program (”PPO”). Pursuant to the PPO’s explanation of benefits, the PPO paid Labcorp for the tests and Patricia was not required to make any additional payment. Shortly thereafter, the Hornings claim that Labcorp billed them and demanded payment in the amount of $ 322; a later bill was for $ 8.05. Asserting that Labcorp maintains a practice of accepting payment from an insurance company or PPO and later billing the patient for an amount greater than was specified in the explanation of benefits, the Hornings, as representatives of a putative nationwide class, filed a two-count complaint asserting a breach of contract claim and an Illinois Consumer Fraud Act claim.
In essence, the plaintiffs alleged that collecting or attempting to collect more from a patient than what is expressed in the explanation of benefits constitutes a breach of that contract.
Breach of Contract
The defendant moved to dismiss the complaint the contract claim on the grounds that the plaintiffs had not properly plead the existence of a contract. The plaintiffs countered that they plead the existence of a contract and the existence of their right to sue by virtue of their alleged relationship with the PPO and its contract with Labcorp, the defendant.
The Court found that the plaintiff’s theory could survive on the basis of third party contract theory, stating that “[i]t is well-established in Illinois that if a contract is entered into for the direct benefit of a third person, then the third person can sue for breach of contract despite being a stranger to the contract and consideration.}
Citing Olson v. Etheridge, 177 Ill. 2d 396, 686 N.E.2d 563, 566, 226 Ill. Dec. 780 (Ill. 1997), the Court held that:
The Hornings contend that their contract with the PPO provides that in return for the premiums they pay, the PPO makes payments to the providers on their behalf in accordance with the PPO’s contract with the provider. Moreover, the contract the PPO has with the provider ensures that the provider accepts payment at a discounted rate in consideration of the PPO’s referral of patients to the provider. In sum, a reasonable inference can be drawn from the allegations in the complaint that the Hornings were the intended third-party beneficiaries of the contract between Labcorp and the PPO. Therefore, the Hornings may sue for what they perceive as a breach of the PPO-Labcorp agreement.
Damages Element
The plaintiffs’ complaint was undone, however, on the rather simple issue of damages. The problem was that the plaintiffs never actually paid the balance billed amount. While seemingly trivial, the damages element is a part of the legal claim.
Thus, the Court thus dismissed the complaint, observing that:
Nowhere in the Hornings’ complaint do they state they paid the bill Labcorp presented to them. In their response, they concede never having paid it. Without contending that the Hornings sustained any damage arising out of Labcorp’s alleged breach, their claim for breach of contract cannot lie. As such, Labcorp’s motion to dismiss the breach of contract claim is granted.
Note: The defendants escaped further proceedings on a rather narrow factual happenstance. Had the plaintiffs paid the balanced billed amount, they would still be in court. The question of ERISA preemption was not before the Court and lurks as another issue where patients assert such claims. (This case was in federal court based upon its class action status.)
Providers will quickly send a provider lien letter on receipt of a subpoena for medical records, often anticipating an opportunity for reimbursement from a liability policy or some other third party settlement, such as workers’ compensation claims. If the provider is party to a network discount arrangement, is this a breach of contract? The Horning opinion stands for the proposition that it is on appropriate facts.
PPO Agreements - The patient does appear to be an intended third party beneficiary of the PPO agreement. On the other hand, does that agreement contain exemptions for such third party claims? The terms of these agreements are typically carefully guarded as confidential and thus the entire controversy is often veiled in layers of confusion over which claim trumps the other.
Fiduciary Liability? Is there a potential fiduciary breach if a plan fiduciary fails to monitor whether the billed rates comport with the plan’s benefit structure? I have not seen this issue raised, but it appears plausible on some factual scenarios.
The featured case points up the need for careful evaluation of balance billing practices. At the same time, the misuse of PPO’s, i.e., the controversial “blind PPO” illustrates that there are abuses on both sides of the issue. See, :: Run Silent, Run Deep: The Role of Silent PPO’s In the Health Care Delivery System (Unit 1)
Attorney Liability? And what about the patient’s attorney whose client is caught in the middle? Issues arise here as to the extent of his or her duty to verify that claimed “liens” or balances are valid. Balance billing practices provide one of the interesting topics in group health plan law because of the potential liability affects so many different parties to the transactions.
See also - :: Strategic Decisions In Pleading (And Defending) Provider Reimbursement Claims – A Case Study ; :: Another Look At The Legality Of “Balance Billing” Practices; :: Healthcare Providers’ Balance Billing Practices Under Scrutiny
You can now follow HPL on Twitter - http://www.twitter.com/healthplanlaw
