Baylor Health Care Sys. v. Equitable Plan Servs., Inc.

• Decision Date: 05 July 2013
• Docket Number: Civil Action No. 3:11–CV–3023–L.
• Citation: 955 F.Supp.2d 678
• Parties: BAYLOR HEALTH CARE SYSTEM, et al., Plaintiffs, v. EQUITABLE PLAN SERVICES, INC., Defendant.
• Court: U.S. District Court — Northern District of Texas

955 F.Supp.2d 678

BAYLOR HEALTH CARE SYSTEM, et al., Plaintiffs,

v.EQUITABLE PLAN SERVICES, INC., Defendant.

Civil Action No. 3:11–CV–3023–L.

United States District Court,

N.D. Texas,

Dallas Division.

July 5, 2013.

Jeff A. Cody, Rebecca O. Milne, Fulbright & Jaworski LLP, Dallas, TX, for Plaintiffs.

Cody L. Towns, Cox Smith Inc., Dallas, TX, Mark David Spencer, McAfee & Taft, Oklahoma City, OK, for Defendant.

AMENDED MEMORANDUM OPINION AND ORDER

SAM A. LINDSAY, District Judge.

Before the court is Baylor's Motion to Reconsider, filed March 23, 2012. After careful consideration of the motion, briefing by the parties, record, and applicable law, the court grants Baylor's Motion to Reconsider, vacates its March 15, 2012 memorandum opinion and order, and issues this amended memorandum opinion and order in its place. As herein explained, however, the court's determination in this regard does not affect the outcome of the case or the court's prior determination that the arbitration award should be affirmed. Although the court reaches the same result in affirming the arbitration award, it does so for different reasons after further review of the record. By this order, the court also determines the appropriate prejudgment interest rate and the date of accrual for prejudgment interest.

This action was filed on November 3, 2011, by Plaintiffs Baylor Health Care System, Baylor University Medical Center, and the Heart Hospital Baylor Plano (collectively “Plaintiffs” or “Baylor”) to vacate an arbitration award entered in favor of third-party health care claims administrator Defendant Equitable Plan Services, Inc. (“Defendant” or “EPS”). The case was referred to Magistrate Judge Renee Harris Toliver, who entered Findings, Conclusions and Recommendation of the United States Magistrate Judge (“Report”) on February 27, 2012, 2012 WL 895989, recommending that Plaintiff's Application to Vacate Arbitration Award (Doc. 2) be denied and that Defendant's Cross–Application to Confirm Arbitration Award (Doc. 15) be granted. Baylor filed objections to the Report on March 12, 2012.

Having reviewed the pleadings, file, and record in this case, and the findings and conclusions of the magistrate judge, the court determines that the findings and conclusions are correct, except for those pertaining to her determination that: (1) the HSA arbitration provision applies to the parties' dispute, and (2) the TAA alone governs the parties' arbitration agreement. In all other respects, the magistrate judge's findings and conclusions are correct. The court therefore accepts in part and rejects in part the findings and conclusions of the magistrate judge as herein set forth. Accordingly, Baylor's objections are overruled; Plaintiff's Motion to Vacate Arbitration Award (Doc. 2) is denied; Defendant's Cross–Application to Confirm Arbitration Award (Doc. 15) is granted; and Defendant's Motion to Unseal the Record (Doc. 14) is denied as moot.

I. Background

Plaintiffs are Texas corporations that provide health care in North Texas. Many of Baylor's patients are members of health plans that gain access to Baylor's services at discounted rates through contracts with insurance companies and preferred provider organizations (“PPOs”) such as HealthSmart Preferred Care. On July 1, 2002, Baylor Health Care System, as “Hospital,” entered a Hospital Services Agreement–PPO (“HSA” or “Hospital Agreement”) with North Texas Healthcare Network, as “PPO.” A May 1, 2004 Amendment to the HSA reflects the merger of North Texas Healthcare Network with HealthSmart Preferred Care (“HealthSmart”).

EPS is a third-party claim administrator (“TPA”) that is located and incorporated in Oklahoma. EPS provides third-party administration services to regional employers who hire companies like EPS to process and decide claims for benefits under company plans. EPS makes the preliminary decision whether to pay or deny a claim. EPS does not pay the claims with its own money. Employer and employee contributions that are held in trust are used to pay claims. If claims are determined to be payable, they are paid from plan assets, not from EPS's assets. In its role as a TPA, EPS acts as a trustee and plan fiduciary, and is compensated monthly by employers. EPS contracts with PPOs, which in turn contract with health care providers to provide services to PPO members at fixed rates.

