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Broad Street Surgical Center, LLC v. Unitedhealth Group

March 6, 2012

BROAD STREET SURGICAL CENTER, LLC, PLAINTIFF,
v.
UNITEDHEALTH GROUP, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Hon. Jerome B. Simandle

OPINION

SIMANDLE, Chief Judge:

I. INTRODUCTION

This matter is before the Court on Defendants UnitedHealth Group, Inc. and United Healthcare Services, Inc.'s ("Defendants" or "United") motion to dismiss the first amended complaint [Docket Item 4] and Plaintiff Broad Street Surgical Center, LLC's ("Plaintiff") motion for leave to file a second amended complaint [Docket Item 18]. The Plaintiff is a non-participating provider of medical services who provided services to patients who were covered under various insurance policies or plans administered by the Defendants. The instant action arises out of United's denial to reimburse claims submitted by the Plaintiff for services rendered to United's insureds.

For the reasons discussed herein, the Court will grant in part and deny in part Plaintiff's motion to file a second amended complaint. The Court will dismiss Defendant's motion to dismiss as moot.

II. BACKGROUND

Plaintiff is an ambulatory surgical facility that provides services associated with outpatient surgery to patients, including Patients 1-50, and is located in New Jersey. (Pl.'s Ex. A to the Affidavit of JoAnne Eskin Sutkin in support of motion for leave to amend complaint and file opposition to motion to dismiss, hereinafter "Proposed Second Amended Complaint") (Sec. Am. Comp. ¶ 4). United is an insurer providing insurance coverage to insureds and beneficiaries within New Jersey, including Patients 1-50. (Prop. Sec. Am. Comp. ¶ 6.) The Plaintiff was a non-participating provider of Services in that it did not have a contract with Defendants to accept agreed rates for the Services provided to the Patients with agreements or who were otherwise beneficiaries, with the Defendants. The Services provided to Patients 1-50 were out of network services. (Prop. Sec. Am. Comp. ¶ 14.)

Plaintiff provided surgical facility services associated with outpatient surgery to Patients 1-50, who were at the time of the services, insured by Defendants under various United insurance agreements or agreements to which United was or is the Third Party Administrator. (Prop. Sec. Am. Comp. ¶ 10.)

Prior to rendering services to Patients 1-50, Plaintiff's representative telephoned the Defendants and spoke with a Defendants' agent to confirm out of network coverage for the requested services. During each telephone call, the Plaintiff's representative stated where she was calling, provided United with the tax i.d. number of the Plaintiff, identified the patient by name, date of birth and policy number, as well as the procedure being performed. In each telephone call, Plaintiff's representative and employee was informed by United that there was coverage for Plaintiff's facility fees and for the procedures involved. (Prop. Sec. Am. Comp. ¶¶ 15-26.)

Plaintiff received assignments of benefits ("AOBs") from Patients 1-50, each of which had out of network benefits for ambulatory surgery under their respective insurance agreements or plans with Defendants, some of which are or may be ERISA plans. (Prop. Sec. Am. Comp. ¶ 30.)

From the Spring of 2009 to approximately September 2009, the Defendant paid claims submitted by the Plaintiff for services rendered to patients insured by United. (Prop. Sec. Am. Comp. ¶ 33.)

On and after September 2009, Plaintiff made claims for payments for services provided by Plaintiff to Patients 1-50 as a service provider or alternately as an assignee of the patients. (Prop. Sec. Am. Comp. ¶ 39.) As of September 2009 to the present, Defendants have denied insurance coverage and refuse to pay Plaintiff for services provided to Patients 1-50. (Prop. Sec. Am. Comp. ¶ 40.) According to the explanation of benefits, the Defendants denied all of Plaintiff's claims on and after September 2009 for the following reason: "We cannot pay this claim because we are unable to verify state licensure of a facility or criteria to support the provider billing type. Proof of facility licensure or hospital affiliation is required." (Prop. Sec. Am. Comp. ¶ 37.)

