Central States, Southeast and Southwest Areas Health and Welfare Fund v. Pathology Laboratories of Arkansas, P.A.

• Decision Date: 01 December 1995
• Docket Number: No. 95-2171,95-2171
• Parties: 19 Employee Benefits Cas. 2324 CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS HEALTH AND WELFARE FUND, et al., Plaintiffs-Appellants, v. PATHOLOGY LABORATORIES OF ARKANSAS, P.A., Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1251

71 F.3d 1251

19 Employee Benefits Cas. 2324

CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS HEALTH AND WELFARE FUND, et al., Plaintiffs-Appellants, v. PATHOLOGY LABORATORIES OF ARKANSAS, P.A., Defendant-Appellee.

No. 95-2171.

United States Court of Appeals, Seventh Circuit.

Argued Oct. 25, 1995.

Decided Dec. 1, 1995.

Thomas C. Nyhan, Robert A. Coco, James P. Condon (argued) and Bruce L. Perlin, Central States, Southeast & Southwest Area Pension Fund, Rosemont, IL, for Plaintiffs-Appellants.

Jack R. Bierig and Richard D. Raskin (argued), Sidley & Austin, Chicago, IL, for Defendant-Appellee.

Before BAUER, EASTERBROOK, and EVANS, Circuit Judges.

EASTERBROOK, Circuit Judge.

The Baptist Medical Systems Hospitals of Little Rock, Arkansas, provide pathology services to their patients by contract with a group of eight pathologists, incorporated as Pathology Laboratories of Arkansas. A test of a blood or tissue specimen at one of the Hospitals leads to two charges: one from the Hospitals and one from Pathology Laboratories. The Hospitals' bill (the "technical component") covers space, equipment, and technicians' services; Pathology Laboratories' bill (the "professional component") covers setting up test protocols, calibrating the equipment and supervising the testing, and, if necessary, interpreting the results and consulting with treating physicians. Pathologists are present or on call 24 hours a day. When they intervene to ensure that a test is done right, to recheck a surprising result, or to interpret ambiguous data, they do not submit a separate bill. The professional component, a fee of $2 to $5 per test, spreads costs across all patients--and in the process it avoids the need to keep records about just which test required just which services. Medical testing is a volume business, and bookkeeping to link particular services to particular tests could augment aggregate costs.

The Medicare program does not consider pathologists' oversight role to be a separate compensable unit of medical care. See 42 U.S.C. Sec. 1395xx(a)(1), 42 C.F.R. Sec. 405.550. For Medicare patients the Hospitals charge a fee including the pathologists' hands-off services, such as establishing test protocols. The Hospital pays Pathology Laboratories an annual lump sum for overseeing Medicare tests. Pathology Laboratories then submits a bill under Part B of Medicare for additional, hands-on services that it can document. Most private insurers, by contrast, are happy to pay separate bills at flat rates--to remit directly to Pathology Laboratories without requiring the Hospitals to serve as an intermediary, and to cover all of the pathologists' services in a single fee. This permits payment to vary with the number of tests conducted, but without the accounting problems of trying to attach specific fees to services on specific specimens. Both the Baptist Hospitals and Pathology Laboratories submitted bills to the Central States Health and Welfare Fund, which for years paid both. In November 1991 the Fund stopped paying the professional component bills, pointing to Article 4.11 of its Plan Document, which restricts payment to the expenses of a person who "receives treatment". The professional component fee does not signify that the patient received any treatment by a pathologist and therefore, the Fund concluded, is not compensable. In 1992 the Fund--a multi-employer welfare fund governed by the Employee Retirement and Income Security Act--filed this suit under ERISA seeking restitution of payments made to Pathology Laboratories between 1986 and 1991. The Fund also sought an injunction that would bar Pathology Laboratories from billing the patients directly for the professional component.

