:: Pre-Litigation Document Exchange Does Not Trigger Federal Claim Removal Deadline

[T]he Eleventh Circuit has not appeared to have addressed the issue of whether “other papers” under 28 U.S.C. § 1446(b)(2) can include documents provided prior to the commencement of litigation, and indeed, a number of Circuit Courts of Appeal have provided that the answer to this question is “no.”  . . . “As other courts have recognized, if pre-suit documents were allowed to trigger the thirty-day limitation in 28 U.S.C. § 1446(b), defendants would be forced to ‘guess’ [*9]  as to an action’s removability, thus encouraging premature, and often unwarranted, removal requests.”

S. Broward Hosp. Dist. v. Coventry Health & Life Ins. Co., 2014 U.S. Dist. LEXIS 160463 (S.D. Fla. Nov. 13, 2014)

In this provider reimbursement case, an interesting procedural issue overlays the application of the two factor ERISA removal test set forth in Aetna Health Inc. v. Davila, 542 U.S. 200, 210 (2004).

General Rule For Removal

The removal statute, 28 U.S.C. § 1146,  states that a notice of removal shall be filed within thirty days after the receipt by the defendant of a copy of the initial pleading.  But what if the initial state court pleading does not indicate a basis for removal?

“Other Paper” Hints

The statute contains a solution to that situation in subpart (2) which states that “a notice of removal may be filed within 30 days after receipt by the defendant, through service of otherwise, of a copy of an amended pleading, motion, order or other paper from which it may be first ascertained that the case is one which is or has become removable.”  (emphasis added)

The emphasized language brings a  factual component to the removal question.

Provider Reimbursement Overlay

Provider reimbursement cases can be particularly troublesome because not all such cases permit removal.

For example, in provider reimbursement cases, right of payment cases are removable but rate of payment cases are not under the two prong Davila test.   The Court in the case at bar stated the problem this way:

To address whether the claim falls within the scope of ERISA, the Eleventh Circuit has adopted a distinction between two types of claims: “those challenging the ‘rate of payment’ pursuant to the provider-insurer agreement, and those challenging the ‘right to payment’ under the terms of an ERISA beneficiary’s plan.”  “[A] ‘rate of payment’ challenge does not necessarily implicate an ERISA plan, but a challenge to the ‘right of payment’ under an ERISA plan does.”

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:: Do Benefit Plan Recoupment Claims Trigger Internal Appeal Rights?

Hopkins’ argument focuses on “what procedures an insurer must apply when seeking to recover an overpayment of benefits issued under ERISA health care plans.” Pl.’s Resp. at 3 (emphasis in original). She claims that defendants violated ERISA by seeking recoupment from MVH without providing her notice or an opportunity to appeal their decision to do so. She contends that MVH “balance billed” her “as a direct result of Defendants [sic] recoupment of benefits on her claim without complying with the processes mandated under ERISA. As such, Defendants deprived Hopkins the opportunity to challenge their recalculation of her benefits and the resulting increase in her liability to MVH.” Id. at 4-5. She asks the Court for an order that will “return the parties to the position they were in before Defendants recouped any funds – through restitution of all payments that had been improperly recouped or otherwise recovered.”

Pa. Chiropractic Ass’n v. Blue Cross Blue Shield Ass’n, 2012 U.S. Dist. LEXIS 7257 (D. Ill. 2012)

This case presents a question that I find quite interesting. The issue turns on the significance of a claim for refund or “recoupment” by a group health plan after services have been rendered and benefits paid. In the end, the court in this case decides that the refund request does not trigger any additional obligations under the ERISA claims regulations. It remains to be seen, as noted below, whether that conclusion will follow under the new claims regulations promulgated under the PPACA. (N.B. This opinion only relates to an individual claimant’s rights in the context of a refund to to alleged duplicate payments under the prior claims regulation relating to adverse benefit determinations.)

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:: Assignments of Benefits – Do They Include Rights To Statutory Penalties & Attorneys’ Fees?

It is well-established that ERISA plan participants and beneficiaries may assign their rights to their health care provider. Misic v. Bldg. Serv. Employees Health & Welfare Trust, 789 F.2d 1374, 1378-79 (9th Cir. 1986). As an assignee, the provider has standing “to assert the claims of his assignors.” Id. at 1379. A Plan may also prohibit the assignment of rights and benefits. Davidowitz v. Delta Dental Plan of California, Inc., 946 F.2d 1476 (9th Cir. 1991). Both the Braun and Rudolph Plans prohibit the assignment of benefits.

Thus, the question is whether the plan participants assigned Eden the right to sue for statutory penalties, independent from a claim for benefits.

Eden Surgical Ctr. v. B. Braun Med., Inc., 2011 U.S. App. LEXIS 4809 (9th Cir. Cal. Mar. 9, 2011)

Although a short, unpublished opinion, the decision in Eden Surgical Ctr. v. B. Braun Med., Inc. raises an important question. Does the assignment of benefits by a patient to a provider confer rights under an ERISA group health plan to assert other claims, such as a claim for statutory penalties and attorneys fees?

Claims for benefits arise under 29 U.S.C. § 1132(a)(1)(B). This case is not about a claim for benefits, though, but rather statutory penalties and attorneys fees.

Statutory penalties for failure to provide requested plan information, inter alia, may be available under § 1132(c). Attorney’s fees may be available under 29 U.S.C. § 1132(g).

In this case the Court held that the assignment did not confer rights to seek the penalties and attorneys fees, stating:

Eden’s assignment purports to include the right to sue for statutory penalties under § 1132(c), as well as the right to seek attorney’s fees. Eden’s assignment is effective during “any legal process, necessary to collect claims submitted on [the participant’s] behalf for health insurance benefits, but denied by [the] plan.” Eden’s assignment grants personal standing under ERISA for “judicial review of denied claims.”

