On July 31, 2018, the U.S. Court of Appeals for the Fifth Circuit weighed in on a five-year out-of-network payment dispute between Aetna Life Insurance Co. (Aetna) and North Cypress Medical Center (NCMC), a physician-owned hospital in Houston, following a bench trial on NCMC’s Employee Retirement Income Security Act of 1974 (ERISA) claims and a jury trial on Aetna’s fraud and negligent misrepresentation claim.  The court affirmed the district court’s ruling dismissing (i) NCMC’s underpayment claims based upon ERISA and Texas law, and (ii) Aetna’s counterclaims alleging NCMC defrauded Aetna and misrepresented its billing practices to Aetna by waiving patient responsibility amounts under NCMC’s prompt pay discount program. 

In affirming dismissal of NCMC’s ERISA underpayment claims, the Fifth Circuit observed that NCMC did not identify any claim that Aetna allegedly underpaid.  The court concluded that Aetna paid NCMC’s claims according to the “reasonable and customary amount” as defined in the plan language.  NCMC argued that it could not establish the damages (i.e., the underpayments) because Aetna did not produce in discovery sufficient information to describe Aetna’s out-of-network reimbursement methodology.  The court disagreed, noting that Aetna disclosed the formula applied to claims in the relevant time period, which included calculating payment at the 80th percentile for NCMC’s geographic region for outpatient claims and, for other claims, applying the cost-to-charge ratio NCMC submitted to Medicare.

Aetna’s counterclaims alleging that NCMC defrauded Aetna arose from NCMC’s prompt pay discount program.  Under the program, if the patient paid the patient’s responsibility amount within 120 days, NCMC discounted the remaining balance.  If prompt payment was not made, NCMC reversed the discount and billed the patient for the full Chargemaster amount.  NCMC reported to Aetna its Chargemaster prices on UB-04 forms.  The forms indicated a “prompt pay discount” under the “Remarks” portion of the UB-04 forms.  NCMC also periodically sent letters to Aetna advising it of NCMC’s prompt pay discount program. 

The Fifth Circuit found that “Aetna could not have justifiably relied on any misrepresentation by NCMC.”  Aetna closely scrutinized and investigated NCMC’s prompt pay discount program but closed its investigations after concluding that NCMC did not waive deductibles, co-insurance or any co-payment amounts or otherwise engage in fraud.  The court highlighted Aetna’s scrutiny of NCMC’s prompt pay discount program in upholding the district court’s dismissal of these claims.  The investigations Aetna performed reveal “Aetna knew the exact information it alleges NCMC failed to disclose:  the rate at which patients paid NCMC for services.”  Such knowledge precluded Aetna from showing it justifiably relied on a misrepresentation made by NCMC – one of the elements of a fraud claim under Texas law.

The outcome of the case was that neither NCMC nor the health plan prevailed, prompting the Fifth Circuit in its opinion to refer to the case as “a virtual stalemate.” 

The case is North Cypress Medical Center Operating Company, Ltd. v. Aetna Life Insurance Co., 16:20674 (5th Cir. 2018) and the Fifth Circuit’s opinion is available here.