Opinion
Civil Action No: 01-2201, Section: "J" (5)
December 11, 2002
ORDER AND REASONS
Before the Court is Defendant Domino Sugar Corporation HF CW International Health and Welfare Trust Fund's Motion for Summary Judgment or in the Alternative, Stay All Proceedings Pending Exhaustion of Administrative Remedies (Rec. Doc. 48) which was set for hearing on December 4, 2002. Domino Sugar has also filed a reply memorandum (Rec. Doc. 61) to Plaintiff Transitional Hospitals Corporation of Louisiana, Inc.'s opposition memorandum (Rec. Doc. 49). The Court conducted oral arguments on December 4, 2002. After considering the memoranda submitted by counsel, the arguments made by counsel at the December 4th hearing, the record, and the applicable law, the Court finds that Domino Sugar's motion should be GRANTED IN PART and DENIED IN PART.
DISCUSSION
Angela McKendall (McKendall) was admitted to the Transitional Hospitals Corporation of Louisiana, Inc. ("THC") facility in New Orleans as a patient on February 16, 1998. The facility is a long-term acute care hospital. McKendall remained in the facility as a patient until she was discharged on September 10, 1998.During her stay at the facility, McKendall was covered on her father's group healthcare benefit plan through his employer, Domino Sugar Corporation. The plan, the Domino Sugar Corporation HF CW International Health and Welfare Trust Fund ("Domino Sugar"), contracted with DBL Services, Inc. ("DBL Services") to be the administrator of the Domino Sugar fund. DBL Services then contracted with Advantage Health Plan, Inc. ("Advantage") to provide claims administration and clinical determinations and assessments for the fund's members. Pursuant to the agreement between DBL Services and Advantage, members would be treated and healthcare provider claims paid pursuant to a "Hospital Service Agreement" ("the Agreement"). The Agreement was negotiated by Advantage and preferred healthcare providers, such as THC. Advantage and THC entered into the Agreement in July 1996, by renewing two prior similar agreements.
According to THC, the Agreement called for reimbursement at a per diem rate based on the level of care rendered. When total billed charges exceeded $50,000, the entire claim would be reimbursed at 85% of the total charges. THC claims that before McKendall was admitted, Advantage represented that she was covered by the Domino Sugar fund and that payments would be made pursuant to the Agreement. The total charges for medical supplies and all care rendered to McKendall from February 16, 1998 to July 6, 1998 equaled $664,295. Thus, pursuant to the Agreement, THC claims that it was owed $619,901. However, THC was reimbursed only at the per diem rate, rather than the 85% rate.
THC filed suit against Domino Sugar, DBL Services, and Advantage in federal court. THC argues that it has asserted claims in its capacity as assignee of McKendall's benefits under the Domino Sugar fund, which is covered by ERISA, 29 U.S.C. § 1001 et seq., and under Louisiana state law in its capacity as an independent third-party healthcare provider. THC contends that its independent state law claims include negligent misrepresentation, detrimental reliance, and breach of contract (the Agreement).
Domino Sugar subsequently filed the instant motion for summary judgment/motion to stay all proceedings. Domino Sugar believes that THC brought all of its claims in its capacity as the assignee of McKendall's benefits under the Domino Sugar fund. Domino Sugar argues that all of the claims asserted by THC are therefore governed by ERISA, which requires complete administrative exhaustion prior to filing a lawsuit seeking review of a reimbursement determination. Since THC has failed to fully comply with the appeal procedure outlined in the Domino Sugar plan document and summary description, see Rec. Doc. 48, exhibit 2, the case should be dismissed with prejudice, or alternatively, stayed pending exhaustion.
THC counters by arguing that its state law claims are not preempted by ERISA, and thus are not subject to an exhaustion requirement. THC should be allowed to proceed under state law theories regardless of the Court's conclusion as to the ERISA claims. Furthermore, THC argues that it has either complied with the plan's exhaustion requirements or alternatively, exhaustion should not be required because it would be futile. As a result, THC contends that the ERISA claims are ripe for litigation in this Court and should not be dismissed or stayed.
