TMA Backs Hospitals' Claims for Millions
Law Feature – August 2012
Tex Med. 2012;108(8):47-49.
By Crystal Conde
Associate Editor
The Texas Supreme Court is weighing a case that one attorney says "will set a precedent for how insurance companies deal with hospitals and physicians when it's time to pay claims."
The Texas Medical Association filed an amicus curiae brief supporting the hospitals in the lawsuit, Christus Health Gulf Coast, et al v. Aetna, et al. The case pits Christus Health Gulf Coast; Christus Health Southeast Texas, Gulf Coast Division, Inc.; Memorial Hermann Hospital System; and Baptist Hospitals of Southeast Texas against Aetna.
The hospital systems, which own and operate more than 20 hospitals in the Houston area, sued Aetna 12 years ago over its use of a delegated network that became insolvent. Aetna used North American Medical Management of Texas (NAMM) to administer its NYLCare 65 Medicare plan and process and pay claims for services. It also contracted with IPA Management Services to provide physician care to patients. Both entities served as Aetna's delegated network.
The hospitals say they provided Aetna's enrollees more than $13 million in services before NAMM announced it was insolvent on Aug. 11, 2007, and neither Aetna nor NAMM paid them. They argue Aetna should be responsible for the claims its network failed to pay. The hospital systems lost at the trial and appellate court levels and now hope to win in the Supreme Court.
TMA's brief says that despite its use of a delegated network, Aetna remains responsible for paying the hospitals' claims under various state laws. TMA asked the Supreme Court to reverse the Fourteenth Court of Appeals finding and send the case back to the lower court for a ruling.
The appeals court determined that Aetna wasn't liable under Texas' Prompt Pay Act for NAMM's failure to pay the hospitals because Aetna had not signed a separate contract with any of the hospitals. The TMA brief says that is “a significant legal misstep” because the lack of a contract is “legally inconsequential” in this case. It added that the appeals court's decision "allowed Aetna to hide behind its delegated network” and avoid its own duty under the law to pay the hospitals for services they provided to Aetna enrollees.
"In short, allowing the court of appeals' opinion to stand serves no one except the health insurer itself and insurance-related entities," TMA said.
Hospitals vs. Aetna
Houston attorney Scott Clearman, who represents all four hospital systems, says the court of appeals also misinterpreted the HMO Act.
Houston attorney Scott Clearman, who represents all four hospital systems, says the court of appeals also misinterpreted the HMO Act.
The hospitals argue that misinterpretation granted Aetna "a $13 million windfall at the hospitals' expense because they contracted with and submitted their claims to NAMM and Management Services, which were part of Aetna's delegated network, and not Aetna itself."
The hospitals contend the court also excused HMOs from abiding by the prompt pay statute, a decision they say provides "a blueprint for HMOs to avoid liability to hospitals and other providers for services rendered to their enrollees."
They stress the decision "threatens the rights of hospitals and other providers to know they will be paid for covered services they render and, more importantly, threatens the ability of Texas residents who are covered by HMOs to obtain hospital services."
Aetna's attorneys contend the prompt pay statute "does not shift one company's contractual liability to an entirely unrelated company." They say Aetna was not involved in NAMM's contracts with the hospitals and never agreed to pay the claims. They add the prompt pay statute "only penalizes an HMO that actually received a claim from the provider that was clean in all respects. Here none of those things apply: no contract, no receipt, and no clean claims." They stress the delegated network is the "proper prompt pay defendant" and that an HMO isn't liable for the network's "failure to live up to its own provider contracts."
Under their contracts with Aetna's delegated network, the hospitals asked Aetna to pay claims submitted before NAMM's Aug. 11, 2000, insolvency. Mr. Clearman says Aetna refused but did offer to pay claims submitted after Aug. 17, 2000.
"Aetna hired a middleman that under Aetna's lack of supervision started grinding to a halt because it was running out of money. Aetna had a responsibility to monitor NAMM and should have noticed it was failing. But after NAMM entered into receivership, 6,600 claims to the tune of more than $13 million just sat there; Aetna never paid them," Mr. Clearman said.
