N. Cypress Med. Ctr. Operating Co. v. Aetna Life Ins. Co.

• Decision Date: 31 July 2018
• Docket Number: No. 16-20674,16-20674
• Citation: 898 F.3d 461
• Parties: NORTH CYPRESS MEDICAL CENTER OPERATING COMPANY, LIMITED; North Cypress Medical Center Operating Company GP, L.L.C., Plaintiffs–Appellees Cross-Appellants, v. AETNA LIFE INSURANCE COMPANY, Defendant–Appellant Cross-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

898 F.3d 461

NORTH CYPRESS MEDICAL CENTER OPERATING COMPANY, LIMITED; North Cypress Medical Center Operating Company GP, L.L.C., Plaintiffs–Appellees Cross-Appellants,

v.AETNA LIFE INSURANCE COMPANY, Defendant–Appellant Cross-Appellee.

No. 16-20674

United States Court of Appeals, Fifth Circuit.

July 31, 2018

John Douglas Sutter, Esq., Kelly, Sutter & Kendrick, P.C., Houston, D. Brian Hufford, Esq., Zuckerman Spaeder, L.L.P., New York, Neil L. Prupis, Wilson, Elser, Moskowitz, Edelman & Dicker, L.L.P., Florham Park, for Plaintiff–Appellee Cross-Appellant.

Miguel Angel Estrada, Matthew Scott Rozen, Geoffrey M. Sigler, Esq., Gibson, Dunn & Crutcher, L.L.P., Washington, John Bruce Shely, Esq., Hunton Andrews Kurth, L.L.P., Houston, for Defendant–Appellant Cross-Appellee.

Before SMITH, WIENER, and WILLETT, Circuit Judges.

DON R. WILLETT, Circuit Judge:

Under Aetna's insurance plans, patients are responsible for a portion of their bills. That is not to say insurance companies are off the hook: They cover the remainder. But how much is Aetna obligated to pay for medical services provided to its members by an out-of-network hospital?

Houston medical services provider North Cypress Medical Center Operating Co., Ltd. and North Cypress Medical Center Operating Co. GP, LLC (collectively "NCMC") alleged Aetna underpaid out-of-network providers like NCMC in violation of the Employee Retirement Income Security Act of 1974 ("ERISA") and Texas law.

Aetna fired back—it counterclaimed, alleging NCMC fraudulently and negligently misrepresented its billing practices by routinely waiving patient responsibilities yet billing Aetna for the total out-of-network cost.

The result was a stalemate—each party fared no better than when they filed their claims. The district court granted Aetna judgment as a matter of law on NCMC's ERISA claims and granted NCMC judgment as a matter of law on Aetna's fraud and negligent misrepresentation counterclaims. And a jury found in favor of Aetna on NCMC's remaining state law claims.

We AFFIRM in part and REVERSE in part and REMAND.

I. BACKGROUND

The Byzantine complexity of the United States health care "system" can bamboozle even the savviest of consumers. So perhaps some foundation is helpful.¹

A. Aetna's Insurance Plans

Aetna is a managed care company that offers insurance, administrative services, and health care benefit plans, including employer-sponsored welfare benefit plans governed by ERISA, 29 U.S.C. § 101 et seq. As third-party plan administrator, it details its obligations and rights in "Administrative Service Agreements." Each benefit plan's terms of coverage describe the services covered and how Aetna calculates reimbursement rates.

Plans can be, and commonly are, sponsored by employers. When that is the case, plans generally fall under one of two categories: "fully insured" or "self-funded." Under fully insured ERISA plans, Aetna acts as a direct insurer; it guarantees a fixed monthly premium for 12 months and bears the financial risk of paying claims. But under self-funded ERISA plans, Aetna acts only as a third-party administrator; the employer is responsible for paying claims and bearing the financial risk. Either way, Aetna plays a key role in its plans. Aetna administers the plans by processing and adjudicating claims and recovering overpayments. And employees contribute by paying monthly premiums. Ultimately, Aetna maintains discretion to construe the plan terms and determine available benefits.

Aetna also organizes a network of providers and negotiates rates for health care services. In the Houston area, its network extends to 108 hospitals. In-network providers contract with Aetna to provide services at pre-arranged reimbursement rates in exchange for access to Aetna's members as patients. Out-of-network providers do not; they have no contract with Aetna and instead set their own fees for services. When members seek treatment from either provider, they are often still responsible for copayments, deductibles, or co-insurance.

So Aetna members have a choice—they can seek treatment from medical providers that are either inside or outside Aetna's network. But this choice comes with strings attached; members may pay more for out-of-network providers.² This arrangement, Aetna says, helps control medical costs. In essence, incentivizing its members to seek medical treatment from in-network providers at pre-negotiated rates results in predictable, manageable expenses.