This is not a suit seeking “judicial review of denied claims,” and the claim for relief is not asserted during any “legal process, necessary to collect claims submitted on [the participant’s behalf] for health insurance benefits, but denied by [the] plan.” Accordingly, assuming (without deciding) that the right to bring claims under § 1132(c) is free-standing and may be assigned, Eden’s assignment to seek such relief is not effective under the terms of the assignment itself because it is not pursued during a process “necessary to collect claims.”

This means that Eden lacks derivative standing to sue and the district court lacked jurisdiction. See Harris v. Provident Life and Account Ins. Co., 26 F.3d 930, 933 (9th Cir. 1994) (an ERISA civil action must be brought by a participant, beneficiary, fiduciary, or the Secretary of Labor).

According to the dissent, the question was a matter of contract interpretation (meaning, presumably the terms of the assignment itself).

This case turns on a matter of contract interpretation. Unlike the majority, I would find that the assignment language at issue allows Eden Surgical Center (“Eden”) the right to seek penalties under 29 U.S.C. § 1132(c) and would reverse the district court’s decision on that basis. For this reason, I respectfully dissent.

Since the balance of the dissenting opinion contains the judge’s perspective on the specific contractual terms, I do not think it is worth reproducing here.

Note: Since this case turned on a contractual interpretation, and the assignment terms (as interpreted) failed to confer rights to sue for penalties and attorneys’ fees, the question remains open as to whether an assignment can confer such rights under ERISA.

The Fifth Circuit took a hard look at the rights of health care providers under assignments many years ago. Under a strict reading of ERISA, of course, providers are not in the class of permitted plaintiffs.  Nonetheless, in one of the seminal opinions on the issue, the Fifth Circuit permitted an assignment of claims on this analysis:

As the district court correctly concluded below, Memorial’s state law claims asserted as an assignee of Echols’ benefits under Noffs’ plan are preempted. As assignee, Memorial stands in the shoes of Echols and may pursue only whatever rights Echols enjoyed under the terms of the plan. Such derivative claims invoke the relationship among the standard ERISA entities and clearly relate to a plan for preemption purposes. See Hermann Hospital, 845 F.2d at 1290. Moreover, these derivative claims fall within the scope of section 502(a), ERISA’s civil enforcement scheme, which Congress intended to be the exclusive vehicle for suits by a beneficiary to recover benefits from a covered plan. See Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 62-63, 107 S. Ct. 1542, 1546, 95 L. Ed. 2d 55 (1987).

Memorial Hosp. Sys. v. Northbrook Life Ins. Co., 904 F.2d 236 (5th Cir. Tex. 1990).

Note the reference to ERISA Section 502(a) (which is the parallel citation to 1132(a)). I am inclined to think that the Fifth Circuit (and likely majority of courts facing this unique issue), would limit health care providers’ rights under assignments to claims for benefits.

:: Fiduciary Duties Not Implicated In Managed Care Rate Negotiations

Thus, in a nutshell, Blue Cross lowered rates for its own subsidiary by effectively raising them for Flagstar and other self-insured plans. The letter agreements between Blue Cross and the hospitals spell out these facts in black and white.

But that does not mean that Flagstar knew about the deals. To the contrary, Blue Cross has admitted (in interrogatory responses in this case) that it never told Flagstar it had raised the Plan’s rates in order to lower them for its own subsidiary. And it appears that Flagstar was otherwise clueless about the change, because Blue Cross did not provide backup data for the bottom-line charges it sent Flagstar each month.

Deluca v. Blue Cross Blue Shield of Mich., 2010 FED App. 0371P (6th Cir.) (6th Cir. Mich. Dec. 8, 2010), Kethledge, J, dissenting.

This unpublished Sixth Circuit opinion spotlights a business practice that rarely gets such close scrutiny.  A Blue Cross subsidiary failed to meet its profitability numbers which inspired the idea to lower its reimbursement rates.

That solution did not sit well with health care providers, of course, so Blue Cross promised to make the transaction “budget neutral” in this way:

BCBSM agreed to make the rate adjustments budget-neutral for the health-care providers by increasing the PPO and traditional plan rates to make up for the decrease in the HMO rates. Some of these rate adjustments were retroactive to the beginning of the year in which they were negotiated.

A plan participant in one of the self-funded plans Blue Cross administered sued Blue Cross alleging breach of fiduciary duty.

DeLuca, a practicing attorney in Grosse Point Park, Michigan, was a beneficiary of the Flagstar Bank Group Health Plan through his wife’s participation as a Flagstar Bank employee. In 2006, he filed the present action against BCBSM alleging that BCBSM violated its duties as a fiduciary under two provisions of ERISA, 29 U.S.C. § 1104 and § 1106(b), by agreeing to increase its traditional and PPO plan rates in exchange for decreases in the HMO rates.

The district court granted Blue Cross’ motion for summary judgment, concluding that BCBSM was not acting as a fiduciary for the Flagstar Plan when it negotiated the rate adjustments, and DeLuca appealed.

Two Issues

On appeal the issues were:

#1 What Blue Cross acting as an ERISA fiduciary under 29 U.S.C. § 1104 when it negotiated the rate changes?; and

#2 Must Blue Cross be “acting in a fiduciary capacity” to be liable under 29 U.S.C. § 1106(b)(2)?

[which provides that “A fiduciary with respect to a plan shall not . . . in his individual or in any other capacity act in any transaction involving the plan on behalf of a party (or represent a party) whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries.”]

