Opinion
NO. 2012-CA-001457-MR
01-24-2014
KENTUCKY SPIRIT HEALTH PLAN, INC.; CENTENE CORPORATION; AND JEAN RUSH APPELLANTS v. PREMIERTOX, INC.; PREMIERTOX 2.0, INC.; AND SHARON CLARK, COMMISSIONER OF THE KENTUCKY DEPARTMENT OF INSURANCE APPELLEES
BRIEFS FOR APPELLANTS: J. Guthrie True Frankfort, Kentucky Whitney True Lawson Frankfort, Kentucky Christopher Flynn, admitted pro hac vice Washington, D.C. ORAL ARGUMENT FOR APPELLANTS: Christopher Flynn, admitted pro hac vice Washington, D.C. BRIEF FOR APPELLEES: Robert L. Bertram Jamestown, Kentucky Anna S. Whites Frankfort, Kentucky ORAL ARGUMENT FOR APPELLEES: Anna S. Whites Frankfort, Kentucky
NOT TO BE PUBLISHED
APPEAL FROM RUSSELL CIRCUIT COURT
HONORABLE VERNON MINIARD, JR., JUDGE
ACTION NO. 11-CI-00627
OPINION
AFFIRMING
BEFORE: MOORE, NICKELL, AND STUMBO, JUDGES. MOORE, JUDGE: Kentucky Spirit Health Plan, Inc., its parent company Centene Corporation, and Jean Rush, President of Kentucky Spirit Health Plan, Inc., (collectively "Kentucky Spirit"), appeal the order of the Russell Circuit Court denying its motion to compel arbitration with PremierTox, Inc. and PremierTox 2.0 Inc., (collectively "PremierTox"), regarding Kentucky Spirit's failure and refusal to pay for services provided by PremierTox to Kentucky Spirit members. After careful review of the record, we affirm.
Kentucky Revised Statutes (KRS) 417.220 permits an appeal from an order denying a motion to compel arbitration.
I. FACTUAL BACKGROUND
Kentucky Spirit was designated as a managed care organization (MCO) in 2011 by the Cabinet for Health and Family Services as a part of Kentucky's Medicaid transition to managed care. As an MCO, Kentucky Spirit was awarded a state contract with the Commonwealth of Kentucky to provide Medicaid coverage to eligible individuals. Kentucky Spirit received significant funds from the Commonwealth to provide Medicaid coverage to Kentucky citizens. Kentucky Spirit then signed a Network Services Agreement with Commonwealth Healthcare Corporation d/b/a Center Care to gain access to Center Care's network of providers. Providers render services to members at the request of the members treating physicians. PremierTox, as a part of Center Care's network of providers, had a Provider Agreement in place with Center Care at the time the contract between Kentucky Spirit and Center Care was signed. PremierTox and Center Care then signed a Notice of Amendment to their Provider Agreement in which PremierTox agreed to provide services to Kentucky Medicaid recipients covered by Kentucky Spirit Health Plan, Inc. Medicaid Managed Care Product.
"The theory of managed care is relatively simple. Rather than pay providers directly every time a Medicaid beneficiary receives care, the state instead contracts with managed-care organizations (MCOs) and pays them a flat "capitation rate" each month to provide, within certain limits, all of the care a beneficiary needs. The state pays the same amount regardless of whether the beneficiary receives healthcare services or not. So the MCO bears the risk that the costs of care may exceed the capitation payment. But on the other side, it stands to profit if beneficiaries use fewer services." Appalachian Regional Healthcare, Inc. v. Coventry Health and Life Insurance Company, 714 F.3d 424, 426 (6th Cir. 2013).
Kentucky Spirit is attempting to enforce an arbitration provision in the Amendment to the Provider Agreement between Center Care and PremierTox. Kentucky Spirit is not a party to the contract or arbitration provision between Center Care and PremierTox. The arbitration provision provides that "any disputes between the parties arising with respect to the performance and interpretation of the Agreement . . . shall submit to binding arbitration . . . ." PremierTox claims that it performed and continues to perform laboratory testing for Kentucky Spirit members as requested by their treating physicians, and Kentucky Spirit has failed and refused to pay PremierTox for the tests performed. PremierTox has invoiced Kentucky Spirit for approximately $1,880,293.46 worth of laboratory testing, and Kentucky Spirit has not reimbursed PremierTox for a single test performed. Kentucky Spirit agreed in its contract with the Commonwealth to comply with Kentucky's prompt pay statutes codified at KRS 304.17A-700 through 730, KRS 304.14-135, and KRS 304.99-123 for payment of provider's claims. These statutes designate when payment as between insurers and providers is to be made to ensure timely submission and payment of claims. The statutes also contain recoupment provisions outlining procedures and instructions in case there has been overpayment by the insurer to the provider.
