United Healthcare Servs., Inc. v. First St. Hosp. LP

• Decision Date: 29 November 2018
• Docket Number: NO. 01-17-00237-CV,01-17-00237-CV
• Citation: 570 S.W.3d 323
• Parties: UNITED HEALTHCARE SERVICES, INC., United Healthcare Insurance Company, United Healthcare Benefits of Texas, Inc., and United Healthcare of Texas, Inc., Appellants v. FIRST STREET HOSPITAL LP, First Surgical Partners, LLC, First Surgical Partners Holding Inc., Jacob Varon, M.D., St Michael's Emergency Center, LLC, the Woodlands FEC, LLC, Brian Orsak, Shannon Orsak, Diane Crumley, Vital Weight Control, Inc., Harris County Title Search, Inc., Emergency Healthcare Partners LP d/b/a Memorial Heights Emergency Center, and Anthony Rotondo, Appellees
• Court: Texas Court of Appeals

570 S.W.3d 323

UNITED HEALTHCARE SERVICES, INC., United Healthcare Insurance Company, United Healthcare Benefits of Texas, Inc., and United Healthcare of Texas, Inc., Appellants

v.FIRST STREET HOSPITAL LP, First Surgical Partners, LLC, First Surgical Partners Holding Inc., Jacob Varon, M.D., St Michael's Emergency Center, LLC, the Woodlands FEC, LLC, Brian Orsak, Shannon Orsak, Diane Crumley, Vital Weight Control, Inc., Harris County Title Search, Inc., Emergency Healthcare Partners LP d/b/a Memorial Heights Emergency Center, and Anthony Rotondo, Appellees

NO. 01-17-00237-CV

Court of Appeals of Texas, Houston (1st Dist.).

Opinion issued November 29, 2018

John B. Shely, Laura Trenaman, Cameron P. Pope, Brian Pidcock, Kelsey J. Hope, Andrews Kurth Kenyon LLP, 600 Travis St., Ste 4200, Houston, TX, for Appellants.

Andrew S. Hicks, Logan E. Johnson, Penelope E. Nicholson, Persis Dean, Schiffer Odom Hicks & Johnson PLLC, 700 Louisiana St., Ste 2650, Houston, TX 77002, Larry R. Veselka, Jarod R. Stewart, Michelle S. Stratton, Smyser Kaplan & Veselka, L.L.P., 700 Louisiana St., Ste 2300, Houston, TX 77002, Richard P. Hogan, Jr., Jennifer Bruch Hogan, James C. Marrow, Hogan & Hogan, 711 Louisiana St., Ste 500, Houston, TX 77002, Brent Carpenter, 322 Brooks Street, Sugar Land, TX 77478, Christry L. Martin, Simon W. Hendershot, III, Katie T. Cowart, Hendershot, Cannon, Martin & Hisey, P.C., 1800 Bering Drive, Ste 600, Houston, TX 77057, Robert A. Plessala, Anderws Myers, P.C., 3900 Essex Lane, Ste 800, Houston, TX 77027, Matthew J. Mussalli, 2441 High Timbers Drive, Ste 220, The Woodlands, TX 77380, for Appellees.

Panel consists of Chief Justice Radack and Justices Massengale and Brown.

Harvey Brown, Justice

Historically, when a patient sought a medical evaluation, the patient could have expected to be billed a physician’s fee in addition to the cost of any tests, treatments, and medicines provided during the medical visit. And when the medical evaluation was provided by a physician in a hospital’s emergency room, the patient also could have expected to be billed a "facility fee." Facility fees have been described as premium add-ons meant to offset both the higher costs associated with maintaining, staffing, and stocking an emergency-ready facility 24 hours per day and the inherent financial losses incurred while treating people who have emergency medical needs but no ability to pay.¹

Certain facilities are statutorily allowed to charge facility fees. As examples, licensed hospitals with attached emergency rooms and licensed, freestanding emergency centers are entitled to recover facility fees in connection with medical care provided at their facilities.²

This appeal arises from a suit by insuring entities to recoup facility fees. The plaintiffs, United Healthcare Services, Inc., United Healthcare Insurance Company, United Healthcare Benefits of Texas, Inc., and United Healthcare of Texas, Inc. (collectively "United"), contend that they were defrauded into paying facility fees to entities not entitled to receive them. United pleaded that a licensed hospital and its related entities and owners (collectively "First Hospital")³ conspired with various freestanding emergency centers and their related entities and owners (collectively "Off-site ERs")⁴ to use First Hospital’s license to charge facility fees in connection with care provided at the Off-site ERs. United also sued Diane Crumley and her related entities (collectively "Crumley"),⁵ alleging that she introduced First Hospital to the Off-site ERs and coordinated the fraudulent scheme between them.