Pursuant to various letters, Defendants base their refusal to pay for the Services provided by Plaintiff to Patients 1-50 because the Plaintiff is not licensed with the New Jersey Department of Health as an ambulatory care facility and therefore no benefits are available for expenses incurred at the facility and that the wrong form was utilized for submission of the claims. (Prop. Sec. Am. Comp. ¶ 41.)

From March 2009 until the present, the Plaintiff submitted to the Defendant 59 claims for payment relating to 15 patients. There are 14 employee benefit plans that govern the payment of Plaintiff's claims.*fn1 (Defs.' Ex. 2, Affidavit of Stacy A. Chalupsky "Chalupsky Aff." at ¶ 4.) Of these 14 plans, 13 are governed by the Employee Retirement Income Security Program, 29 U.S.C. §§ 1001, et seq. (hereinafter "ERISA.") The remaining plan is not an ERISA plan and governs 5 of Plaintiff's claims. (Chalupsky Aff. at ¶ 5.)

In addition, in or about September of 2009, Plaintiff entered into a contract with Beech Street, a VIANT Network ("Beech Street") as a health care provider with the Beech Street network. This contract had an effective date of September 3, 2009. The Beech Street contract included United as a payor within its network, subject to the terms of the contract, including the obligation to make payments to Plaintiff. (Prop. Sec. Am. Comp. ¶ 74.) Under the Beech Street contract, Plaintiff is entitled to be paid for covered services at 80% of usual billed charges, less applicable co-payments, deductibles and co-insurance by payors, which identified payors specifically include United. (Prop. Sec. Am. Comp. ¶ 73.) United as a participating payor with Beech Street, authorized Beech Street to enter into contracts on their behalf, including but not limited to, the contract with the Plaintiff. (Prop. Sec. Am. Comp. ¶ 76.)

The Plaintiff filed the instant action in the Superior Court of New Jersey, Law Division, Camden County and subsequently filed a first amended complaint, seeking payment for the services rendered to Patients 1-50. [Docket Item 1.] The first amended complaint brought claims against the Defendants for: breach of contract, breach of the Beech Street contract, quantum meruit, third party beneficiary, contract by custom or dealing, reasonable reliance/arbitrary and disparate treatment, and tortious interference.

The Defendants then removed the case to this Court. [Docket Item 2.] The Defendants then filed the instant motion to dismiss. [Docket Item 4.] The Plaintiff filed opposition to the dismissal motion [Docket Item 24] and filed a motion for leave to file a second amended complaint [Docket Item 18]. The proposed second amended complaint alleges the following causes of action against the Defendants: breach of contract, breach of the Beech Street contract, unjust enrichment and quantum meruit, third party beneficiary, implied contract/contract by custom or dealing/implied covenant of good faith and fair dealing, reasonable reliance/arbitrary and disparate treatment, and tortious interference, negligent misrepresentation, arbitrary and capricious, promissory estoppel, ERISA - payment of benefits due/violation of ERISA 502(a)(1)

III. PLAINTIFF'S MOTION TO FILE A SECOND AMENDED COMPLAINT

A. Standard of Review

Rule 15(a)(2) provides that leave to amend should be freely given when justice so requires. Fed. R. Civ. P. The decision to permit amendment is discretionary. Toll Bros., Inc. v. Township of Readington, 555 F.3d 131, 144 n. 10 (3d Cir. 2009). Among the legitimate reasons to deny a motion is that the amendment would be futile. Lorenz v. CSX Corp., 1 F.3d 1406, 1414 (3d Cir. 1993) (citation omitted). Futility is determined by the standard of legal sufficiency set forth in Rule 12(b)(6), Fed. R. Civ. P. In re Burlington Coat Factory Litigation, 114 F.3d 1410, 1434 (3d Cir. 1997). Accordingly, an amendment is futile where the complaint, as amended, would fail to state a claim upon which relief could be granted. Id.

