Electrostim Med. Servs., Inc. v. Health Care Serv. Corp.

• Decision Date: 02 August 2013
• Docket Number: Civil Action No. H–11–2745.
• Citation: 962 F.Supp.2d 887
• Parties: ELECTROSTIM MEDICAL SERVICES, INC., Plaintiff, v. HEALTH CARE SERVICE CORP., Defendant.
• Court: U.S. District Court — Southern District of Texas

962 F.Supp.2d 887

ELECTROSTIM MEDICAL SERVICES, INC., Plaintiff,

v.HEALTH CARE SERVICE CORP., Defendant.

Civil Action No. H–11–2745.

United States District Court,

S.D. Texas,

Houston Division.

Aug. 2, 2013.

Douglas S. Gregory, Douglas S. Gregory PA, Tampa, FL, Henry Dwayne Newton, Jon Leonard McNeely, Newton and Associates, Houston, TX, Jose I. Maldonado, Jr., Person Whitworth Borchers and Morales, Laredo, TX, for Plaintiff.

Brian Patrick Kavanaugh, Kirkland and Ellis LLP, Chicago, IL, Andrew Fairles Macrae, Attorney at Law, Austin, TX, for Defendant.

MEMORANDUM AND OPINION

LEE H. ROSENTHAL, District Judge.

This lawsuit arises from claims for insurance payments relating to a medical device intended for pain relief. The device and related services were provided by Electrostim Medical Services, Inc. (“Electrostim”) to patients in different states and covered by different health-insurance plans, many issued by entities affiliated with Blue Cross Blue Shield. Electrostim sued Health Care Service Corp., doing business as Blue Cross Blue Shield of Texas (“BCBSTX”), alleging wrongful failure to pay medical claims for the device and services. Electrostim filed the suit in Texas state court; BCBSTX removed. (Docket Entry No. 1).

BCBSTX has moved to dismiss Electrostim's second amended complaint. (Docket Entry No. 36). Discovery revealed a fundamental disconnect between many of the healthcare claims Electrostim asserted it had submitted to BCBSTX and the claims that BCBSTX had received from Electrostim. According to BCBSTX, Electrostim submitted approximately 8,800 claims that arose before the parties' Participating Provider Agreement ended on August 1, 2010. BCBSTX denied approximately 2,300 of these claims. Electrostim provided BCBSTX a list of approximately 20,000 claims that arose after the parties' Participating Provider Agreement was terminated. BCBSTX identified only 273 of those claims as having been submitted to it for payment. Electrostim acknowledges that it had not submitted the rest of the posttermination claims to BCBSTX. Instead, Electrostim submitted these claims to other Blue Cross Blue Shield entities around the country.

BCBSTX has moved to dismiss all the causes of action arising from the nonpayment of both pre- and post-termination healthcare claims. Based on the pleadings; the motions, responses, and supplements; and the relevant law, the court grants the motions to dismiss. Because this resolves all claims, an order of dismissal is entered separately.

The reasons for these rulings are set forth below.

I. Background

In June 2011, Electrostim filed its first amended petition in Texas state court, asserting causes of action for breach of contract, unjust enrichment, breach of implied contract, third-party beneficiary, quantum meruit, suit on an account, violation of prompt-payment statutes, § 502(a) of ERISA, 29 U.S.C. § 1132(a), and breach of fiduciary duty under ERISA. Electrostim identified the disputed healthcare claims as arising both during and after the parties operated under the Participating ProviderAgreement. The parties entered into that Agreement in January 2007. BCBSTX notified Electrostim in April 2010 that it was terminating the Agreement effective August 2010. (Docket Entry No. 1, Ex. 5, Pls.' 1st Am. Pet., ¶¶ 7–8, 12).

On January 27, 2012, BCBSTX moved to dismiss under Rules 12(b)(1) and (6) of the Federal Rules of Civil Procedure. (Docket Entry No. 17). BCBSTX argued that Electrostim had not “identified the claims in dispute, and the amount of the claims is a bit of a moving target. In its Amended Petition, [Electrostim] alleged the claims totaled just under $8.3 million. However, in the Joint Discovery/Case Management Plan, that amount is listed as ‘in excess of $12 million.’ ” ( Id., ¶ 2 (quoting Docket Entry No. 8, at 2)). BCBSTX asserted that despite this confusion, the pleadings alleged at least some claims “for services and/or supplies rendered to members of plans for federal government employees and retirees, as well as Texas state government employees and retirees.” ( Id., ¶ 3). BCBSTX moved to dismiss these federal and state government employee claims.

