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Houston Methodist Hospital v. Humana Insurance Co.

United States District Court, S.D. Texas, Houston Division

July 17, 2017

HOUSTON METHODIST HOSPITAL, SAN JACINTO METHODIST HOSPITAL, HOUSTON METHODIST ST. JOHN HOSPITAL, HOUSTON METHODIST ST. CATHERINE HOSPITAL, METHODIST HEALTH CENTERS d/b/a HOUSTON METHODIST WILLOWBROOK HOSPITAL, HOUSTON METHODIST WEST HOSPITAL, and HOUSTON METHODIST SUGAR LAND HOSPITAL, Plaintiffs,
v.
HUMANA INSURANCE COMPANY; HUMANA MILITARY HEALTHCARE SERVICES, INC. n/k/a HUMANA GOVERNMENT BUSINESS, INC.; HUMANA INC.; and HEALTH VALUE MANAGEMENT, INC. d/b/a CHOICECARE NETWORK, Defendants.

          MEMORANDUM OPINION AND ORDER

          SIM LAKE UNITED STATES DISTRICT JUDGE.

         Plaintiffs, Houston Methodist Hospital, San Jacinto Methodist Hospital, Houston Methodist St. John Hospital, Houston Methodist St. Catherine Hospital, Methodist Health Centers d/b/a Houston Methodist Willowbrook Hospital, Houston Methodist West Hospital, and Houston Methodist Sugar Land Hospital (collectively "Methodist"), bring this action against defendants, Humana Insurance Company ("HIC"), Humana Military Healthcare Services, Inc. n/k/a Humana Government Business, Inc. ("HGB"), Humana Inc., and Health Value Management, Inc. d/b/a Choicecare Network ("Choicecare") (collectively "Humana"), asserting claims for breach of contract, declaratory judgment pursuant to 28 U.S.C. §§ 2201-2202, and violations of the Texas Insurance Code, specifically provisions of the Texas Prompt Payment of Physicians and Providers Act (the "TPPA"), Texas Ins. Code Ann. Chapter 843 (relating to health maintenance organizations ("HMOs"), and Chapter 1301 (relating to preferred provider benefit plans ("PPBPs"). Methodist seeks to recover approximately $15, 000, 000.00 in statutory penalties from Humana for late payments of health care claims arising from Medicare Advantage, [1] fully-insured ERISA, [2] and individual commercial health plans.

         Pending before the court is Defendants Humana Insurance Company, Humana Military Healthcare Services, Inc. n/k/a Humana Government Business, Inc., Humana Inc., and Health Value Management, Inc. d/b/a Choicecare Network's Motion for Partial Summary Judgment (Docket Entry No. 21). Humana seeks summary judgment that Methodist's TPPA claims arising from Medicare Advantage and fully-insured ERISA health plans are preempted by federal law. Defendants also seek summary judgment that Humana Inc. and HGB are not liable under the TPPA because none of the plaintiffs' claims arise from health insurance policies issued by those entities. For the reasons stated below, the motion for partial summary judgment will be granted.

         I. Standard of Review

         Summary judgment is authorized if the movant establishes that there is no genuine dispute about any material fact and the law entitles it to judgment. Fed.R.Civ.P. 56(a). Disputes about material facts are "genuine" if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 106 S.Ct. 2505, 2511 (1986) . The Supreme Court has interpreted the plain language of Rule 5 6 to mandate the entry of summary judgment "after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 106 S.Ct. 2548, 2552 (1986). A party moving for summary judgment "must 'demonstrate the absence of a genuine issue of material fact, ' but need not negate the elements of the nonmovant's case." Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc) (per curiam) . If the moving party meets this burden, Rule 56 requires the nonmovant to go beyond the pleadings and show by admissible evidence that genuine issues of material fact exist for trial. Id. In reviewing the evidence "the court must draw all reasonable inferences in favor of the nonmoving party, and it may not make credibility determinations or weigh the evidence." Reeves v. Sanderson Plumbing Products, Inc., 120 S.Ct. 2097, 2110 (2000).