On August 1, 2002, after HealthSmart entered the HSA with Baylor, EPS entered a Third Party Administrator Service Agreement for Provider Network and Utilization Management Services (“TPA Agreement”) with HealthSmart. Pursuant to the TPA Agreement, EPS agreed to join HealthSmart's PPO Network that included Baylor. On March 1, 2007, HealthSmart and EPS executed an amendment to the TPA Agreement (“Amendment”), in which the parties acknowledged that HealthSmart's provider contracts contain time payment parameters. Neither the TPA nor the Amendment refers to the HSA or the time parameters included in the HSA.

Baylor initiated the underlying arbitration on May 17, 2010, pursuant to the arbitration provision in the HSA, contending that EPS breached section 4 of the HSA that deals with payment of claims. According to Baylor, because EPS did not pay eight claims within forty-five days from receipt as required by section 4.4 of the HSA, the claims were not eligible for Baylor's discounted rates. Baylor therefore contended that it was entitled to $64,829.41 for Baylor's Normal Billed Charges, less the discounted amounts paid by EPS. The main bone of contention between the parties in the arbitration and this appeal is whether, under section 4.4 of the HSA, Baylor was permitted to send what the HSA refers to as a “Clean Claim” for “Covered Services” to EPS or HealthSmart as EPS's agent to trigger the forty-five-day deadline for payment of claims. Baylor contends that it was entitled to send claims to either EPS or HealthSmart, whereas EPS contends, and the arbitrator agreed, that HealthSmart is not EPS's agent, and to trigger the forty-five-day payment deadline in section 4.4(a) of the HSA, Baylor was required to submit a “Clean Claim” for “Covered Services” to EPS.

In response to Baylor's initiation of the underlying arbitration, EPS contended that it had never seen the HSA before the dispute arose and was not provided with information regarding the payment deadline or surcharges claimed by Baylor. EPS therefore maintained that its payments were timely. EPS further disputed whether it was subject to the HSA, or the arbitration provision in the HSA, since it was not a party to the contract, and the TPA contained an arbitration provision that differed in scope from the HSA arbitration provision. EPS therefore proposed that the parties proceed with a “self-administer[ed]” arbitration, which according to EPS, was not subject to either the arbitration provision in the HSA or the TPA. Even if it was subject to the HSA payment requirements, EPS contends that it would not have known when HealthSmart received claims from Baylor for purposes of calculating the payment deadlines.

After a one-day arbitration hearing in which three witnesses testified, including one Baylor witness, and other documentary evidence was admitted, the arbitrator entered an award in favor of EPS on August 16, 2011, concluding that EPS did not breach the HSA. In reaching this conclusion, the arbitrator rejected Baylor's argument that HealthSmart was EPS's agent for purposes of receiving claims and related payment information under the HSA. Based on section 6.3 of the HSA, the arbitrator concluded that Baylor, HealthSmart, and EPS are independent entities and none are agents of any other party. The arbitrator also determined that Baylor was required under the HSA to send the claims at issue to EPS but failed to do so. The arbitrator further concluded that EPS mistakenly caused plan participants to make overpayments totaling $37,439.23 to Baylor and EPS was therefore entitled to repayment in this amount on behalf of the plan participants. In addition, the arbitrator determined that EPS was entitled to recover $55,811 in attorney's fees, $8,149.49 in costs, and prejudgment interest at the maximum allowable rate.

Baylor initiated this proceeding, based on diversity of citizenship jurisdiction, seeking to vacate the arbitration award on the grounds that the arbitrator exceeded his authority in interpreting the contracts at issue by adding to, subtracting from, or modifying the contracts in violation of section 7.5 of the HSA. The magistrate judge recommended that Baylor's Application be denied and EPS's Cross–Application be granted.

In reaching this determination, the magistrate judge concluded that the Texas Arbitration Act (“TAA”) governed the parties' arbitration agreement. The magistrate judge also agreed with EPS that Baylor's failure to provide a complete record on appeal of the arbitration proceeding, including a transcript of the proceedings and witness testimony, was fatal to its motion to vacate the arbitrator's award. The magistrate judge disagreed with Baylor's contention that the arbitrator's interpretation of the agreements at issue could be conducted by simply reviewing the language of the agreements to determine whether the arbitrator had exceeded his authority by violating section 7.5 of the HSA because three witnesses testified at the unrecorded arbitration hearing regarding the agreements at issue and the parties' conduct pertaining to breach of the agreements; only three of the 33 exhibits admitted and discussed extensively during the arbitration hearing were submitted to the court; and only four of the 21 pleadings filed during the arbitration proceeding were submitted in support of Baylor's Application. Baylor filed objections to the Report, contending that a record of the arbitration was not necessary to review the arbitrator's interpretation of the parties' agreements, which, according to Baylor, could be reviewed as a matter of...