Nat. Renal Alliance v. Blue Cross and Blue Shield

• Decision Date: 19 February 2009
• Docket Number: Civil Action No. 1:08-CV-0161-JOF.
• Citation: 598 F.Supp.2d 1344
• Parties: NATIONAL RENAL ALLIANCE, LLC, et al., Plaintiffs, v. BLUE CROSS AND BLUE SHIELD OF GEORGIA, INC., et al., Defendants.
• Court: U.S. District Court — Northern District of Georgia

598 F.Supp.2d 1344

NATIONAL RENAL ALLIANCE, LLC, et al., Plaintiffs, v. BLUE CROSS AND BLUE SHIELD OF GEORGIA, INC., et al., Defendants.

Civil Action No. 1:08-CV-0161-JOF.

United States District Court, N.D. Georgia, Atlanta Division.

February 19, 2009.

COPYRIGHT MATERIAL OMITTED

James W. Boswell, III, Martha Salomon Henley, Michael Edward Paulhus, King & Spalding, LLP, Atlanta, GA, for Plaintiffs.

Craig A. Hoover, E. Desmond Hogan, Miranda L. Berge, Hogan & Hartson, Washington, DC, James A. Washburn, S. Derek Bauer, McKenna Long & Aldridge, Atlanta, GA, for Defendants.

OPINION AND ORDER

J. OWEN FORRESTER, Senior District Judge.

This matter is before the court on Defendant's motion to dismiss [11] and Plaintiffs' motion for leave to file surreply [17].

I. Background

A. Procedural History and Facts as Alleged in First Amended Complaint

Plaintiffs, National Renal Alliance, LLC, and affiliated entities,¹ filed suit against Defendant, Blue Cross & Blue Shield of Georgia, Inc.,² on January 15, 2008, alleging violations of the Employment Retirement Insurance Security Act ("ERISA"), 29 U.S.C. §§ 1001 et seq.; the Medicare as Secondary Payer Act, 42 U.S.C. § 1395y(b)(3)(A); and state law claims of breach of contract, misrepresentation, unfair and deceptive trade practices, quantum meruit, and unjust enrichment, and violation of Georgia's statute governing Preferred Provider Organization plans. Plaintiffs amended their complaint on February 15, 2008. Thereafter, Defendant filed the instant motion to dismiss. The court held a hearing on Defendant's motion on July 23, 2008.

"Since 2002, National Renal Alliance, LLC has been in business as the majority owner and manager of local dialysis centers which provide dialysis services to Georgia citizens living in small towns and rural areas." First Amended Complaint, ¶ 18. Many of the patients who use National Renal Alliance's facilities have End Stage Renal Disease. Id., ¶ 19.

Blue Cross is the largest healthcare coverage provider in the state of Georgia with more than 3.3 million members. Id, ¶ 25. Blue Cross offers Preferred Provider Organization ("PPO") plans. Id., ¶ 26. In PPO plans, enrollees elect to pay a higher premium in exchange for flexibility to receive services from providers not in Blue Cross's preferred network, that is, "out-ofnetwork" care. Id. Blue Cross also offers Point of Service ("POS") plans whereby enrollees who use in-network care pay no deductible and a minimum co-payment, while if they go outside the network, the POS plan operates like a PPO plan. Id., ¶ 27. POS and PPO plans cost more than Health Maintenance Organization ("HMO") plans because of the costs of outof-network care. Id., ¶ 28.

National Renal is not in Blue Cross's preferred network and thus nearly all of National Renal's Blue Cross patients are enrolled in PPO or POS plans. Id., ¶ 29. Since January 2007, National Renal has provided dialysis services on an out-ofnetwork basis to twenty-four patients under Blue Cross PPO or POS plans. Id. "On information and belief, one or more of these plans are `employee welfare benefit plans' as defined by section 1002(1) of ERISA." Id. For most of its Blue Cross patients, National Renal submits to Blue Cross (on behalf of the patients) claims for reimbursement of the dialysis services. Id., ¶ 31. National Renal is then reimbursed by Blue Cross. Id. (noting that most patients have signed "Assignment of Benefits" forms for National Renal).

Dialysis treatments typically last three to five hours and should be given three times per week, or approximately 156 times per year. Id., ¶ 32. Medicare began covering dialysis treatments in 1972. Id., ¶ 34. Congress passed legislation "providing that End Stage Renal Disease patients who are enrolled in group health plans ... have the right to choose to remain in the plan for an additional 30 months before they must enter the Medicare program (or upon reaching the age of 65, whichever is earlier)." Id. The "30 month coordination period" begins after a three-month "waiting" or "qualification" period before Medicare coverage begins. Id., ¶ 35. During the coordination period, the group health plan pays as the primary insurer and Medicare functions as the secondary payer. Id. After the coordination period, Medicare becomes the primary payer. Id. It is possible for patients to drop out of private coverage (and go with Medicare) during the coordination period, but many do not do so because they want better services and want to coordinate their care with spouses and children. Id., ¶ 36.