Not Acting As A Fiduciary

The Court held that Blue Cross was not in fact acting as a fiduciary when it negotiated the rates with providers.

We conclude, as did the district court, that BCBSM was not acting as a fiduciary when it negotiated the challenged rate changes, principally because those business dealings were not directly associated with the benefits plan at issue here but were generally applicable to a broad range of health-care consumers.

The Court concluded that “a business decision that has an effect on an ERISA plan not subject to fiduciary standards.”In this case, the “conduct at issue” clearly falls into the latter category, “a business decision that has an effect on an ERISA plan not subject to fiduciary standards.

. . . And Thus Not Liable For A Prohibited Transaction

The Court held that the foregoing conclusion defeated the prohibited transaction claim, stating that:

DeLuca’s argument, as we understand it, is that the terminology “in any other capacity” imposes liability on a fiduciary even when not acting in a fiduciary capacity, at least with regard to those activities prohibited by section 1106. Such an interpretation, however, flies in the face of our holding that, “by its own terms, § 1106 applies only to those who act in a fiduciary capacity.” Hunter, 220 F.3d at 724. Because BCBSM was not acting in a fiduciary capacity when it negotiated the rate changes at issue in this case, BCBSM did not violate § 1106(b)(2).In this case, the “conduct at issue” clearly falls into the latter category, “a business decision that has an effect on an ERISA plan not subject to fiduciary standards.”

Note: The dissent saw the matter as involving factual issues that made the case one for trial, not summary judgment. In a thoughtful opinion, Judge Kethledge wrote:

Whether Blue Cross functioned as a fiduciary when it established and maintained provider networks for Flagstar depends on how one characterizes their agreement. DeLuca says—and I think no one disagrees—that the function of negotiating rates with provider hospitals surely would have been fiduciary in nature had the Plan’s trustees kept that function in-house; and in DeLuca’s view, the Contract merely delegated that function from the trustees to Blue Cross. He therefore contends that Blue Cross was acting as a fiduciary when, as part of the services it provided under the Contract, it negotiated rates for the Plan. In contrast, Blue Cross argues that it actually provided a product—off-the-shelf access to its provider network at whatever rates Blue Cross cared to negotiate with them—rather than services.

The difference matters because, while selling a product tends not to create fiduciary duties under ERISA, providing services quite frequently does. And that is especially true for discretionary services that directly impact a plan’s finances. The nub of this case, therefore, is which conception of the parties’ agreement is right.

I do not think this issue is one we can fairly decide—at least in Blue Cross’s favor—as a matter of law.

29 U.S.C. § 1106(b)(2) – The dissent also disagreed on the elements required for a prohibited transaction under this provision, stating:

In Pegram v. Herdrich, 530 U.S. 211 (2000), the Supreme Court stated that, “[i]n every case charging breach of ERISA fiduciary duty, then, the threshold question is . . . whether that person was acting as a fiduciary (that is, was performing a fiduciary function) when taking the action subject to complaint.” Id. at 226 (emphasis added). But Pegram was only a § 1104 case, so that statement is pure dicta as to § 1106(b)(2).

A similar statement by our court, however,  cannot be so characterized. In Hunter v. Caliber System, Inc., 220 F.3d 702 (6th Cir. 2000), we said that, “by its own terms, § 1106 applies only to those who act in a fiduciary capacity.” Id. at 724. The Hunter court characterized that statement as a holding (albeit an alternative one), and I cannot fairly recast it as dicta. It is binding precedent for our circuit.

Policy Issues – The dissent reviewed the policy issues raised by Blue Cross and proposed some interesting rebuttals.  In the end, however, Judge Kethledge concluded that:

More fundamentally, I reject the unspoken premise of the preceding two arguments, which is that we should be acutely concerned about Blue Cross’s business model in the first place. Cases have consequences, and we should be mindful of them. But our task in this case is not to divine the business model that best serves the plans’ interests and those of everyone else; our task, instead, is the comparatively simple one of determining whether the letter deals violated ERISA. The wisdom of business models can be determined elsewhere.

:: Equitable Liens In Restitution – An Alternative Under ERISA Section 502(a)(3)?

Werner also sought restitution, asking the district court to impose a constructive trust or an equitable lien on the $ 3895 that Primax obtained from Progressive. The court found that request to be moot, however, because Primax had returned those funds to Progressive nearly 20 months prior to Werner’s filing of this action. Werner argues that the district court erred by assuming that a specific res had to be identifiable before it could impose an equitable lien.

Werner v. Primax Recoveries, Inc
., 2010 FED App. 0112N (6th Cir.) (6th Cir. Ohio 2010)

The Sixth Circuit’s unpublished opinion in Werner v. Primax Recoveries touches on an interesting issue regarding the nature of “equitable liens by agreement” as distinguished from “equitable liens in restitution” and the scope of ERISA Section 502(a)(3). .

The Facts

Werner was involved in a traffic accident on June 28, 2002, and required medical treatment for his injuries.

In addition to coverage through an employer-sponsored health-insurance policy through Medical Mutual of Ohio he also had “medpay” coverage through his automobile insurance policy that covered up to $ 5000 in medical-expense benefits.

Some of his medical bills were submitted to his health plan and some were submitted against his medpay coverage. The health plan apparently paid the bills submitted to it, but then asserted a claim against Werner’s medpay coverage. This subrogation claim exhausted the $ 5000 medpay limit.

For reasons undisclosed, some of the providers ended up with their bills unpaid. In fact, one of Werner’s medical providers sued him for non-payment.

