While Matthiesen, Wickert & Lehrer, S.C. (MWL) attorneys are actively pursuing subrogation and reimbursement claims around the country for health insurers and plans alike, we are increasingly being asked to defend clients from out-of-network lawsuits by providers. These out-of-network or “usual, customary and reasonable charges” cases are not novel. In recent memory, these claims have served as the basis for some large class action settlements, including published settlements from Aetna ($470 million), Cigna ($440 million), and WellPoint ($498 million), as well as the well-documented Ingenix litigation. However, these were class action suits involving some of the largest health insurers in the country. But now, this trend is starting to trickle down to individual suits against small and regional health plans. And, as networks shrink in order to combat ever-increasing health care costs, one can expect an explosion in out-of-network lawsuits. But, breathe easy, MWL’s Litigation Team is well-positioned to defend you or your Plan across the country.
Most recently, MWL attorneys, Ryan Woody and Emil Ovbiagele, successfully defended a health plan that was sued in Colorado for failure to fully pay an out-of-network provider’s charges. The case, Banner Health d/b/a North Colorado Medical Center v. Sapp Brothers Petroleum, Inc., et al., 2014 CV 300091 (Weld County, Colo.), was filed in Colorado state court. At the time MWL was retained, Sapp Brothers were in default and the 30-day window for removal to federal court had lapsed. So, we had to defend the case in state court. We promptly filed an answer on behalf of Sapp Brothers, because time was of the essence, and avoided a default judgment. Next, we addressed the merits of the dispute via summary judgment.
Sapp Brothers, an employer, provides health insurance to its employees through a self-funded ERISA plan. In August 2013, one of Sapp Brothers’s members discovered a lump on their son’s neck. The member elected to have their son treated at North Colorado Medical Center, a hospital owned and operated by Banner Health. Vis-à-vis the Plan, Banner was an out-of-network provider. Therefore, a Plan representative contacted the member prior to the surgery and explained that the cost of using Banner for their son’s treatment was going to be more than what was covered under the Plan and advised that they use an in-network facility. In fact, the representative offered to find an in-network facility and a physician to assuage the cost of treatment under the Plan, but the member declined. The Plan’s representative advised the member that he would be responsible for the extra costs of using an out-of-network facility and network.
The member then entered into a financial agreement with Banner Health for treatment, agreeing to pay Banner’s “usual and customary charges” for his son’s health care. The member also assigned his claims under any applicable health insurance Plan to Banner. Banner successfully treated the son and later submitted a claim for $26,063.50 for treatment costs to the Plan, who then made partial reductions and full denials to certain charges, paying only $7,670.55. The Plan’s representatives also informed Banner that it could appeal its decision administratively, which Banner failed to do. Banner then brought this action to receive the full amount of its claim.
Banner pursued a breach of contract claim against the Plan. Essentially, Banner argued that the Plan was bound by its members’ financial agreement with the hospital and that it could enforce the agreement through assignment. In response, MWL argued that any breach of contract claims were preempted by ERISA and that Banner’s ERISA claim failed because Banner did not exhaust administrative remedies.
In a pre-Thanksgiving order, District Court Judge Todd Taylor, was persuaded by MWL’s arguments and entered summary judgment for the Plan. (11-26-14 Decision). The Court easily dismissed the common law breach of contract claim holding that it was preempted by ERISA. Next, the Court addressed whether Banner’s ERISA claim via assignment was viable. It found that Banner’s allegations and evidence were insufficient to show that the Plan’s decision to deny benefits was “arbitrary and capricious”, holding:
So Banner must plead, and prove, that Sapp’s decision to deny benefits was arbitrary or capricious, unsupported by substantial evidence, or founded on an erroneous interpretation of law. Brown v. Retirement Committee of Briggs & Stratton, 797 F.2d 521, 525–26 (7th Cir. 1986), cert. denied, 479 U.S. 1094 (1987); see also Matter of Estate of Damon, 892 P.2d 350, 357 (Colo. App. 1994) (“In determining whether the decision of a plan administrator or fiduciary regarding benefit distribution under § 1132(a)(1)(B) is arbitrary and capricious, a trial court generally may consider only the arguments and evidence before the administrator or fiduciary at the time it made that decision.”).
Banner makes no such allegations in its Complaint. I, therefore, conclude that Banner fails to state a valid claim for ERISA purposes. Decision at p. 7
Additionally and alternatively, the Court would have dismissed the claim for Banner’s failure to exhaust the administrative process.
But even if I assume that Banner has stated a valid claim under ERISA, I would still be required to grant summary judgment in favor of Sapp. Banner concedes that it did not pursue administrative remedies here, but argues that it was excused from doing so because Sapp has waived this requirement. I am not persuaded.
“A participant must … generally exhaust administrative remedies before seeking judicial relief” under ERISA. Timm v. Prudential Ins. Co. of Am., 259 P.3d 521, 529 (Colo. App. 2011) (citing Held v. Mfrs. Hanover Leasing Corp., 912 F.2d 1197, 1205 (10th Cir. 1990)). “A plan participant is excused from exhausting administrative remedies, however, where resort to administrative remedies would be ‘clearly useless.’” Id. (quoting McGraw v. Prudential Ins. Co., 137 F.3d 1253, 1264 (10th Cir. 1998)).
The primary rationale why a claimant must exhaust administrative remedies is that a “court’s review of a claim under ERISA is limited to the administrative record developed through the administrative process.” Id. The ERISA exhaustion requirement cannot be circumvented by allegations of technical deficiency. Holmes v. Colorado Coal. for Homeless Long Term Disability Plan, 762 F.3d 1195, 1204 (10th Cir. 2014). To be relieved from the exhaustion requirement on grounds of the plan’s technical deficiency, a participant must show actual prejudice—meaning the denial of a reasonable review procedure. Id. at 1213. Banner has failed to do so here. Decision at pp. 8-9.
Cases like these have become more frequent and they span the entire fabric. Some of these out-of-network cases might present unique difficulties that had been aided by recent court decisions that have opened the door for providers to plead equitable and quasi-contractual claims like promissory estoppel or unjust enrichment. Defending these claims can be a lot more difficult as a court may decide that the ERISA preemption may or may not apply. Health plans and TPAs for these plans can expect to see a rise of these types of cases. Thus, they must be proactive and have a formidable plan for defending these claims. MWL’s Litigation Team is well-versed in these issues and is currently defending a number of these cases around the country. Should you or your clients have any questions about out-of-network claims, please do not hesitate to contact Ryan Woody at [email protected].