         II. Factual and Procedural Background[3]

         Since at least March 1, 1999, Methodist and Humana have been parties to Hospital Participation Agreements ("Provider Agreements") and amendments thereto, in which Methodist agrees to provide health care services to enrollees and beneficiaries of Humana's health care plans in exchange for payment at a contractual rate. Humana has separate contracts with the enrollees and beneficiaries of its various health care plans including inter alia Medicare Advantage health care plans ("MA Plans") and fully insured ERISA health care plans ("ERISA Plans").

         On April 22, 2016, Methodist asserted a demand for arbitration seeking over $15, 000, 000.00 in statutory penalties for alleged violations of the TPPA. The demand for arbitration included a spreadsheet with approximately 4 68 claims that Methodist alleged Humana paid late.[4] Methodist has since refined its list of allegedly late paid claims and grouped them into three categories: (1) claims from MA Plans; (2) claims from individual plans; and (3) claims from fully insured ERISA Plans.[5] Methodist seeks $13, 450, 376.42 for late payment of MA Plan claims, and $1, 722, 521.00 for late payment of fully insured ERISA Plan claims.[6]On May 25, 2016, Humana filed its Original Complaint to Enjoin Arbitration and for Declaratory Judgment (Docket Entry No. 1), asserting that not all of Methodist's claims are subject to arbitration.

         On June 15, 2016, Methodist filed an Answer and Counterclaim (Docket Entry No. 6) (1) stating that Humana's arbitration demand is moot because Methodist dismissed the previously filed arbitration proceeding in favor of asserting all of its claims in this action and (2) asserting counterclaims for (a) breach of contract, (b) violation of the Texas Insurance Code based on Humana's alleged failure to timely pay for services in violation of the TPPA, and (c) declaratory judgment that Methodist's TPPA claims were not preempted by federal law. Methodist's counterclaim also named two additional defendants: Humana Health Plan of Texas, Inc. f/k/a Memorial Sisters of Charity Insurance ("HHP Texas") and Health Value Management, Inc. d/b/a National Transplant Network ("NTN") .

         On July 18, 2016, Methodist filed (1) an Unopposed Motion to Dismiss Without Prejudice as to Claims and Causes of Action Against Humana Health Plan of Texas, Inc. f/k/a Memorial Sisters Of Charity Insurance And Health Value Management, Inc. d/b/a National Transplant Network, (2) an Unopposed Motion to Realign the Parties, and (3) an Unopposed Motion for Leave to File Amended Complaint (Docket Entry No. 10). The court granted Methodist's motion and dismissed Methodist's claims against HHP Texas and NTN without prejudice, realigned the parties so that the Methodist entities are now the plaintiffs and the Humana entities are now the defendants, and granted Methodist leave to file an amended complaint (Docket Entry No. 11).

         On August 11, 2016, Methodist filed Plaintiffs' First Amended Complaint (Docket Entry No. 12), asserting claims for breach of contract, violation of the TPPA's timely pay requirements, and declaratory judgment that its TPPA claims are not preempted by federal law. On September 6, 2016, Humana filed Defendants' Answer to Plaintiffs' First Amended Complaint and Counterclaim (Docket Entry No. 15) seeking declaration that Methodist's TPPA claims are preempted by federal law; and on November 18, 2016, Humana filed the pending motion for partial summary judgment.

