Gordon Surgical Grp. v. Empire HealthChoice HMO, Inc.

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Gordon Surgical Group, P.C. et al., Plaintiffs, v. Empire Healthchoice HMO, Inc. et al., Defendants.

No. 21-CV-4796 (GHW) (KHP)

United States District Court, S.D. New York

December 7, 2023

TO THE HONORABLE GREGORY H. WOODS, United States District Judge

REPORT AND RECOMMENDATION ON MOTION TO DISMISS

KATHARINE H. PARKER United States Magistrate Judge

This action is brought by three affiliated general surgery providers, Gordon Surgical Group, P.C., Premier Medical Associates of the Hudson Valley LLP, and Northern Westchester Surgical Associates, LLP (collectively “Plaintiffs”), challenging the refusal of Empire Healthchoice HMO, Inc. and Empire Healthchoice Assurance, Inc. (collectively, “Defendants”), to fully reimburse Plaintiffs for surgical services they provided to Defendants' members and subscribers (“Members”) from 2015 through 2020 (the “Relevant Period”). Plaintiffs seek redress under the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. (“ERISA”) and state law.

Before me for a Report and Recommendation is Defendants' Motion to Dismiss the Second Amended Complaint (“SAC”) pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons stated below, I respectfully recommend that the motion be GRANTED.

BACKGROUND

1. Facts Alleged in the SAC^[1]

Plaintiffs were three affiliated general surgery medical providers based in the Hudson Valley, New York. (SAC ¶ 1.)^[2] During the Relevant Period, Plaintiffs provided surgical services to patients with emergency medical conditions who required surgical treatment at various Hudson Valley hospitals, including patients who are Members of Defendants' health insurance plans (the “Plans”) or beneficiaries of those Plans. (Id. ¶¶ 2, 31.)

Plaintiffs have not joined Defendants' “provider networks,” and are therefore considered “out-of-network” or “non-participating” providers. (Id. ¶¶ 10-11.) Pursuant to Defendants' agreements with their Members, when Members receive treatment from out-ofnetwork providers such as Plaintiffs, Defendants are obligated to reimburse the Member or provider at an out-of-network rate that is established by the relevant Plan. (Id. ¶ 13.) Plaintiffs routinely received authorization from Defendants to provide medical services to Members and received assignments of benefits from Members to permit Plaintiffs to bill Defendants directly and receive payment from them. (Id. ¶ 14.) However, Defendants regularly failed to reimburse Plaintiffs - in many cases, at all, and in other cases, at the appropriate rate - for surgical services that Plaintiffs provided to Members. (Id. ¶ 15.)

Through this litigation, Plaintiffs seek full reimbursement of their charges for medically necessary health care services provided to 126 patients (the “Patients”), as set forth in 291 individual medical claims (the “Medical Claims”). (Id. at Ex. 1.)^[3] The Medical Claims at issue are governed by 72 different Plans. (Supplemental Sirota Decl. Ex. B, hereinafter “Exhibit B.”)^[4]

Of the 72 different Plans at issue, the majority are governed by ERISA (hereinafter, “ERISA Plans”), but certain Plans are not governed by ERISA (hereinafter, “non-ERISA Plans”).^[5]Of the 291 Medical Claims at issue, 208 Medical Claims pertaining to approximately 85 different Patients are governed by ERISA Plans. The remaining 83 Medical Claims, pertaining to approximately 40 different Patients, are governed by non-ERISA Plans. (Id.; Opp. 20.) Twenty of the 291 Medical Claims, pertaining to 10 different Patients, are governed by 6 Plans for which Defendants assert they are not the plan itself or the “plan administrator.” According to Plaintiffs, five of these are ERISA Plans and one is a non-ERISA Plan.^[6]

Copies of the Plans are available on the docket at ECF No. 66, except as to those 6 Plans for which Defendants assert they are not the plan itself or the “plan administrator,” and 2 other Plans that Defendants were unable to find copies of. The parties agree that the Court may consider the Plan documents here, because these documents are integral to the SAC. See Pro. Orthopaedic Assocs., PA v. 1199 Nat'l Benefit Fund, 2016 WL 6900686, at *1 (S.D.N.Y. Nov. 22, 2016), aff'd, 697 Fed.Appx. 39 (2d Cir. 2017).

