Biomed Pharmaceuticals Inc. v. Oxford Health Plans (n.Y.) Inc.

775 F.Supp.2d 730

BIOMED PHARMACEUTICALS, INC., Plaintiff,

v.OXFORD HEALTH PLANS (N.Y.), INC., Defendant.

No. 10 Civ. 7427(JSR).

United States District Court, S.D. New York.

July 5, 2011.

Michael Joseph Dillon, McDermott, Will & Emery, LLP, New York, NY, Steven Elliot Siff, McDermott Will & Emery LLP, Miami, FL, for Plaintiff.Michael H. Bernstein, Elizabeth Richer Chesler, John T. Seybert, Sedgwick, Detert, Moran & Arnold, LLP, New York, NY, for Defendant.

MEMORANDUM

JED S. RAKOFF, District Judge.

On September 28, 2010, defendant Oxford Health Plans (N.Y.), Inc. (“Oxford”) ¹ removed the above-captioned action from New York State court. On October 12, 2010, plaintiff Biomed Pharmaceuticals, Inc. (“Biomed”) filed an Amended Complaint, which Oxford moved to dismiss on October 28, 2010. On February 17, 2011, the Court issued a Memorandum Order concluding that Biomed had both constitutional and statutory standing to pursue its claims and granting Biomed leave to amend its complaint one last time. On March 1, 2011, Biomed filed a Second Amended Complaint asserting the following causes of action: violation of ERISA [§ 502(a)(1)(B) ], 29 U.S.C. § 1132(a)(1)(B) (Count One); first violation of ERISA [§ 502(a)(3) ], 29 U.S.C. § 1132(a)(3) (Count Two); second violation of ERISA [§ 502(a)(3) ], 29 U.S.C. § 1132(a)(3) (Count Three); third violation of ERISA [§ 502(a)(3) ], 29 U.S.C. § 1132(a)(3) (Count Four); and commercial defamation/slander per se (Count Five ²). On March 21, 2011 Oxford moved to dismiss Counts Two through Five of the Second Amended Complaint. Following a full round of briefing and oral argument, the Court issued an Order on April 19, 2011 granting Oxford's motion in its entirety and dismissing Counts Two through Five, with prejudice. This Memorandum explains the reasons for the Court's decision.

The facts as alleged in Biomed's Second Amended Complaint are as follows. Oxford is an insurer that offers employee welfare health plans. 2d Am. Compl. ¶ 6. Oxford's Point–of–Service (“POS”) plans allow members, for a higher premium, the choice of going in-network or out-of-network for care. Id. ¶ 7. Oxford has contracted with United Stainless & Alloys/Solutions in Stainless to provide an employee welfare benefit plan (the “Plan”) through Oxford's POS option. Id. ¶ 8. The Plan is subject to the requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C.A. §§ 1001 et seq. (“ERISA”). Id. Under the Plan, Oxford has discretionary authority to make all benefit determinations and to pay benefits, and is therefore the Plan Administrator. Id. ¶ 9.

The instant dispute concerns a minor Patient (the “Patient”) whose father is a Plan participant and who is himself a covered dependent (or beneficiary) under the Plan. Id. ¶ 10. The Plan requires the Patient to pay an annual deductible of $1,000 and 30% coinsurance towards the cost of services rendered by out-of-network providers (“ONPs”). Id. ¶ 11. However, the Patient's coinsurance expenditures for such services are limited to $4,000 per year, and once that maximum is reached, the Plan covers 100% of the allowable cost of covered services. Id. Thus, the Patient's total financial exposure for out-of-network care during a given year is $5,000. Id.

The Patient suffers from hemophilia, a chronic bleeding disorder that requires the regular administration of large doses of a “clotting factor” on short notice. Id. ¶ 13. The Patient previously received medication from a “Prior Pharmacy,” an in-network provider with Oxford. Id. ¶ 23. Pursuant to a financial hardship policy, the Prior Pharmacy waived the portion of charges for which the Patient was responsible. Id. When the Prior Pharmacy refused to provide Patient with medication during one life-threatening incident, the Patient requested the assistance of Access Pharmaceuticals, Inc. (“Access”), an ONP. Id. ¶¶ 24–25. After this incident, the Patient used Access as its principal provider. Id.

On October 5, 2007, Access was acquired by Biomed, an ONP of intravenous and injectable medications for patients with chronic medical conditions. Id. ¶ ¶ 14, 26. After Biomed acquired Access, it learned that Access had granted a financial hardship waiver to the Patient. Id. ¶ 28. Biomed honored the waiver through the end of 2007. Id. Patient requested a similar waiver for 2008, which Biomed evaluated pursuant to its standard evaluation procedure. Id. ¶¶ 29–34. Based on this evaluation, Biomed “waived the Patient's coinsurance and deductible charges—i.e. $5,000, the Patient's maximum out-of-pocket expense under the Plan-for 2008. In other words, because of the Patient's financial hardship, Biomed forgave the $5,000 it was directly owed by the Patient in 2008.” Id. ¶ 36. Biomed also granted the Patient financial hardship waivers in 2009 and 2010. Id. ¶ 37. When the Patient received medicine and services from Biomed, rather than pay Biomed first and then collect from Oxford, he assigned “all of [his] rights” under the Plan to Biomed. Id. ¶ 16 (citing Ex. C ¶ 5). However, this assignment did not relieve the Patient from his obligation to pay Biomed for services rendered. Id. ¶ 17. Oxford has dealt directly with Biomed since 2007. Id. ¶ 22.