A complaint sufficiently states a claim when it alleges facts about the conduct of each defendant giving rise to liability. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). These factual allegations must present a plausible basis for relief (i.e. something more than the mere possibility of legal misconduct). See Ashcroft v. Iqbal, 129 S.Ct. 1937, 1951 (2009). In assessing the complaint, the Court must "accept all factual allegations as true and construe the complaint in the light most favorable to the plaintiff." Phillips v. County of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008) (quoting Pinker v. Roche Holdings Ltd., 292 F.3d 361, 374 n.7 (3d Cir. 2002)).

The Plaintiff's Second Amended Complaint alleges ten counts. First, the Court will address the issue of ERISA preemption. Second, the Court will examine each of Plaintiff's alleged causes of action to determine if a plausible basis for relief is presented.

A. ERISA PREEMPTION

The Defendants argue that Counts I through X of Plaintiff's proposed second amended complaint, to the extent these counts are seeking benefits under the ERISA plans, are completely preempted by ERISA's civil enforcement provision, § 502(a). The parties do not dispute that 13 of the 14 plans at issue are ERISA plans. The Defendants do not argue that ERISA preempts Counts I through X of Plaintiff's complaint as to the remaining non-ERISA plan.

ERISA's civil enforcement provision provides that a civil action may be brought "by a participant or beneficiary" to "recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan." 29 U.S.C. § 29 U.S.C. 1132(a)(1)(B). ERISA's civil enforcement mechanism has "such extraordinary pre-emptive power" that all state law causes of action that are within its scope are completely preempted. Pascack Valley Hosp. v. Local 464A UFCW Welfare, 388 F.3d 393, 399-400 (3d Cir. 2004) (quoting Aetna Health Inc. v. Davila, 542 U.S. 200, 209 (2004)). In Pascack the Third Circuit outlined the test, provided by the Supreme Court in Davila, for determining whether a claim falls within the scope of § 502(a). A claim is completely preempted if (1) the plaintiff could have brought the action under § 502(a) and (2) no other legal duty supports the plaintiff's claim. Pascack, 388 F.3d at 400.

In this case, the Plaintiff is suing in both its capacity as the assignee of the benefits of Patients 1-50 as well as its non-derivative capacity as a service provider. To the extent that Plaintiff is seeking to recover benefits due under the ERISA plans to Patients 1-50 as a beneficiary by virtue of the assignments of benefits, Counts I through X are completely preempted by ERISA's civil enforcement provision. The Plaintiff could have brought this action as a civil enforcement action under § 502(a) and no other legal duty supports the Plaintiff's claims.

To the extent that the Plaintiff is suing in its non- derivative capacity as a service provider in Counts I through X, these claims are not completely preempted through ERISA's civil enforcement provision because the Plaintiff is neither a "participant" nor a "beneficiary" since it is an out of network provider, and therefore could not bring suit pursuant to § 502(a).

However, ERISA contains, in addition to its complete preemption power under § 502(a), an express preemption provision. Section 514(a) provides, with some exceptions not relevant here, that "the provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan . . . " 29 U.S.C. § 1144(a). The Supreme Court has given broad meaning to "relate to," stating: "[T]he phrase 'relate to' [is] given its broad commonsense meaning, such that a state law 'relate[s] to' a benefit plan in the normal sense of the phrase, if it has a connection with or reference to such a plan." Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 47 (1987). The Third Circuit instructs that a state law claim relates to an employee benefit plan if "the existence of an ERISA plan [is] a critical factor in establishing liability" and "the trial court's inquiry would be directed to the plan." 1975 Salaried Ret. Plan for Eligible Employees of Crucible, Inc. v. Nobers, 968 F.2d 401, 406 (3d Cir. 1992) (citing Ingersoll-Rand Corp. v. McClendon, 498 U.S. 133, 139-40 (1990)).

