Humana Ins. Co. v. Tenet Health Sys., Corp.

• Decision Date: 21 November 2016
• Docket Number: No. 3:16-cv-2919-B,3:16-cv-2919-B
• Parties: HUMANA INSURANCE COMPANY, a Wisconsin Corporation, ET AL., Plaintiffs, v. TENET HEALTH SYSTEM, a Texas Corporation, Defendant.
• Court: U.S. District Court — Northern District of Texas

HUMANA INSURANCE COMPANY, aWisconsin Corporation, ET AL., Plaintiffs, v. TENET HEALTH SYSTEM, a Texas Corporation, Defendant.

No. 3:16-cv-2919-B

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF TEXAS DALLAS DIVISION

November 21, 2016

MEMORANDUM OPINION AND ORDER

Plaintiffs Humana Insurance Company, Humana Health Plan, Inc., Humana Health Plan of California, Inc., and Arcadian Health Plan, Inc. (collectively, "Humana" or "Plaintiffs")¹ and Defendant Tenet Health System ("Tenet" or "Defendant") are parties to two hospital capitation participation agreements. The parties disagree about the termination dates of these agreements and have submitted the dispute to arbitration. Pending the arbitration panel's decision, Humana seeks a preliminary injunction from this Court to maintain the status quo and stay the effect of Tenet's notice of termination.

Plaintiffs' Amended Motion for a Preliminary Injunction [Dkt. No. 14] is now before the undersigned United States magistrate judge for decision and ruling pursuant to 28 U.S.C. § 636(c). See Dkt. No. 55.

The Court has considered the Amended Motion for a Preliminary Injunction [Dkt. No. 14], Tenet's response [Dkt. No. 22], Plaintiffs' reply [Dkt. No. 28], Tenet's further response [Dkt. No. 43], the parties' Joint Report re Request for Hearing on Motion for Preliminary Injunction [Dkt. No. 48], the parties' post-hearing briefs [Dkt. Nos. 60 & 62], and the testimony and exhibits submitted at and in connection with the evidentiary hearing [Dkt. Nos. 59, 63, & 65], and, for the reasons that follow,² DENIES Plaintiffs' Amended Motion for a Preliminary Injunction [Dkt. No. 14].

Background

I. Evidentiary Objections to Declarations

As an initial matter, the Court notes that the parties objected to declarations filed in support of the motion for preliminary injunction, response, and reply. Humana's motion for preliminary injunction is supported by the Declarations of Aliza Arjoyan [Dkt. Nos. 6, 15, & 29] and Lucinda Ehnes [Dkt. No. 7]. Tenet asserts evidentiary objections to those declarations. See Dkt. Nos. 22-1 & 45 (Arjoyan); Dkt.No. 22-1 (Ehnes). Tenet's response is supported by the Declarations of Dara Lynn [Dkt. No. 22-2] and Robert Welsh [Dkt. No. 22-3], and Humana asserts evidentiary objections to Ms. Lynn's Declaration. See Dkt. No. 35. Humana's reply is supported by the Declaration of Jerry Adams [Dkt. No. 30], and Tenet asserts evidentiary objections to Adams' Declaration. See Dkt. No. 34.

All of those declarants testified at the hearing except for Ms. Ehnes and Mr. Welsh, and the Court has not based its decision on the declarations of either of them (although the Court notes that Ms. Ehnes's substantive testimony would be cumulative of Mr. Adams's hearing testimony). Because the hearing (or submitted deposition) testimony of the other declarants effectively supersedes the declarants' previously filed declarations, the Court need not rule on the evidentiary objections to the declarations. See generally Heil Trailer Int'l Co. v. Kula, 542 F. App'x 329, 334 n.17 (5th Cir. 2013) (noting that "[s]everal of our decisions have left open the possibility that the decision to deny a preliminary injunction without an evidentiary hearing (as opposed to granting it) might be entirely within the district court's discretion - even where a genuine factual dispute remains between the parties" but that "it is fundamental that, [i]f there is a factual controversy, ... oral testimony is preferable to affidavits because of the opportunity it provides to observe the demeanor of the witnesses" and that "[t]his principle is no less true where a preliminary injunction is denied than where a preliminary injunction is granted" (internal quotation marks omitted)).

II. Factual Background³

Plaintiffs, who are qualified health plan providers, and Tenet were parties to a national fee-for-service ("FFS") agreement. See Hospital Participation Agreement, Ex. 6 (also referred to as the "National Agreement" or "master agreement"). Section 6.1 of the National Agreement provides:

The term of this Agreement shall commence on June 21, 2013 (the "Effective Date"). The initial term of this Agreement shall end on September 30, 2016, unless sooner terminated as provided herein. Unless sooner terminated as provided herein, the Agreement shall automatically renew for subsequent one (1) year terms unless either party provides written notice of non-renewal to the other party at least ninety (90) days prior to the end of the initial term or any subsequent renewal terms.

