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Federal Judge Denies United Healthcare’s Motion to Dismiss in Case Brought by Texas General Hospital for Unpaid & Underpaid Claims

Background

Texas General Hospital is a private, acute care facility located in Grand Prairie, Texas. It is outside of UnitedHealthcare’s (“United”) provider network. In January of 2015, Texas General was the subject of intense scrutiny after a FOX 4 investigation revealed multiple billing complaints. A woman who underwent gastric sleeve surgery was charged a total of $622,000, most of which her insurance company, United, refused to pay. Another woman was charged $360,000 for a hysterectomy, including $18,000 for a disposable cup. United indicated to FOX 4 that it was deeply concerned about hospitals establishing an out-of-network strategy to hike the rates that they charge for services.[1]

A recent study by Johns Hopkins that was reported in the Dallas Morning News found that Texas General ranks 11th among the worst 50 hospital in the nation for inflating patients’ hospital charges and has the most inflated charges of any hospital in Texas.[2] The Office of Representative Chris Turner (D) of Arlington, Texas also conducted research looking at the cost of cardiology, general medicine, pulmonology, and urology at Texas General, then compared it to Texas Health Harris Methodist Hospital in Stephenville, Texas. His office found that the charges were egregiously high. In addition, National Nurses United conducted research which shows that Texas General is the most expensive hospital in Texas and the 8th most expensive nationwide.[3]

Lawsuit

In October 2015, Texas General Hospital sued UnitedHealthcare based in Minnetonka, Minnesota seeking more than $104 million in unpaid and underpaid medical bills. Texas General accused United of “drastically underpaying” and refusing to pay for medical care provided to United-insured members. The case is citation is Tex. Gen. Hosp., LP v. United Healthcare Servs., Inc., 2016 BL 208258, N.D. Tex., No. 3:15-CV-02096-M, 6/28/16.

Texas General’s Second Amended Complaint against United details an alleged pattern of United drastically underpaying and/or refusing to pay Texas General (the plaintiffs) for health insurance claims that Texas General submitted to United for reimbursement since at least March of 2012. The plaintiffs allege that United violated the terms of applicable plans which require reimbursement of medical expenses incurred by United members at “usual, customary, and reasonable rates.” Texas General contends that the total billed charges do reflect the usual, customary, and reasonable rates for the particular medical services provided at the hospital. According to the Complaint, United paid 25% of Texas Generals’ billed charges for 1,969 claims. The Complaint also alleges that United violated numerous provision of the Employee Retirement Income Security Act (“ERISA”) by breaching plan terms, breaching fiduciary duties of loyalty and due care, and failing to provide a full and fair review of denied claims. Finally, Texas General alleges breach of contract (for the non-ERISA plans) and breach of the duty of good faith and fair dealing.[4]

In November 2015, United filed a 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted. Specifically, United argued that Texas General failed to allege facts that plausibly established that United withheld any plan benefits. As detailed in United’s Memorandum in Support of the Motion to Dismiss, United contends that Texas General’s charges do not constitute the usual, customary, and reasonable rates for those services. Moreover, United contends that Texas General failed to establish that denials of payment were invalid, mistaken, or unsupported by applicable plan terms. United also contends that since Texas General failed to exhaust its administrative remedies, the claims for benefits should be barred.[5]

On June 28, 2016, Chief Judge Barbara M.G. Lynn of the U.S. District Court for the Northern District of Texas denied United’s motion to dismiss. In particular, Judge Lynn found that Texas General sufficiently pleaded claims and that United failed to provide “meaningful access” to its appeals procedures. As a result of the dismissal, Texas General can now pursue its claims for benefits and relief under ERISA. Furthermore, Texas General is now able to bypass United’s internal appeals process for all 1,969 United members and bring these actions against United directly in federal court. [6]

The case now moves forward in the litigation process.

[1] Becky Oliver, A FOX 4 Investigation of Hospital Billing Struck a Nerve with Our Viewers, and Now, an Austin Lawmaker is Stepping In, FOX 4 (Jan. 22, 2015), http://www.fox4news.com/news/798051-story.

[2] News Release, Johns Hopkins Bloomberg Sch. of Pub. Health Pol’y Mgmt., Some Hospitals Marking Up Prices More Than 1,000 Percent (June 8, 2015), http://www.jhsph.edu/news/news-releases/2015/some-hospitals-marking-up-prices-more-than-1000-percent.html.

[3] FOX 4 Investigation, supra note 1.

[4] Plaintiff’s Second Amended Compl., Tex. Gen. Hosp., LP v. United Healthcare Servs., Inc., 2016 BL 208258, N.D. Tex., No. 3:15-CV-02096-M, 6/28/16.

[5] Memorandum in Support of Defendant’s Motion to Dismiss Plaintiff’s Second Amended Compl., Tex. Gen. Hosp., LP v. United Healthcare Servs., Inc., 2016 BL 208258, N.D. Tex., No. 3:15-CV-02096-M, 6/28/16.