In the motion and at a hearing at which the court heard argument, BCBSTX asserted that Electrostim had failed to identify which claims were unpaid and what insurance plans covered these claims. (Docket Entry No. 29). BCBSTX argued that to the extent the disputed denials included claims covered by federal insurance plans, the causes of action had to be dismissed under Rule 12(b)(6). Claims for such patients arose under the Federal Employee Health Benefits Act (“FEHBA”), 5 U.S.C. §§ 8901–8914, and could not be asserted under ERISA or state law. (Docket Entry No. 17, ¶¶ 4–23). BCBSTX also argued that to the extent the disputed denials included claims for patients covered by the Employees Retirement System of Texas (“ERS”) and the Teacher Retirement System of Texas (“TRS”), the causes of action had to be dismissed under Rule 12(b)(1). According to BCBSTX, under Texas law, disputes over denials of claims for patients covered by the ERS had to be appealed to the Travis County, Texas district court. Because Electrostim had neither pursued nor exhausted administrative remedies, BCBSTX moved under Rule 12(b)(1) to dismiss any such claims included in Electrostim's suit. ( Id., ¶¶ 24–33).

Electrostim had argued that BCBSTX's motion to dismiss failed to identify which, if any, healthcare claims fell under these categories. BCBSTX had replied with an affidavit from a manager of its Provider Access & Servicing Strategy department. The affidavit stated that BCBSTX had received 99 claims for payment from Electrostim between January 2008 and July 2010 for beneficiaries covered by the federal insurance plan. ( See Docket Entry No. 20, Ex. A, Oswalt Aff., ¶ 3). The court granted BCBSTX's motion to dismiss without prejudice and with leave to amend so that Electrostim could file an amended complaint addressing these deficiencies. The court also ordered the parties to exchange and compare information identifying what claims were at issue.

Electrostim filed its second amended complaint on August 16, 2012. (Docket Entry No. 32). This complaint limited the breach of contract claim, as follows:

Specifically, due to BCBSTX's breach by failure to follow the terms of the Agreement, all of the goods and services that were provided to BCBSTX plan participants and / or participants of other Blue Cross / Blue Shield plans fall within EMSI's damages for breach of contract to the extent they are not precluded by another applicable law. All non-precluded claims fall within the scope of the breach of contract because BCBSTX is obligated to pay for said services or would have been obligated to pay for said services had BCBSTX not violated the agreement and improperly terminated the Agreement.

( Id., ¶ 15). The second amended complaint asserted causes of action for suit on account, violation of prompt-payment statutes, § 502(a) of ERISA, 29 U.S.C. § 1132(a), breach of fiduciary duty under ERISA, unjust enrichment, breach of implied contract, third-party beneficiary, quantum meruit, declaratory judgment as to both non-ERISA and ERISA claims, an injunction, damages, and attorneys' fees.

BCBSTX moved to dismiss Electrostim's second amended complaint. (Docket Entry No. 36). This motion to dismiss was based solely on Rule 12(b)(6). ( Id. at 1). BCBSTX argued that “[b]ecause ERISA pre-empts all Plaintiff's state law claims, Plaintiff does not have standing under ERISA, and any surviving state law claims are insufficiently pleaded, all such claims must be dismissed. The only claim that can survive dismissal is Plaintiff's breach of contract claim pertaining to benefit claims submitted during the term of the Agreement.” ( Id. at 2). BCBSTX reserved its right to move to dismiss this part of the breach of contract claim depending on the claims Electrostim identified as disputed. ( Id. at 3).

In its supplemental briefing, BCBSTX stated that it had located approximately 8,800 claims from Electrostim, of which roughly 2,300 had been denied. (Docket Entry No. 73, at 2). The 2,300 claims fell into four categories:

• 74 claims under the Federal Employee Program (“FEP”) administered by BCBSTX;

• One claim under a Texas state government plan administered by BCBSTX;

• Two nongovernment “ASO” claims under plans administered by BCBSTX; and

• 2,219 BlueCard claims under plans administered by Blue Cross Blue Shield entities other than BCBSTX.

(Docket Entry No. 42, Ex. 2). BCBSTX amended its motion to dismiss to include the pretermination claims that it received from Electrostim and declined.¹ (Docket Entry No. 73, at 2 & n. 2). In its supplemental briefing, BCBSTX reasserted its arguments for dismissing the causes of action for suit on an account, prompt-payment violations, third-party beneficiary rights, and declaratory judgment. ( Id. at 4 & n. 6). BCBSTX also argued that to the extent Electrostim based its quasi- or implied-contract claims on denials of these pretermination healthcare claims, those causes of action must also be dismissed. ( Id. at 4). BCBSTX argued that to the extent the healthcare claims at issue arose under ERISA plans, the state-law causes of action had to be dismissed and the ERISA cause of action for breach of fiduciary duty was insufficiently pleaded to proceed. ( Id. at 6–9). BCBSTX also argued that the second amended complaint presented no factual or legal basis for causes of action for denials of healthcare claims covered by the Federal Employee Program, the ASO programs, Texas state government plans, or BlueCard plans. ( Id. at 9–14).

BCBSTX supplemented its motion to dismiss to cover denials of healthcare claims arising from services provided after the parties' Participation Agreement had ended. (Docket Entry No. 82). Electrostim had submitted only 273 of these posttermination claims to BCBSTX. The rest had been submitted to other Blue...