:: Court Permits Plethora Of Claims To Advance In Provider Reimbursement Litigation

The dispute at the heart of this lawsuit is whether United wrongly treated Plaintiffs as in-network providers and, consequently, wrongly under-paid or denied benefit insurance claims submitted by Plaintiffs on behalf of their patients. Dr. Gabriel alleges that while he was an in-network provider from 2006 to 2008 during his employment at Peninsula Hospital, he became out-of-network upon his leaving that hospital in 2008. Id. ¶ 36. For the following three years, Dr. Gabriel submitted assigned claims to United from his private practice, and while United “often paid such claims on an out-of-network basis,” United also sometimes treated Dr. Gabriel as a participating provider. Id. ¶ 37. Despite “repeatedly” being told by Dr. Gabriel that he was out-of-network, United’s inconsistent claims determinations continued unabated. Id.

MBody Minimally Invasive Surgery, P.C. v. United HealthCare Ins. Co., 2016 U.S. Dist. LEXIS 108598, *4 (S.D.N.Y. Aug. 15, 2016)

This case offers a survey of issues and potential claims in the health care provider reimbursement context.   In a sense, one might say the case provides a toolbox for claimants who challenge health plan reimbursement practices.   The court ruled favorably on the vast majority of claims on hearing the defendants’ motion to dismiss.

Overview of Allegations

Here’s the overview of allegations by the plaintiff:

First, while United “historically” paid from 80% to 100% of the billed charges Plaintiffs submitted, United embarked on a “retaliatory campaign” following Dr. Gabriel’s December 2011 communication to United . . .

Second, United was inconsistent and arbitrary in reimbursing different amounts at different times for the same procedure codes under the same health insurance plans.

Third, United wrongly told some of Dr. Gabriel’s patients that he was in-network and that Plaintiffs’ practice of balance billing was “improper,” “fraudulent,” and in at least one instance, a “crime.”

Fourth, after United’s payments of Plaintiffs’ claims “slowed to a trickle, with no notice or explanation of any reason for the drastic reductions in payments,” Plaintiffs’ billing service contacted United on March 11, 2013 and was informed that Plaintiffs claims were being “audited” ,,, [but] that United failed to provide adequate notice of any audit-related information, including the audit’s initiation, the fact that United at one point hired a different third-party review company, the intermittent blanket denials all of Plaintiffs’ submitted claims, and claim-specific justifications for benefit denials.

Fifth, with respect to every denied claim litigated in this suit, Plaintiffs allege that United violated a number of ERISA’s statutory and regulatory provisions and non-ERISA contractual provisions by failing to provide in a timely fashion certain required notices, disclosures, and explanations of adverse benefit determinations, plan terms, review procedures, and appeal responses.

Specific Causes of Action

The Amended Complaint asserted eleven causes of action. The first five claims were based on ERISA; the remaining six claims arose under non-ERISA plans and New York statutory and common law.

  • ERISA Claims

(1) breach of ERISA Plan provisions based on the wrongful underpayment or denial of benefits pursuant to ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B);

(2) appropriate equitable relief under ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3), for violation of ERISA § 503, 29 U.S.C. § 1133, and its implementing regulation, based on United’s imposition of the “audit”;

(3) civil penalties pursuant to ERISA § 502(c), 29 U.S.C. § 1132(c), based on (i) United’s failure to provide a “full and fair review” as required by ERISA § 503, 29 U.S.C. § 1133, and its implementing regulation, and (ii) United’s failure to provide certain plan documents upon request as required by 29 U.S.C. § 1021(a)(1)-(2) and § 1024(b)(4);

(4) violations of the fiduciary duties of due care and loyalty imposed by ERISA § 404, 29 U.S.C. § 1104, and ERISA § 406, 29 U.S.C. § 1106; and

(5) declaratory relief related to United’s failures to provide “full and fair” reviews of submitted claims and to supply certain plan documents upon request.

  • Non-ERISA Claims

(6) breach of contract based on under-reimbursing or wrongly denying insurance claims owed under those plans;

(7) breach of the covenant of good faith and fair dealing implied in the non-ERISA plans based on bad-faith under-reimbursements and imposition of the “audit”;

(8) unjust enrichment based on accepting higher premiums from patients seeking out-of-network coverage while refusing to reimburse Plaintiffs’ claims on an out-of-network basis;

(9) violation of New York General Business Law § 349 based on the same conduct underlying the unjust enrichment claim and on failure to disclose the data and methodology used to under-reimburse Plaintiffs;

(10) violation of New York Insurance Law § 3224-a, for failing to promptly reimburse claims within forty-five days; and

(11) tortious interference with prospective economic advantage based on falsely telling patients and hospitals that Plaintiffs were improperly, fraudulent, and criminally block billing.