Pathology Laboratories filed a counterclaim, seeking a declaration that the Plan Document permits payment of professional component fees. District Judge Duff granted summary judgment to the Fund on this counterclaim. 1994 WL 362187, 1994 U.S.Dist. LEXIS 9319 (N.D.Ill.). Pathology Laboratories accepts that decision. The case then was transferred to District Judge Bucklo, who held a bench trial on the Fund's claims. Judge Bucklo concluded in an oral opinion at the close of the evidence that the Fund had been aware of the nature of professional-component bills long before November 1991. Its own medical consultant told the Fund's staff in March 1989 what professional-component bills represented. Pathology Laboratories provided the same information in 1990. A judicial opinion also explained the practice as carried on by pathologists in Arkansas. Arkansas Society of Pathologists v. Harris, CCH Medicare & Medicaid Guide p 30,546 (E.D.Ark.1980). Instead of requiring the pathologist to prove that hands-on services were provided, and then paying one bill of (say) $125, private insurers willingly pay 20 bills of $5 each, with the difference reflecting administrative savings. Although the Fund thinks that separate bills increase total costs and that the Medicare approach would reduce outlays, because the Hospitals would drive a hard bargain with Pathology Laboratories, other payors do not share this conclusion. Because the Fund knew the industry practice and what these bills represented, and because recoupment at this late date would be inequitable--the Fund's payment prevented Pathology Laboratories from billing the patients--the court denied the Fund's request for restitution. As for an injunction: the court observed that patients agreed when entering the Baptist Hospitals to pay all bills, whether or not the fees were covered by insurance, and it held that the coverage limitations in the Fund's Plan Document could not alter the patients' contractual commitments.

Let us start with this latter issue. The Fund submits that Judge Duff's decision means that Pathology Laboratories do not render medical services to the Hospitals' patients, and that ERISA prevents any state court from ordering patients to pay bogus bills for services not rendered. Yet Judge Duff did not find that Pathology Laboratories was submitting fraudulent bills. He concluded, rather, that the professional component does not represent "treatment" within the meaning of Sec. 4.11 of the Plan Document because Pathology Laboratories cannot demonstrate that it provided hands-on services for any particular patient. That is a far cry from concluding that Pathology Laboratories is trying to pull a fast one. Pathology Laboratories provides supervisory services of value to all patients, and interpretation services of value to some. That its recordkeeping apparatus does not distinguish among them may be dispositive under Sec. 4.11, but so what? Medical professionals provide many services for which insurance does not pay. A dental plan may pay for dentures but not crowns; a dentist who makes a crown still can bill the patient. A hospital plan may pay for a double room; a patient who requests a single room must expect to pay extra.

Nothing in ERISA prevents medical professionals from submitting--and state courts from enforcing--bills for services that are not covered by welfare benefit plans. Although ERISA preempts state law that "relates to" plans, 29 U.S.C. Sec. 1144(a), that clause does not annul state laws of general applicability just because they affect the price of medical care. New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Insurance Co., --- U.S. ----, 115 S.Ct. 1671, 131 L.Ed.2d 695 (1995); Mackey v. Lanier Collection Agency & Service, Inc., 486 U.S. 825, 831-32, 108 S.Ct. 2182, 2186-87 100 L.Ed.2d 836 (1988); Safeco Life Insurance Co. v. Musser, 65 F.3d 647 (7th Cir.1995). The law of contracts does not fetter welfare benefit plans, or indeed any activity. Willingness to enforce private bargains facilitates rather than regulates commerce. Arkansas does not seek to compel the Fund to cover any particular medical service, or to reimburse providers any particular amount. Just as the Federal Aviation Act does not preempt enforcement of contracts that set the effective price of air transportation, see American Airlines, Inc. v. Wolens, --- U.S. ----, ---- - ----, 115 S.Ct. 817, 824-26, 130 L.Ed.2d 715 (1995), so ERISA does not preempt enforcement of contracts that specify who pays how much to whom for medical care. Psychiatric Institute of Washington, D.C. v. Connecticut General Life Insurance Co., 780 F.Supp. 24, 32-33 (D.D.C.1992). Enforcing a contract between patient and medical provider bypasses the welfare plan; it is hard...