Demand On Progressive

Rather than pursue payment of the outstanding bills through the health plan, Werner demanded that Progressive seek a refund from the health plan’s recovery agent (Primax) of what had been previously paid to the health plan out of his medpay coverage. (The reasons for this approach are not clear from the opinion.)  The repayment would apparently restore the medpay coverage in sufficient amount to satisfy the health care provider’s claims.

Werner added claims against Primax in the course of the personal injury claim based upon its claim on the medpay coverage.  In an effort to settle the controversy, Primax refunded the money it had recovered to Progressive.

The matter did not end there, however.  Werner sought class action relief in an independent action in federal district court – a case which was ultimately dismissed.   The district court based its holding on a number of grounds, including standing, mootness, and preemption.

Appeal Of Denied ERISA Claims

Of the arguments asserted on appeal, the most interesting argument was Werner’s attempt to impose liability under ERISA in terms of equitable relief under ERISA Section 502(a)(3).  (We will ignore the standing and mootness problems with his claims for purposes of discussion.)

In the words of the Court:

Werner also sought restitution, asking the district court to impose a constructive trust or an equitable lien on the $ 3895 that Primax obtained from Progressive. The court found that request to be moot, however, because Primax had returned those funds to Progressive nearly 20 months prior to Werner’s filing of this action.

Werner argues that the district court erred by assuming that a specific res had to be identifiable before it could impose an equitable lien. He relies solely on a passage in Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356, 126 S. Ct. 1869, 164 L. Ed. 2d 612 (2006), in which the Court explained that “strict tracing” of funds is not necessary when an equitable lien is established by an agreement. See id. at 364-65.

But that reliance is misplaced: Werner has no agreement with Primax that creates an equitable lien. Rather, he seeks an equitable lien in restitution, i.e., the return of something that he alleges Primax wrongfully took. Sereboff expressly distinguishes such claims.

The return of the funds by Progressive proved fatal to this claim:

Moreover, Sereboff still requires that a request for restitution under § 502(a)(3) target “‘particular funds or property in the defendant’s possession.'” Id. at 362 (quoting Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 213, 122 S. Ct. 708, 151 L. Ed. 2d 635 (2002) (emphasis added)).

Werner does not dispute that Primax returned the $ 3895 to Progressive. We fail to see why that would not already amount to restitution here, thus mooting the request–unless what Werner actually seeks is possession of the $ 3895 for himself. But for that, presumably he may now file reimbursement claims with Progressive. Restitution certainly does not require that Primax pay twice.

Our review of Sereboff also leads us to conclude that Werner’s restitution claim is for relief that a court cannot grant under § 502(a)(3), because he seeks legal rather than equitable restitution. See id. at 361-62 (distinguishing the two types and explaining that only equitable restitution is available under § 502(a)(3)); Fed. R. Civ. Pro. 12(b)(6).

The district court properly granted summary judgment on this claim.

Note: The “agreement” required to impose a Sereboff-like remedy is an intriguing issue.  In Sereboff, of course, the Court did not based its finding of an “agreement” on any contractual document.  The “agreement” was implied from the terms of the plan which contained a reimbursement provision.

So when may such an agreement be implied?  When Primax recovered funds as the health plan’s recovery agent, it did no more than act under the terms of the plan.   The Court was correct in finding that no equitable lien by express or implied agreement supported Werner’s claims.

The Court goes further, however, and makes an observation that may have some value beyond a typical subrogation case.  The Court describes the relief sought by Werner as an “equitable lien in restitution”.  Note that the Court does not find that claim to be “legal” (and thus unavailable under (a)(3) as “other equitable relief”).  Rather, since the funds have been returned, the claim was legal inasmuch as no res remained upon which to impose an equitable remedy.

This notion of equitable relief in restitution may just the remedy that an ERISA plan should dial up when seeking refunds from recalcitrant health providers.  The troubling issue of whether an equitable lien by agreement can be found may perhaps by sidestepped by this arabesque.  What the plan asserts is simply an equitable lien in restitution.   The Werner opinion, though unpublished, should go in the desk file.

:: Eleventh Circuit Applies Supreme Court’s Davila Test To Health Care Providers’ “Hybrid” Claims

While similar to the Butero test, Davila refines Butero by inquiring about the existence of a separate legal duty, which is not a consideration under Butero.

Moreover, a number of other circuits have recognized Davila’s two-part test as the proper test for complete preemption under ERISA . . . In accordance with the Supreme Court’s directive, we too apply Davila.

Conn. State Dental Ass’n v. Anthem Health Plans, Inc., 2009 U.S. App. LEXIS 28773 (11th Cir. Fla. Dec. 30, 2009)

 This recent 11th Circuit opinion applies the two-part analysis required under Aetna Health Inc. v. Davila, 542 U.S. 200 (2004) to health care providers’ allegations in a class action complaint. The now familiar Davila test requires two inquiries: (1) whether the plaintiff could have brought its claim under § 502(a); and (2) whether no other legal duty supports the plaintiff’s claim. 

On the facts before it in this case, the Court held that several of the providers’ claims were completely preempted under this test.

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:: Health Care Provider’s Tort Claims Preempted Under Fifth Circuit ERISA Jurisprudence

The Court did not suggest that all tort claims are completely preempted by ERISA wherever there is an assignment of patient benefits, only that Plaintiffs’ claims in this case were so preempted under controlling Fifth Circuit law. See Transitional Hosps. Corp. v. Blue Cross & Blue Shield of Tex., Inc., 164 F.3d 952, 954 (5th Cir. 1999).

Quality Dialysis One LP v. Aetna Life Ins. Co., 2009 U.S. Dist. LEXIS 115498 (S.D. Tex. Dec. 10, 2009)

In this opinion out of the Southern District of Texas, the Court finds the health care provider’s claims for reimbursement preempted where the provider sued the health plan asserting “tort claims flowing from the direct communications and business relationship between the parties.” 

