Select Specialty Hosp.-Memphis, Inc. v. Trs. of Langston Cos.

• Decision Date: 24 July 2020
• Docket Number: Case No. 2:19-cv-2654-JPM-tmp
• Parties: SELECT SPECIALTY HOSPITAL-MEMPHIS, INC., Plaintiff, v. THE TRUSTEES OF THE LANGSTON COMPANIES, INC., BENEFITS PROGRAM; THE LANGSTON COMPANIES, INC.; ASSOCIATED MEDICAL CONSULTING SERVICES, LLC; and HEALTHSMART BENEFIT SOLUTIONS, INC., Defendants.
• Court: U.S. District Court — Western District of Tennessee

SELECT SPECIALTY HOSPITAL-MEMPHIS, INC., Plaintiff, v. THE TRUSTEES OF THE LANGSTON COMPANIES, INC.,

BENEFITS PROGRAM; THE LANGSTON COMPANIES, INC.;

ASSOCIATED MEDICAL CONSULTING SERVICES, LLC;

and HEALTHSMART BENEFIT SOLUTIONS, INC., Defendants.

Case No. 2:19-cv-2654-JPM-tmp

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TENNESSEE WESTERN DIVISION

July 24, 2020

ORDER GRANTING IN PART AND DENYING IN PART ASSOCIATED MEDICAL CONSULTING SERVICES'S MOTION TO DISMISS, GRANTING IN PART AND DENYING IN PART THE LANGSTON DEFENDANTS' MOTION TO DISMISS, AND GRANTING IN PART AND DENYING IN PART DEFENDANT HEALTHSMART BENEFIT SOLUTIONS, INC.'S MOTION TO DISMISS

This Employee Retirement Income Security Act ("ERISA") denial of benefits case is before the Court on several Rule 12(b)(6) Motions to Dismiss filed by Defendants. (See ECF Nos. 68, 88, 89.) Defendant HealthSmart Benefit Solutions, Inc. (hereinafter "HealthSmart") filed its Motion to Dismiss on March 9, 2020 and moves the Court pursuant to Federal Rule of Civil Procedure 12(b)(6) to dismiss Plaintiff's First Amended Complaint on two grounds. (ECF No. 68.) First, HealthSmart asserts that Plaintiff Select Specialty Hospital-Memphis, Inc. (hereinafter "Select Specialty") has not adequately alleged that HealthSmart is an ERISA fiduciary. (See generally ECF No. 68-1.) Second, HealthSmart asserts that Plaintiff's state law claims are preempted by ERISA. (See generally id.)

The Langston Defendants¹ and Associated Medical Consulting Services, LLC (hereinafter "AMCS") filed separate Motions to Dismiss on March 9, 2020. (ECF Nos. 88, 89.) The Langston Defendants and AMCS move the Court to dismiss the First Amended Complaint on three grounds. (See ECF Nos. 88, 89.) First, the Langston Defendants and AMCS assert that Plaintiff cannot simultaneously maintain its breach-of-fiduciary-duty and wrongful-denial-of-benefits claims against the Defendants. (See generally ECF Nos. 88-1, 89-1.) Second, they assert that Plaintiff has failed to plead exhaustion of administrative remedies. (See generally ECF Nos. 88-1, 89-1.) Third, they assert that ERISA preempts Plaintiff's state law claims. (See generally ECF Nos. 88-1, 89-1.)

On March 13, 2020, HealthSmart filed its Reply, raising for the first time the arguments raised by the other Defendants' motions. (ECF No. 93.) HealthSmart asserts that Plaintiff cannot assert both a wrongful-denial-of-benefits claim simultaneous with its ERISA breach-of-fiduciary claim, and that Plaintiff failed to plead exhaustion of administrative remedies. (See generally ECF No. 93.)

Plaintiff filed its Response to HealthSmart's Motion to Dismiss on March 2, 2020. (ECF No. 84.) Plaintiff asserts that it has adequately alleged that HealthSmart is an ERISA fiduciary, that ERISA does not preempt its state law claims or, alternatively, these state law claims fall under ERISA's saving clause. (See generally ECF No. 84.) Plaintiff filed its Consolidated Response to the Langston Defendants' and AMCS's Motions on April 6, 2020. (ECF No. 98.) Plaintiff asserts that it can pursue both its breach-of-fiduciary-duty and wrongful-denial-of-benefits claims against all Defendants, that ERISA does not preempt its state law claims, and that failure to exhaust is an affirmative defense that is not appropriately raised by way of a Rule 12 motion. (See generally id.)

The Langston Defendants and AMCS filed their Replies on April 20, 2020, reasserting the same arguments in their respective Motions. (ECF Nos. 103, 104.)

For the reasons set forth below, HealthSmart's Motion to Dismiss is GRANTED IN PART AND DENIED IN PART, the Langston Defendants' Motion to Dismiss is GRANTED IN PART AND DENIED IN PART, and AMCS's Motion to Dismiss is GRANTED IN PART AND DENIED IN PART.

I. BACKGROUND

A. Factual Background

This action arises out of Defendants' alleged nonpayment of medical expenses incurred by Plaintiff as a result of treatment rendered to a patient ("the Patient") covered by an ERISA benefits plan. (Amended Complaint, ECF No. 48 ¶¶ 1-2.) Select Specialty is a "long term acute care hospital" with its principal place of business in Memphis, Tennessee. (Id. ¶¶ 1, 5.) It serves primarily critically ill patients "who need longer term care than is typically provided in an acute care hospital." (Id. ¶ 16.)