         Ill. Analysis

         Methodist's TPPA claims seek statutory penalties for Humana's failure to pay "clean claims" within time periods required by the Texas Insurance Code, i.e.. Chapter 843 for claims from HMOs, and Chapter 1301 for claims from PPBPs. A "clean claim" is one that complies with the applicable sections of the Texas Insurance Code. See Tex. Ins. Code §§ 843.336(a) and 1301.101. Humana seeks summary judgment on Methodist's TPPA claims arising from MA Plans as expressly preempted under the Medicare Act, 42 U.S.C. § 13 95, et seq., and on claims arising from fully insured ERISA Plans as preempted by ERISA's express preemption provision, 2 9 U.S.C. § 1144(a), and principles of conflict preemption. Defendants' MPSJ also seeks dismissal of the claims asserted against Humana Inc. and HGB because neither of these entities issued health insurance policies from which Methodist's TPPA claims arise.[7] Asserting that the TPPA merely regulates the time for payment of clean claims, and does not involve provision of benefits, Methodist argues that its TPPA claims are not preempted.[8]

         A. Applicable Law

         1. Federal Preemption Law

         Federal law recognizes both express and implied preemption. Gade v. National Solid Wastes Management Association, 112 S.Ct. 2374, 2383 (1992). "Express preemption requires Congress to explicitly state its intent to preempt relevant state laws." United States v. Zadeh, 820 F.3d 746, 751 (5th Cir. 2016) (citing Pacific Gas & Electric Co. v. State Energy Resources Conservation & Development Commission, 103 S.Ct. 1713, 1722 (1983), and Jones v. Rath Packing Co., 97 S.Ct. 1305, 1309 (1977)). Absent explicit preemptive language, the Supreme Court has recognized at least two types of implied preemption: field preemption and conflict preemption. Id. "Field preemption occurs when Congress intends to 'occupy the field, ' taking over a field of law to the exclusion of state or local authority." Id. (quoting Sprietsma v. Mercury Marine, 123 S.Ct. 518, 527 (2002)). "[C]onflict preemption takes two forms: (i) when compliance with both state and federal law is impossible, and (ii) when a state law 'stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.'" Id. "Federal preemption of state law is fundamentally 'a question of Congressional intent. . .'" Burkey v. Government Employees Hospital Association, 983 F.2d 656, 659 (5th Cir. 1993) (quoting English v. General Electric Co., 110 S.Ct. 2270, 2275 (1990)).

         2. Texas Prompt Pay Act

         The TPPA requires insurers receiving a "clean claim" to determine, within specified times, whether the claim is payable: 45 days for non-electronic claims and 30 days for electronic claims. Within these times insurers must either (1) pay the claim, (2) partially pay and partially deny the claim and notify the provider in writing of the reason for partial denial, or (3) deny the claim in full and notify the provider in writing of the reason for denial. Tex. Ins. Code §§ 843.338, 1301.103. The parties do not dispute that the claims at issue in this action are "clean claims."[9] The TPPA imposes a range of penalties for late payment of payable "clean claims." Tex. Ins. Code § 843.342 (imposing penalties when "a clean claim submitted to a health maintenance organization is payable and the health maintenance organization does not determine under this subchapter that the claim is payable and pay the claim on or before the date the HMO is required to make a determination or adjudication of the claim"), § 1301.137(a) (imposing penalties when "a clean claim submitted to an insurer is payable and the insurer does not determine . . . that the claim is payable and pay the claim on or before the date the insurer is required to make a determination or adjudication of the claim").

         B. Methodist's TPPA Claims Arising from MA Plans Are Preempted.

         1. Medicare and Medicare Preemption

         The Medicare program, which provides medical insurance for the aged and disabled, is administered by the Center for Medicare and Medicaid Services ("CMS"), a division of the U.S. Department of Health and Human Services ("HHS"). See RenCare, Ltd. v. Humana Health Plan of Texas, Inc., 395 F.3d 555, 556 (5th Cir. 2004). The Medicare Act, 42 U.S.C. §§ 1395-1395fff, consists of five parts, labeled parts A, B, C, D, and E. See Memorial Hospital at Gulfport v. Sebelius, 499 F.App'x 393, 395 (5th Cir. 2012) . Medicare Part C - the only part relevant to this case - was created by passage of the Balanced Budget Act of 1997, and was originally called the Medicareਚ≱ (M) program. See Medicare Program; Medicareਚ≱ Program ("M"), 65 Fed. Reg. 40170, 40171 (June 29, 2000). M allowed Medicare eligible individuals to receive benefits through a variety of private health plans. Id. at 40172. In 2003 Congress later passed the Medicare Prescription Drug, Improvement, and Modernization Act, which replaced the M program with the Medicare Advantage ("MA") program. Medicare Program; Establishment of the Medicare Advantage Program, 70 Fed. Reg. 4588, 4589 (Jan. 28, 2005) .

