According to the express language of the Plan, “Billed charges [“the amount a Provider charges for services rendered”] may be different from the amount that [Blue Cross] determines to be the Maximum Allowable Charge for services.”

Regency Hosp. of Cincinnati v. Blue Cross Blue Shield of Tenn., 2009 U.S. Dist. LEXIS 37111 (S.D. Ohio May 1, 2009)

This provider reimbursement case illustrates several hazards for the health care provider that warrant careful attention.

First, as always, “verification” calls are always less valuable than they first appear. Verification of what? (Rarely will you find a verification of “payment”).

Second, the language of assurance can be complex. In this case, as the excerpt reveals, a promise to pay the “maximum allowable charge” is far less of a commitment that it may appear.

Third, estoppel will be unavailable in most cases to backstop errors – at least where plan language is clear enough (and the plan administrator will get a pass in many cases based upon a discretionary clause).

The Facts

Regency, a provider of long term acute care hospital services, became embroiled in a dispute over a purported verification of eligibility or coverage, or both – the opinion is ambigous on this point.

The patient, Fogelson,  was insured under a health plan issued by Blue Cross to Fogelson’s employer.  Prior to her admission, Regency telephoned Blue Cross “to verify Fogelson’s coverage” and “to pre-certify her treatment.”

Regency alleged that a Blue Cross representative “confirmed Fogelson’s eligibility.”  Later, Regency again called Blue Cross to “verify Fogelson’s coverage”, and Regency alleges that Blue Cross again “confirmed Fogelson’s eligibility”. Relying on this information, Regency provided services to Fogelson “without arranging alternate payment provisions from her.”

This Call Is Being Recorded

An interesting aspect of this case is that the conversations were recorded and the recordings used as evidence.

Resolution of this case is eased considerably due to the existence of a tape recording of the conversation between the parties where Blue Cross’s representations about coverage are expressly memorialized. The recording eliminates any genuine issue of material fact. And the tape recording entirely disproves Regency’s claims and affirms Blue Cross’s defense.

As the recording of the conversation between Blue Cross and Regency reflects, Regency asked if it would receive “usual and customary rates,” i.e., “UCR” rates, and, in response, Blue Cross expressly told Regency that “the Plan pays Maximum Allowable Charge rates.” In that same call, Blue Cross also expressly told Regency that there was a maximum lifetime benefit of $ 1,000,000.

The Litigation

Regency filed a state law action alleged breach of implied contract and estoppel.  Blue Cross removed the case and moved for summary judgment.  At the time the case was resolved, Regency had not amended its complaint to state a case for equitable estoppel under ERISA common law principles, but the Court removed any doubt that Regency had no estoppel case under state or federal law.

The Case For Preemption

Blue Cross argued that Regency’s state law claims are pre-empted by ERISA.  Moreve, Blue Cross contended that Regency could not assert a breach of contract claim and has not pled a cognizable claim for equitable estoppel.

The Court agreed.

Negligent Misrepresentation Claim Rejected

Regency attempted a circumvention of the preemption argument by contending that it did not bring its claims seeking to enforce the terms and conditions of any health benefit plan.  Rather, Regency argued, it based its claim for recovery of its damages for detrimental reliance based upon the words and actions of Blue Cross.

Regency maintains that “ERISA does not preempt state law 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.” See Miami Valley Hospital v. Community Ins. Co., 2006 WL 2252669 *7 (S.D. Ohio, August 7, 2006) (Rose, J.) (quoting Transitional Hosps. Corp. v. Blue Cross & Blue Shield of Tex., Inc., 164 F.3d 952, 954 (5th Cir. 1999)).

The Court rejected this argument, stating that:

However, Transitional Hospital also held that “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 rights to benefits to the hospital.” See Transitional Hosps., 164 F.3d at 954 (emphasis added).

Moreover, the Sixth Circuit has also held that ERISA preempts such estoppel and breach of contract claims. In Cromwell v. Equicor-Equitable HCA Corp., 944 F.2d 1272 (6th Cir. 1991), the Sixth Circuit stated that “ERISA preempts state law and state law claims that “relate to” any employee benefit plan as that term is defined therein.” Cromwell, 944 F.2d at 1275 (citing 29 U.S.C. Sec. 1 144(a) and Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987)). As such, the Sixth Circuit has specifically stated that equitable estoppel and promissory estoppel are expressly preempted. Cromwell, 944 F.2d at 1276.

ERISA Estoppel Principles Unavailing Regency asserted that even if its state law claims were preempted by ERISA, it could maintain an estoppel claim under ERISA. The Court also rejected this argument since the plan language was not ambiguous. Equitable estoppel under ERISA is not available to override the clear terms of plan documents. Sprague v. General Motors Corp., 133 F.3d 388, 404 (6th Cir. 1998) (en banc). “(A)lthough equitable estoppel may a viable theory in ERISA cases, principles of estoppel cannot be applied to vary the terms of unambiguous plan documents; estoppel can only be invoked in the context of ambiguous plan provisions.” Putney v. Medical Mutual of Ohio, ILL Fed. Appx. 803, 807 (6th Cir. 2004) (citing Sprague, 133 F.3d at 404). “Consequently, a claimant must plead plan ambiguity in this Circuit to state a claim for estoppel relative to an ERISA claim for benefits.” Marks v. Newcourt Credit Group, Inc., 342 F.3d 444, 456 (6th Cir. 2003). The Plan Language Was Not Ambiguous The Court observed that Regency did not assert that plan language was ambiguous, nor that equitable estoppel should apply to assist with the interpretation of the Plan language. Thus, absent some pleading that the Plan language itself is ambiguous and requires interpretation, the Court finds that Regency fails to plead a threshold element of ERISA-based equitable estoppel. Note: The elements of equitable estoppel in the Sixth Circuit are: (1) a representation of fact made with gross negligence or fraudulent intent; (2) made by a party aware of the true facts;  (3) intended to induce reliance or reasonably believed to be so intended; where the party asserting the estoppel is (4) unaware of the true facts; and (5) reasonably or justifiably relies on the representation to his detriment. Trustees of the Mich. Labors’ Health Care Fund v. Gibbons, 209 F.3d 587, 591 (6th Cir. 2007). The court observed that Sixth Circuit authority holds that reliance will seldom be considered reasonable if counter to the express terms of the plan. From the opinion, one can see that an allegation of ambiguity is necessary to properly state a claim for equitable estoppel. Diagnostic Grouping Rates –The language of MAC can be foreign to the provider but it is an important language to learn. On the first bill of $ 29,078.81, $ 23,022.33 was disallowed for inclusion within the Maximum Allowable Charge because, pursuant to the Plan, the charge exceeded the Diagnosis Related  Grouping Rate. This disallowance left an allowed amount of $ 6,056.48. After deducting Ms. Fogelson’s $ 200 co-pay, Blue Cross properly paid 100% of the $ 5,856.48 balance.On the second bill of $ 213,648.07, $ 190,401.69 was disallowed for inclusion within the Maximum Allowable Charge because, pursuant to the Plan, the charge exceeded the Diagnosis Related Grouping Rate. This disallowance left an allowed amount of $ 23,246.38. After deducting Ms. Fogelson’s $ 200 co-pay, and $ 3,902.40 in co-insurance, 2 Blue Cross properly paid 100% of the $ 19.143.98 balance