County of Monterey v. Blue Cross of California

          ORDER DENYING MOTION TO DISMISS FIRST AMENDED COMPLAINT RE: DKT. NO. 58

          LUCY H. KOH United States District Judge.

         Before the Court is a motion to dismiss filed by Defendants Blue Cross of California dba Anthem Blue Cross and Anthem Blue Cross Life and Health Insurance Company (collectively, “Anthem”) seeking to dismiss the sole claim in Plaintiff County of Monterey dba Natividad Medical Center's (“Natividad”) first amended complaint (“FAC”). See ECF No. 58 (“Mot.”). Having considered the parties' briefs, the relevant law, and the record in this case, the Court DENIES Anthem's motion to dismiss the FAC.

         I. BACKGROUND

         A. Factual Background

         Natividad is a 172-bed acute care hospital owned and operated by the County of Monterey. ECF No. 57 (“FAC”) ¶ 3. On August 1, 2012, Anthem and Natividad entered into a Facility Agreement pursuant to which Natividad agreed to provide certain healthcare services to Anthem members and Anthem agreed to pay Natividad certain rates for those services. Id. ¶ 14.

         The Facility Agreement governs not only claims for Anthem's insureds, but also services claims for members of “Other Payors” for whom Anthem provides claims processing services and to whom Anthem has sold, leased, transferred or conveyed its “Managed Care Network.” Id. ¶ 14. Natividad alleges that these “Other Payors” include 32 ERISA Plans that Natividad has identified in its FAC. Id. ¶¶ 7, 15. The FAC alleges that these ERISA Plans entered into contracts with Anthem that required the ERISA Plans to comply with the terms of Anthem's contracts with providers in Anthem's Managed Care Network, including the Facility Agreement between Anthem and Natividad. Id. ¶ 18. Natividad also alleges that Anthem functions as the de facto plan administrator for the ERISA Plans because Anthem has, inter alia, (i) drafted and provided plan members with plan documents; (ii) operated a centralized verification and authorization telephone number which handled calls for members of the ERISA Plans; (iii) authorized Natividad to provide medical services to beneficiaries of the ERISA Plans; (iv) received and processed electronic bills from Natividad for claims for members of the ERISA Plans, including plans that are not named as defendants in the FAC; (v) communicated with Natividad on behalf of the ERISA Plans regarding authorization of surgical procedures; (vi) interpreted ERISA Plan language; (vii) issued remittance advices and EOBS; (viii) priced claims for the ERISA Plans; (ix) communicated with Natividad with respect to the processing of claims on behalf of the ERISA Plans; (x) processed appeals, and sent appeal response letters; and (xi) issued payment to Natividad. Id. ¶ 10.

         At the time Natividad and Anthem entered into the Facility Agreement, Natividad did not have its certification to provide trauma services. Id. ¶ 19. Therefore, the parties did not agree upon trauma rates. Id. Instead, the Facility Agreement contemplated that the parties would negotiate new trauma rates once Natividad obtained its certification. Id. On January 5, 2015, Natividad received its certification to provide trauma services and began providing trauma services. Id. ¶ 21. However, Natividad alleges that the parties' attempts to negotiate trauma rates after that date were unsuccessful. Id. ¶ 22. As a result, the FAC alleges that Anthem, on behalf of the ERISA Plans, has been improperly pricing trauma rates at the lower rates for emergency services in the Facility Agreement. Id. ¶¶ 22-24, 29-32. Specifically, the FAC alleges that “Natividad is informed and believes that Anthem has recommended and/or instructed the ERISA Plans to pay Natividad's trauma claims at the emergency services rates, and that the ERISA Plans are relying on and using Anthem's processing and pricing of the trauma claims at the emergency services rate to underpay the trauma claims.” Id. ¶ 29. The FAC alleges that the difference between Natividad's billed charges and the amounts that the ERISA Plans are paying for the trauma claims exceeds $18 million. Id. In many cases, Anthem has held Natividad's claims submissions in limbo without allowing or denying the claims. Id. ¶ 30. By paying the claims at the emergency services rate, the FAC alleges that Natividad is informed and believes that Anthem has improperly interpreted the ERISA Plan documents. Id. ¶ 31.

         Natividad alleges that it is an assignee of its patients' benefits under the ERISA Plans because “[a]s a condition of admission, every patient treated at Natividad signed an Assignment of Benefits form agreeing to, inter alia, assign his or her health insurance benefits to Natividad.” Id. ¶ 25. The assignment of insurance benefits provision states as follows:

I assign and authorize direct payment to the hospital of all insurance benefits payable for this hospitalization or for these outpatient services. I agree that the insurance company's payment to the hospital pursuant to this authorization shall discharge the insurance company's obligations to the extent of such payment. I understand that I am financially responsible for charges not paid according to this assignment.

Id. Natividad informed Anthem it was operating as an assignee of the patients in two ways. First, every claim submission to Anthem included a UB04 form, which indicates on Box 54 that the provider, Natividad, had an assignment of benefits from the member. Id. ¶ 26. Second, Natividad sent Anthem ERISA appeal letters which stated in the first paragraph: “With this appeal letter, we have included an Assignment of Benefits and Appointment of Authorized Representative from your Member to Natividad Medical Center.” Id. ¶ 27.

