River Park Hosp. v. Bluecross Blueshield Tn

• Decision Date: 11 October 2002
• Citation: 173 S.W.3d 43
• Parties: RIVER PARK HOSPITAL, INC., v. BLUECROSS BLUESHIELD OF TENNESSEE, INC., and Volunteer State Health Plan, Inc., d/b/a BlueCare.
• Court: Tennessee Supreme Court

173 S.W.3d 43

RIVER PARK HOSPITAL, INC., v. BLUECROSS BLUESHIELD OF TENNESSEE, INC., and Volunteer State Health Plan, Inc., d/b/a BlueCare.

Court of Appeals of Tennessee, Western Section, at Nashville.

November 6, 2001 Session.

October 11, 2002.

Permission to Appeal Denied by Supreme Court February 18, 2003.

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Gary C. Shockley and Brigid M. Carpenter, Nashville, Tennessee, for the appellants BlueCross BlueShield of Tennessee, Inc., and Volunteer State Health Plan, Inc., d/b/a/ BlueCare.

Steven A. Riley and Taylor A. Cates, Nashville, Tennessee, for the appellee, River Park Hospital, Inc.

William E. Young and William B. Hubbard, Nashville, Tennessee, for amicus curie, Tennessee Hospital Association.

Andrew Yarnell Beatty, Nashville, Tennessee, for amicus curie, Tennessee Medical Association.

OPINION

HOLLY KIRBY LILLARD, J., delivered the opinion of the court, in which W. FRANK CRAWFORD, P.J., W.S., and ALAN E. HIGHERS, J., joined.

This case involves a dispute over rates paid to a TennCare health care provider. The plaintiff hospital had been a participating provider for the defendant TennCare managed care organization ("MCO") for several years, being paid an agreed contractual rate for services provided to the MCO's enrollees. When the parties' contract expired, it was not renewed. After expiration of the contract, the hospital continued to provide emergency services to the MCO's enrollees, as it was required to do under federal law. For those emergency services, the hospital billed the MCO at its full, standard rates. The MCO refused to pay the hospital's standard rates, and instead paid the hospital the same rate it had paid under the parties' expired contract. This was the same rate the MCO paid hospitals that were participating providers. The hospital filed this lawsuit against the MCO, seeking to recover its full, standard rates for the emergency services provided to the MCO's enrollees after expiration of the parties' contract. After hearing proof on liability, but not damages, the trial court initially denied recovery on all grounds. The hospital moved for reconsideration and to reopen the proof. The trial court granted the motion and ultimately determined that the MCO had been unjustly enriched by the hospital's provision of services to its enrollees. Both parties appealed. We affirm, finding a contract implied in law, and remand to the trial court to determine a reasonable rate for services provided by the hospital and, based on this, for a determination of damages.

Plaintiff/Appellee River Park Hospital, Inc. ("River Park"), is a Tennessee corporation that operates a 127-bed hospital in McMinnville, Tennessee. Defendant/Appellant BlueCross BlueShield of Tennessee, Inc. ("BlueCross"), is a Tennessee not-for-profit corporation with its principal place of business in Chattanooga. Defendant/Appellant Volunteer State Health Plan, Inc. ("Volunteer State"), a Tennessee-licensed Health Maintenance Organization ("HMO"), is a subsidiary of BlueCross. Through Volunteer State, BlueCross participates as a managed care organization ("MCO") in TennCare, under the trade name "BlueCare."¹

TennCare is Tennessee's Medicaid program. Medicaid was established by the federal government in 1965 to provide health coverage for low-income individuals, as opposed to the Medicare program designed to provide health coverage to the elderly.² State ex rel. Pope v. Xantus Healthplan of Tennessee, Inc., No. M2000-00120-COA-R10-CV, 2000 WL 630858, at *2, 2000 Tenn.App. LEXIS 319, at *3 (Tenn.Ct.App. May 17, 2000). Under traditional "fee-for-service" Medicaid programs, the State pays health care providers directly for services administered to eligible individuals. Reimbursement rates for services provided to Medicaid enrollees are established by the State. The individual Medicaid enrollee is free to utilize the physician, hospital, or other health care provider of his choice. Likewise, the health care provider is free to accept or decline to treat Medicaid patients.

