:: Disclaimer Shields Claims Administrator From Mispresentation Claims

Tenet alleges that it provided approximately $ 241,000 worth of medical services to Sylvester based on UniCare’s representation that Sylvester was covered under the Plan.

. . .  Pursuant to the Managed Care Agreement, UniCare paid Tenet $ 132,827.34, the negotiated payment under the agreement, on July 27, 2005.  On August 5, 2005, Sheltering Arms informed UniCare that Sylvester had been terminated from employment on May 11, 2005, and that her benefits under the Plan terminated on June 1, 2005.

In September 2005, UniCare notified Tenet that it was requesting a refund of the claim payment under the terms of the Managed Care Agreement because Sylvester’s benefits had terminated prior to her admission to the Hospital.

Tenet Healthcare Ltd. v. UniCare Health Plans of Tex., Inc., 2008 U.S. Dist. LEXIS 96324 (S.D. Tex. Nov. 26, 2008)

For some reason it seems that Texas has more than its share of interesting health care provider reimbursement disputes.  More than one landmark decision has been handed down in the Lone Star state, including of course the venerable Hermann Hosp. v. MEBA Medical and Benefits Plan, 959 F.2d 569, 576 (5th Cir. 1992) and its progeny.

This recent case out of the Southern District is one that the payer community can chalk up as a win.

The facts are a bit harsh.  Tenet did attempt to “verify” coverage – and the claims administrator did so affirmatively – but with important reservations.  So when it turned out that the patient actually had been terminated from coverage, a fact unknown to the claims administrator (it appears), Tenet bore the burden of the loss.

The Disclaimer

Tenet alleged that the claims administrator (”UniCare”) “verified and represented . . . medical insurance coverage, and provided preauthorization to Tenet to treat the patient.”

UniCare, however, contends that it “verified Sylvester’s inpatient benefits and quoted a standard disclaimer.”  The disclaimer fairly standard in the industry.  According to the opinion, the language was as follows:

“[t]his is not a guarantee of benefits. All charges are subject to medical necessity, member eligibility, and all plan provisions in effect at the time services are rendered. These benefits are also contingent on the eligibility of the condition being treated.”

The Effect

The disclaimer, in the view of the district court, put Tenet on notice of the limiations of what the claims administrator represented.

Without getting to far into the vagaries of the Texas law on negligent mispresentation, suffice it here to say that there is such a legal action and its purpose is to prevent innocent parties from being misled into financial debacles by careless statements.

The claims administrator successfully argued that Tenet shouldn’t have relied on the verification in the first place.

Tenet does not dispute that this disclaimer was provided. The disclaimer informed Tenet that the verification was subject to subsequent review. In fact, the disclaimer specifically informed Tenet that member eligibility–that is, whether there was coverage under the Plan–was subject to review.

The Court concludes that UniCare used reasonable care and competence in communicating with Tenet. Tenet has failed  to raise a genuine fact issue on the third element of a negligent misrepresentation claim, and therefore UniCare is entitled to summary judgment.

Preemption Prescinded

One may wonder at this stage why the negligent misrepresentation claim was up for discussion at all.  Would not ERISA preemption the state law claim?

It is true that the participant gave an assignment of benefits and, after removal of an initial state law case, Tenet asserted a claim for benefits.   Returning to the place I began, however, one cannot overlook the highly nuanced case law in the Fifth Circuit on these issues.

One of the significant cases, Memorial Hosp. Sys. v. Northbrook Life Ins. Co., 904 F.2d 236 (5th Cir. 1990), emerged as influential at this stage of the opinion.  To make matters more interesting, or at least more complex, the district court presented the issue as juxtaposing Memorial with the previous decision, Hermann I:

At a fundamental level, the parties’ arguments amount to a disagreement over which decision is controlling on the facts in the case at bar–Memorial or Hermann I.

Distinctions Drawn

In a nutshell, the issue boiled down to this:

. . . the Memorial opinion held that ERISA does not preempt state law claims for negligent misrepresentation when the 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.” . . .

In contrast, Hermann I held that when the insured is covered at least in part by an ERISA plan, ERISA preempts state law claims for negligent misrepresentation if the “hospital seeks to recover benefits owed under an ERISA plan to a plan participant who has assigned her right to benefits to the hospital.” Id. (citing Hermann I, 845 F.2d at 1290).

And so:

. . . when the claim concerns the existence of a patient’s coverage, Memorial controls, and when the claim concerns the extent of a patient’s coverage, Hermann I controls.

Here, since the issue was the existence of coverage ab initio, Tenet prevailed.

So the state law claim was allowed to proceed, but ran aground, as noted above, based upon an effective disclaimer and, not discussed here, other problems, not the least of which was a statute of limitations bar.

Note: Frequently an opinion draws upon a common fact pattern and engages various legal claims and defenses with sufficient context and analysis as to serve as a good practice guide and an educational tool.  This case strikes me as one of those.

The lesson for claims administrators is clear enough I suppose, and the use of disclaimers should by all means be examined in light of the opinion.  On the other hand, due diligence requires more than reliance on boilerplate language and slightly different facts could lead to a different outcome.

Claim For Benefits – The claim for benefits under ERISA was denied.  Given the discretion conferred on the plan administrator, the court had little difficulty in affirming the denial:

UniCare’s interpretation of the Plan provisions in denying Tenet’s claim was correct and, even if incorrect, was reasonable and not an abuse of discretion. The Managed Care Agreement clearly and unequivocally provides that “[Tenet] shall accept the rates set forth in this Agreement as payment in full for all Covered Services provided to Members pursuant to this Agreement.” . . . There is no ambiguity in the Managed Care Agreement: If an individual is not a Member, that individual is not entitled to receive Covered Services under the Managed Care Agreement. Moreover, UniCare’s decision was supported by concrete evidence in the administrative record.

Plan Information Requests – Tenet’s claims for plan information, even as an assignee, were ineffectual:

The Fifth Circuit, however, has distinguished between the “rights of a beneficiary as referred to in ERISA, to receive covered  medical services or reimbursement, and one entitled to receive payment as an assignee of such a beneficiary.” Hermann Hosp. v. MEBA Medical and Benefits Plan, 959 F.2d 569, 576 (5th Cir. 1992).   An assignment of a right to payment does not convert Tenet into a “beneficiary” for purposes of standing to sue under § 1132(c). Because Tenet is not a plan participant or a beneficiary, it has no right to review Sylvester’s Plan documents under § 1024(b)(2), and therefore cannot recover civil penalties under § 1132(c)