Cypress Med. Ctr. Operating Co. v. Cigna Healthcare – March 2015 (Summary)

THIRD PARTY REIMBURSEMENT DISPUTES

Cypress Med. Ctr. Operating Co. v. Cigna Healthcare, No. 12-20695 (5th Cir. Mar. 10, 2015)

The U.S. Court of Appeals for the Fifth Circuit affirmed in part, vacated in part, and remanded a suit brought by a hospital against an insurance company for violations of the Employee Retirement Income Security Act (“ERISA”), the Texas Insurance Code, and the Racketeer Influenced and Corrupt Organizations Act (“RICO”).

The insurance company maintains a cost-sharing agreement, in which the insurance company covers 80% of a patient’s medical costs if the patient was treated by an in-network provider. When a patient is seen by an out-of-network provider, the insurance company covers only 60% of the medical costs, and the patient pays the remaining 40%. The hospital was opened and operated as an out-of-network provider after an unsuccessful attempt to negotiate with the insurance company. The hospital then implemented a “prompt pay discount” program, offering patients a discounted rate if they paid their medical costs within a short time. The hospital implemented this approach in order to achieve greater success in collecting patients’ medical bills. Though the hospital applied an extreme discount under this prompt pay program, the insurance company was still expected to pay 60% of the total medical bill before factoring in the discount. The insurance company would be charged 60% of the full amount, and then the remaining bill would be discounted and sent to the patient. After becoming aware of this, the insurance company began reimbursing the hospital at the same drastically reduced rates that were used under the prompt pay discount.

The hospital filed claims against the insurance company for violating ERISA and RICO, and the insurance company submitted a counterclaim arguing that the hospital had violated ERISA. The district court dismissed the hospital’s ERISA claims for lack of standing and determined that the insurance company’s ERISA claims were time-barred. The district court also dismissed the hospital’s claims for breach of contract.

The court of appeals found that the hospital did have standing to bring ERISA claims, holding that the patients of the hospital were injured by the insurance company’s actions, creating a concrete injury sufficient to create standing. The court vacated the district court’s judgment and remanded to allow the hospital’s claims of ERISA violation to be fully developed. In holding that the hospital had standing to bring ERISA claims, the court vacated the grant of summary judgment against the hospital and remanded for the district court to consider the hospital’s claims of preemption. The court determined that the district court was, however, correct in dismissing the hospital’s RICO claims. The court also affirmed the district court’s determination that the insurance company was barred from bringing ERISA claims by the two-year statute of limitations.