The presence of an assignment of benefits and the absence of claims based upon a managed care contract contributed largely to the plan’s successful defense.

The Facts

The facts are adequately summarized in the following excerpt:

Quality Dialysis is a home hemodialysis provider that serviced patients covered by health insurance and employee welfare benefit plans that Aetna administered. Beginning in September 2006, Plaintiffs allege that Aetna began to systematically deny Quality Dialysis’ claims for payment and demanded a refund for claims already paid in excess of one million dollars.

Quality Dialysis further contends that Aetna attempted to persuade patients using Quality Dialysis’ services to switch to a competitor’s home hemodialysis service. Finally, Quality Dialysis alleges that the unpaid insurance claims and Aetna’s request for a refund on past claims caused it to lose an opportunity to sell its business to an unnamed prospective purchaser.

 No Managed Care Contractual Claims

The case was first filed in state court and thereafter removed to federal court based upon ERISA complete preemption of the plaintiff’s claims.  The Court denied the plaintiff’s motion to remand, and in the opinion under discussion here, denied a motion for reconsideration.

The Court observes that:

In its motion for reconsideration, Quality Dialysis argues that the Court failed to “distinguish the true nature of the separate, independent tort causes of action raised by Plaintiffs[,] which only arise out of the independent business relationship between an insurer (Aetna) and medical provider (Quality Dialysis).” (Doc. 39 at 1.)  Quality Dialysis concedes that it “does not bring a breach of contract action arising out of a managed care agreement . . . .” (Id. at 2.) This is important because there was no managed care contract between the Plaintiffs and Defendants in this case.

Claims Based Upon Tort Theories

The Court viewed the plaintiff’s claims as essentially tort claims that emulated a claim for benefits under the plan.  Such claims are of course subject to ERISA complete preemption. 

The Court makes this point as follows:

. . . Quality Dialysis brings “tort claims flowing from the direct communications and business relationship between the parties.” (Id.) The Court, however, determined that it is precisely these tort claims that are preempted by the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended, 29 U.S.C. §§ 1001-1461.

Effect Of Assignment

The plaintiffs claimed that the Court had overemphasized the effect of an assignment of benefits.

Plaintiffs further express concern that the Court’s ruling “would shield every insurance company from its  independent torts committed against medical providers, no matter how egregious, if the medical provider obtains an assignment of benefits from the patient.”

But the Court rejected this claim as fallacious, stating:

The Court did not suggest that all tort claims are completely preempted by ERISA wherever there is an assignment of patient benefits, only that Plaintiffs’ claims in this case were so preempted under controlling Fifth Circuit law. See Transitional Hosps. Corp. v. Blue Cross & Blue Shield of Tex., Inc., 164 F.3d 952, 954 (5th Cir. 1999).

Thus, the motion for reconsideration was denied.

Note:  This opinion is rather short.  It nonetheless provides a pithy distinction between provider cases brought outside of managed care agreements and those that may articulate an independent contractual duty that may potentially survive preemption.

Procedural Point – The Court notes that the Rule 60 motion is inferior to a timely Rule 59(e) motion.  That is a distinction also worth noting.

  Although Plaintiffs fails to expressly invoke the provision governing motions for reconsideration, such motions are generally considered cognizable under either Federal Rule of Civil Procedure 59(e), as motions “to alter or amend judgment,” or under Rule 60(b), as motions for “relief from judgment.” Lavespere v. Niagara Mach. & Tool Works, 910 F.2d 167, 173 (5th Cir. 1990). “Under which Rule the motion falls turns on the time at which the motion is served.

 If the motion is served within ten days of the rendition of judgment, the motion falls under Rule 59(e); if it is served after that time, it falls under Rule 60(b).” Id. (citing Harcon Barge Co. v. D & G Boat Rentals, 784 F.2d 665, 667 (5th Cir.1986) (en banc)). Because Plaintiffs brought their motion for reconsideration more than ten days from entry of judgment, reconsideration can only be given within the stricter limitations of Rule 60(b).

Earlier Opinion – As noted above, the present opinion was in the context of a motion for reconsideration.  More insight on the Court’s reasoning may be gleaned from this excerpt from the prior opinion:

Finally, Quality Dialysis alleges the common law torts of negligence, negligent misrepresentation, and interference with existing contracts and business relations. Quality Dialysis argues that it is a third-party health care provider and therefore that Memorial Hosp. Sys. v. Northbrook, 904 F.2d 236 (5th Cir. 1990) controls. In that case, the Fifth Circuit held that a claim of deceptive practice under Texas Insurance Code for misrepresentation of the coverage status of an employee’s spouse was not preempted by ERISA, where the hospital providing treatment was a third-party health care provider. While “ERISA does not preempt state law when the state-law claim is brought by an independent, third-party health care provider . . . against an insurer for its negligent misrepresentation regarding the existence of health care coverage[,] . . . state-law claims for breach of fiduciary duty, negligence, equitable estoppel, breach of contract, and fraud are preempted by ERISA when the [health care provider] seeks to recover benefits owed under the plan to a plan participant   who has assigned her right to benefits to the [health care provider].” Transitional Hosps. Corp. v. Blue Cross & Blue Shield of Tex., Inc., 164 F.3d 952, 954 (5th Cir. 1999) Hosps. Corp. v. Blue Cross & Blue Shield of Tex., Inc., 164 F.3d 952, 954 (5th Cir. 1999) (internal citations omitted). Here, Quality Dialysis is a health care provider holding an assignment of ERISA plan benefits.

