Valley Children's Hosp. v. Athenahealth, Inc.

• Docket Number: 22-cv-10689-DJC
• Decision Date: 18 September 2023
• Parties: VALLEY CHILDREN'S HOSPITAL and VALLEY CHILDREN'S MEDICAL GROUP, Plaintiffs, v. ATHENAHEALTH, INC., Defendant.
• Court: U.S. District Court — District of Massachusetts

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VALLEY CHILDREN'S HOSPITAL and VALLEY CHILDREN'S MEDICAL GROUP, Plaintiffs,
v.
ATHENAHEALTH, INC., Defendant.

No. 22-cv-10689-DJC

United States District Court, D. Massachusetts

September 18, 2023

MEMORANDUM AND ORDER

Denise J. Casper United States District Judge

I. Introduction

Plaintiffs Valley Children's Hospital (“Hospital”) and Valley Children's Medical Group (“Medical Group”), (collectively, “Plaintiffs” or “Valley”) have sued Defendant athenahealth, Inc. (“Athena”) alleging breach of contract (Count I), breach of the implied covenant of good faith and fair dealing (Count II), and unfair and deceptive trade practices in violation of Mass. Gen. L. c. 93A (Count III). D. 34. Athena has moved to dismiss Count III, the Chapter 93A claim. D. 36. For the reasons stated below, the Court ALLOWS Athena's motion to dismiss, D. 36.

II. Standard of Review

On a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), the Court must determine if the facts alleged “plausibly narrate a claim for relief.” Germanowski v. Harris, 854 F.3d 68, 71 (1st Cir. 2017). Reading the complaint “as a whole,” the Court must conduct a two-step, contextspecific inquiry. Garda-Catalan v. United States, 734 F.3d 100, 103 (1st Cir. 2013). First, the Court must perform a close reading of the claim to distinguish the factual allegations from the

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conclusory legal allegations contained therein. Id. Factual allegations must be accepted as true, while conclusory legal conclusions are not entitled credit. Id. Second, the Court must determine whether the factual allegations present a “reasonable inference that the defendant is liable for the misconduct alleged.” Haley v. City of Boston, 657 F.3d 39, 46 (1st Cir. 2011) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). In sum, the complaint must provide sufficient factual allegations for the Court to find the claim “plausible on its face.” Garda-Catalan, 734 F.3d at 103 (quoting Iqbal, 556 U.S. at 678).

III. Factual Background

The following facts are drawn from Valley's first amended complaint, D. 34, and incorporated exhibits, D. 35, and are accepted as true for the purpose of resolving Athena's motion to dismiss.

Plaintiffs comprise two commonly owned non-profits: the Hospital which is a freestanding children's hospital in Madera County, California, and the Medical Group, which provides services to the Hospital through its affiliated contracted medical groups. D. 34 ¶¶ 1-3. On November 14, 2012, the Hospital entered into a Master Services Agreement (“MSA”) with Athena, a corporation located in Watertown, Massachusetts. Id. ¶ 6. The MSA provided that Athena would furnish services as described in the included athenaCollector Service Description. Id. ¶ 10.

AthenaCollector is a billing and claims submission service “which incorporates Web-based software with hands-on support staff who work the claims.” Id. ¶ 11. The software was intended to allow the Medical Group, which is an “Authorized User” under the MSA, id. ¶ 7, see D. 35-1 at 2, to enter claims information for submission to payors and to receive payments on those claims. D. 34 ¶¶ 11, 16. AthenaCollector would also “follow up on unpaid, underpaid and denied claims” by assigning such claims various “Status Indicators” and taking appropriate action based on that status. Id. ¶ 11, 17-18. For instance, the Status Indicator “DROP” indicates that a claim is “ready

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for submission” whereas “BILLED” indicates that the claim has been submitted to the payor. Id. ¶ 18. Depending on the payor's response, or lack thereof, athenaCollector replaces BILLED with another Status Indicator to alert Athena that action needed to be taken. Id.

Among the payors to whom the Medical Group submits claims are Medi-Cal, California Children's Services, and Medi-Cal Managed Care (“California Payors”). Id. ¶ 16. The California Payors will only reimburse in full claims submitted within six months of the month in which services are rendered. Id. After six months, the percent reimbursed decreases on a prorated basis until 12 months, at which point the claims will be denied in full as untimely. Id. The Medical Group also has a “limited time” in which it may seek “adjustment or reconsideration” of a denied or underpaid claim. Id. ¶ 17.