         Under the MA program CMS contracts with HMOs and other private entities for health care services to Medicare enrollees. Id. at 4589-90. Entities entering into MA contracts with CMS are called MA organizations. 42 C.F.R. § 422.2. MA organizations must satisfy detailed requirements to qualify for inclusion in the MA program. 42 C.F.R. § 422.503. Once CMS and an MA organization enter into a contract, CMS makes capitation payments to the MA organization for enrollee health care services. 42 C.F.R. § 422.304(a). A capitation payment is "a fixed per enrollee per month amount paid for contracted services without regard to the type, cost, or frequency of services furnished." 42 C.F.R. § 422.350(b). Upon payment from CMS, the MA organization "assume[s] full financial risk on a prospective basis for the provision of the health care services for which benefits are required to be provided, " 42 U.S.C. § l395w-25(b), and "must adopt and maintain arrangements satisfactory to CMS to protect its enrollees from incurring liability (for example, as a result of an organization's insolvency or other financial difficulties) for payment of any fees that are the legal obligation of the MA organization." 42 C.F.R. § 422.504(g)(1). MA organizations may contract with third parties for administrative and health care services to enrollees. 42 C.F.R. § 422.200-204. Contracts between MA organizations and providers are negotiated freely, with few federal requirements. MA regulations do however require that contracts between MA organizations and providers contain prompt pay provisions. See 42 C.F.R. § 422.520.

         The Medicare Act contains an express preemption provision stating:

Relation to State laws. The standards established under this part shall supersede any State law or regulation (other than State licensing laws or State laws relating to plan solvency) with respect to MA plans which are offered by MA organizations under this part.

42 U.S.C. § 1395w-26 (b) (3) (2003) . Before 2003 the Medicare preemption provision stated that federal standards would supersede state law and regulations with respect to MA Plans only if a state law or regulation was "inconsistent" with Medicare standards. 42 U.S.C. § l395w-26(b)(3)(A)(2000).[10] The legislative history reflects that the 2003 amendment was intended to increase the scope of preemption, stating that "the [MA Program] is a federal program operated under Federal rules and that State laws, do not, and should not apply, with the exception of state licensing laws or state laws related to plan solvency." H. Conf. Rep. 108-391 at 557, reprinted in 2003 U.S.C.C.A.N. 1808, 1926 (November 21, 2003). CMS has however stated that preemption occurs only when CMS creates standards in the area regulated. See Medicare Prescription Drug Benefit, 70 Fed. Reg. 4194-01, 4320 (January 28, 2005) .

         2. Application of the Law to the Undisputed Facts

         Humana argues that Methodist's TPPA claims arising from MA Plans are preempted by the Medicare Act because the TPPA is a state law with respect to MA Plans that "is neither a state licensing law nor a law relating to plan solvency which [were] the only laws saved from MA preemption, "[11] and because "CMS has established standards governing . . . prompt payment of providers."[12] In support of its argument, Humana cites South Texas Health System v. Care Improvement Plus of Texas Insurance Co., Civil Action No. 7:14-CV-912, 2015 WL 9257021, at *6 (S.D. Tex. Sept. 28, 2015) ("The Court finds that the Secretary of [HHS], through CMS, has established, by regulation, standards under Part C of Medicare that regulate the prompt payment of claims under MA Plans. Accordingly, Plaintiff's claims under the [TPPA] are expressly preempted."); and General Surgical Associates, P.A. v. Humana Health Plan of Texas, Inc., No. SA-14-CA-31-RP (HJB), 2015 WL 1880276, at *8 (W.D. Tex. March 17, 2015) ("Because CMS 'actually create[d] standards' for the prompt payment of claims, the TPPA is expressly preempted under [4 2 U.S.C.] § 13 95w-2 6(b)(3)."), report and recommendation adopted sub nom. General Surgical Associates, P.A. v. Humana Health Plan of Texas, Inc.. No. 5:14-CV-031-RP, 2015 WL 1880298 (W.D. Tex. April 23, 2015) .

