Often, medical providers end up agreeing to larger PPO discounts than they hoped to negotiate. Certain managed care organization are so large that non participation is not a viable option. However, the most unpleasant scenario is when large discounts are extended but the managed care organization does not live up to the terms of what the provider might consider a MCO-favorable agreement.
Legally, providers should feel confident taking a breach of contract to court. It seems apparent that if a document exists stipulating the reimbursement rates and payment terms, remittances which demonstrate a pattern of underpayment or late payment would surely lead to a quick, favorable judgment for the provider. However, one of the complications of pursing such lawsuits is the question of how ERISA affects litigation between providers and managed care organizations. Traditionally, medical providers have met with a number of obstacles to litigation including court decisions which imply that the majority of insurance disputes fall under ERISA and can only be pursued in federal court by the beneficiary. However the following three cases are very beneficial to providers who find themselves contemplating litigation over a managed care breach of contract:
Pascack Valley Hospital, Inc, Community Health Center v. Local 464A URCW Welfare Reimbursement Plan (New Jersey) – Pascack Valley Hospital initiated a lawsuit claiming a managed care organization breached its contract by not paying within the agreed-upon thirty day processing period. Because of the alleged failure to timely pay, Pascack was seeking full payment of billed charges rather than discounted payments. The Plan sought removal from state court to federal court on the basis of ERISA’s broad preemption of state law claims. The U.S. Court of Appeals, 3rd District, ruled in June, 2004, that Pascack Valley Hospital had the right to pursue a breach of contract against the health benefit plan in state court. The court stated that coverage and eligibility were ERISA questions but were not in dispute in this particular situation. Instead, the lawsuit focused on the Subscriber Agreement, not the Plan. The Hospital’s right to recovery, if it exists, depended entirely on the operation of a third-party contract executed by the plan (the provider contract) which was independent of the plan itself and could therefore be decided at the state level.
Blue Cross of California v. Anesthesia Care Associates Medical Group, Inc. (California) – Anesthesia Care filed suit against Blue Cross of California for allegedly changing the fee schedule. The Ninth Circuit Court ruled the dispute should be heard in state court, not federal, because “the dispute here is not over the right to payment, which might be said to depend on the patients’ assignments to the providers, but the amount, or level of payment, which depends on the provider agreements.”
Orthopaedic Surgery Associates of San Antonio, P.A. v. Prudential Health Care Plan, Inc. (Texas) – Prudential allegedly paid Orthopaedic Surgery less than the agreed upon payments for certain procedures and sought to have the case reviewed in Federal Court under the ERISA preemption. The District Court remanded the case back to Texas, concluding that Prudential was incorrect in claiming ERISA pre-empted the breach of contract dispute.
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