Assignments & ERISA Claims

Of course, providers are not in the class of potential plaintiffs authorized to sue on a claim for benefits under ERISA.   Not suprisingly, therefore, United raised numerous challenges based on the putative assignments alleged by the plaintiffs.

The Court rebuffed these challenges, stating:

Leaving aside the possibility that the plans at issue prohibit assignments, which is discussed below, Plaintiffs’ allegations are sufficient at this early pleading stage to establish an effective assignment that permits Plaintiffs to proceed on these causes of action, although to ultimately prevail Plaintiffs will have to set forth actual proof that patients in fact signed such assignments in exchange for provided health services.

Assignments & Contract Claims

A similar issue arose regarding the plaintiff’s contractual claims (causes of action ##6 & 7) – to which the plaintiffs responded that they received the same broad assignments for all Assigned Claims brought under non-ERISA plans.

Thus, the Court ruled that:

United make no challenge to the meaning or scope of these alleged assignment provisions. Based on these allegations, Plaintiffs are permitted to step into the shoes of their patients and maintain breach-of-contract actions arising under the non-ERISA plans. Once again, Plaintiffs will eventually have to proffer evidence that such assignments were in fact executed in order to prevail on their contract claims.

Disposition of Allegations

Here is a summary of the disposition of claims on the motion to dismiss:

# 1   [ERISA § 502(a)(1)(B) claims for benefits]

United’s only challenge [relies] on the existence of anti-assignment provisions that invalidate the alleged assignments from patients to Plaintiffs. The motion to dismiss these two claims is therefore denied.

# 2 [ERISA § 502(a)(3) relief for violation of ERISA § 503]

Since the Amended Complaint plausibly alleges violations of ERISA § 503 and its implementing regulations, United’s motion to dismiss the second claim for relief is denied.

# 3  [Civil penalties pursuant to ERISA § 502(c)]

These are factual questions that are not resolvable on a motion to dismiss, but Plaintiffs’ allegations make it at least plausible that penalties could be appropriate here. See Sullivan-Mestecky, 2016 U.S. Dist. LEXIS 88172, 2016 WL 3676434, at *22. United’s motion to dismiss the third claim is thus denied as to penalties available for violations of 29 U.S.C. § 1024.

# 4  [Violations of the fiduciary duties imposed by ERISA § 404]

The motion to dismiss Plaintiffs’ fourth claim is denied as to the duty of due care claim brought under ERISA § 404. To the extent it seeks relief under ERISA § 406, however, the fourth claim is dismissed, with leave to replead to further clarify whether Plaintiffs intend to allege any actual prohibited transactions.

#5  [Declaratory relief related to United’s failures to provide “full and fair” reviews]

Plaintiffs’ fifth claim seeks declaratory relief and remand to the relevant plan administrator of each case of under-reimbursement for essentially the same ERISA violations raised by the other claims—most notably, the failure to provide a “full and fair review” under ERISA § 503. The motion to dismiss the fifth claim is denied, as United concedes that the equitable remedy of remand is available via ERISA § 502(a)(3) for violations of ERISA § 503.

# 6  [Breach of contract]

United’s only challenge [relies] on the existence of anti-assignment provisions that invalidate the alleged assignments from patients to Plaintiffs. The motion to dismiss these two claims is therefore denied.

# 7  [Breach of the covenant of good faith and fair dealing]

United argues that the claim should be dismissed as duplicative of Plaintiffs’ sixth claim, which alleges breach of the non-ERISA plans based on United’s underpayment or outright denial of claims. The allegations constituting the seventh claim, however, sound in a broader course of conduct than basic claim denials, attacking United’s procedural delays and obfuscation in processing Plaintiffs’ claims via the “audit.” It may end up that this seventh claim has no evidentiary basis beyond violations of express terms of the non-ERISA plans, in which case it will ultimately be dismissed as duplicative of the breach of contract claim. . . .That determination is premature at this stage of the proceedings, however, and so United’s motion to dismiss the seventh claim is denied.

#8  [Unjust Enrichment]

Plaintiffs’ unjust enrichment claim fails for multiple reasons. First, the connection between Plaintiffs’ services and United’s benefit is too tenuous, supported neither by case law on point nor sufficient factual allegations demonstrating how higher premiums and Plaintiffs’ services combined to “create an equitable obligation running from the defendant to the plaintiff.”  Second, and more importantly, this claim is duplicative of Plaintiffs’ breach of contract claim . . . . There is no way for Plaintiffs’ to cure this defect, and thus dismissal of the eighth claim is with prejudice and without leave to amend.