Plaintiff's state law claims raised in Counts I through VII, IX and X,*fn2 which are asserted in Plaintiff's non-derivative capacity as a service provider, are expressly preempted by ERISA because they "relate to" an ERISA benefits plan. Each of Plaintiff's claims in Counts I*fn3 through VII, IX and X are all grounded in the premise that the Defendants were required to pay Plaintiff for services the Plaintiff provided to Patients 1-50 who were covered under ERISA benefit plans. It is clear that "the existence of an ERISA plan [is] a critical factor in establishing liability" under Counts I through VII, IX and X, and therefore, these claims are expressly preempted.

Accordingly, Counts I through VII, IX and X of Plaintiff's complaint are preempted by ERISA and will be dismissed as to the ERISA plans.

However, Plaintiff's claim for negligent misrepresentation raised in Count VIII is a closer issue. The Plaintiff claims that in telephone conversations between Plaintiff's representatives and Defendants' representatives, the Defendants' representatives negligently misrepresented and informed Plaintiff's representatives that the facility fees and services provided to Patients 1-50 were covered services and would be reimbursed under the Plans. (Prop. Sec. Amend. Comp. ¶ 174.) The Plaintiff argues this tort claim was committed by the Defendant and is independent of the plan. The Defendants maintain that this claim relates to the ERISA plan and should be preempted. In addition, the Defendants argue that this is not the type of case where a negligent misrepresentation claim is appropriate because Plaintiff's injury stems from the alleged breach of the contracts between Patients 1-50.

The court finds the reasoning articulated in McCall v. Metropolitan Life Insurance Company, 956 F. Supp. 1172 (D.N.J. 1996) persuasive and therefore, Plaintiff's negligent misrepresentation claim raised in its non-derivative capacity in Count VIII is not preempted.

McCall held that a negligent misrepresentation claim was sufficiently independent of an ERISA plan and therefore was not preempted by ERISA. Id. at 1186. The district court reached this conclusion because it was "unable to discern from the statute the congressional intent to preclude a party," such as an out of network provider, from bringing a misrepresentation claim. Id. Importantly, the court noted that health care providers, such as Plaintiff in this case, who are neither beneficiaries nor participants under the ERISA statute are not able to bring suit in their own name under ERISA. Consequently, if ERISA's express preemption provision is interpreted so broadly as to preempt Plaintiff's negligent misrepresentation claim, then health care providers such as the Plaintiff, "would be stripped of the right to bring suit for tortious conduct such as that which allegedly occurred in this case, where negligent misrepresentations by private claims reviewers to health care providers induce the providers to render extended medical services and care." Id. at 1186.

The court also cited pragmatic justifications for its holding, explaining:

In determining whether a patient is eligible for coverage under a health care plan, health care providers customarily verify the patient's coverage with the insurer's agents. See Memorial Hosp. Sys., 904 F.2d at 246. If coverage is confirmed, the patient is generally admitted "without further ado." Id. The result sought by Met Life and Healthmarc in this case would, by rendering both ERISA remedies and state-law remedies unavailable to health care providers, effectively immunize such health care managers and plan administrators from certain fraudulent and negligent misrepresentations made to health care providers. In turn, if ERISA were interpreted as precluding claims for negligent or fraudulent misrepresentations of health benefits administrators and managed care consultants to health care providers who rely upon promises of coverage, critical health care decisions would be delayed while the provider determined for itself whether its medical services would be covered under the specific terms of each prospective patient's plan. In the real world, providers place reliance upon the benefit plan interpretations of benefits administrators and managed care consultants functioning as intermediaries between the provider and the patient's benefit plan. Under the interpretation of 29 U.S.C. § 1144 espoused by Met Life and Healthmarc, such health care providers would be forced to demand payment up front or impose other costly inconveniences before admitting a patient for treatment. See Memorial Hosp. Sys., 904 F.2d at 247. There is nothing in the language of ERISA or pertinent ERISA case law that compels such an inefficient result.

Id. at 1186-87.

The court finds this reasoning equally applicable in the instant action. Therefore, the Plaintiff's proposed negligent misrepresentation claim asserted in its own non-derivative capacity as an out of network service provider is not preempted by ERISA. Whether the Plaintiff's allegations state a sufficient ...


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