On March 28, 2008, Jacqueline Rivera from Oxford's Special Investigation Unit conducted an audit of 17 covered individuals receiving services from Biomed, including the Patient. Id. ¶ 40. Ten of the covered members had applied for financial hardship waivers. Id. ¶ 41. Following this audit, Oxford continued to pay all claims in full except for Patient's. Id. ¶ 45. For services provided to Patient on and after April 11, 2008, Oxford reduced its payment to Biomed by 30%—the amount of “coinsurance application” under the Plan for Out–of–Network Providers' services. Id. ¶ 48. “However, Oxford did not discontinue this reduction after it had withheld $5,000 in benefit payments. Instead, [it] took the position that the Patient never reached his annual maximum out-of-pocket coinsurance amount of $4,000 (which amount was waived by Biomed pursuant to its financial hardship policy), which meant that Oxford could continue to reduce all benefit payments to the Patient indefinitely—and avoid its obligation to pay 100% of all claims once the out-of-pocket maximum was met.” Id.

Biomed was “not adequately notified of this reduction, nor the reasons for Oxford's decision to cut its benefit payments.” Id. ¶ 52. When Biomed became aware of the reduction, it contacted Oxford and attempted to reconcile the claims. Id. On July 9, 2009 Biomed filed a written appeal of the claim reduction. Id. By letter dated August 3, 2009, Susan Cervero, an Oxford Claims Project Manager, informed Biomed that as an ONP it had no right to appeal. Id. ¶ 62. Biomed responded by-letter, dated August 25, 2009, informing Oxford that it was appealing as the assignee of the Patient; by letter dated September 25, 2009, Oxford denied Biomed's right to appeal. Id. ¶ 63. However, on September 28, 2009, Rivera requested certain documentation from Biomed concerning the Patient's financial and medical status. Id. ¶ 67. She made a similar request on October 1, 2009. Id. ¶ 68. On April 21, 2010, Oxford's counsel wrote:

In light of the recent evidence of collection of patient responsibility and the adoption of a formal hardship policy you provided me, we will no longer be reducing any of your client's claims by an additional amount of patient responsibility. However, we believe that our past reductions for [Patient] were justified since no out of pocket maximum was ever reached so we will not be paying anything additional on past claims.

Id. ¶ 73 (citing Exhibit D). Consequently, “Oxford reduced its payment for medically necessary services to [the] Patient by at least $1,506,695.87 ... during the period from April 11, 2008 through April 21, 2010.” Id. ¶ 82. Biomed claims it is entitled to the benefits improperly withheld by Oxford under ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B). Id. ¶ 116.

In addition to this claim for benefits, Biomed asserts four other claims. First, Biomed claims that Oxford's review process for out-of-network claims did not meet ERISA standards for a full and fair review; “[i]n fact, Oxford's process did not provide any meaningful review even though Biomed explicitly stated that it was appealing as the Patient's authorized representative.” Id. ¶ 100 (emphasis removed). See also id. at ¶ 88–100. Specifically, Biomed alleges that Jacqueline Rivera was involved in Oxford's initial decision to audit Biomed's collection practices, its decision to reduce payment to Biomed, and its decision to deny Biomed its right to appeal on behalf of the patient. Id. ¶ 120. Biomed therefore claims that Oxford violated 29 C.F.R. § 2560.503–1(h)(3)(ii) by failing to provide for a review conducted by an appropriate fiduciary of the Plan who is not the same individual who made the initial determination, and for failing to provide a review that does not afford deference to the initial adverse benefit decision. Id. ¶¶ 118–119.

Second, Biomed claims that Oxford failed to provide notice of its adverse benefits determination in violation of 29 C.F.R. § 2560.503–1(g). Id. at p. 20; ¶ 124. For example, Biomed alleges that “[b]oth Oxford's Remittance Advices that accompanied payments to Biomed and [Explanation of Benefits (“EOBs”) ] provided to the Patient failed to provide adequate notice of the specific reason for denying claims; failed to adequately explain the specific reasons for the reduction in payment in a manner calculated to be understood by the claimant; and failed to adequately explain the adjustment codes.” Id. ¶ 92.

Third, Biomed claims that Oxford “failed as Plan Administrator because of additional contradictory or inconsistent positions with respect to the Patient's coverage under the Plan—positions that are ... tailored to benefit Oxford at the expense of the beneficiary.” Id. ¶ 83. Specifically, Biomed...