#9  [Violation of New York consumer statute]

Plaintiffs’ claim fails on the first element. The allegations describe no conduct on United’s part that is consumer-oriented in the sense required—Plaintiffs allege only that United wrongly classified them as in-network providers based on facts specific to Plaintiffs’ prior contractual relationships. . . .Plaintiffs are granted leave to replead because amendment may not be futile given new factual allegations describing a systematic practice or policy of wrongly treating out-of-network providers as in-network and under-reimbursing accordingly.

#10  [Violation of New York’s prompt pay statute]

Contrary to United’s position, health providers do have an implied private right of action under the statute and “construing the complaint most favorably to the plaintiff, the court interprets plaintiffs’ allegations to state that the claims submitted were ‘reasonably clear.'” United’s motion to dismiss the tenth claim is denied.

#11 [Tortious interference with prospective economic advantage]

As currently drafted, the Amended Complaint refers only speculatively to lost business from “patients” and “hospitals,” which fall short of the required “particular allegation of interference with a specific contract or business relationship.” 16 Casa Duse, 791 F.3d at 262; see also Mahmud v. Kaufmann, 607 F. Supp. 2d 541, 560 (S.D.N.Y) (holding that allegations of interference with “all hospitals to which [plaintiff] may apply for admitting privileges” did not sufficiently describe “particular” or “existing” business relations), aff’d, 358 F. App’x 229 (2d Cir. 2009). Since this lack of specificity is potentially curable with new allegations, however, Plaintiffs’ eleventh claim is dismissed without prejudice and with leave to replead.

Note:  The Court permitted the Plaintiffs to file an amended complaint to shore up the case on the anti-assignment defense.

Pursuant to Federal Rule of Civil Procedure 15(a)(2), Plaintiffs seek leave to file a second amended complaint in order to update its allegations concerning assignments. Specifically, Plaintiffs represent that some of the claims on the list of Unassigned Claims attached to the Amended Complaint were in fact assigned to Dr. Gabriel via agreements obtained by the hospitals at which Dr. Gabriel performed the procedures.  Plaintiffs also maintain that “additional health care claims have been put at issue” since the filing of the Amended Complaint.


Use of Amended Complaint – It is wise to meet a motion to dismiss with a curative proposed amended complaint as was done here.  The court will typically grant such motions if the amended complaint responds to identified pleading defects:

None of United’s other arguments overcome the strong preference in favor of granting leave to amend—in fact, they barely grapple with the specifics of Plaintiffs’ proposed amendments, arguing (wrongly) that Plaintiffs have not identified what defects an amended complaint would seek to cure, and baldly insisting that Plaintiffs should simply not receive another bite at the apple. See Def. Rep. at 11. Plaintiffs have in fact [48]  identified proposed amendments, and there is no viable allegation of bad faith on their part, nor would there be any prejudice to United in allowing an amendment.


Standing Issue – Because this issue arises so often, I want to include this important discussion for consideration.  This is the way in which a claimant may meet standing objections by resort to a Rule 15 motion to amend the complaint:
Like any other issue subject to Rule 12(b)(6), Plaintiffs’ status as assignees—whether it is said to go to Plaintiffs’ “statutory standing,” whether Plaintiffs are in ERISA’s “zone of interest,” or whether Plaintiffs can state a cause of action under ERISA—can be further clarified by additional allegations following initiation of suit. Cf. Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 97, 118 S. Ct. 1003, 140 L. Ed. 2d 210 & n.2 (1998) (holding that statutory standing “has nothing to do with whether there is case or controversy under Article III” and need not be resolved prior to addressing the merits); Leyse v. Bank of Am. Nat. Ass’n, 804 F.3d 316, 320 (3d Cir. 2015) (“[A] dismissal for lack of statutory standing is effectively the same as a dismissal for failure to state a claim, and a motion to dismiss on this ground is brought pursuant to Rule 12(b)(6), rather than Rule 12(b)(1).”) (citation and internal quotation marks omitted); Cty. of Cook v. Wells Fargo & Co., 115 F. Supp. 3d 909, 921 (N.D. Ill. 2015) (“Although the court doubts that [plaintiff] could cure the zone-of-interests defect, the dismissal is without prejudice, and [plaintiff] is granted leave to file an amended complaint….”) (citations omitted).
Violation of Fiduciary Duty – This claim presents an interesting addition to the typical claim for benefits scenario:

Plaintiffs sufficiently allege a breach of the duty of due care under ERISA § 404. Specifically, it is at least plausible that the United’s allegedly inconsistent, “arbitrary,” and “haphazard” methods of underpricing Plaintiffs’ submitted claims, and the failure to disclose those methods when used to reduce payments,  does not constitute the type of conduct a prudent fiduciary would exercise in similar circumstances.