Congress enacted the "Anti-Discrimination" provisions of the Medicare as Secondary Payer Statute, 42 U.S.C. § 1395y(b)(1)(C), which prohibit a health plan from "tak[ing] into account" that an individual covered by virtue of "current employee status" is entitled to receive Medicare benefits as a result of age, disability, or End Stage Renal Disease. Id., ¶ 37. A health plan also may not "differentiate in the benefits it provides between individuals who have ESRD and others enrolled in the plan, on the basis of the existence of ESRD, or the need for renal dialysis, or in any other manner." 42 U.S.C. § 1395y(b)(1)(C) (i)-(ii). Id. The accompanying regulations define "taking into account" to be if a plan "terminate[s] coverage of individuals with ESRD, when there is no basis for such termination unrelated to ESRD"; "impos[es] on persons who have ESRD, but not on others enrolled in the plan, benefit limitations such as less comprehensive health plan coverage, reduction in benefits, exclusion of benefits, a higher deductible or coinsurance"; "pay[s] providers and suppliers less for services furnished to a Medicare beneficiary than for the same services furnished to an enrollee who is not entitled to Medicare"; or "provide[s] misleading or incomplete information that would have the effect of inducing a Medicare entitled individual to reject the employer plan, thereby making Medicare the primary payer." 42 C.F.R. § 411.161(b)(2)(i)-(ii); 42 C.F.R. § 411.108(a)(8)-(9). Id., ¶ 38.

Georgia also has a state statute which governs the operation of PPOs, O.C.G.A. §§ 33-30-20, et seq. Id., ¶ 39. The statute prohibits provider arrangements which "unfairly deny health benefits for medically necessary covered services" or "[h]ave an adverse effect on the availability or quality of services." Id., ¶ 40 (citing O.C.G.A. § 33-30-23(b)(1), (5)). The statute also bars certain variations in reimbursement between preferred and out-ofnetwork services. Id. (citing O.C.G.A. § 33-30-23(3), (4)).

Because of the special provisions for individuals with End Stage Renal Disease, approximately seventy-five to eighty percent of the dialysis patients in the nation are covered by Medicare. Id., ¶ 42. "Medicare reimburses for dialysis treatment at a rate lower than the average cost of providing the actual service in most settings. Thus, providers like National Renal depend entirely on revenue from treating patients who are still covered through commercial insurance to sustain their business and keep their doors open for patients." Id. Because National Renal is focused on providing dialysis in small, underserved areas, it cannot rely on the economies of scale that dialysis centers in larger areas can. Id. "National Renal depends on the commercial payor reimbursements for the 10% of its patients who are not yet receiving primary coverage from Medicare." Id.

In January 2007, Blue Cross cut its reimbursement for out-of-network dialysis to levels below the customary charges associated with such care. Id., ¶ 45. In 2006, Blue Cross had determined that the "usual, customary, and reasonable" charge for National Renal's dialysis services was $2,900 per treatment which was similar to the rate at which other commercial payors reimbursed National Renal. Id. The January 2007 reimbursement level dropped by eighty-eight percent. Id. National Renal contends this is a manipulation of reimbursement rates designed to target out-ofnetwork providers. Id.

National Renal contends that the reduction in the "usual, customary and reasonable" reimbursement violates the Anti-Discrimination provisions of the Medicare as Secondary Payer Act because it takes into account an End Stage Renal Disease patient's Medicare-eligible status. Id., ¶ 46. The rate cut singled out End Stage Renal Disease patients and not other services. Id., ¶ 47. "Blue Cross's actions disrupt the delicate balance that the government anticipated when it drafted laws specific to End Stage Renal Disease requiring group health plans to act as primary payor initially but relieving them of all reimbursement obligations after a mere 30 months." Id., ¶ 48.

Blue Cross's statement in a letter to enrollees that they will "be unaffected" by the reduction in reimbursement is false because enrollees' costs for out-of-network dialysis care during the three-month "waiting period" will increase. Id., ¶ 49. Because National Renal cannot provide services at the lower reimbursement rate, it will eventually be forced to drop Blue Cross enrollees. Id.

National Renal also contends that by reducing the reimbursement rates, Blue Cross is effectively denying its members the bargained-for out-of-network benefits of the PPO and POS plans in violation of Georgia's PPO statute. Id., ¶ 50. The cap on reimbursement will have an adverse effect on the availability and quality of services to patients in rural communities, which also violates Georgia's PPO statute. Id., ¶ 51.

Blue Cross did not assure that its enrollees or National Renal were apprised of the situation. Id., ¶ 52. Because of the ninety-day billing delay cycle, National Renal did not learn of the reduction in reimbursement for several months. Id. National Renal billing personnel contacted Blue Cross several times in April or May of 2007 to learn why the reimbursement rate had dropped and received numerous varying explanations. Id. Blue Cross told National Renal in August 2007 that the...