Reid Hosp. & Health Care Servs., Inc. v. Conifer Revenue Cycle Solutions, LLC

• Decision Date: 11 August 2021
• Docket Number: No. 20-1735,20-1735
• Citation: 8 F.4th 642
• Parties: REID HOSPITAL AND HEALTH CARE SERVICES, INC., Plaintiff-Appellant, v. CONIFER REVENUE CYCLE SOLUTIONS, LLC, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

8 F.4th 642

REID HOSPITAL AND HEALTH CARE SERVICES, INC., Plaintiff-Appellant,

v.CONIFER REVENUE CYCLE SOLUTIONS, LLC, Defendant-Appellee.

No. 20-1735

United States Court of Appeals, Seventh Circuit.

Argued December 11, 2020

Decided August 11, 2021

Jacob M. O'Brien, Scott L. Starr, Attorneys, Starr, Austen & Miller, LLP, Logansport, IN, Brian James Paul, Attorney, Faegre Drinker Biddle & Reath LLP, Indianapolis, IN, Thomas Pryor, Attorney, Faegre Drinker Biddle & Reath LLP, Minneapolis, MN, for Plaintiff-Appellant.

Kristen Bromberek, Samuel Rutherford, William Herman Jordan, Attorneys, Alston & Bird LLP, Atlanta, GA, Robert Burkart, Patrick A. Shoulders, Attorneys, Ziemer, Stayman, Weitzel & Shoulders, LLP, Evansville, IN, for Defendant-Appellee.

Before Rovner, Hamilton, and Scudder, Circuit Judges.

Hamilton, Circuit Judge.

Navigating health-care payment systems is not easy, as many patients can attest. Some providers, it turns out, face their own challenges on a much larger scale. That's why plaintiff Reid Hospital contracted with defendant Conifer Revenue Cycle Solutions to handle the hospital's "revenue cycle," that is, the provider-side work of setting up billing codes, billing, processing paperwork, and collecting payments.

According to the hospital, Conifer mismanaged the revenue cycle and failed to meet its contractual obligations in a wrongful attempt to cut Conifer's own staff costs. The hospital sued for breach of contract. Conifer moved for summary judgment, arguing that even if it breached the contract, the hospital cannot recover lost-revenue damages because the contract does not allow for "consequential" damages. The district court agreed and granted summary judgment to Conifer.

We reverse and remand. Given the way Conifer framed its motion for summary judgment, we must assume that it breached the contract substantially and on a large scale. Even if lost revenue is often considered consequential, this contract was a contract for revenue collection services . The parties’ contract did not define all lost revenue as an indirect result of any breach. Lost revenue would have been the direct and expected result of Conifer's failures to collect and process that revenue as required under the contract. The text and overall context of this complex multimillion-dollar contract for specialized services made clear that the parties did not intend to insulate Conifer entirely from damages for its breaches. Conifer also offers some alternative arguments for affirmance, but they are rife with disputed issues of fact that are inappropriate for summary judgment.

I. Factual and Procedural Background

"We review a district court's summary judgment ruling de novo and consider the facts and draw all inferences in the light most favorable to the nonmoving party." Henry v. Hulett , 969 F.3d 769, 776 (7th Cir. 2020) (en banc). We do not vouch for the objective truth of every fact that we must assume to be true for purposes of the appeal. Brunson v. Murray , 843 F.3d 698, 701 (7th Cir. 2016).

Defendant Conifer Revenue Cycle Solutions is a health-care revenue cycle management contractor. It prepares, issues, and collects payment for health-care bills. Its responsibilities include extensive work both before and after billing, including managing the behind-the-scenes aspects of patients’ health-care, from pre-registering patients so that their medical billing information can be processed quickly to reviewing and approving documentation upon release. Hospitals and such contractors must navigate the ever-changing web of medical billing codes and reimbursement rates for multiple third-party payors, from federal and state governments to large and small insurers and health maintenance organizations. And they do the vital tasks of collecting, processing, and transmitting payments for health-care services.

After years of managing its own billing and collections, plaintiff Reid Hospital decided that this complex and specialized work should be outsourced. It felt that it was leaving money on the table by not managing the revenue cycle efficiently. So it turned that work over to Dell Marketing L.P., also a revenue cycle management contractor.

Their contract ran 80 pages and included several appendices and exhibits to those appendices. The parties agreed that both sides’ damages in a breach of contract action would be limited. Here's the language at the center of this appeal:

Except with respect to claims resulting from the willful misconduct of Dell [or] its employees and agents ... but with respect to all other claims, actions and causes of action arising out of, under or in connection with this Agreement ... whether or not such damages are foreseen, neither Party will be liable for, any amounts for indirect, incidental, special, consequential (including without limitation lost profits, lost revenue, or damages for the loss of data) or punitive damages of the other Party or any third parties.