Id. Two of Tenet's hospitals were covered by the National Agreement: Doctors Medical Center of Modesto, Inc. located in Stanislaus County, California ("Modesto") and Doctors Hospital of Manteca, Inc. located in San Joaquin County, California ("Manteca"; collectively with Modesto, "the Manteca and Modesto hospitals").

Starting in February 2016, Humana and Tenet began negotiations to change the payment structure for the Manteca and Modesto hospitals from a fee-for-service model to a capitated model. See Ex. 51 & 101. A capitated agreement is one in which the plan pays the health care provider an agreed-upon amount per enrollee per month orpercentage of premium regardless of the number of times that an enrollee needs care. Under this arrangement, the health care provider assumes some of the risk. See Doctors Medical Center of Modesto, Inc. v. Kaiser Found. Health Plan, Inc., 989 F. Supp. 2d 1009, 1013 (E.D. Cal. 2013) (citing 42 U.S.C. §§ 13952-21, -23 & -24); Flew v. Hawkins, 401 F.Supp. 2d 619, 670 (E.D. Tex. 2005). A capitated agreement includes a Division of Financial Responsibility ("DOFR") that sets the capitation rate.

Humana sought the new pay structure to reduce its financial risk in Stanislaus and San Joaquin Counties and informed Tenet that, without a capitated arrangement, Humana would exit the counties in 2017. After oral negotiations, the parties exchanged multiple drafts of proposed capitated agreements for the Manteca and Modesto hospitals. See Ex. 51.

On March 8, 2016, Dawn Cirri, Tenet's AVP of Managed Care for the Western Region, sent Humana's representatives the first written proposal, which was a template of a Tenet risk agreement with a DOFR. See Ex. 22. The section addressing the term and termination procedure left blanks for the dates.

On March 8, 2016, Aliza Arjoyan, Humana's Vice President/Network Management, replied "that Humana is unable to utilize documents other than our own template. Since we already have an agreement with Tenet [that is, the National Agreement], we already have a base to work off of for this arrangement and the only review on your end would then be the 'capitation required' attachments to that document." Ex. 8.

On March 15, 2016, Patricia Gonzalez, Humana Director, Contracting/ Network Management, emailed two draft agreements with DOFRs to Dawn Cirri and others. In her transmittal email, Ms. Gonzalez stated that the proposed capitated agreements would be separate agreements from the current national fee-for-service agreement between Humana and Tenet, that any unassigned enrollees would be paid according to the terms of the current national fee-for-service agreement, and that the capitated agreements could be terminated separately from the National Agreement. See Ex. 7 & 121. Ms. Gonzalez further stated that the proposed capitated agreements were based on the current national fee-for-service agreement and that she redlined the changes "to minimize review since the applicable language is already agreed upon by both parties." Id. Section 6.1 of the draft agreements was identical to Section 6.1 in the National Agreement and provided an effective date of June 13, 2013 and a termination date of September 30, 2016. The date in the term provision on Exhibit A (Capitation Attachment) was left blank.

On March 20, 2016, Ms. Cirri questioned the use of separate agreements instead of an amendment to the National Agreement. See Ex. 51 & 101. On March 21, 2016, Ms. Gonzalez responded: "I understand your concern, however, the national agreement was negotiated by a different team than us here in California and since the capitation will be specific to the CA market, I thought it best to keep a separate document that we have control of, rather than rely on our national teams. Additionally, since these agreements will be separate from the national agreement, they can also be terminatedor 'not' terminated separately from the national agreement. In order to expedite the negotiation to meet our deadline, these base agreements are identical to the national agreement with only three exceptions." Id. The exceptions did not include the term or termination date. See id.

On March 21, 2016, Ms. Cirri responded, stating that "Tenet has a national agreement with Humana and ... we cannot deviate from the national agreement." Id. Ms. Arjoyan then responded to Ms. Cirri that "[w]e are not in a position to have these capitated arrangements at the mercy of a national FFS negotiation when and if that occurs again ... we've taken what we think is the best approach in utilizing what has already been approved for both organizations as our base document and modified it only with respect to what is necessary for the capitated arrangement." Id.

Ms. Cirri then responded to Ms. Arjoyan and Ms. Gonzalez that "Tenet has a national agreement with Humana and while I have been given permission to negotiate on behalf of the region to ensure we hit the timing needs of Humana, we cannot deviate from the national agreement." Id.

By this time, each party took a position concerning the relationship between the proposed capitated agreements and the National Agreement that it considered a deal breaker. On March 22, 2016, Ms. Gonzalez and Ms. Arjoyan from Humana and Ms. Cirri, Dara Lynn, and Sapna Grover from Tenet participated in a telephone conversation to discuss their differing positions. Ms. Cirri testified that Tenet insisted that the capitated agreements...