Conn. Gen. Life Ins. Co. v. Advanced Surgery Ctr. of Bethesda, LLC, Civil Action No. DKC 14-2376

CourtUnited States District Courts. 4th Circuit. United States District Court (Maryland)
Writing for the CourtDEBORAH K. CHASANOW United States District Judge
Docket NumberCivil Action No. DKC 14-2376
Decision Date15 July 2015


Civil Action No. DKC 14-2376


July 15, 2015


This case involves a dispute over health insurance claim payments. Plaintiffs/Counter-Defendants are Connecticut General Life Insurance Company and Cigna Health and Life Insurance Company (collectively, the "Cigna entities").1 Among other things, the Cigna entities insure and administer employee health and welfare benefit plans. (ECF No. 1 ¶ 41). Defendants/Counter-Plaintiffs are twenty ambulatory surgical care facilities doing business in Maryland, namely: Advanced Surgery Center of Bethesda, LLC; Bethesda Chevy Chase Surgery Center, LLC; Deer Pointe Surgical Center, LLC; Hagerstown

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Surgery Center, LLC; Leonardtown Surgery Center, LLC; Maple Lawn Surgery Center, LLC; Maryland Specialty Surgery Center, LLC; Monocacy Surgery Center, LLC; Piccard Surgery Center, LLC; Riva Road Surgical Center, LLC; SurgCenter at National Harbor, LLC d/b/a Harborside Surgery Center; SurgCenter of Glen Burnie, LLC; SurgCenter of Greenbelt, LLC; SurgCenter of Silver Spring, LLC; SurgCenter of Southern Maryland, LLC; SurgCenter of Western Maryland, LLC; SurgCenter of White Marsh, LLC; Timonium Surgery Center, LLC; Upper Bay Surgery Center, LLC; and Windsor Mill Surgery Center, LLC ("the ASCs"). The ASCs have provided outpatient surgical services to the Cigna entities' plan members. Defendant Surgical Center Development, Inc. d/b/a SurgCenter Development ("SurgCenter") is a Nevada corporation that purportedly helped establish the ASCs and consults in their businesses (collectively, the ASCs and SurgCenter are "Defendants"). (Id. ¶ 33). The Cigna entities filed this action against Defendants asserting claims under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961, et seq., and state law based on Defendants' purportedly unlawful billing scheme. The ASCs filed a counterclaim against the Cigna entities asserting ERISA claims and multiple state law claims based on the Cigna entities' purportedly unlawful refusal to pay claims for medical services

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the ASCs performed for the Cigna entities' health insurance plan members. The parties have filed cross-motions to dismiss, which are fully briefed. (ECF Nos. 41 and 43). The court now rules, no hearing being deemed necessary. Local Rule 105.6. For the following reasons, Defendants' motion to dismiss will be granted in part and denied in part, and the Cigna entities' motion to dismiss will be granted in part and denied in part.

I. Background2

A. The Cigna Entities' Health Insurance Plans

The Cigna entities act as plan administrators for both fully-insured plans, which they fund themselves, and Administrative Services Only ("ASO") plans, which are funded by the employers who sponsor them. (Id. ¶¶ 42, 44). For both types of plans, as claims administrators, the plan documents authorize the Cigna entities to "recover any overpayments made by the plans on the plans' behalf." (Id. ¶¶ 45-46). The majority of the plans under which the ASCs have sought benefits on behalf of their patients are governed by ERISA. (Id. ¶ 47). The plans at issue offer plan members the choice of seeking medical services from health care providers who contract with the Cigna entities to participate in their provider network

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("in-network" or "participating" providers) or from health care providers who do not contract with the Cigna entities ("out-of-network providers"). (Id. ¶ 48). All of the ASCs are out-of-network providers. (Id. ¶ 2). The Cigna entities' plans reimburse members for certain types of costs and services they receive, which are defined as "covered expenses." When a plan member receives medical services, the Cigna entities determine what portion of the cost for the covered expense is covered by the plan, which is known as the "allowed amount." (Id. ¶ 49). Plan members have different types of cost-sharing responsibilities when using their plan benefits, including deductibles, co-payments, and co-insurance. (Id. ¶¶ 50-51). If a plan member receives a medical service from one of the Cigna entities' in-network providers, the plan pays the provider the amount that the provider agreed to accept as the contracted network rate, and the member pays any applicable in-network deductible, co-pay, and co-insurance. (Id. ¶ 52). If a plan member receives a medical service from an out-of-network provider, the provider can charge whatever it likes for its services (out-of-network rates are generally higher than contracted rates) and the provider may bill the member for any portion of the provider's charges that the plan does not reimburse (amounts not covered by the allowed amount). (Id. ¶ 55).