Should the Texas Supreme Court rule against the hospitals, Mr. Clearman says his clients would be out of legal options. If the court grants his clients' request, he says, the case would go back to the trial court for a judgment, and Aetna likely would appeal. Mr. Clearman says the justices could award the hospitals the more than $13 million they billed the delegated network plus more than 5-percent annual interest.
The Texas Supreme Court's decision in Christus v. Aetna will have major implications on physicians and health care professionals, Mr. Clearman says.
"The recognition by TMA of this fact and its counsel's support for the prompt pay statute and the delegated network statute is critical. Hopefully, it will strengthen the position of my clients before the court," he said.
Past Case Sets Good Precedent
The hospitals battling it out with Aetna in the courts have a 2007 decision in a similar case on their side. TMA and hundreds of Texas physicians prevailed in a four-year legal dispute over PacifiCare's contention that it shouldn't be responsible for unpaid claims by contracted independent practice associations (IPAs).
State District Judge John Dietz ruled in August 2007 – the same month NAMM declared insolvency – that when an HMO signs a delegation agreement, it "may not avoid its ultimate liability for the delegated entity's failure to comply with the applicable statutes and regulations" and remains subject to state insurance code requirements "for prompt payment of providers for services rendered."
The order covered Fort Worth-based Medical Select Management, Dallas-based Heritage Southwest Medical Group PA, and San Antonio-based Quantum Southwest Medical Associates. The three IPAs declared bankruptcy after failing to pay tens of thousands of claims. PacifiCare agreed to a settlement in bankruptcy court concerning each of the companies.
Physicians who agreed to the bankruptcy settlements received a certain percentage of what PacifiCare owed them. Those who opted out of the settlement and remained with TMA in the lawsuit stood to benefit from Judge Dietz’ decision, with the potential to recover millions in unpaid insurance claims.
Houston-based Heritage Physician Network (HPN) was the one delegated entity that avoided bankruptcy. In 2005, physicians received 100 percent of their HPN contractual rates from PacifiCare, approximately $3 million. The next year PacifiCare paid the attorneys' fees and costs of the litigation for this part of the case.
After extensive mediation, the remaining parties, including 76 practice groups and individual physicians located primarily in the Dallas/Fort Worth area, agreed to settle for confidential amounts. "The PacifiCare litigation has been resolved," said Ken Johnson, a Houston attorney who represented TMA and its member physicians in the lawsuit.
Insurers Need to "Play Fair"
Mr. Johnson now represents several hundred Dallas/Fort Worth physicians in another district court case against Aetna involving facts similar to those in Christus v. Aetna. His clients contend Aetna's delegated network never paid them for several thousand claims totaling millions of dollars.
The outcome of Christus v. Aetna likely will affect the physicians' case, which has been litigated for nearly a decade.
"If the Supreme Court sides with Aetna,” Mr. Johnson said, "it is likely the hospitals and my physician clients will get nothing for the care and treatment provided to Aetna's insureds. If the court sides with the hospitals, the case goes back to the district court, and the hospitals will have a chance to get paid, which means my clients will have an excellent shot at prevailing in their case."
He says both his case and Christus v. Aetna address unfair and illegal payment practices among insurance companies.
"How the court interprets these cases is important. The insurance industry needs to understand that it has to play fair and that hospitals and physicians are willing to take action to get them to do the right thing," he said.
Mr. Johnson says TMA's support of the hospitals in Christus v. Aetna helps his clients.
"TMA is speaking up and letting the court know that this decision doesn't just affect hospitals. It affects physicians all across the state. The outcome of this case will set a precedent for how insurance companies deal with hospitals and physicians when it's time to pay claims," he said.
Crystal Conde can be reached by telephone at (800) 880-1300, ext. 1385, or (512) 370-1385; by fax at (512) 370-1629; or by email.
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