§ 14.1(B). Likewise, in the absence of willful misconduct or gross negligence by the contractor, Reid Hospital's direct damages are capped at the amount it has paid under the contract. § 14.1(C).

Dell recognized that Reid Hospital's revenue management needed extensive up-front investments to improve revenue collection down the line. Dell planned to invest resources up front, expecting profits further down the road. Dell's plan never took root, though, because it sold much of its revenue management portfolio to Conifer in 2012 while Dell was still losing money on the Reid Hospital contract. Conifer took over the revenue operations contract at the hospital as the assignee of Dell.

According to the hospital's evidence, Conifer immediately began cutting corners on this contract by reducing staff to a bare-bones crew and neglecting many of the duties for which they were responsible. Conifer employees found themselves overworked and in over their heads. Beyond Conifer's general inability to collect and process revenue properly with a skeletal crew, Reid Hospital claims there was a general slow-down throughout the revenue-management cycle. For example, Conifer's failure to update medical insurance charge descriptors meant that patients were later underbilled. At the other end of patient care, Conifer was slow in processing patients’ discharge forms, leading to longer hospital stays that third-party payors refused to reimburse fully.

After two years of this, Conifer asked the hospital to renegotiate the contract, claiming that it was still losing money and needed more favorable terms. The hospital refused and opted to bring its revenue operation back in-house. The hospital hired another consultant to assist the transition, and that contractor found what we must assume were several significant errors in Conifer's work.

Reid Hospital then filed this suit against Conifer for breach of contract, claiming that Conifer's poor performance caused the hospital to lose tens of millions of dollars in revenue it should have collected. On cross-motions for summary judgment, the district court granted summary judgment to Conifer. The court read this contract as defining all claims for lost revenue as claims for "consequential damages," thus barring recovery absent "willful misconduct." The court further concluded that there was no evidence of willful misconduct because Conifer showed that its decisions to cut costs were motivated by a desire to save its own money, not malice toward the hospital. Accordingly, the district court did not reach Conifer's alternative arguments that the hospital could not demonstrate that it had been damaged at all or that any purported damages were caused by its hypothetical breaches of contract. The court also denied as moot the hospital's motion for partial summary judgment on the issue of breach.

II. Analysis

We review a district court's summary judgment ruling de novo, giving the non-moving party the benefit of conflicting evidence and reasonable inferences from the evidence. Vesey v. Envoy Air, Inc. , 999 F.3d 456, 459 (7th Cir. 2021). Summary judgment is appropriate when "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a).

The essential elements of a breach-of-contract claim are "(1) a valid and binding contract; (2) performance by the complaining party; (3) non-performance or defective performance by the defendant; and (4) damages arising from defendant's breach." Karma International, LLC v. Indianapolis Motor Speedway, LLC , 938 F.3d 921, 926 (7th Cir. 2019), quoting U.S. Research Consultants, Inc. v. County of Lake , 89 N.E.3d 1076, 1086 (Ind. App. 2017). Conifer's motion assumes that it breached the parties’ contract.

Businesses are of course entitled to use a contract to establish a custom-tailored set of rights, obligations, remedies, and procedures for resolving disputes. See, e.g., Sterling National Bank v. Block , 984 F.3d 1210, 1213–14 (7th Cir. 2021) (under Illinois law, applying "elaborate" terms of parties’ stock purchase agreement); Indiana v. IBM , 51 N.E.3d 150, 160 (Ind. 2016) ( IBM I ) (parties may displace common-law default rules). When the contract is a product of arms-length negotiation between two sophisticated commercial entities, Indiana law generally requires that the contract be enforced as written. E.g., SAMS Hotel Group, LLC v. Environs, Inc. , 716 F.3d 432, 435 (7th Cir. 2013) ; WellPoint, Inc. v. National Union Fire Ins. Co. of Pittsburgh , 29 N.E.3d 716, 724–25 (Ind. 2015), modified on rehearing, 38 N.E.3d 981 (enforcing as written a multi-tiered, multimillion-dollar insurance contract between two sophisticated entities).

These businesses agreed on various changes to the common-law default rules of contracting that would otherwise govern their claim. As relevant here, Reid Hospital's contract, originally with Dell but later assigned to Conifer, caps both direct and indirect damages (such as consequential damages) unless the hospital can...