Kentucky Spirit has not paid for any of the claims submitted by PremierTox because it contends that the testing provided was not "medically necessary" and therefore does not qualify as a "covered service" that requires payment.
PremierTox brought suit in Russell Circuit Court requesting reimbursement for the work it performed for Kentucky Spirit members among other claims. Kentucky Spirit filed several motions, including a Motion to Compel Arbitration based on the provision in the Amendment to the Provider Agreement. The motion was denied, and Kentucky Spirit now appeals.
II. STANDARD OF REVIEW
Our review of the trial court's application of legal principles in an order denying enforcement of an arbitration provision is de novo. Conseco Finance Servicing Corp. v. Wilder, 47 S.W.3d 335, 340 (Ky. App. 2001). We defer to the factual findings of the trial court unless they are clearly erroneous or unsupported by substantial evidence. Id.
III. ANALYSIS
The issue in this case is whether PremierTox can be compelled to arbitrate its dispute with Kentucky Spirit regarding Kentucky Spirit's failure and refusal to pay claims for healthcare services provided by PremierTox to Kentucky Spirit members. Kentucky Spirit's first argument on appeal is that enforcement of the arbitration provision is required under the Kentucky Uniform Arbitration Act (KUAA), codified at Kentucky Revised Statutes (KRS) Chapter 417, and the Federal Arbitration Act (FAA).
The KUAA provides that "a written agreement to submit any existing controversy to arbitration between the parties is valid, enforceable, and irrevocable, save upon grounds as exist at law for the revocation of any contract." KRS 417.050 (emphasis added). This chapter does not apply to insurance contracts. KRS 417.050(2). Both the KUAA and the FAA require that arbitration agreements be enforced no less rigorously than other contract provisions. North Fork Collieries, LLC v. Hall, 322 S.W.3d 98, 102 (Ky. 2010). The initial burden of establishing the existence of an agreement to arbitrate is on the party seeking to compel arbitration. Ping v. Beverly Enterprises, 376 S.W.3d 581, 590 (Ky. 2012).
The KUAA has been interpreted consistently with the Federal Arbitration Act (FAA) by Kentucky Courts. Louisville Peterbilt, Inc. v. Cox, 132 S.W.3d 850, 857 (Ky. 2004). However, "[b]oth federal and state courts have held that state statutes that invalidate arbitration clauses specifically as to insurance contracts are indeed "enacted for the purpose of regulating the business of insurance" and thus are not preempted by the FAA by virtue of the McCarran-Ferguson Act." National Home Insurance Company v. King, 291 F.Supp.2d 518, 529 (E.D. Ky. 2003). Statutes aimed at protecting or regulating the relationship between insurers and insureds, either directly or indirectly, are laws governing the "business of insurance." Id.
"Before compelling an unwilling party to arbitrate, the court must engage in a limited review to determine whether the dispute is arbitrable; meaning that a valid agreement to arbitrate exists between the parties and that the specific dispute falls within the substantive scope of that agreement." Javitch v. First Union Securities, Inc., 315 F.3d 619, 624 (6th Cir. 2003). "Arbitration is a matter of contract ... it is something the contracting parties ... must agree to. It is not something that one party may simply impose upon another." Ping, 376 S.W.3d at 600 (citing Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002)). The existence of an agreement between the parties depends on state law rules of contract formation. Ping, 376 S.W.3d at 590.
It is important to emphasize the relationships of the parties in this case. Center Care, which is not a party to this action, and PremierTox executed a Provider Agreement in which PremierTox agreed to make its services available to members with whom Center Care contracts. Kentucky Spirit, as an MCO, is obligated to maintain an adequate network of providers. Kentucky Spirit signed a Network Services Agreement with Center Care to gain access to providers within the Center Care network. Center Care and PremierTox then executed an Amendment to their Provider Agreement in which PremierTox agreed to provide services to Kentucky Spirit members. Kentucky Spirit was to reimburse PremierTox directly for the covered services provided to its members.