The defendants, First Hospital, the Off-site ERs, and Crumley, offer two arguments that the fees were properly recoverable: first, that the Insurance Code defines "emergency care" to include health care services at a "comparable emergency facility,"⁶ which the Off-site ERs claim to be; and second, that a January 2008 Department of Insurance letter cited by insurers/payors to avoid paying facility fees to freestanding emergency centers has no legal effect because it did not result from a public notice-and-comment period.

The defendants sought summary dismissal of United’s suit under various theories. They moved for summary judgment on statute of limitations, no evidence, federal preemption, and other grounds. Only one of United’s claims survived summary judgment. United nonsuited that claim and appealed.

In three issues, United contends that the trial court erred by granting summary judgment, including on limitations and federal preemption grounds. The defendants raise several cross-appellate issues as well.

Because the statutes of limitations bar United’s claims, we affirm without reaching the cross-appellate issues.

Background

Pre-2009 — Emergence of Unlicensed Off-site ERs

Emergency rooms traditionally have been physically attached to hospitals, which are licensed by the state. These emergency facilities have a long history of charging insurers, or any entity or individual paying medical expenses, a facility fee, which often ranges from a couple hundred dollars to over $1,000 per claim.⁷ The charged facility fee is in addition to the physician fee and the cost of any tests, treatments, and medicines.

Freestanding emergency centers are a relatively new addition to emergency medicine. They first became common about a decade ago, and for the first several years after their emergence, there was no requirement that they obtain a state license. Some were owned by hospitals, while others were owned by physicians, physician groups, or investors. From the beginning, there was an issue whether these unlicensed, freestanding emergency centers could collect facility fees.

In 2006, the Texas Department of Insurance issued a letter to Aetna Life Insurance Company stating that insurers "are required to pay for out-of-network emergency care services" provided at these freestanding emergency centers but "are not required to pay facility charges billed by freestanding emergency centers that do not have a license from the Department of State Health Services."

Consistent with this letter, in 2008, United wrote four letters to one of the Off-site ERs in this suit—St. Michael—to deny facility-fees claims because St. Michael was an unlicensed freestanding emergency center. The last in the series of United’s letters stated, "While it may be true that [St. Michael] is not required to be licensed in Texas, it is equally true that United is not required to reimburse an unlicensed entity" for facility fees.

2009 — State licenses become mandatory and the Off-site ERs enter into agreements for First Hospital to manage their individual locations

In June 2009, the Legislature enacted Health and Safety Code section 254.051, which requires Off-site ERs to be licensed by the State. See TEX. HEALTH & SAFETY CODE § 254.051 (eff. Sept. 1, 2009). The statute provides certain exemptions from the licensing requirement, including for facilities that satisfy two requirements: (1) they are "owned or operated" by a licensed hospital and (2) they have been "granted provider-based status" by the federal Centers for Medicare and Medicaid Services, which is part of the Division of Financial Management and Fee for Services Operations within the Department of Health and Human Services ("DHHS"). Id. § 254.052(8) (emphasis added).

After this dual-requirement statute was enacted, St. Michael entered into a "Facilities Management Services Agreement" with First Hospital that authorized St. Michael to bill insurers a facility fee "in Hospital’s name" for the medical services St. Michael provided. Under the agreement, St. Michael continued to "own the facilities" and be responsible for selecting, training, supervising, and terminating the facility staff; designating and paying the staff’s salaries; and paying all related personnel-management expenses. First Hospital’s contractual role was to manage the facility, for which it would be paid a "management" or "hospital" fee equal to 12% of the accounts receivable. St. Michael would keep the remaining 88% of the accounts receivable. Other Off-site ERs entered into similar management agreements with First Hospital.

St. Michael and other Off-site ERs also petitioned for provider-based status from the Centers for Medicare and Medicaid Services, which was granted.

Over the next couple years, the Off-site ERs submitted millions of dollars in facility-fee charges to United and other insurers in connection with medical services provided at the Off-site ERs and billed under First Hospital’s name, license, and tax identification number.

2010 — Under new affiliation agreements, First Hospital leases the Off-site ER locations from their individual owners and the owners become "managers"

In June 2010, the Off-site ERs entered into a different type of affiliation agreement with First Hospital, called an "Emergency Room Department Management Agreement."⁸ The 2010 agreements reversed the roles, making First Hospital a lessee of the emergency centers and the Off-site ERs the managers. The Off-site ERs would provide "administrative and management services" to First Hospital’s "hospital-based off-campus emergency room departments." The "manager" Off-site ERs would be contractually required to "bill and collect all facility and other applicable fees for all reimbursable emergency health care services provided at the" Off-site ERs and to submit the claims "under the Hospital’s billing number." Like the earlier agreements, First Hospital would keep 12% of revenues and the Off-site ERs would keep the remaining 88%. The Off-site ERs continued to bill United for facility fees under First Hospital’s name, license, and tax identification number in connection with the provided medical services.

In July 2010, United requested that First Hospital provide it a "facility location roster" that identified its associated community emergency rooms. United also asked that First Hospital state for each location "how the business...