In Davila, the Supreme Court confronted state claims against HMOs for negligence “in the handling of coverage decisions” under their benefit plans. 542 U.S. at 204. The Court held that such claims were completely preempted by ERISA despite any violation of state law because “interpretation of the terms of [plaintiffs’] benefit plans form[ed] an essential part of their [state law] claim.” Id. at 213. Quality Dialysis, as an assignee of patients’ plan benefits, could have brought suit under ERISA § 502(a). Because Plaintiffs’ state law causes of action and common law torts arising from unpaid and underpaid insurance claims in plans administered by Aetna are preempted by ERISA, the Court finds federal question jurisdiction present as to these claims.

Quality Dialysis One LP v. Aetna Life Ins. Co., 2009 U.S. Dist. LEXIS 89672 (S.D. Tex. Sept. 29, 2009)

Other Fifth Circuit Authority –  The provider reimbursement case law in the Fifth Circuit has been quite influential.  Here are some important cases in Fifth Circuit jurisprudence in this context:

Hermann Hosp. v. MEBA Medical & Benefits Plan, 845 F.2d 1286, 1290 (5th Cir. 1988)(Hermann I).

Memorial Hosp. System. V. Northbrook Life Ins. Co., 904 F.2d 236, 243-46 (5th Cir. 1990).

Hermann Hosp. v. MEBA Medical & Benefits Plan, 959 F.2d 569 (5th Cir.1992) (Hermann II ).

Cypress Fairbanks Med. Center, Inc. v. Pan-American Life Ins. Co., 110 F.3d 280 (5th Cir.), cert. denied, 139 L. Ed. 2d 110, 118 S. Ct. 167 (1997).

Transitional Hosps. Corp. v. Blue Cross & Blue Shield, Inc., 164 F.3d 952 (5th Cir. Tex. 1999).

Abilene Reg’l Med. Ctr. v. United Indus. Workers Health & Benefits Plan, 41 Employee Benefits Cas. (BNA) 1098 (5th Cir. Tex. Mar. 6, 2007)

:: Ninth Circuit Holds That ERISA Does Not Preempt Hospital’s State Law Claims

We consider in this case whether § 502(a)(1)(B) of the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1132(a)(1)(B), completely preempts a state-law action for breach of contract, negligent misrepresentation, quantum meruit and estoppel. Because the state-law claims could not be pursued under § 502(a)(1)(B), and because they rely on legal duties that are independent from duties under any benefit plan established under ERISA, we hold that they are not completely preempted. Because the claims are not completely preempted under § 502(a)(1)(B), there is no federal question subject matter jurisdiction in federal court. Removal from state court was therefore improper.

Marin General Hospital v. Modesto & Empire Traction Company, No. 07-16518 (9th Cir. 9/10/2009) (9th Cir., 2009)

In Marin General Hospital v. Modesto, the Ninth Circuit had to determine whether the Hospital’s state-law claims are completely preempted under § 502(a)(1)(B) of ERISA, 29 U.S.C. § 1132(a)(1)(B), and thus whether the case was properly removed from state to federal court.

The Facts

The issue arose out of a familiar scenario. 

 According to its complaint, Marin General Hospital (“the Hospital”) telephoned the Medical Benefits Administrators of M.D., Inc., (“MBAMD”) on April 8, 2004, to confirm that a prospective patient had health insurance through an ERISA plan provided by his employer, Modesto & Empire Traction Co. (“Modesto”). MBAMD was the administrator of Modesto’s plan.

According to the complaint, MBAMD orally verified the patient’s coverage, authorized treatment, and agreed to cover 90% of the patient’s medical expenses at the Hospital.

The Hospital performed lumbar fusion surgery on the patient and submitted a bill for $178,926.54.   The plan paid the Hospital $46,655.54 as full payment.

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:: PHCS Rate Schedule Challenged In New Managed Care Litigation

Chaffin v. Humana (S.D. Tex.)  challenges Humana’s alleged use of the “Prevailing Healthcare Charges System” to establish rates of reimbursement for out of network providers.  The case is brought by members of Humana’s “National Point of Service” insurance plan, according to the complaint.

The complaint alleges that Ingenix, a subsidiary of United Healthcare Group, operates a proprietary database system known as the “Prevailing Healthcare Charges System.” PHCS purportedly derives a percentile -segmented survey of “usual and customary” charges by factoring in insurers’ billing information for similar types of medical services.

The use of the PHCS was investigated by the New York Attorney General last year. (See,:: New York Attorney General To Sue Ingenix & United Health Care Over “Rigged Data”) The validity of the data and parameters employed by the system is now at the center of the controversy in the Chaffin v. Humana case.

These issues were raised in the Health Net litigation. :: Health Net Settlement At $215 Million May Set Class Action Record.

As I noted in :: PHCS Provider Reimbursement Controversy Affects ERISA Self-Funded Health Plans, the PHCS issue could have broader implications for the self-funded health plan community. This is because self-funded claims administrators also use the PHCS to establish reimbursement rates for out of network providers.

Note:   See also, American Medical Ass’n v. United Healthcare Corp. Slip Copy, 2006 WL 3833440 S.D.N.Y. 2006 (December 29, 2006)  and :: Court Permits Antitrust and RICO Claims To Go Forward Based Upon UCR Database Allegations.  (I attached the Chaffin v. Humana complaint to a cross post on erisaboard.com.)

:: ERISA Plan Stands Down In “Overpayments” Dispute With Providers

Following an outcry from physicians and discussions with the Medical Assn. of Georgia, one of Atlanta’s largest employers has temporarily halted work by a company it hired to seek supposed overpayments from doctors.