Despite this direct payment relationship, PremierTox does not have a direct contract with Kentucky Spirit. Kentucky Spirit and PremierTox each have direct contracts with Center Care, but there is no written agreement "between the parties" as required by the KUAA. The Network Services Agreement between Kentucky Spirit and Center Care and the Provider Agreement between PremierTox and Center Care each contain arbitration provisions. The terms in each of the parties' contracts with Center Care refer to each other and place performance obligations upon the non-contracting party; however, we are unable to construe the Amendment to the Provider Agreement containing the arbitration provision at issue as a contract between or binding upon PremierTox and Kentucky Spirit. The Amendment to the Provider Agreement provides in relevant part:
"Informal Dispute Resolution. Any disputes between the parties arising with respect to the performance or interpretation of the [Provider] Agreement ("Dispute") shall first be resolved by exhausting the processes available in the MCO Provider Manual, then through good faith negotiations between designated representatives of the parties that have authority to settle the Dispute. If the matter has not been resolved within sixty (60) days of the request for negotiation, either party may initiate arbitration in accordance with the Arbitration section of the Agreement by providing written notice to the other party.
Arbitration. If a Dispute is not resolved in accordance with the Informal Dispute Resolution section of the Agreement, either party wishing to pursue the Dispute shall submit it to binding arbitration conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("AAA"). In no event may any arbitration be initiated more than one (1) year following the end of the sixty (60) day negotiation period of the Informal Dispute Resolution section of the Agreement. Arbitration proceedings shall be conducted at a mutually agreed upon location within the Commonwealth of Kentucky. The arbitrators shall have no right to award any punitive or exemplary damages or to vary or ignore the terms of the Agreement and shall be bound by controlling law. Each party shall bear its own costs related to the arbitration except that the costs imposed by the AAA shall be shared equally. The existence of a Dispute or arbitration proceeding shall not in and of itself constitute cause for termination of the Agreement. During an arbitration proceeding, each party shall continue to perform its obligations under the Agreement pending the decision of the arbitrator. THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION THAT MAY BE ENFORCED BY THE PARTIES."
The Amendment concludes with the signatures of representatives of PremierTox and Center Care evidencing their intent to be bound by the additional terms. Specifically, the language of the arbitration provision demonstrates that it is meant to apply to disputes between the parties to the Provider Agreement, and it does not extend to parties outside of the Provider Agreement. The arbitration provision is not sufficiently broad enough to support an interpretation of PremierTox and Kentucky Spirit as bound by the provision. If the arbitration provision was intended to encompass disputes between Kentucky Spirit and PremierTox, it would have utilized language to that effect, i.e., "disputes relating to or arising from the relationships resulting from the Agreement." The language employed in the Amendment to the Provider Agreement containing the arbitration provision indicates exclusivity of it to disputes "arising with respect to performance or interpretation of the Agreement" between PremierTox and Center Care, the parties to the Provider Agreement. Accordingly, because there is no agreement between Kentucky Spirit and PremierTox to arbitrate, the resolution of the dispute must be conducted in judicial rather that arbitral proceedings.
For the sake of completeness, we will consider the remaining arguments presented. Kentucky Spirit argues next that it can still enforce the arbitration provision as a non-signatory to the Provider Agreement and its Amendment under the theory of estoppel, or, in the alternative, as a third-party beneficiary to the Provider Agreement. However, these arguments were not raised before the trial court. "The Court of Appeals is one of review and is not to be approached as a second opportunity to be heard as a trial court. An issue not timely raised before the circuit court cannot be considered as a new argument before this Court." Lawrence v. Risen, 598 S.W.2d 474, 476 (Ky. App. 1980).
Each of the parties on appeal argue in their briefs the applicability of the unpublished opinion of Household Finance Corporation II v. King, 2010 WL 3928070 (Ky. App. 2010), regarding the ability of a non-signatory to enforce an arbitration agreement; however, that decision is not binding upon this Court.
Even if we were to consider these arguments, they are without merit in this particular case. The estoppel theory prevents one from accepting the benefits under a contract while simultaneously avoiding the dispute resolution mechanism set out in that same contract. Olshan Foundation Repair and Waterproofing v. Otto, 276 S.W.3d 827, 831-32 (Ky. App. 2009). This theory is inapplicable to PremierTox because its complaint does not make reference to or rely on the Provider Agreement or Amendment in its claim for payment. PremierTox's complaint alleges a breach of contract claim of the state contract between Kentucky Spirit and the Commonwealth among other claims, none of which are relevant to the estoppel argument. PremierTox is not stating claims under the Provider Agreement or the Amendment and then attempting to avoid arbitration. Its contract claims stem from the state contract. Accordingly, Kentucky Spirit cannot enforce the arbitration provision under the theory of estoppel.
The other claims stated in the PremierTox complaint include violations of prompt pay statutes, breach of contract, tortious interference with business advantage, defamation and false light, violations of patient privacy acts, conversion and unjust enrichment, breach of duty of good faith and fair dealing, including breach of the Kentucky Unfair Claims and Settlement Practices Act (UCSPA), fraud, and civil conspiracy.
