On June 1, 2016, the United States District Court for the Southern District of Texas ordered Cigna to pay nearly $13.7 million to Humble Surgical Hospital, LLC (“Humble”).  Of the nearly $13.7 million, almost $11.4 million was for payment of out-of-network services provided by Humble.  The other $2.3 million was for Cigna’s bad faith and breach of fiduciary duties, together with attorney’s fees, pursuant to ERISA and Declaratory Judgment Act, for its failure to provide plan documents to Humble as the plan administrator under ERISA.  In the claims at issue, Cigna acted as an administrator for ERISA welfare benefit plans.

Humble opened in August 2010 as an out-of-network physician-owned hospital, but the physicians who performed surgeries at Humble and referred patients to Humble were typically in-network.  From August 2010 until October 2010, Cigna processed most of Humble’s claims through repricing entities based on negotiated repricing agreements between Humble and the entities.  The repricing entities generally negotiated Humble’s claims based on the usual and customary rate (“UCR”).  However, in October 2010, Cigna determined that Humble’s claims were for exceedingly large dollar amounts and redirected incoming Humble claims to its Special Investigations Unit (“SIU”) to be processed and paid.  Cigna justified this action by alleging that Humble’s claims were inflated to hide kickback payments to physicians and that Humble was consistently waiving the patients’ cost-sharing responsibilities for the services provided.  Thus, apparently from December 2010 to April 2014, Humble’s claims remained largely unpaid in the SIU. 

Cigna initially filed the lawsuit on November 7, 2013, against Humble.  Cigna sought recovery of overpayments in $5,121,137 that Cigna alleged resulted from Humble’s fraudulent practices of routinely waiving patients’ financial responsibility and paying kickbacks to physician owners of the hospital for allwaivinegedly unlawful referrals.  Cigna alleged claims for equitable relief under ERISA § 502(a)(3) based on lien by agreement, the “tracing” method, injunction, declaratory judgment and state law.  Cigna further alleged claims for fraud, negligent misrepresentation and violation of the state’s anti-kickback statutes. 

Humble filed a counterclaim seeking to recover payment on 595 claims for services provided to patients under plans administered by Cigna beginning October 2010 until March 25, 2014.  Humble alleged that as the patients’ assignee, it was entitled to reimbursement for services provided to patients pursuant to ERISA.  Humble sought a declaratory judgment that it properly submitted all claims to Cigna, did not engage in fraud or misrepresentation in seeking benefits from Cigna, billed Cigna properly pursuant to the UCR or Cigna’s maximum reimbursable charge formulation (“MRC”), properly disclosed its out-of-network status to prospective patients and was entitled to a full and fair review of its claims.

In its June 1 ruling, the District Court held that Cigna’s claims for reimbursement of overpayments under ERISA and common law failed as a matter of law and that Cigna’s defenses to Humble’s counterclaims failed.  The Court also held that Humble was entitled to a declaratory judgment under ERISA § 502(a)(3)(b), damages under ERISA § 502(a)(1)(B) because Cigna abused its discretion “in its unwarranted interpretation of the MRC and/or terms of the plans” and penalties under ERISA § 502(c)(1)(B) for Cigna’s bad faith and breach of fiduciary duties for its failure to provide plan documents, together with attorney’s fees.  See Cigna et al. v. Humble Surgical Hospital, LLC, Civ. Action No. 4:13-CV-3291 (S.D. Tex. June 1, 2016).

A copy of the District Court’s opinion is available here.

Reporter, Kate Stern, Atlanta, +1 404 572 4661, kstern@kslaw.com.