         Methodist argues that its TPPA claims arising from MA Plans are not preempted because the TPPA is not a state law with respect to MA Plans but is, instead, a state law with respect to arrangements, i.e., contracts between MA organizations and providers.[13] Citing RenCare, at 559, Methodist argues that the Fifth Circuit has recognized that the CMS regulations governing prompt payment regulate arrangements or provider agreements, not MA Plans.[14]

(a) The TPPA is a State Law "With Respect to" MA Plans.
As Methodist recognizes an "MA Plan" is a "plan of health insurance" or a plan providing "health benefits coverage" offered by an MA Organization. Thus, the Medicare Act preemption provision is intended to expressly preempt "any State law or regulation . . . with respect to [plans of health insurance or health benefits coverage plans] which are offered by MA organizations under this Part [C] ."[15]

         Methodist's argument that the TPPA is not a state law with respect to MA Plans because the TPPA regulates only arrangements with providers is contradicted by provisions of the Texas Insurance Code expressly stating that the TPPA applies to HMOs and to insurers. See Tex. Ins. Code § 843.338 (imposing timely pay requirements on HMOs receiving clean claims from participating physicians or providers); and § 1301.103 (imposing timely pay requirements on insurers receiving clean claims from preferred providers). The Texas Insurance Code states that "'Health Maintenance Organization' means a person who arranges for or provides to enrollees on a prepaid basis a health care plan, a limited health care service plan, or a single health care service plan, " Tex. Ins. Code § 843.002(14), and that "'Insurer' means a life, health, and accident insurance company, health and accident insurance company, health insurance company, or other company operating under Chapter 841, 842, 884, 885, 982, or 1501, that is authorized to issue, deliver, or issue for delivery in this state health insurance policies." Tex. Ins. Code § 1301.001(5). Moreover, the provision governing the TPPA's applicability to preferred providers expressly states that it applies to preferred provider benefit plans:

(a) Except as otherwise specifically provided by this chapter, this chapter applies to each preferred provider benefit plan in which an insurer provides, through the insurer's health insurance policy, for the payment of a level of coverage that is different depending on whether an insured uses a preferred provider or a nonpreferred provider.
(b) Unless otherwise specified, an exclusive provider benefit plan is subject to his chapter in the same manner as a preferred provider benefit plan.

         Texas Ins. Code § 1301.0041 (a) - (b) . Subsection (c) of this provision identifies plans to which that chapter of the Texas Insurance Code does not apply:

         (c) This chapter does not apply to:

(1) the child health plan program under Chapter 62, Health and Safety Code; or
2) a Medicaid managed care program under Chapter 533, Government Code.

Texas Ins. Code § 1301.0041 (c).

         Because the TPPA provisions of the Texas Insurance Code expressly apply to HMOs who receive clean claims from participating physicians or providers and to insurers who receive clean claims from preferred providers, because the applicability provision of Chapter 13 01 governing PPBPs expressly exempts some plans but does not mention MA Plans, and because Methodist fails to cite any provision of the Texas Insurance Code showing that the TPPA is a state law with respect to arrangements or provider agreements, the court concludes that the TPPA is not - as Methodist argues - a state law that only regulates arrangements, i.e., contracts with providers, but is instead a state law with respect to HMOs and insurers who provide preferred provider and exclusive provider benefit plans, including MA Plans.

