Who Won Big Insurance Company v. Hospital Case in 5th Circuit?

Houston Area Hospital’s Decision to Discount Charges to Out-of-Network Patients Gets Mixed Decision On Appeal

The U.S. Court of Appeals Fifth Circuit reversed part of a Houston district court’s granting of summary judgment on Tuesday in a closely-watched case with $40 million at stake. Other major insurance carriers and providers of medical services also awaited guidance from the court on how to proceed.

In North Cypress Operating Centers et. al. v. CIGNA et al. a unanimous decision written by Judge Patrick Higginbotham, District Judge Keith Ferguson’s dismissal of the majority of the hospital’s claims against the carrier was upheld. However, its claims for ERISA violations and breach of contract were remanded, so this battle that has raged for four years will continue.

Background:

This case centers on the subject of coinsurance payments, i.e. how much the insured has to pay under his plan.  Newer and more aggressive providers have enticed patients from out-of-network providers by reducing or even waiving those payments. To combat this practice, some carriers refused to pay these claims.

 

North Cypress Hospital decided to start a discount program and bill CIGNA for the full amount of the service provided.  North Cypress charged patients a lower base rate for coinsurance and would not bill those who paid a discounted rate on time for any additional fees. Even if Cigna refused to pay its share, perhaps 60 or 80 percent of the bill, Cypress did not pursue the patient for the remainder.

After learning about North Cypress’s fee-forgiving program for patients, Cigna drastically reduced its rates for medically necessary care because patients were not insured for the costs if the hospital did not bill for their coinsurance responsibilities. The insurance company also pressured North Cypress to become in-network and accept those lower rates.

The hospital sued, claiming violations of the Employee Retirement Income Security Act (ERISA), Racketeer Influenced and Corrupt Organizations Act (RICO), and state law claims for breaches of the Texas Insurance Code. CIGNA filed counterclaims for fraud, negligent misrepresentation and other claims to seek reimbursement. The district court granted CIGNA’s motion for summary judgment.

Arguments on appeal:

North Cypress claimed Cigna had failed to comply with group plan terms, breaching its fiduciary duties, failing to conduct full and fair reviews of claims it denied, violating claims procedures and failing to deliver information requested by the hospital. Cigna alleged fraud, negligent misrepresentation and unjust enrichment by Cypress.

The Fifth Circuit vacated the summary judgment as it applied to the hospital’s ERISA claims and breach of contract claims against the insurance company. North Cypress is thus permitted to proceed with its lawsuit for payment at the rate it negotiated for an out-of-network provider regardless of whether and how much it charges its patients for coinsurance.

However the court affirmed the lower court’s dismissal of  the remainder of the claims, so the insurance company cannot proceed with its lawsuit against the hospital for fraud, misrepresentation and unjust enrichment.

The decision is in accord with one handed down by the Ninth Circuit in November.

This area of law will continues to be in flux as the healthcare reimbursement landscape changes because traditional fee-for-service reimbursement rates become a thing of the past and providers refusing to participate in networks. It appears that insurance companies will get more aggressive in attacking these out-of-network plans.

 

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