Earlier this year, Georgia-Pacific authorized Franklin, Tenn.-based Health Research Insights to send 1,100 letters to doctors in Atlanta, Savannah, Ga., and Brunswick, Ga., on what it called a “pilot basis” to solicit repayment for medical claims the company believes were overpaid.

Company stops tapping physicians for “overpayments”, Amednews.com (by Emily Berry) (May 11, 2009)

The drama between a company called  “Health Research Insights” and Georgia physicians has reached an anti-climatic conclusion after protests by physicians and the Georgia Medical Association.  The article cited above is accompanied by another background piece which gives further detail.

The article recites alleged claims by HRI against physicians for “overpayments” which are apparently derived from a computer analysis of provider claims for reimbursement.

Here’s the interesting ERISA angle:

What makes HRI’s effort different from the kind of payback attempts physicians might be accustomed to is HRI’s claim — not yet legally countered — that plans operating under ERISA law aren’t limited by the constraints many states put on insurers, particularly in how far back in time they can go to reclaim payment.

(from Amednews.com)

Let’s put the preemption issue aside for a moment (though I think that issue is more nuanced that HRI appears to claim).  Instead, let’s take a look a the implicit assumption that the plan can make the claim for reimbursement “back in time.”

A plan fiduciary could proceed under 1132(a)(3) against a defendant, but it is always an interesting question as to what relief can be asserted under that provision.  “Appropriate equitable relief” is the delimiting feature of such claims – and that storied phrase has quite a history of controversy.

Are the claims for overpayment limited to instances where a specifically identifiable res exists?  That appears to be clear enough fromGreat West v. Knudson.   (The Sereboff eschewing of “tracing” rules did not abrogate this requirement when properly understood.)  The in the case of old provider reimbursements, going back years, I am quite skeptical of how the ERISA claim would work for the plan.

Evidently, the issue remains viable since Georgia is not the only arena in which these claims are being asserted.  I will reserve for another post some avenues that a plan might advance other than an (a)(3) claim, as well as my reservations about the scope of preemption claimed by the plans under the argument as I understand it from the Amednews.com article.  

Very good coverage of this issue in that publication, by the way, and I have bookmarked the site so that I can follow future developments.

:: Health Care Provider’s Equitable Estoppel Claims Dismissed As Contrary to Plan’s MAC Provisions

According to the express language of the Plan, “Billed charges [“the amount a Provider charges for services rendered”] may be different from the amount that [Blue Cross] determines to be the Maximum Allowable Charge for services.”

Regency Hosp. of Cincinnati v. Blue Cross Blue Shield of Tenn., 2009 U.S. Dist. LEXIS 37111 (S.D. Ohio May 1, 2009)

This provider reimbursement case illustrates several hazards for the health care provider that warrant careful attention.

First, as always, “verification” calls are always less valuable than they first appear. Verification of what? (Rarely will you find a verification of “payment”).

Second, the language of assurance can be complex. In this case, as the excerpt reveals, a promise to pay the “maximum allowable charge” is far less of a commitment that it may appear.

Third, estoppel will be unavailable in most cases to backstop errors – at least where plan language is clear enough (and the plan administrator will get a pass in many cases based upon a discretionary clause).

The Facts

Regency, a provider of long term acute care hospital services, became embroiled in a dispute over a purported verification of eligibility or coverage, or both – the opinion is ambigous on this point.

The patient, Fogelson,  was insured under a health plan issued by Blue Cross to Fogelson’s employer.  Prior to her admission, Regency telephoned Blue Cross “to verify Fogelson’s coverage” and “to pre-certify her treatment.”

Regency alleged that a Blue Cross representative “confirmed Fogelson’s eligibility.”  Later, Regency again called Blue Cross to “verify Fogelson’s coverage”, and Regency alleges that Blue Cross again “confirmed Fogelson’s eligibility”. Relying on this information, Regency provided services to Fogelson “without arranging alternate payment provisions from her.”

This Call Is Being Recorded

An interesting aspect of this case is that the conversations were recorded and the recordings used as evidence.

Resolution of this case is eased considerably due to the existence of a tape recording of the conversation between the parties where Blue Cross’s representations about coverage are expressly memorialized. The recording eliminates any genuine issue of material fact. And the tape recording entirely disproves Regency’s claims and affirms Blue Cross’s defense.

As the recording of the conversation between Blue Cross and Regency reflects, Regency asked if it would receive “usual and customary rates,” i.e., “UCR” rates, and, in response, Blue Cross expressly told Regency that “the Plan pays Maximum Allowable Charge rates.” In that same call, Blue Cross also expressly told Regency that there was a maximum lifetime benefit of $ 1,000,000.

The Litigation

Regency filed a state law action alleged breach of implied contract and estoppel.  Blue Cross removed the case and moved for summary judgment.  At the time the case was resolved, Regency had not amended its complaint to state a case for equitable estoppel under ERISA common law principles, but the Court removed any doubt that Regency had no estoppel case under state or federal law.

The Case For Preemption

Blue Cross argued that Regency’s state law claims are pre-empted by ERISA.  Moreve, Blue Cross contended that Regency could not assert a breach of contract claim and has not pled a cognizable claim for equitable estoppel.

The Court agreed.

Negligent Misrepresentation Claim Rejected

Regency attempted a circumvention of the preemption argument by contending that it did not bring its claims seeking to enforce the terms and conditions of any health benefit plan.  Rather, Regency argued, it based its claim for recovery of its damages for detrimental reliance based upon the words and actions of Blue Cross.