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In order to keep costs down for plans that offer out-of-network benefits, the Cigna entities' health plans include various financial incentives to encourage members to choose in-network providers and to make members responsible for the increased costs associated with obtaining out-of-network services. (Id. ¶ 56). One method the Cigna entities' plans use to allocate out-of-network costs between plan sponsors and plan members is through co-insurance, which is the percentage of the allowed amount that the member is required to pay toward the cost of that service. The co-insurance that plan members must pay for out-of-network services is usually much higher than the co-insurance they pay for in-network services. (Id. ¶ 57). The Cigna entities allege that their plans include a provision which ensures that plan members pay and out-of-network providers do not waive members' required co-insurance payments. This provision states that the Cigna entities' plans do not cover: "charges which you [the member] 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." (Id. ¶ 61). In addition, the Cigna entities allege that their plans limit reimbursement for out-of-network services to the "maximum reimbursable charge," which is further defined as no more than the "provider's normal charge for a similar service or supply," and exclude from coverage any amounts that exceed the maximum

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reimbursable charge. (Id. ¶ 63). The Cigna entities aver that they do not automatically reimburse plan members for every charge submitted to them by providers; rather, the plans cover only a portion of charges submitted for covered expenses (the allowed amount), and the covered expenses also are subject to the member's cost sharing responsibilities (any applicable deductible, co-pay, and co-insurance), meaning a member must pay his or her portion in order for the charges to be covered under the plan. (Id. ¶ 65).

B. The ASCs' Billing Practices

The Cigna entities allege that "SurgCenter has developed a business model designed to game the healthcare system by submitting grossly inflated, phantom 'charges' to [them] that do not reflect the actual amount the ASCs bill patients. SurgCenter implements this fraudulent scheme through each of the ASCS with which it partners." (Id. ¶ 70). SurgCenter partners with local surgeons to form physician-owned ASCs organized as limited liability companies, and becomes a vested partner with thirty-five percent ownership in each ASC, including the twenty Defendant ASCs. (Id. ¶¶ 71-74). SurgCenter helps design and construct the ASCs, and once they are operational, SurgCenter continues providing "no-fee management and consulting services in managing and running [the ASCs]." (Id. ¶¶ 72-73).

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The Cigna entities allege that the ASCs have engaged and continue to engage in a fee-waiver and dual pricing scheme, with significant support and assistance from SurgCenter. As part of this scheme, the ASCs engaged in fee-waivers by "lur[ing] [the Cigna entities'] plan members in as patients by offering to bill and collect for surgical procedures at the plan members' 'in-network' or lower benefit levels, even though the ASCs knew that, because they are out-of-network facilities, the plan members' out-of-network benefits level should apply." (Id. ¶ 3). The ASCs promised the Cigna entities' plan members that their in-network benefits would apply (including deductible, co-pay, and co-insurance) to services rendered by the ASCs and that the plan members would incur no additional out-of-pocket costs above and beyond the costs the ASCs quoted to the plan members (Id. ¶ 67), and the ASCs actually calculated the Cigna entities' plan members' cost-sharing responsibilities (deductible, co-pay, and co-insurance) by applying members' in-network rates. (Id. ¶ 83). The Cigna entities also allege that the ASCs' scheme involved "dual pricing": the ASCs billed the Cigna entities' plan members a certain charge that was based on Medicare rates for the service rendered (in order to approximate an in-network contracted rate), while billing the Cigna entities a significantly higher charge for the same service. While the ASCs' claim forms acknowledged that "[t]he insured's portion of

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this bill has been reduced in amount so the patient's responsibility for the deductible and copay amount is billed at in network rates," the claim forms did not disclose the full nature of the fee waiver or that patients had been billed based on entirely different charges that mirrored Medicare-based rates. (Id. ¶¶ 4, 91-92). The Cigna entities allege that by stating "[t]he insured's portion of this bill has been reduced," the ASCs and SurgCenter affirmatively sought to mislead the Cigna entities into believing that they charged the patient and the Cigna entities the same charge. (Id. ¶ 93). The Cigna entities assert that they relied on the ASCs' misrepresentations and omissions in their claim forms when processing and paying the...

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