B. The Claims Process

When Aetna members seek medical services from a provider, the provider then looks to Aetna to reimburse a portion of the expense. Service providers submit their claims to Aetna using standard "UB-04" forms. On that form, providers use a standardized code, called "Current Procedural Terminology" ("CPT"), to show what services they provided. Aetna uses these codes to determine how much of the claim is covered by its plans. To patients, this process is a black box: CPT codes go in, Aetna's payment comes out. Patients do not know what they owe a provider for medical services until Aetna adjudicates the claim.

Once Aetna determines a service is covered, it determines the "allowed amount." Ultimately, Aetna does not pay the claim at face value; it pays only this allowed amount. Aetna retains discretion to determine the allowed amount. Plans allow Aetna to set the allowed amount for out-of-network claims based on the "usual, customary, and reasonable" ("UCR") rate or in proportion to Centers for Medicare/Medicaid Services ("CMS") rates. The UCR is divorced from what a provider bills. In this case, the allowed amount was treated as the UCR rate, even if plans may have provided for a different calculation.

For its self-funded plans, Aetna has another option. It can process out-of-network claims through its National Advantage Program ("NAP"). NAP is a network of multiple entities, including Global Claims Services ("GCS"), a wholly owned Aetna subsidiary, and Multi-Plan, a third-party "rental" or "wrapper" network. GCS negotiates with out-of-network providers to price claims on a claim by claim basis. And Multi-Plan contracts with out-of-network providers and payors like Aetna to create a supplementary network, allowing for mass-negotiated repricing. Both entities discount a provider's billed amount to determine the allowed amount.

C. NCMC and its Billing Practices

NCMC, a physician-owned, full-service hospital, opened in Houston in January 2007. It offers a plethora of medical services you would expect from a full-service hospital—emergency room, surgery center, oncology unit, pediatrics unit. NCMC granted ownership interests to physicians, and sought patient-referrals from its physician owners. Some of those physicians were under contract with Aetna to provide in-network care to patients through separate practices. Over 500 physicians have admission privileges at NCMC, and about 140 have an ownership stake.

NCMC treats thousands of patients, including Aetna members, but it does not offer in-network care with Aetna.³ Before it opened, NCMC unsuccessfully applied to be an Aetna participating provider. As a result, NCMC lacks a participating provider agreement with Aetna dictating reimbursement rates for services provided to Aetna members. After it was denied, NCMC informed Aetna it would operate as an out-of-network facility.

Proving itself an able market competitor, NCMC offered a "prompt pay discount" program to patients. NCMC insists this program was not publicly advertised, and the discount applied only to elective procedures. Out-of-network patients were first notified of the discount at registration—they were assured they would pay no more than they would at an in-network facility. This hooked patients on NCMC.

This program permitted out-of-network patients to discount their co-insurance obligation if they paid their bill within 120 days.⁴ Ordinarily, NCMC calculates the total cost of care based on its master list of charges called the "Chargemaster."⁵ Without the discount, an Aetna patient may be responsible the cost of services at NCMC as an out-of-network facility, sometimes 50% of the total cost.

Rather than bill patients for the full out-of-network rate, NCMC calculated a much lower amount under its prompt pay discount. NCMC first calculated a patient's in-network cost based on information provided by Aetna. NCMC estimated the in-network price at 125% of the Medicare rate. Then NCMC collected only the patient's responsibility under the in-network co-insurance rate rather than the out-of-network rate.⁶ If the patient paid that amount within 120 days, NCMC discounted the remaining balance. Otherwise, NCMC reversed the discount and billed the patient for her full responsibility. NCMC believed that by reducing the total amount owed in this fashion, the discount incentivized patients to—as the name implies—promptly pay their bills.

Yet the amount NCMC reported to Aetna remained unchanged. NCMC submitted its UB-04 forms just like it would for any insurer. NCMC calculated its "Total Charges" in Box 47 of the claim form based on its Chargemaster prices, excluding its prompt-pay-discount formula. In other words, the forms did not otherwise report what amount NCMC billed out-of-network patients. But they did note a "prompt pay discount" in Box 80 of the claim forms, which provided a space for "Remarks."

NCMC submitted over 44,000 forms this way between 2009 and 2013. Aetna processed 90% of NCMC's claims from self-funded plans through NAP between 2007 and 2012. In doing so, Aetna relied on GCS and Multi-Plan to negotiate "Repricing Agreements" to determine the allowable amounts. These agreements paid NCMC's claims more quickly, but at a discounted rate. The discounted charges were then considered the "allowed" charge. In a sense, this process formed a symbiotic relationship between Aetna and NCMC; by processing claims this way, Aetna collected a "savings fee" from the employer-sponsor's account.

D. Aetna's Response

Aetna was, and remains,...