164 F.3d 624 (4th Cir. 1998), 97-2158, Managed Care Professionals, Inc. v. Medlantic Healthcare Group

Docket Nº:97-2158, 97-2159.
Citation:164 F.3d 624
Party Name:MANAGED CARE PROFESSIONALS, INCORPORATED, Plaintiff-Appellee, v. MEDLANTIC HEALTHCARE GROUP; Washington Hospital Center, Defendants-Appellants. MANAGED CARE PROFESSIONALS, INCORPORATED, Plaintiff-Appellant, v. MEDLANTIC HEALTHCARE GROUP; Washington Hospital Center, Defendants-Appellees.
Case Date:October 01, 1998
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit
 
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Page 624

164 F.3d 624 (4th Cir. 1998)

MANAGED CARE PROFESSIONALS, INCORPORATED, Plaintiff-Appellee,

v.

MEDLANTIC HEALTHCARE GROUP; Washington Hospital Center, Defendants-Appellants.

MANAGED CARE PROFESSIONALS, INCORPORATED, Plaintiff-Appellant,

v.

MEDLANTIC HEALTHCARE GROUP; Washington Hospital Center, Defendants-Appellees.

Nos. 97-2158, 97-2159.

United States Court of Appeals, Fourth Circuit

October 1, 1998

Editorial Note:

This opinion appears in the Federal reporter in a table titled "Table of Decisions Without Reported Opinions". (See FI CTA4 Rule 36 regarding use of unpublished opinions)

Argued April 6, 1998.

Appeals from the United States District Court for the Eastern District of Virginia, at Alexandria. Claude M. Hilton, Chief District Judge; T.S. Ellis, III, District Judge. (CA-96-1002-A)

ARGUED: Catherine Anne Bledsoe, Lawrence Stephen Greenwald, GORDON, FEINBLATT, ROTHMAN, HOFFBERGER & HOLLANDER, L.L.C., Baltimore, Maryland, for Appellants.

Howard Dennis Scher, MONTGOMERY, MCCRACKEN, WALKER & RHOADS, L.L.P., Philadelphia, Pennsylvania, for Appellee. ON BRIEF: Howard J. Bashman, MONTGOMERY, MCCRACKEN, WALKER & RHOADS, L.L.P., Philadelphia, Pennsylvania, for Appellee.

Before NIEMEYER, Circuit Judge, PHILLIPS, Senior Circuit Judge, and CHAMBERS, United States District Judge for the Southern District of West Virginia, sitting by designation.

OPINION

PHILLIPS, Senior Circuit Judge:

This is a diversity action in which Managed Care Professionals, Inc. ("MCPI") sued Washington Hospital Center ("WHC") on claims arising from a dispute concerning the interpretation of a service contract. Pursuant to this contract, MCPI's predecessor entity, Managed Care Professionals ("MCP"), agreed to review WHC's patient account records, identify potential underpayments by third-party health care payors, and pursue collection of these underpayments in exchange for a 50% commission on the collections. 1 Less than a year into the contract, WHC terminated the agreement because MCPI allegedly violated its terms. MCPI then brought suit for breach of contract claiming $5.5 million in damages. Following discovery, WHC moved for partial summary judgment on $3.8 million of the $5.5 million of MCPI's claimed damages. The district court granted the motion and restricted MCPI's potential recovery to compensation for those underpayments already recovered. At trial, the jury found that WHC breached the contract and awarded MCPI $500,000 in damages. WHC's motion for judgment as a matter of law was denied. WHC now appeals the district court's denial of its motion for judgment as a matter of law and MCPI cross-appeals the court's limitation of damages ruling. We affirm on both the appeal and cross-appeal.

I.

In 1993, Linda Olson formed MCP, a sole proprietorship, to provide consulting services to hospitals and other medical providers. As part of its services, MCP would review a hospital's payment records to determine whether a health care payor owed money on patient accounts for which they had not paid all or part of the bill. Over the course of the two-year period after its formation, MCP contracted with the INOVA health system in Virginia to identify and collect underpayments at three Virginia-based hospitals.

In June 1995, Olson completed negotiations with Susan Manselle, director of Patient Financial Quality Services at WHC and Cecilia Moore, assistant vice president for Patient Financial Services at WHC. Pursuant to their arrangement, MCP agreed to identify and collect underpayments owed to WHC by certain third-party payors. In return for recovering unpaid funds from designated patient accounts, MCP would receive 50% of the collections.

Memorialized in a letter from Olson to Moore, the agreement provided that MCP would perform a "Retrospective Payment Audit" to uncover account underpayments and to pursue recovery from the appropriate third-party payor. As part of this process, MCP would "provide specifications of the data to be extracted from the patient account system" and WHC would "provide [MCP] with as much of the requested data as possible."

After MCP received the information, it would, "as a first step, review all contracts and applicable correspondence, and perform a match/merge against the WHC patient accounting files utilizing [ ] custom software to identify potential accounts for followup/negotiations by MCP." Once MCP identified likely accounts for recovery, MCP was then responsible for undertaking collection efforts. If, however, WHC opted to pursue collection internally or through another vendor, the agreement specified that MCP was still entitled to 50% of the funds collected from identified accounts. And, the agreement was to remain in effect until collections of all underpayments were complete for reviewed accounts from January 1993 to March 1995.

After the agreement was signed, MCP sent instructions to WHC about the type of information it would need. WHC then forwarded a computerized profile of between 75,000-100,000 patient accounts to MCP. Processing this information, MCP created a list of approximately 18,000 accounts identified as potential candidates for underpayment and concluded that WHC was owed almost $17.5 million. MCP then sent this list to WHC to alert them to the accounts that MCP intended to pursue for collection under the contract. Manselle received the list and "flipped through it" without reviewing it in detail.

Around this time, MCP filed articles of incorporation and, after receiving state approval, became Managed Care Professionals, Inc. Following the structural change, the business continued as before with Olson remaining the sole owner.

After identifying those accounts on which WHC appeared to be owed money, MCPI proceeded with its collections efforts. In September 1995, MCPI submitted its first invoice for monies that it had recovered for WHC and, after the amount was approved through WHC's review process, was paid $37,290.23. MCPI submitted its second invoice in October. About this time, WHC received complaints from two managed...

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