DISCUSSION
I. THC's state law claims as an independent healthcare provider
ERISA preempts all state laws insofar as they "relate to any employee benefit plan covered by the Act." 29 U.S.C. § 1144 (a); Trans. Hosps. Corp. v. Blue Cross and Blue Shield of Tex., Inc., 164 F.3d 952, 954 (5th Cir. 1999). "State law `relates to' an ERISA plan `if it has a connection with or reference to such a plan.'" Id. (quoting Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97, 103 S.Ct. 2890, 2900 (1983)). However, the way in which a state law affects an ERISA plan may be "too tenuous, remote or peripheral . . . to warrant a finding that the law relates to the plan." Id. (quoting Shaw, 463 U.S. at 100 n. 21, 103 S.Ct. at 2901 n. 21)).
A hospital's state law claims for breach of fiduciary duty, negligence, equitable estoppel, breach of contract, and fraud are preempted by ERISA "when the hospital seeks to recover benefits owed under the plan to a plan participant who has assigned her right to benefits to the hospital." Id. On the other hand, state law is not preempted by ERISA when the state law claim is "brought by an independent, third-party health care provider (such as a hospital) against an insurer for its negligent misrepresentation regarding the existence of health care coverage." Id.; Memorial Hosp. Sys. v. Northbrook Life Ins. Co., 904 F.2d 236, 243-46 (5th Cir. 1990). A court must look to "whether the beneficiary under the ERISA plan was covered at all by the terms of the health care policy, because if [she] was not, the provider of health services acts as an independent, third party." Cypress Fairbanks Med. Center v. Pan-Am Ins. Co., 110 F.3d 280, 285 (5th Cir. 1997).
However, when the beneficiary receives at least some coverage, a court must then "determine whether the claim in question is dependent on, and derived from the rights of the plan beneficiaries to recover benefits under the terms of the plan." Trans. Hosps., 164 F.3d at 955. The Fifth Circuit has adopted a two-part inquiry in this area:
(1) [whether] the state law claims address areas of exclusive federal concern, such as the right to receive benefits under the terms of the ERISA plan; and
(2) [whether] the claims directly affect the relationship among the traditional ERISA entities — the employer, the plan and its fiduciaries, and the participants and beneficiaries.Cypress Fairbanks, 110 F.3d at 283 (quoting Memorial Hosp., 904 F.2d at 945).
The Court concludes that THC has asserted its state law claims in its capacity as an independent healthcare provider and not as an assignee of McKendall's benefits under the ERISA plan. This is so because these claims are conditioned on the phrase "[t]o the extent that the group health care benefit plan does not provide coverage", which is contained in the Supplemental and Amended Complaint. See Rec. Doc 29. These claims are predicated on the allegation that the defendants misrepresented that McKendall was fully covered by the Domino Sugar fund and THC would thus be fully reimbursed according to the Agreement. Consequently, these claims are actionable only to the extent that McKendall was not covered by the ERISA plan.
Furthermore, these state law claims do not directly affect the relationship between the traditional ERISA entities, such as the employer, the plan, and the participants and beneficiaries. See Cypress Fairbanks, 110 F.3d at 283. THC's state law claims challenge the defendants' actions relating to the enforcement of the Agreement, an independent hospital service agreement. See, e.g., River Parishes, Inc. v. Aetna U.S. Healthcare, Inc., 2001 WL 277938 at *4 (E.D. La. 2001) (emphasizing that the cases before the court were based upon a direct contractual agreement between the plaintiff hospitals and the defendant insurer under a managed care agreement, and not upon an assignment of right to benefits). As such, the claims do not address areas of exclusive federal concern, as do claims seeking to receive benefits under the terms of an ERISA plan. Id.
The instant case presents a hybrid situation for the Court. THC has asserted both derivative claims, as the assignee of McKendall, which are clearly governed by ERISA, as well as independent claims, which are governed by state law and not sufficiently related to ERISA as to be preempted. THC is free to proceed with its independent state law claims in this Court, regardless of the disposition of the ERISA claims.
