Oxford Health Plans (N.Y.), Inc. v. Biomed Pharm., Inc.

• Decision Date: 18 March 2020
• Docket Number: Index No. 24093/12,2017–02971
• Citation: 122 N.Y.S.3d 47,181 A.D.3d 808
• Parties: OXFORD HEALTH PLANS (N.Y.), INC., et al., Appellants, v. BIOMED PHARMACEUTICALS, INC., Respondent.
• Court: New York Supreme Court — Appellate Division

181 A.D.3d 808
122 N.Y.S.3d 47

OXFORD HEALTH PLANS (N.Y.), INC., et al., Appellants,
v.
BIOMED PHARMACEUTICALS, INC., Respondent.

2017–02971
Index No. 24093/12

Supreme Court, Appellate Division, Second Department, New York.

Argued—January 21, 2020
March 18, 2020

Robinson & Cole LLP, New York, N.Y. (Michael H. Bernstein of counsel), for appellants.

McDermott Will & Emery LLP, New York, N.Y. (Andrew B. Kratenstein of counsel), for respondent.

ALAN D. SCHEINKMAN, P.J., LEONARD B. AUSTIN, SYLVIA O. HINDS–RADIX, HECTOR D. LASALLE, JJ.

DECISION & ORDER

181 A.D.3d 809

ORDERED that the order is affirmed, with costs.

This action arises from the defendant, Biomed Pharmaceuticals, Inc.'s, submission of claims for health insurance benefits to the plaintiff Oxford Health Plans (N.Y.),

122 N.Y.S.3d 50

Inc., and its claims administrator, the plaintiff United Healthcare Services, Inc. The defendant is a pharmacy and home infusion service that provides medications for patients with chronic medical conditions such as hemophilia and immunodeficiency disorders. The plaintiffs are health maintenance organizations that provide healthcare insurance coverage to their members, the terms of which are described in Certificates of Coverage. The plaintiffs provide a network of participating health care providers, whom they reimburse at negotiated rates pursuant to contracts between the plaintiffs and the in-network providers. Pursuant to the relevant insurance plans, members may seek services from out-of-network providers, such as the defendant, but are generally subject to deductible and coinsurance obligations. At all relevant times, the defendant was an out-of-network provider. The 27 patients at issue in this litigation (hereinafter the patients) were members enrolled in the plaintiffs' healthcare plans that permitted them to receive contracted services from out-of-network providers such as the defendant.

After the patients received services from the defendant, the defendant submitted insurance benefits claims to the plaintiffs on behalf of the patients, pursuant to assignment agreements between the defendant and the patients. The defendant submitted claims to the plaintiffs on a form published by the federal government, which requires information concerning, inter alia, the provider's identity and the fee charged, and includes no representation concerning the collection of deductibles, coinsurance, or co-payments, the financial condition of the patient, or whether the patient requested or obtained a financial hardship waiver.

The defendant submitted claims to the plaintiffs based upon the average wholesale price (hereinafter AWP) of the particular drug. However, in determining the amount to reimburse for a claim, pursuant to the Certificates of Coverage, the plaintiffs reimbursed out-of-network providers such as the defendant not based upon the amount of the claim, but rather, based upon what is "usual, customary and reasonable" (hereinafter UCR) in the industry, and by deducting any patient responsibility therefrom, such as deductible and/or co-payment amounts. Accordingly,

181 A.D.3d 810

as acknowledged by the plaintiffs, the Certificates of Coverage provide "a ceiling for fees charged based on UCR charge," and when the provider's fees exceed the UCR charge, the plaintiffs "will only pay a percentage of the UCR." As such, the plaintiffs paid the defendant 70% of the UCR rate, and did not make payments based upon the AWP amount charged by the defendant.

After submitting claims to the plaintiffs, the defendant would first learn about the patient's responsibility for co-payments and/or deductibles if the plaintiffs withheld an amount from the reimbursement paid to the defendant. The defendant could then seek to collect the balance from the patients, as these deductible and co-payment amounts are owed to the out-of-network provider, i.e., the defendant, and not to the insurer, i.e., the plaintiffs. The defendant's practice was to bill the patients directly for the balance that had not been paid by the plaintiffs, and the patients were permitted to apply for a financial hardship waiver of some or all amounts owed. Hardship waivers were not routinely awarded, and were not designed to attract patients or influence a patient's choice. The plaintiffs' Certificates of Coverage for the 27 patients do not bar financial hardship waivers, do not provide guidelines for seeking waivers, and the plaintiffs did not require the patients

122 N.Y.S.3d 51

to notify them if they had applied for a financial hardship waiver.

In 2008, the plaintiffs investigated claims related to 17 of the defendant's patients who were members of the plaintiffs' insurance plan, including "B.K.," a very high-cost patient who was a child with severe hemophilia. The plaintiffs concluded that the defendant had improperly waived coinsurance and deductible payments for 6 of the 17 patients, including B.K., and reduced B.K.'s reimbursements that were paid to the defendant by 30 percent, which amounted to nearly $1.5 million. In response, the defendant commenced a section 502(A)(1)(B) of the Employee Retirement Income Security Act of 1974 (Pub L 93–406, tit I, § 502[A][1][B], 88 Stat 829, codfied at 29 USC § 1132 [a][1][B]; hereinafter ERISA) action (hereinafter the federal action) against the plaintiffs in federal court seeking relief stemming from the benefit reductions for B.K. In denying the plaintiffs' motion to dismiss the federal action, the federal court held that the defendant's waivers of B.K.'s co-payment obligations constituted "payment" of such amounts, and were not a violation of the plaintiffs' terms of coverage. Following a nonjury trial, the federal court applied the arbitrary and capricious standard and dismissed the defendant's claim, holding

181 A.D.3d 811

that the defendant could not overcome the high level of deference owed to a plan administrator's determination in an ERISA context, and as the defendant failed to collect financial information from the family of B.K. to substantiate a hardship waiver, it was not entitled to payment of the benefit reductions. However, the federal court again held that the defendant's waivers of B.K.'s co-payment obligations did not constitute a failure by B.K. to "pay" his deductible or coinsurance.

The plaintiffs subsequently commenced this action against the defendant, and in an amended complaint, asserted causes of action to recover damages for fraudulent misrepresentation of billed charges and tortious interference with the plaintiffs' contractual relationship with the 27 patients at issue herein, including B.K. After the completion of discovery, the defendant moved for summary judgment dismissing the amended complaint, the plaintiff cross-moved for summary judgment on the amended complaint, and the plaintiffs moved to strike certain evidence and legal arguments allegedly presented for the first time in the defendant's reply papers. In an order dated February 16, 2017, the Supreme Court granted the defendant's motion for summary judgment dismissing the amended complaint, denied the plaintiffs' cross motion for summary judgment on the amended complaint, and denied the plaintiffs' motion to strike. The plaintiffs appeal.

Summary judgment "shall be granted if, upon all the papers and proof submitted, the cause of action or defense shall be established sufficiently to warrant the court as a matter of law in directing judgment in favor of any party" ( CPLR 3212[b] ). "The proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any material issues of fact from the case" ( Winegrad v. New York Univ. Med. Ctr...