[6] Jacklyn Wille, United HealthCare Can’t Duck Hospital’s $104M Lawsuit, Bloomberg BNA (June 30, 2016), http://www.bna.com/united-healthcare-cant-n57982076319/.

TPA of Self-Insured Health Plan Not Subject to Texas Prompt-Pay Law
From the February 18, 2016 EBIA Weekly

[Health Care Serv. Corp. v. Methodist Hosps. of Dallas, 2016 WL 530680 (5th Cir. 2016)]

Available at http://www.ca5.uscourts.gov/opinions/pub/15/15-10154-CV0.pdf

The Fifth Circuit has ruled that a third-party administrator (TPA) of employer-sponsored self-insured health plans is not an insurer subject to the Texas Prompt Payment Act. A hospital sued the TPA for over $31 million under the state law, which generally requires insurers to pay benefit claims within 30 or 45 days (depending on the claim’s format), or face penalties. The TPA argued to the trial court that the Texas law does not apply because the TPA is not an “insurer” providing coverage through a “health insurance policy,” as required by the law. It also contended that ERISA preempts the application of the state law to claims arising under self-insured health plans. The trial court ruled that the state law by its terms does not apply to the TPA’s administration of self-insured plans; because of this conclusion, it did not address ERISA preemption.


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Texas Prompt Pay Law Not Preempted; Enforceable Against Self-Insured Health Plan TPAs
EBIA Weekly
A federal district court has ruled that ERISA does not preempt the Texas Prompt Payment Act as it applies to TPAs of self-insured benefit plans. The state law generally requires “insurers” to pay benefit claims within 30 or 45 days (depending on the claim’s format), or face penalties. The TPA in this case received a demand letter from two health care providers alleging that the TPA owed them more than ten million dollars each in late-payment penalties. In response, the TPA filed suit seeking a declaratory judgment that the law does not apply to self-insured plans, or, if it does apply, that the law is preempted by ERISA. The court considered only the preemption issue, deferring to an earlier state court determination that the law applies to the TPA with respect to claims administered for self-insured plans.


As background, ERISA generally preempts state laws that “relate to” ERISA plans; certain state insurance laws are not preempted, but those laws generally do not directly apply to self-insured plans. The court focused its analysis on the “relates to” standard and explained that a law relates to an ERISA plan if it (1) addresses an area of exclusive federal concern, such as the right to receive plan benefits; and (2) directly affects the relationship among traditional ERISA entities—the employer, the plan and its fiduciaries, and the participants and beneficiaries. The TPA argued that the Texas law addresses an area of exclusive federal concern because it undermines ERISA’s goal of achieving uniform regulation of ERISA plans. The court disagreed, finding that the imposition of late-payment penalties on a TPA does not affect the underlying plans. The court also rejected the TPA’s argument that the law affects the relationship among traditional ERISA entities, finding that the health care providers are not ERISA entities, nor are they “standing in the shoes” of plan beneficiaries. The court noted that the providers’ demands arose because of their contractual relationship with the TPA and emphasized that ERISA does not prohibit parties on the “periphery” of an ERISA plan from contracting with one another.

EBIA Comment: The court’s decision contrasts with a recent Eleventh Circuit ruling that ERISA preempts a similar prompt payment law in Georgia (see our article). The TPA in this case has filed an appeal with the Fifth Circuit, creating the possibility of a split between the federal appeals courts and eventual review by the U.S. Supreme Court. Self-insured plan sponsors and their TPAs and advisors should continue to monitor ERISA preemption developments as these and other cases make their way through the courts. For more information, see EBIA’s ERISA Compliance manual at Sections XXXIX.C (“State Laws That ‘Relate to’ ERISA Plans Are Generally Preempted”) and XXXIX.H (“Preemption Analysis Applied to Specific State Laws”); see also EBIA’s Self-Insured Health Plans manual at Section V.E (“ERISA Preemption and the Application of State Mandates”)

Texas C.P.R.C. c. 140: The New Standard for Subrogation Rights
Texas health plans seeking reimbursement via subrogation, are now forced to deal with new guidelines. C.P.R.C. c. 140, governing subrogation, went into effect January 1, 2014; enacting H.B. 1869, which was passed months prior; but the finer points are still being explored.

Who Does This Affect?

The new law impacts municipal health and retirement plans and fully insured health plans; (policies and plans where state law is not exempted by ERISA).  Medicare, Medicaid/CHIP, workers’ compensation, and private self funded ERISA plans are not affected.

What’s Changed?

Chapter 140 limits benefit plan subrogation to half of the plan member’s total recovery.  If the plan member is represented by counsel, this rule further requires plans to “reasonably” contribute to the attorney’s fee, (usually one third of the share).  In practice, this results in a three way split of the total funds recovered.

The rule seems to limit a benefit plan’s rights, but The Phia Group recognizes benefits of this new law as well, such as the elimination of Texas’ made-whole rule.

What Does This Mean For Affected Plans?