PremierTox is claiming to be a third-party beneficiary to the state contract between Kentucky Spirit and the Commonwealth of Kentucky. Whether this claim has merit is not at issue before us. Nonetheless, it is important in that PremierTox is not attempting to enforce the Provider Agreement and the Amendment against Kentucky Spirit but then avoid the arbitration provision contained therein.
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Additionally, Kentucky Spirit is not a third-party beneficiary to the Provider Agreement and its Amendment. In order to be a third-party beneficiary to a contract, it must be proven that the contract in question was made for the actual or direct benefit of the third party. Sexton v. Taylor County, 692 S.W.2d 808, 810 (Ky. App. 1985). The third-party beneficiary may "in his own right and name enforce [the] promise made for his benefit." Presnell Construction Managers, Inc. v. EH Construction, LLC, 134 S.W.3d 575, 579 (Ky. 2004). Kentucky Spirit argues that PremierTox admitted at oral argument that Kentucky Spirit benefits from the Provider Agreement because it gives them access to providers. It is Kentucky Spirit's contract with Center Care that allows access to Center Care's network of providers, not the Provider Agreement between PremierTox and Center Care. Additionally, the Commonwealth of Kentucky is specifically listed as the intended third-party beneficiary of the Provider Agreement and its Amendment. The Provider Agreement and Amendment clearly benefit the citizens whose laboratory work is handled by the provider as well as the Commonwealth of Kentucky in its execution of managed care for Medicaid. Even if Kentucky Spirit is an incidental third-party beneficiary of the Provider Agreement, it still does not have any substantive rights under that contract to enforce it. Ping v. Beverly Enterprises, 376 S.W.3d 581 at 600. Therefore, Kentucky Spirit cannot enforce the arbitration provision in the Amendment as a third-party beneficiary to the Provider Agreement.
Lastly, Kentucky Spirit argues that PremierTox's statutory claims do not permit it to avoid arbitration. Kentucky Spirit also claims that the trial court erred when it ruled that an arbitration agreement may be avoided in any case where the party has a private right of action and is "harmed by violations of public policy."
Kentucky Spirit claims that the trial court erred when it permitted PremierTox to avoid arbitration based on its claim of violations of the prompt pay statutes, KRS 304.17A-700-730, KRS 304.14-135, and KRS 304.99-123 because these statutes do not create a private cause of action. The trial court stated that PremierTox relies upon KRS 446.070 as entitling it to bring the claim of prompt pay violations. We agree with the trial court that any determination of this issue would be premature at this point in the proceedings.
It appears that the trial court was concerned about violations of public policy due to the fact that Kentucky Spirit had received significant sums of money from the Commonwealth in order to provide coverage to Kentucky citizens eligible for Medicaid, and a report from a Kentucky State Auditor indicated concerns regarding coverage by Kentucky Spirit to its members. At the point in the proceedings in which the trial court took notice of the report, there was no evidence that Kentucky Spirit had not received the funds from the Commonwealth. Approximately $1,880,293.46 had been billed by PremierTox to Kentucky Spirit for medical testing on Kentucky Spirit members, but had not been reimbursed to PremierTox. The reimbursement instructions and procedures in the applicable contract are also imposed by Kentucky statutes, including prompt payment laws. The trial court noted that the parties would have the opportunity to further address this issue in a later stage of the proceedings. The trial court determined that certain claims related to this public policy issue contained in the complaint were outside of the scope of any purported arbitration agreement. Therefore, an order compelling arbitration would be improper in this case. However, because this Court has determined that no arbitration agreement between PremierTox and Kentucky Spirit exists, we do not need to address the scope of the arbitration provision as it relates to the parties' claims.
IV. CONCLUSION
For these reasons, the order of the Russell Circuit Court denying the motion to compel arbitration is AFFIRMED.
ALL CONCUR. BRIEFS FOR APPELLANTS: J. Guthrie True
Frankfort, Kentucky
Whitney True Lawson
Frankfort, Kentucky
Christopher Flynn, admitted pro hac vice
Washington, D.C.
ORAL ARGUMENT FOR
APPELLANTS:
Christopher Flynn, admitted pro hac vice
Washington, D.C.
BRIEF FOR APPELLEES: Robert L. Bertram
Jamestown, Kentucky
Anna S. Whites
Frankfort, Kentucky
ORAL ARGUMENT FOR
APPELLEES:
Anna S. Whites
Frankfort, Kentucky