781 F.3d 182 (5th Cir. 2015), 12-20695, North Cypress Med. Ctr. Operating Co., Ltd. v. Cigna Healthcare
|Citation:||781 F.3d 182|
|Opinion Judge:||PATRICK E. HIGGINBOTHAM, Circuit Judge:|
|Party Name:||NORTH CYPRESS MEDICAL CENTER OPERATING COMPANY, LIMITED; NORTH CYPRESS MEDICAL CENTER OPERATING COMPANY GP, L.L.C., Plaintiffs - Appellants Cross-Appellees v. CIGNA HEALTHCARE; CONNECTICUT GENERAL LIFE INSURANCE COMPANY; CIGNA HEALTHCARE OF TEXAS, INCORPORATED, Defendants - Appellees Cross-Appellants|
|Attorney:||For NORTH CYPRESS MEDICAL CENTER OPERATING COMPANY, LIMITED, NORTH CYPRESS MEDICAL CENTER OPERATING COMPANY GP, L.L.C., Plaintiffs - Appellants Cross-Appellees: John Douglas Sutter, Esq., Kelly, Sutter & Kendrick, P.C., Houston, TX. For CIGNA HEALTHCARE, CONNECTICUT GENERAL LIFE INSURANCE COMPANY...|
|Judge Panel:||Before STEWART, Chief Judge, and HIGGINBOTHAM and ELROD, Circuit Judges.|
|Case Date:||March 10, 2015|
|Court:||United States Courts of Appeals, Court of Appeals for the Fifth Circuit|
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Appeals from the United States District Court for the Southern District of Texas.
This is a dispute over an insurer's obligation to pay a hospital for medical services provided to insured patients. Under the insurance plans, patients are to pay for part of their hospital bills and the insurance company covers the rest. The parties dispute whether the hospital may discount patients' portion of the bills without affecting the patients' coverage under their insurance plans.
Houston medical provider North Cypress Medical Center Operating Co., Ltd. and North Cypress Medical Center Operating Co. GP, LLC (collectively, " North Cypress" or " the hospital" ) sued Cigna Healthcare, Connecticut General Life Insurance Company, and Cigna Healthcare of Texas, Inc. (collectively, " Cigna" ) for breach of healthcare plans administered or insured by Cigna. North Cypress principally argues that Cigna failed to comply with plan terms and underpaid for covered services. Cigna counter-claimed, arguing that it paid more than was owed; that North Cypress as an out-of-network provider did not charge the patients for coinsurance, but billed Cigna as if it had. The district court dismissed or granted summary judgment on all claims.
A. Cigna's plans
The more than 8,000 insurance plans governing the claims in this case sort into classes along several different lines. Most are funded by employers, with Cigna acting only as an administrator--" Administrative Services Only" or " ASO" plans.1 Some are funded by Cigna itself--" fully insured" plans. Some limit out-of-network benefits to a set percentage of a charge based on Medicare pricing--" MRC2" plans--while other plans limit reimbursement to a percentage of rates charged by other providers in the geographic area--" MRC1" plans. Patients generally assigned their rights under their insurance plans to North Cypress, though Cigna disputes the existence and adequacy of many assignments.
In general, across the different plans members can seek care from an in-network or out-of-network provider. In-network providers contracted with Cigna to provide services at agreed prices. Out-of-network providers did not. Members are responsible for certain deductibles, copayments, or coinsurance amounts, which are larger if the provider is not in the network.
Cigna maintains that these cost-sharing mechanisms ensure that in-network providers are less costly to patients than out-of-network providers. For example, in some of the plans at issue, once the member satisfies the deductible, the member's coinsurance level at in-network providers is 80%; the plan paying 80% and the member 20%. With an out-of-network provider, the member faces both a higher deductible and a greater coinsurance burden; the plan paying 60% and the member 40% of remaining costs.
Cigna argues that these cost-sharing mechanisms are essential to lower medical and health insurance costs; that incentivizing members to choose in-network providers--who charge both the members and the plans less--reduces overall plan costs, an incentive lost when an out-of-network provider does not require patients to pay all of the coinsurance or other obligations contemplated by the plans.