Plaintiff alleges that it admitted the Patient sometime between 2016 and 2017. (Id. ¶ 19; see also *Sealed Exh. A, ECF No. 48-1.) At the time of his admission, the Patient "assigned his insurance benefits to Select Specialty." (ECF No. 48 ¶ 20.) The Patient, "irrevocably assign[ed] and transferre[ed] to [Select Specialty] such insurance benefits and/or benefits plans, including the rights to benefits for treatment provided by [Select Specialty]." (Id.) The assignment"authorize[d] [Select Specialty] and/or its agents and attorneys to file any and all claims and appeals available through the highest appeal level offered by the payor." (Id.)

Select Specialty asserts that the Langston Defendants² were fiduciaries of the Benefits Plan covering the Patient, and that they "exercised discretionary authority, control, or responsibility" over the management of the Plan. (Id. ¶ 22.) Plaintiff also alleges that the Langston Defendants entered into an "Administrative Services Agreement" with HealthSmart³ to administer the Plan. (Id. ¶ 23.) Plaintiff alleges that under the Agreement HealthSmart, in its role as "Plan Administrator," has "final authority with respect to all claims determinations and operations of the Plan, as well as responsibility to ensure compliance with all applicable laws, including, but not limited to ERISA."⁴ (Id.) Plaintiff alleges that the Plan delegated certain functions to HealthSmart including, but not limited to, "claims processing, adjudication, approval, denial, and payment." (Id. ¶ 24.) Plaintiff also refers specifically to its counsel's correspondence with HealthSmart, in which HealthSmart allegedly "identified itself as the third-party claims administrator for the Plan." (Id. ¶ 25.)

Under the Agreement, HealthSmart would "adjudicate[] claims on behalf of the Plan Administrator in accordance with the Documents." (Id. ¶ 26.) The Agreement authorized HealthSmart to "negotiate fees with providers," "obtain professional review, [conduct] independent medical evaluations," and perform other discretionary services on behalf of the Plan. (Id. ¶¶ 26-27.) The Agreement allegedly authorized HealthSmart to "exercise[] itsauthority . . . to engage AMCS to review, audit, and/or make benefit determinations with respect to the claims relating to the Patient." (Id. ¶ 27.)

Plaintiff alleges that AMCS also was a Plan fiduciary, and that the Plan "delegated to [AMCS] functions and responsibilities of the Plan administrator for adjudication and payment, including but not limited to claims processing, adjudication, approval, denial, and payment." (Id. ¶ 24.) Plaintiff alleges that AMCS "is a separate care-management vendor directly engaged by the Plan to provide care management services," and that AMCS "acts as an agent to the Plan." (Id. ¶ 28.) Plaintiff further alleges that "the Plan [] instructed HealthSmart to rely on the written instruction and representation of AMCS as it relates to the handling and adjudication of claims." (Id.)

Plaintiff corresponded with both HealthSmart and AMCS regarding the Patient's coverage at the time the Patient was admitted to the hospital and before Plaintiff treated the Patient. (See id. ¶¶ 28-32.) Plaintiff alleges that HealthSmart informed Select Specialty that it was "out of network" and that it would pay 150% of Medicare rates. (Id. ¶ 31.) HealthSmart allegedly failed to disclose to Select Specialty "any lifetime, yearly, or diagnosis benefit caps," and "[HealthSmart] stated the days limit for inpatient hospital stays would be based on medical necessity and precertification." (Id.) Plaintiff, relying on these statements, provided medically necessary treatment to the Patient and "care[d] for wounds that existed at the time of the Patient's admission." (Id. ¶ 32.)

After treating the Patient, Select Specialty alleges that it "properly and timely submitted claims to Defendants, together with all necessary supporting documents and information." (Id. ¶ 33.) The claim totaled $1,079,226.99. (Id.) Defendants paid only $212,048.95 on the claim. (Id. ¶ 35.) Defendants allegedly justified their nonpayment because the Patient's wounds werecaused by "never events" or by a "hospital-acquired condition" and were therefore not covered by the Plan. (Id. ¶¶ 36-37.) Plaintiff asserts that the Center for Medicare and Medicaid Services ("CMS") ordinarily reimburses Select Specialty as a long-term care hospital for these events or conditions, and that "never events" are not a distinction made by CMS. (Id. ¶¶ 37-39.)

Plaintiff asserts that these determinations contradicted representations made by HealthSmart and ran afoul of Medicare reimbursement rates for long-term care hospitals. (Id.) Plaintiff contends that Defendants paid the rates applicable to other types of "Extended Skilled Nursing or Rehabilitation Facilit[ies]" rather than Medicare reimbursement rates applicable to a long-term care hospital. (Id. ¶¶ 43-44.)

Plaintiff alleges that it "appealed the Defendants' denial of all or part of the reimbursement sought, which appeals have been denied." (Id. ¶ 46.) Alternatively, Select Specialty argues that if it failed to exhaust its Plan-provided remedies, "Defendants' refusal to pay the claims at issue or to otherwise reverse its position for over two years" renders any appeal "futile." (Id.)

B. Select Specialty's Claims

Plaintiff asserts claims under the Tennessee and federal declaratory judgment acts, ERISA, and several causes of action under Tennessee law. (See id. at PageID 239-46.) Plaintiff seeks a declaratory judgment establishing "Defendants' reimbursement obligations to Select Specialty for its long-term care hospital services to the Patient under the Plan...