         The FAC alleges that after receiving the improper emergency services rate for the trauma claims, Natividad would send Anthem two appeal letters. Id. ¶ 38. The first appeal letter was sent directly to Anthem. Id. The first appeal letter informed Anthem that the arbitrator had found Natividad is owed 80% of its billed charges for all trauma claims and requested that Anthem re-price and re-process the claims at 80% of billed charges. Id. The FAC alleges that Anthem either failed to respond to these first appeal letters or improperly denied them. Id. Natividad would then send a second appeal letter to Anthem, but the letter would note that the appeal was made pursuant to ERISA based on an assignment of benefits that Natividad received from each member. Id. The second appeal letter specifically asked Anthem, in all capital letters, bolded and underlined, to provide the hospital with the ERISA Plan document for the plan at issue. Id. Natividad did not receive any plan documents from Anthem and only rarely received responses from the ERISA Plans themselves. Id. Natividad never received a response setting forth the specific plan provisions on which the determination was based. Id.

         In its capacity as an assignee of its patients' benefits, and based on the above described allegations, Natividad asserts one claim against Anthem for failure to pay plan benefits under the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1132(a)(1)(B). Id. ¶¶ 183-194. Specifically, Natividad “believes that ERISA Plans at issue in this case required Anthem and the ERISA Plans to pay Natividad customary and reasonable rates for the inpatient and outpatient trauma services that Natividad has provided to the ERISA Plan members.” Id. ¶ 192.

         Therefore, Natividad seeks compensatory damages and declaratory relief. Id. at 39. Specifically, Natividad seeks a declaration that it is “entitled to be paid a reasonable and customary amount for the trauma services it has provided, and is providing to the ERISA Plans, ” and that Anthem's “practice of pricing, processing, and paying Natividad's trauma claims at the emergency services rate in the Facility Agreement is improper.” Id.

         B. Procedural History

         Natividad filed its initial complaint on July 27, 2017. See ECF No. 1. On November 11, 2017, the Court stayed the case pending the parties' arbitration, which concerned the issue of the reasonable value of trauma services Natividad provided to Anthem members. ECF No. 29; FAC ¶¶ 33-35. However, because the arbitration concerned only Anthem's fully-insured members, it did not encompass the ERISA Plan claims at issue in this litigation. FAC ¶ 34.

         On August 10, 2018, the arbitrator issued the Final Arbitration award, which found that: (1) the parties did not agree that Natividad's claims were to be reimbursed at either the emergency services rate or Other Services rate; (2) having failed to agree on any rate to apply to Natividad's trauma services, the parties impliedly agreed that such services would be reimbursed at a reasonable value, which is fair market value; and (3) Natividad is awarded declaratory relief that the reasonable value of its trauma services provided to Anthem members is 80% of Natividad's billed charges. Id. ¶ 36. Anthem has since paid all trauma claims for its fully-insured members with dates of service through April 2018 at 80% of billed charges. Id. ¶ 37.

         On October 8, 2018, Anthem filed a motion to dismiss the initial complaint. ECF No. 37. Natividad opposed on October 22, 2018. ECF No. 41. Anthem replied on October 29, 2018. ECF No. 42.

         On January 24, 2019, at the initial case management conference, the Court lifted the stay and directed the Clerk to reopen the case file. ECF No. 50.

         On January 28, 2019, the Court granted Anthem's motion to dismiss the initial complaint without prejudice. ECF No. 52 (“January 28, 2019 Order”). Specifically, the Court found that Natividad's complaint failed to plead factual allegations with specificity and that factual allegations were missing from the complaint, “including the specific claims, dates, explanations of benefits, and the ERISA Plan provisions at issue.” Id. at 8. The Court further requested that “the parties meet and confer to assess whether claim numbers, patients numbers, or some other claim or patient identifiers could be used in public filings that would protect patient privacy, but enable the parties to identify the relevant claim or patient without sealing” and that “[u]sing such identifiers would minimize the sealing burdens on the parties and the Court in this case.” Id. at 9. The Court also found that Natividad's complaint insufficiently alleged standing and that Natividad needed to allege the specific language of the assignment of benefits. Id. at 9-11. In its motion to dismiss briefing, Natividad did not contest its failure and instead argued that it could “easily cure any deficiency by quoting the language of its assignment of benefits and/or attaching a sample assignment of benefits to any amended complaint.” Id. at 11. Finally, the Court found that Natividad's complaint failed to sufficiently allege that Anthem is a de facto plan administrator because Natividad did not specifically identify the ERISA Plans or claims at issue, and thus “the related allegations about how Anthem controlled or managed these ERISA Plans [were] necessarily vague and conclusory.” Id. at 11-13. The Court granted Natividad leave to amend to cure these deficiencies. Id. at 13-14.

         On February 26, 2019, the Court granted the parties' stipulation to extend Natividad's deadline to file its FAC. ECF No. 54. The Court also explained that the number of claims and ERISA Plans that Natividad intended to add to the FAC would be unmanageable. Id. Thus, the Court required the parties to elect 10 ...