Regency maintains that “ERISA does not preempt state law when the state law claim is brought by an independent, third-party health care provider (such as a hospital) against an insurer for its negligent misrepresentation regarding the existence of health care coverage.” See Miami Valley Hospital v. Community Ins. Co., 2006 WL 2252669 *7 (S.D. Ohio, August 7, 2006) (Rose, J.) (quoting Transitional Hosps. Corp. v. Blue Cross & Blue Shield of Tex., Inc., 164 F.3d 952, 954 (5th Cir. 1999)).

The Court rejected this argument, stating that:

However, Transitional Hospital also held that “a hospital’s state-law claims for breach of fiduciary duty, negligence, equitable estoppel, breach of contract and fraud are preempted by ERISA when the hospital seeks to recover benefits owed under the plan to a plan participant who has assigned her rights to benefits to the hospital.” See Transitional Hosps., 164 F.3d at 954 (emphasis added).

Moreover, the Sixth Circuit has also held that ERISA preempts such estoppel and breach of contract claims. In Cromwell v. Equicor-Equitable HCA Corp., 944 F.2d 1272 (6th Cir. 1991), the Sixth Circuit stated that “ERISA preempts state law and state law claims that “relate to” any employee benefit plan as that term is defined therein.” Cromwell, 944 F.2d at 1275 (citing 29 U.S.C. Sec. 1 144(a) and Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987)). As such, the Sixth Circuit has specifically stated that equitable estoppel and promissory estoppel are expressly preempted. Cromwell, 944 F.2d at 1276.

ERISA Estoppel Principles Unavailing
Regency asserted that even if its state law claims were preempted by ERISA, it could maintain an estoppel claim under ERISA. The Court also rejected this argument since the plan language was not ambiguous.
Equitable estoppel under ERISA is not available to override the clear terms of plan documents. Sprague v. General Motors Corp., 133 F.3d 388, 404 (6th Cir. 1998) (en banc). “(A)lthough equitable estoppel may a viable theory in ERISA cases, principles of estoppel cannot be applied to vary the terms of unambiguous plan documents; estoppel can only be invoked in the context of ambiguous plan provisions.” Putney v. Medical Mutual of Ohio, ILL Fed. Appx. 803, 807 (6th Cir. 2004) (citing Sprague, 133 F.3d at 404).
“Consequently, a claimant must plead plan ambiguity in this Circuit to state a claim for estoppel relative to an ERISA claim for benefits.” Marks v. Newcourt Credit Group, Inc., 342 F.3d 444, 456 (6th Cir. 2003).
The Plan Language Was Not Ambiguous
The Court observed that Regency did not assert that plan language was ambiguous, nor that equitable estoppel should apply to assist with the interpretation of the Plan language.
Thus, absent some pleading that the Plan language itself is ambiguous and requires interpretation, the Court finds that Regency fails to plead a threshold element of ERISA-based equitable estoppel.
Note: The elements of equitable estoppel in the Sixth Circuit are:
(1) a representation of fact made with gross negligence or fraudulent intent; (2) made by a party aware of the true facts;  (3) intended to induce reliance or reasonably believed to be so intended; where the party asserting the estoppel is (4) unaware of the true facts; and (5) reasonably or justifiably relies on the representation to his detriment. Trustees of the Mich. Labors’ Health Care Fund v. Gibbons, 209 F.3d 587, 591 (6th Cir. 2007).
The court observed that Sixth Circuit authority holds that reliance will seldom be considered reasonable if counter to the express terms of the plan.
From the opinion, one can see that an allegation of ambiguity is necessary to properly state a claim for equitable estoppel.
Diagnostic Grouping Rates –The language of MAC can be foreign to the provider but it is an important language to learn.
On the first bill of $ 29,078.81, $ 23,022.33 was disallowed for inclusion within the Maximum Allowable Charge because, pursuant to the Plan, the charge exceeded the Diagnosis Related  Grouping Rate. This disallowance left an allowed amount of $ 6,056.48. After deducting Ms. Fogelson’s $ 200 co-pay, Blue Cross properly paid 100% of the $ 5,856.48 balance.
On the second bill of $ 213,648.07, $ 190,401.69 was disallowed for inclusion within the Maximum Allowable Charge because, pursuant to the Plan, the charge exceeded the Diagnosis Related Grouping Rate. This disallowance left an allowed amount of $ 23,246.38. After deducting Ms. Fogelson’s $ 200 co-pay, and $ 3,902.40 in co-insurance, 2 Blue Cross properly paid 100% of the $ 19.143.98 balance.
The opinion is attached to the new case thread on erisaboard.com.

:: Strategic Decisions In Pleading (And Defending) Provider Reimbursement Claims – A Case Study

St. Luke’s may amend within thirty days. If St. Luke’s amends to assert an ERISA claim, the personal jurisdiction issue is far simpler.  “[U]nder ERISA’s nationwide service of process provision,” 29 U.S.C. § 1132(e)(2), “[a] court may exercise personal jurisdiction over the defendant if it determines that the defendant has sufficient ties to the United States.” . . . Because BCBSLA has sufficient contacts with the United States, this court would have personal jurisdiction if St. Luke’s were to amend to assert claims under ERISA.

St. Luke’s Episcopal Hosp. v. La. Health Serv. & Indem. Co., 2009 U.S. Dist. LEXIS 388 (S.D. Tex. Jan. 6, 2009) (citations omitted)

This recent opinion from the Southern District of Texas provides an excellent insight into the strategic decisions involved in provider reimbursement litigation. In the final analysis, the provider’s attempt to assert state law remedies in state court against the Blue Cross defendant failed for want of jurisdiction. All was not lost, however, since the ruling left open the avenue for an amended complaint stating a claim under ERISA on principles of derivative standing (via assignment of benefits).

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