Relatedly, some or all of the plans at issue2 contain the following or similar provisions:
o " [P]ayment for the following is specifically excluded from this plan: . . . charges which you are not obligated to pay or for which you are not billed or for which you would not have been billed except that they were covered under this plan." 3
o " [Y]ou and your Dependents may be required to pay a portion of the Covered Expenses for services and supplies. That portion is the Copayment, Deductible or Coinsurance." o " Coinsurance means the percentage of charges for Covered Expenses that an insured person is required to pay under the plan." o " The provider may bill you for the difference between the provider's normal charge and the Maximum Reimbursable Charge, in addition to applicable deductibles, copayments and coinsurance."
B. North Cypress and its billing practices
North Cypress opened its Houston hospital in 2007, boasting a " 5 Star Atmosphere" and " all private patient suites with upscale room accommodations, including wood floors and trim[ and] flat screen televisions." 4 North Cypress and Cigna unsuccessfully negotiated for an in-network contract prior to the opening. North Cypress then opened as an out-of-network provider after notifying Cigna it was implementing a " prompt pay discount" program through which some patients, for whom North Cypress was out-of-network, would get a discount on their coinsurance obligation if they paid upfront or within a short period of time.5 North Cypress argues that its discount approach made good business sense because collecting on patient medical bills is expensive and often unrewarding.
North Cypress calculates the total cost of care for a patient based on its main fee schedule--called the " Chargemaster" --which contains prices usually four to six times Medicare rates.6 Without the prompt pay discount, a patient might be expected to pay 40% of this total Chargemaster cost as her out-of-network coinsurance responsibility, while Cigna would cover the other 60%. If the total Chargemaster cost of care was $10,000, for example, the patient would be expected to cover $4,000. Cigna does not contend that it was ever charged more than its 60% share (here, $6,000) of the Chargemaster rates--the dispute solely concerns the fact that the patients ' $4,000 portion of the bill was reduced in various ways.
When applying the prompt pay discount, rather than billing the patient $4,000 North Cypress would calculate a much lower amount. First, instead of starting with the total Chargemaster cost of care, North Cypress would start with a lower base rate--125% of the Medicare rate for the services provided. For example, instead of $10,000, the base rate might be $2,500. Then instead of multiplying this reduced base rate by 40%, North Cigna would multiply it by 20%--the patient's in-network coinsurance rate. As a result of the discount, the patient in this example would be billed only $500 rather than $4,000. In contrast, Cigna's responsibility was unchanged; North Cypress would file a claim form reporting its total Chargemaster cost to Cigna and expect the insurer to pay its 60% share--$6,000.
If the patient paid the discounted coinsurance amount on time, North Cypress did not bill or attempt to collect any additional amount from the patient.7 North Cypress would thus collect a substantially reduced amount from the patient in exchange for prompt payment. Importantly, if Cigna refused to pay its full 60% of the Chargemaster rate, North Cypress did not attempt to collect that amount from the patient.
C. Cigna's investigation and response
Cigna was concerned when it learned of North Cypress's prompt pay discount, believing the program would undermine plan incentives designed to encourage providers to join Cigna's network, and patients to seek care within that network. Despite Cigna's concerns, it initially paid North Cypress based on the Chargemaster rates as billed.8 However, even as it was paying these charges, Cigna mobilized an " interdisciplinary team" to address North Cypress's billing practices and pressure North Cypress to come in-network.9 The team came up with a multi-pronged approach, which contemplated making " [n]o payment or reduced payment" to North Cypress and convincing plan sponsors to switch to cheaper MRC2 reimbursement, among other measures.10 Cigna's Special Investigations Unit (" SIU" ) also surveyed a few dozen members about their experience with North Cypress and eventually received 27 responses,11 assertedly confirming its suspicion that North Cypress was engaging in " fee forgiving." 12
In November 2008, Cigna informed North Cypress of SIU's investigation and adopted its " fee-forgiving protocol." Cigna began reimbursing North Cypress for medically necessary services at drastically reduced rates. The sharp reduction was based on two key claims: (1) Cigna claimed that patients were not insured for medical costs unless North Cypress billed them for the patient coinsurance responsibility contemplated by their...
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