         (b) CMS Standards Exist for Prompt Payment of Claims. In Part C of the Medicare Act Congress expressly preempted all but a limited number of state laws, i.e., state laws relating to licensing or plan solvency. See 42 U.S.C. § l395w-26(b)(3)(2003). The parties do not dispute that the TPPA does not fall in the limited category of state laws excepted from preemption. CMS has stated, however, that preemption "operates only when CMS actually creates standards in the area regulated." Medicare Prescription Drug Benefit, 10 Fed. Reg. 4194-01, 4320 (Jan. 28, 2005) . Even though the court has concluded that the TPPA is a state law with respect to MA Plans, Methodist's TPPA claims will only be preempted if CMS has created standards for prompt payment of claims.

         Citing 42 C.F.R. § 422.520, Humana argues that Methodist's TPPA claims are preempted because CMS has created standards for prompt payment of claims.[16] Asserting that § 422.4520 distinguishes between non-contracted providers and contracted providers like itself, Methodist responds that its TPPA claims are not preempted because they arise from the parties' private arrangements or provider agreements.[17] Methodist argues that under 42 C.F.R. § 422.520 there is a distinction between subsection (a), which governs providers who do not have arrangements with insurers or who choose to submit claims on behalf of enrollees under the enrollees' MA private fee-for-service plans and agree to accept payment for their services at rates determined under the plans, pursuant to which the TPPA would be a regulation with respect to an MA Plan, and subsection (b) pursuant to which the TPPA, as applied to providers who make claims based on their arrangements, pursuant to which the TPPA would not be a state regulation with respect to MA Plans.[18] Methodist argues that

[p]roviders who choose to accept payment under the terms of an enrollee's MA Plan cannot recover under [the] TPPA because (1) a provider must have a contract with the insurer to assert TPPA claims (see Christus Health Gulf Coast v. Aetna, Inc., 397 S.W.3d 651, 654 (Tex. 2013) (holding "the Prompt Pay Statute contemplates contractual privity between HMOs and providers")) and (2) even if the provider has a contract, the TPPA would be preempted as applied to claims asserted in this manner. In these circumstances, i.e., claims asserted pursuant to an MA Plan, the TPPA would be a regulation "with respect to MA Plans."[19]

         Methodist contends, however, that

[a] different result obtains under [§] 422.520(b). That section covers situations in which the MA Organization and the Provider have a contract, transforming the relationship into an "Arrangement." Because "MA Plan" does not include "Arrangements, " subsection (b) is not a regulation with respect to an MA Plan. Likewise, then, the TPPA, as applied to providers who make claims pursuant to their Arrangements, is not a State law or regulation with respect to MA Plans. Because Medicare preemption only applies to "State laws or regulations . with respect to MA Plans, " TPPA as applied to Methodist's claims based on its Arrangements with Defendants does not fall within Medicare's domain of preemption.[20]

Citing RenCare, 395 F.3d at 559, Methodist argues that "the Fifth Circuit has recognized [that §] 422.520(b) regulates MA organization-provider contracts (Arrangements), not MA Plans."[21]

         Humana responds that "Methodist's position cannot be reconciled against 42 U.S.C. § l395w-26(b)(3)'s express preemption language, nor can it be sustained in the face of applicable legal authority which recognizes [that] federal regulations, not state law, govern Humana's prompt payment obligations."[22] Humana also argues that Methodist's reliance on RenCare, 395 F.3d at 555, is misplaced because that case involved field preemption and exhaustion of administrative remedies and did not involve express preemption at issue here.[23]

         The CMS regulation at 42 C.F.R. § 422.520 requires contracts between CMS and MA organizations, and between MA organizations and health care providers, to contain prompt pay provisions:

         (a) Contract between CMS and the MA organization.

(1) The contract between CMS and the MA organization must provide that the MA organization will pay 95 percent of the "clean claims" within 3 0 days of receipt if they are submitted by, or on behalf of, an enrollee of an MA private fee-for-service plan or are claims for services that are not furnished ...

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