Other elements have yet to be fully explored by the courts.  For example, the cap imposed on subrogation and reimbursement interests (up to one half of the total recovery) is a “communal cap”, meaning that if there are multiple entities claiming reimbursement rights, their combined recoveries are capped at one half of the member’s recovery. The law does not address how funds are to be allocated between the respective interests in such a case. How can you ensure your rights take precedence over all others?  Knowledgeable, creative advocates like The Phia Group can identify the best route to maximize your recovery. C.P.R.C. c. 140 creates a solid framework governing (and limiting) subrogation and reimbursement recoveries in Texas. There are cracks, however, in the wall erected by Texas legislators. Plans which are able to identify these cracks and find creative ways to take advantage of the law’s non-obvious opportunities will be the ones who reap the benefits.

What Should I Do?

For information about The Phia Group and how they can help, contact:

Michael Branco
Principal
The Phia Group, LLC
-------------------------------------------
mbranco@phiagroup.com
Phone: 781-535-5618
Fax: 781-535-5656

Pushing Back Against Prompt Pay Laws
Pushing Back Against Prompt Pay Laws

You may be aware of recent growing efforts by providers and vendors to leverage prompt pay laws as they seek to obtain additional funds from you and benefit plans across the nation. In particular, we are aware of providers in Texas working hand-in-hand with aggressive local law firms to take advantage of the state’s prompt pay laws. One Texas law firm recently boasted that it is pursuing potential damages exceeding $865,000,000 and is now promising to pay a 20% referral fee to parties that refer providers to the firm. While these laws may indeed impact you and your process, we at The Phia Group have analyzed the matter in great detail. We urge you to contact us, so that we may discuss your options further. In the meantime, here is a summary of our recent findings: [click here to read more]

Texas Prompt Pay Legislation

S.B. 418 amended Article 3.70-3C of the Texas Insurance Code to require insurers to make payment determinations within 45 days of receiving clean claims from providers in a non-electronic format, or within 30 days of receiving clean claims submitted electronically. Depending on the insurer’s determination, there are three potential courses of action:

(1) if the entire claim is payable, pay the total amount of the claim;
(2) if a portion of the claim is payable, pay the portion of the claim that is not in dispute and notify the provider in writing why the remaining portion will not be paid; or
(3) if the claim is not payable, notify the provider in writing why the claim will not be paid.

As you can see, a key to protecting yourself from these laws and those that seek to take advantage of it, is simply notifying providers within the allocated time frame of factors prohibiting prompt payment of a claim. If a claim is incomplete, or additional information is needed from a third party, simply notifying the provider will stop the clock.

Insurers that fail to abide by the prompt pay deadlines could face a penalty of up to 100% of the difference between the provider’s billed rate and its contracted rate. Insurers may also be required to pay the provider’s reasonable attorney’s fees.

How To Fight Back

First, S.B. 418 provides that an insurer may request additional information from a provider in order to make a proper payment determination. However, the request must be in writing and strict deadlines apply to this allowance.

Second, the Texas Department of Insurance (TDI) has taken the position that the Texas prompt pay statutes do not regulate private self-funded ERISA plans.

Third, the TDI has indicated that in order to be considered a “clean” claim, the submitted claim must be legible, accurate, and complete. Thus, a Plan may argue that a claim was not a “clean” claim, and not incur the obligation to pay promptly, in the event that any information is missing from the claim. We would once again suggest, however, that if a claim is not clean, you notify the provider of that fact within the deadline.

For a more detailed explanation of these and other effective defenses that are available for group health plans, even including ERISA-exempt plans and ERISA plans susceptible to regulation by state law (due to the savings clause of ERISA), make sure to contact The Phia Group and join in our effort. If you would like to ensure that your own plan or your clients’ plans are afforded all essential rights, please contact pgcreferral@phiagroup.com and we will be happy to assist you in any way possible.

Disclaimer — The above article constitutes the opinion of The Phia Group, LLC, only and should not be construed or interpreted as constituting a legal opinion or binding legal advice.

TEXAS HOUSE BILL 1869 AND SENATE BILL 1339
Texas House Bill 1869 and the companion bill, SB 1339 in the Senate, are being rushed through committees. One of our members has personally met with representatives in both the House and the Senate, but these bills appear to be gliding through committees without opposition. These bills severely limit the recovery amounts health insurers can collect from third party settlements through subrogation. NASP continues to urge its members to oppose these bills.
The Senate has set its version of the bill for public hearing in Austin before the State Affairs Committee for Monday, April 15th at 9 a.m.  Any member, carrier, employer or administrator doing business in Texas is strongly encouraged to attend the hearing and testify against the bill.  If you are a Texas resident, please contact your state Senator or Representative to express your opposition to such a restriction on subrogation rights.

NASP will be hosting a free webinar discussion regarding the bill for our members on Friday April 12, 2013 at 2:30 EST.  The purpose of this webinar is to go over the proposed bill at the hearing on Monday, April 15, 2013.  Please click here to register for the Webinar on our Webex site.

Learn more about Subrogation...