Health Law Daily Claims for late payment penalties dismissed, state law preempted
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Wednesday, July 19, 2017

Claims for late payment penalties dismissed, state law preempted

By Jeffrey H. Brochin, J.D.

Claims by Houston Methodist Hospital (Methodist) against Humana Insurance Company (Humana) for late payment penalties under the Texas Prompt Payment of Physicians and Providers Act (TPPA) were dismissed due to preemption of the TPPA by federal law, a federal district court in Texas has ruled. Humana’s motion for partial summary judgment was granted because Methodist’s claims arising under Medicare Advantage (MA) were preempted by the Medicare Act, and claims based on fully-insured Employee Retirement Income Security Act (ERISA) health plans were preempted by the federal statute. (Houston Methodist Hospital v. Humana Insurance Company, July 17, 2017, Lake, S.).

Background. Methodist and Humana have long been parties to hospital participation agreements in which Methodist provides 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 Medicare Advantage (MA) health care plans and fully insured ERISA health care (ERISA) plans. On April 22, 2016, Methodist asserted a demand for arbitration seeking over $15,000,000 in statutory penalties for alleged violations of the TPPA.

In May 2016, Humana filed to enjoin arbitration and moved for declaratory judgment, asserting that not all of Methodist's claims were subject to arbitration. In June 2016, Methodist filed its answer along with counterclaims for breach of contract and violations of the Texas Insurance Code based on alleged failure to timely pay for services in violation of the TPPA, and requested declaratory judgment that Methodist's TPPA claims were not preempted by federal law.

Claims arising under MA plans preempted. Under the MA program, CMS contracts with HMOs and other private entities to provide health care services to Medicare enrollees, and the entities entering into MA contracts with CMS are referred to as MA organizations. The Medicare Act contains an express provision regarding MA plans which states: "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."

The court noted that the 2003 amendment to the Medicare Act 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." Based on the foregoing, Humana argued that Methodist’s TPPA claims arising from MA plans were preempted by the Medicare Act, and the court concurred, holding that the TPPA was not a state law which merely regulated arrangements—as Methodist contended—but rather, was a state law with respect to HMOs and insurers who provided exclusive provider benefit plans including MA plans.

ERISA plan claims preempted. The court next considered whether Methodist’s claims based on ERISA plans were also preempted by federal law. Humana argued that Methodist's TPPA claims arising from fully insured ERISA Plans were preempted by ERISA because the TPPA "relates to" ERISA Plans, the TPPA was not saved from preemption, and if saved, the TPPA was nevertheless preempted because its statutory deadlines and late pay penalties conflicted with ERISA'S claim processing regulations.

Methodist countered that its TPPA claims against fully insured ERISA Plans were not preempted because a claim that implicates the timing of payment as set out in a provider agreement, rather than the right to payment under the terms of a benefit plan, is not expressly preempted. In addition, Methodist argued that its claims claims (a) did not relate to any ERISA plan; (b) did not directly affect the relationship among the traditional ERISA parties; and (c) did not conflict with ERISA.

Accordingly, the court found that because the TPPA and the claims that Methodist asserted thereunder satisfied the relevant tests of relation by addressing areas of exclusive federal concern and by directly affecting the relationship between traditional ERISA entities, they concluded that the TPPA related to the ERISA plan and that Methodist’s TPPA claims arising from fully insured ERISA plans were preempted by ERISA. Humana’s motion for partial summary judgment was granted, and Methodist’s claims for TPPA penalties were dismissed with prejudice.

The case is No. 4:16-cv-01469.

Attorneys: Richard Glenn Foster (Porter, Rogers, Dahlman & Gordon, P.C.) for Humana Insurance Co., Humana Military Healthcare Services, Inc. n/k/a Humana Government Business, Inc. and Humana Inc. Daniel K. Hedges (Porter Hedges LLP) for Houston Methodist West Hospital and Houston Methodist Sugar Land Hospital, San Jacinto Methodist Hospital, Houston Methodist St. John Hospital and Houston Methodist St. Catherine Hospital.

Companies: Humana Insurance Co.; Humana Military Healthcare Services, Inc. n/k/a Humana Government Business, Inc.; Humana Inc.; Houston Methodist West Hospital; Houston Methodist Sugar Land Hospital; San Jacinto Methodist Hospital; Houston Methodist St. John Hospital; Houston Methodist St. Catherine Hospital

MainStory: TopStory CMSNews BillingNews PartCNews PreemptionNews ProviderNews TexasNews

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