Valley alleges that it relied upon several representations made by Athena, prior to entering the MSA in 2012. Id. ¶¶ 12, 14. Valley alleges that in the athenaCollector Service Description, Athena represented that use of athenaCollector “would result in (a) faster payment, increased revenues and dramatically improved control over practice operations; (b) significantly improved financial and operational performance; (c) getting paid more and faster; and (d) a decrease in the rate of lost and denied claims.” Id. ¶ 12. These representations precede the following statement on page seven of the athenaCollector Service Description: “The remainder of this document, except for the “About Us" section at the end, Is referred to as the “Service Description in the athenahealth Master Services Agreement and is legally binding for clients who sign that Agreement.” D. 35-5 at 8.

Under Section 8(b) of the MSA, Athena further warranted that its services would “substantially conform to the Minimum Service Commitments” listed in the athenaCollector Service Description. D. 34 ¶ 13. In particular, Athena committed to (1) keep its services “up and

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running” with 99.7% availability each month; (2) “submit at least 95% of [Valley's] primary and secondary claims,” (3) “post[] at least 95% of payment dollars within four business days after the date of receipt to [Valley's] athenahealth P.O. box,” (4) “complete a claim tracking action within 20 business days on at least 95% of the claims” that are not paid within a “standard waiting period” and (5) “take action on at least 95% of Valley's denials within 10 business days.” Id.

Valley alleges that Athena has breached the MSA and failed to meet its Minimum Service Commitments by failing to staff personnel who understood “the intricacies of billing to [the California Payors]” and ensuring that Valley's claims would be timely submitted and followed up on. Id. ¶ 22. As to Valley's Chapter 93A claim, Valley alleges that Athena “failed to perform essential services and functions in reckless disregard of its representations and warranties,” that Athena concealed its failure to meet its Minimum Service Commitments by refusing to provide Minimum Commitment Service Reports (“Service Reports”), that Athena provided false and misleading Service Reports and that Athena induced Valley to enter the MSA with misrepresentations that it should have known were false. Id. ¶¶ 35-36.

IV. Procedural History

Valley filed this action on September 27, 2021, D. 1, and subsequently amended its complaint, D. 34. Athena has now moved to dismiss to the Chapter 93A claim. D. 36. The Court heard the parties on the pending motion and took the matter under advisement. D. 53.

V. Discussion

A. Whether Valley Has Plausibly Alleged that Athena Engaged in Unfair and Deceptive Trade Practices

Chapter 93A makes unlawful “[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.” Mass. Eye & Ear Infirmary v. QLT Phototherapeutics, Inc., 412 F.3d 215, 243 (1st Cir. 2005) (quoting Mass. Gen. L. c. 93A, § 2). To

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determine if an act or practice is unfair under Chapter 93A, [courts] look to ‘(1) whether the practice . . . is within at least the penumbra of some common-law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; [and] (3) whether it causes substantial injury to consumers (or competitors or other businessmen).” Id. (internal citation and quotation marks omitted); see Tomasella v. Nestle USA, Inc., 962 F.3d 60, 70 (1^st Cir. 2020). An act or practice is deceptive “if it possesses a tendency to deceive and if it could reasonably be found to have caused a person to act differently from the way he [or she] otherwise would have acted.” Tomasella, 962 F.3d at 70 (internal citation and quotation marks omitted).

In opposing the motion to dismiss, Valley argues that Athena's conduct violated Chapter 93A by (1) failing to perform its contractual obligations, (2) misrepresenting its services such that Valley was induced to enter the MSA and (3) failing to provide Valley with accurate minimum service reports.

1. Athena's Alleged Breach of Express or Implied Contractual Obligations to Timely Submit and Follow-Up on Medical Claims

“[M]ere breach of a contract, without more, does not amount to a [Chapter] 93A violation.” Madan v. Royal Indem. Co., 26 Mass.App.Ct. 756, 762 (1989). However, “[c]onduct ‘in disregard of known contractual arrangements' and intended to secure benefits for the breaching party constitutes an unfair act or practice for [chapter] 93A purposes.” Anthony's Pier Four, Inc. v. HBC Assocs., 411 Mass. 451, 474 (1991) (concluding that use of a pretextual objection to development plans to coerce counterparty to pay more than originally bargained for under contract was willful violation of chapter 93A). Typically, this occurs where an “intentional breach is meant to gain, without paying for it, the ongoing benefit of a party's earlier performance” or “to force a concession from the other party to which the first party is not entitled.” Feijo v. Toyota, 2000 Mass.App. Div. 332, 2000 WL 1880266, at *2 (Dist. Ct. 2000)

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(collecting cases); see, e.g., Arthur D. Little, Inc. v. Dooyang Corp., 147 F.3d 47, 55-56 (1st Cir. 1998) (concluding that failure to pay for completed and ongoing work constituted Chapter 93A violation where company's “purpose was to extract a favorable settlement” by “stringing out the process”); Mass. Emps. Ins. Exch. v. Propac-Mass, Inc., 420 Mass. 39, 43 (1995) (explaining that Chapter 93A is violated where...