U.S. court dismisses out-of-network providers' complaints against insurer

November 14, 2008

A group of out-of-network providers cannot pursue claims against a health insurance company pursuant to the federal Racketeer Influenced and Corrupt Organizations Act or the Employee Retirement Income Security Act based on allegations that the company illegally denied or reduced payments for services the providers rendered to the company's insureds, a federal district court ruled September 30.

This material originally appeared in the October 31, 2008, issue of Health Lawyers Weekly, a publication of the American Health Lawyers Association (www.healthlawyers.org).

A group of out-of-network providers cannot pursue claims against a health insurance company pursuant to the federal Racketeer Influenced and Corrupt Organizations Act (RICO) or the Employee Retirement Income Security Act (ERISA) based on allegations that the company illegally denied or reduced payments for services the providers rendered to the company’s insureds, a federal district court ruled September 30.

The U.S. District Court for the Southern District of Ohio dismissed the plaintiff-providers’ RICO claims against the insurer upon finding them to be preempted by the McCarran-Ferguson Act, 15 U.S.C. § 1101 et seq., which essentially leaves insurance business regulation to the states.

The court also dismissed the providers’ ERISA claims based on its conclusion that the providers had failed to exhaust their administrative remedies under ERISA prior to bringing their lawsuit.

Plaintiff Riverview Health Institute LLC and other co-plaintiffs are out-of-network providers of healthcare services that do not maintain any provider agreements with health insurance carriers. In other words, plaintiffs operate exclusively on an out-of-network basis, taking compensation for their services “by direct patient payments [or] private insurance proceeds, to the extent of patient insurance coverage that allows for ‘out-of-network’. . . hospital services,” the court explained.

Plaintiffs allege that defendant Medical Mutual of Ohio (Medical Mutual) committed RICO violations by systematically delaying, diminishing, or denying payment of claims submitted by them on behalf of the company’s insured patients “through a scheme or artifice, utilizing the U.S. Mail.”

In addition, plaintiffs contend that, via use of the U.S. Mail, Medical Mutual acted unlawfully and inaccurately to underestimate and reduce the “usual, customary and reasonable” amounts due to them, and that it inappropriately bundled the provider services and procedures.

Medical Mutual argued the McCarran-Ferguson Act preempted plaintiffs’ RICO claims because allowing such claims to proceed would substantially disrupt the state’s comprehensive scheme for the business of insurance under Ohio Rev. Code Title 39.

Agreeing with Medical Mutual, the district court concluded plaintiffs’ RICO claims “would frustrate the administrative regime of the state of Ohio” in relation to health insurance regulation.

“Ohio has created an administrative regime to oversee the insurance industry and demands exhaustion of this regime’s remedies before allowing one to pursue a private action,” the district court said. “Thus, all pertinent case law directs this Court to dismiss Plaintiff’s RICO claims.”

The district court also concluded that dismissal was warranted with respect to plaintiffs’ ERISA claims based on alleged denial of benefits to Medical Mutual’s insureds.

The court agreed with Medical Mutual’s argument that plaintiffs’ ERISA claims must be dismissed because plaintiffs did not exhaust administrative remedies established under the ERISA plans pursuant to which they asserted their claims, and because the ERISA plans at issue prohibited assignment.

Although it is “well settled” that ERISA plan beneficiaries must exhaust administrative remedies prior to bringing a suit for recovery on an individual claims, the district court said, this exhaustion requirement “is excused when resort to the administrative procedures is futile or an inadequate remedy.”

In this case, however, plaintiffs alleged insufficient facts to support such a futility argument, the district court concluded. “While Plaintiffs describe some efforts to obtain payments from Medical Mutual of Ohio, there are no allegations detailing any efforts to pursue administrative remedies under any of the ERISA plans,” the court said. “Indeed, no ERISA plans are even identified in the complaint.”

“Because Plaintiffs’ failure to exhaust administrative remedies is sufficient grounds for dismissing Plaintiff’s [ERISA claims], [this] Court need not consider the ramifications of any anti-assignment provision in the ERISA plans,” the court said.

Next, the district court declined plaintiffs’ request to amend their complaint to add, among other things, a claim for estoppel under federal common law.

Plaintiffs argued that Medical Mutual should be prohibited from relying on the anti-assignment provision in the ERISA plans at issue because the insurer had been paying claims that it believed had been assigned to plaintiffs for a number of years.

In rejecting this argument, the district court highlighted case law establishing that a federal common law claim for estoppel under ERISA may be invoked only “in the context of ambiguous plan provisions” and where the party asserting estoppel reasonably or justifiably relied on such a provision to his detriment.

The facts of this case did not meet these requirements, the district court explained, because the prohibition on assignment in the ERISA plans at issue was clear and unambiguous. As such, “plaintiffs’ federal estoppel claim would be futile,” the court said in denying plaintiffs’ motion to amend their complaint.

Finally, the district court declined to exercise supplemental jurisdiction over plaintiffs’ state law claims for breach of contract, common law fraud, and tortious interference with business relationships.

Riverview Health Inst. LLC v. Medical Mut. of Ohio, No. 3:07-cv-354 (S.D. Ohio Sept. 30, 2008).