TennCare is different from the traditional fee-for-service Medicaid program, in that it is a managed care Medicaid system.³ Under TennCare, the State of Tennessee enters into Contractor Risk Agreements ("risk agreements") with private MCOs. Id. 2000 WL 630858, at *2, 2000 Tenn.App. LEXIS 319, at *7. Under the risk agreements, the MCO receives a monthly payment from the State known as a "capitation payment" for each eligible individual enrolled with that MCO ("enrollee"). In return for this capitation payment, the MCO must arrange for the provision of medically necessary services to its enrollee. Id. 2000 WL 630858, at *2-3, 2000 Tenn.App. LEXIS 319, at *7-*8. In order to do this, each MCO develops a "network" of health care providers and negotiates with the health care providers to accept discounted rates for the services provided. Id. 2000 WL 630858, at *3, 2000 Tenn.App. LEXIS 319, at *8. If the MCO pays less in provider fees than the total amount received in capitation payments, it earns a profit. If the amount spent on care exceeds the capitation payments, the MCO bears the loss. In this way, the MCOs, not the State, bear the financial risk involved in the administration of health care services to persons eligible for TennCare. Id.

Each eligible TennCare recipient enrolls with the MCO of his choice.⁴ The MCO assigns each enrollee in its plan to a primary care physician, also referred to as the "PCP" or "gatekeeper." The MCO pays the PCP a per capita rate to perform his "gatekeeping" function, to ensure that each enrollee receives only medically necessary health care services and to refer the enrollee to other health care providers for the medically necessary health care services that the PCP could not provide, including hospitalization. If the MCO enrollee has an emergency situation, he may go directly to a hospital emergency room without first getting approval from his PCP. Under the federal Emergency Medical Treatment and Active Labor Act, 42 U.S.C. § 1395dd ("EMTALA"), a hospital must provide services to a person with an emergency medical condition until the person's condition has stabilized, without regard to whether the person has insurance. The MCO has obligations as well; under the risk agreements entered into by the MCOs with the State, the MCO is obligated to pay the health care provider for any emergency services provided to its enrollee.

BlueCare entered into a risk agreement with the State of Tennessee to become a TennCare MCO.⁵ When the TennCare program began in 1994, BlueCare contracted with River Park for River Park to become a participating provider in the BlueCare network. The most recent version of BlueCare's contract with River Park, known as the "BlueCare Attachment" to the River Park Institution Agreement, was effective on October 1, 1996. The parties operated under the BlueCare Attachment from October 1, 1996, through December 31, 1999.

During the course of River Park's contractual relationship with BlueCare, River Park became dissatisfied with the rate of reimbursement paid by BlueCare. River Park was also frustrated with the amount of time and money required to follow BlueCare's elaborate "utilization management procedures" or "utilization review guidelines." BlueCare required compliance with these procedures in order to obtain payment for services rendered. In 1999, River Park lost $2.3 million on BlueCare enrollees. Consequently, by letter dated July 26, 1999, River Park gave notice to BlueCare that River Park would terminate its BlueCare Attachment effective January 1, 2000. River Park sought to renegotiate its contract with BlueCare to obtain a higher rate of reimbursement and simpler reimbursement procedures. Through a series of meetings and conference calls, the parties' negotiations continued from October 1999 through March 2000.

Ultimately, the parties could agree to continue under the former contract only with respect to obstetrical services. Otherwise, the parties could not reach an agreement. Therefore, River Park became an out-of-network provider as of January 1, 2000. During the negotiations, BlueCare told River Park several times that if the parties could not agree on a new contract, BlueCare would pay River Park only the rate of reimbursement it had paid under the old contract, because BlueCare maintains a policy of paying out-of-network hospitals the same rate that it pays in-network hospitals. River Park refused to be bound by the terms of the old contract after January 1, 2000. River Park repeatedly insisted that if the parties could not reach a new agreement, River Park would charge BlueCare the hospital's reasonable, standard rates for services provided to BlueCare enrollees by River Park after that date. River Park told BlueCare that its acceptance of any payment by BlueCare "does not waive our right to full and complete payment required by law."

On March 2, 2000, the parties engaged in their last meaningful conference call in an attempt to settle their dispute. At that time, River Park told BlueCare that it would accept BlueCare's regular in-network rates for in-patient services, but said that it would require 48% of the full, standard charges for out-patient services provided during January and February 2000. For the period of March 1 through June 30, 2000, River Park said it would agree to accept BlueCare's regular in-network rate for all services, provided BlueCare would agree to pay River Park for all claims authorized by BlueCare, bypassing BlueCare's exhaustive utilization management procedures. BlueCare rejected River Park's proposal and made no counter-proposal.

On March 8, 2000, River Park filed this lawsuit. In its original complaint, River Park sought (1) a declaratory judgment that, pursuant to Tennessee Code Annotated § 56-32-209, BlueCare was required to notify its enrollees that its contract with River Park was terminated; (2) a...