The Court reserves its judgment on the merits of THC's state law claims against the defendants, particularly Domino Sugar, until the December 18, 2002 hearing on THC's motion for summary judgment and Domino Sugar's cross-motion for summary judgment on the state law claims. It is possible that the Court will find that THC cannot support its claims against the defendants, particularly Domino Sugar.
II. THC's ERISA claims
The Court must next determine whether THC has exhausted the available administrative remedies related to its ERISA claims. As a matter of law, a plaintiff must exhaust all administrative remedies available under the ERISA plan prior to bringing an action under ERISA for denial of benefits. Denton v. First Nat'l Bank, 765 F.2d 1295, 1297 (5th Cir. 1985). However, a court, in its discretion, may find that an exception to the exhaustion requirement applies where exhaustion in the particular case would be futile. Hall v. Nat'l Gypsum Co., 105 F.3d 225, 232 (5th Cir. 1997).
Domino Sugar argues that THC failed to comply with the administrative appeal procedures called for in the plan document. See Rec. Doc. 48, exhibit 2. The appeal procedure allows a party seeking recovery of benefits from the Domino Sugar fund to:
1) Request from the Plan Administrator a review of the eligibility status for any claim denied in whole or in part;
2) Request from the Plan Administrator a review of any claim payment. Such request must include: the name of the Employee, his or her Social Security Number, the name of the patient and the Plan Number, if any;
3) File the request for review in writing, stating in clear and concise terms the reason or reasons for this disagreement with the handling of the claim.See Rec. Doc. 48. exhibit 2, pg. 52. The review request must be directed to the Plan Administrator or the Claim Services Administrator within sixty days after the claim payment date or the date the party is notified of the denial of benefits. Id.
Upon a review of the evidence submitted by THC, it is clear that the hospital has not fully exhausted the available administrative remedies outlined in the plan document. THC first cites numerous phone calls it placed to DBL Services requesting reimbursement for the services provided to McKendall. See Rec. Doc. 49, exhibit B. Clearly, evidence of telephone calls is insufficient under the express terms of the plan document. An appeal of a reimbursement denial must be in writing. Rec. Doc. 48, exhibit 2, pg. 52.
Secondly, THC cites an October 23, 1998 letter sent to DBL Services as evidence that it complied with the plan document's appeal requirements. The problem with the letter is that it does not specifically state that THC seeks reimbursement at the level called for in the Agreement. Furthermore, it was sent in response to an October 16, 1998 refund request by DEL Services. The letter does not provide the sufficient clarity required to put DEL Services or Domino Sugar on notice that THC was appealing the reimbursement scheme in the McKendall case. THC offers no other evidence that it exhausted its administrative remedies between November 1998 and July 2001, when the instant lawsuit was filed. Apparently, THC made several additional inquiries but provides no other evidence of its actions prior to filing suit almost three years later. THC is a large healthcare corporation with experience in dealing with health insurers and ERISA plans. In light of THC's size and experience, it is difficult to understand why more was not done to collect an outstanding claim alleged to be worth more than $600,000. As a result, the Court concludes that, THC did not fully exhaust the administrative remedies outlined in the plan document.
The Court also fails to see how the futility exception is applicable in the instant case. THC argues that the defendants have taken their positions, which are not going to change, and therefore will deny any appeal in the McKendall case. Given the realities of this case, THC may be correct. However, no evidence has been submitted which supports this contention. As such, THC's futility argument is nothing more than mere speculation at this time. THC should be required to comply with the plan document's requirements before bringing its ERISA claims in this Court.
Therefore;
It is HEREBY ORDERED that Domino Sugar's motion (Rec. Doc. 48) should be GRANTED IN PART, as to the portion relating to THC's claims which are governed by ERISA. Thus, it is FURTHER ORDERED that those claims are severed and stayed without prejudice to the right of either party to file an appropriate motion to reopen these claims once administrative exhaustion has been completed.
It is FURTHER ORDERED that Domino Sugar's motion should be DENIED IN PART, as to the portion relating to THC's state law claims brought in its capacity as an independent third-party healthcare provider.