For each Patient, Plaintiffs obtained Plan information before or during treatment indicating that the Patient was covered by one of Defendants' Plans that permitted the Patient to be treated by an out-of-network provider and provided that Defendants would reimburse the cost of such services. (SAC ¶¶ 33-37.) In connection with non-emergency treatment Plaintiffs provided to Members, Plaintiffs obtained pre-authorizations from Defendants, which often were confirmed in writing by Defendants. (Id. ¶¶ 48-49.) The Patients always executed assignments of benefits that purported to assign, among other things, the benefits that the Patients were entitled to receive under their Plan. (Id. ¶¶ 50-53.) Pursuant to the terms of the assignments of benefits, Plaintiffs billed Defendants for the medical services they provided to Members. (Id. ¶ 54.) When submitting bills to Defendants, Plaintiffs informed Defendants that the Patients had authorized, and Plaintiffs had accepted, these assignments of benefits. (Id. ¶ 55.) However, in response to these bills, Defendants “paid Plaintiffs nothing or paid Plaintiffs far below the rate purportedly set forth by the Plans or state or federal law.” (Id. ¶ 56.)

Plaintiffs attempted to enter a meaningful dialogue with Defendants to obtain proper payment for outstanding Medical Claims, but these discussions were unsuccessful. (Id. ¶¶ 57-62.) Defendants have consistently refused to provide necessary information to Plaintiffs to help resolve these issues, including the reasons for the denial or underpayment of Medical Claims. (Id. ¶ 63.) However, Defendants have provided “vague letters and promises of proper payment” and “endless requests and re-requests for documents supporting the claims.” (Id. ¶ 64.) After Plaintiffs commenced this lawsuit, Defendants asserted that at least 38 of the Plans at issue contain anti-assignment provisions that preclude Members from assigning their rights to Plaintiffs. (Id. ¶ 67; Sirota Decl. Ex. B.) One hundred and twenty-six of the Medical Claims at issue are governed by Plans containing anti-assignment provisions. Of these, 84 are governed by ERISA Plans and 42 are governed by non-ERISA Plans. The SAC alleges that many of the antiassignment clauses contain applicable exceptions, or alternatively, that Defendants waived the terms of the anti-assignment clauses. (Id. ¶¶ 68-79.)

The SAC asserts seven causes of action. Count One asserts that Defendants breached the terms of its ERISA Plans by failing to reimburse Plaintiffs in violation of ERISA § 502(a)(1)(B), as codified in 29 U.S.C. § 1132(a)(1)(B), and 29 C.F.R. § 2590.715-719A(b)(3)(i)(A)-(C), and Plaintiffs seek to recover unpaid and underpaid benefits pursuant to ERISA § 502(a)(1)(B). Count Two asserts that Defendants have failed to provide a full and fair review of the benefit claims, to disclose information relevant to appeals, and to comply with applicable claim procedure regulations and seeks declaratory and injunctive relief to remedy these failures pursuant to ERISA § 502(a)(3), as codified in 29 U.S.C. § 1132(a)(3).

The remaining counts are asserted under state law with respect to all Medical Claims governed by all Plans. Count Three is for breach of express contract and asserts that Defendants breached their obligations to their Members under the Plans to properly pay Plaintiffs and that through the assignments of benefits Plaintiffs obtained the right to enforce the contracts between Defendants and Members. Count Four is for breach of implied contract and asserts that implied-in-fact contracts arose between Defendants and Plaintiffs regarding the provision of, and payment for, the health care that Plaintiffs provided to Members based on the parties' course of dealing and that Defendants breached their obligations under these implied contracts by failing to pay Plaintiffs. Count Five is for unjust enrichment and asserts that Defendants were unjustly enriched by not properly paying Plaintiffs. Count Six is for tortious interference with the contractual relationships that Plaintiffs maintained with Patients who were Defendants' Members. Count Seven is for breach of third-party beneficiary contract rights and asserts that Defendants are liable to Plaintiffs for breaching their contracts with Members. For their state law claims, Plaintiffs seek compensatory and punitive damages.

2. Procedural History

Plaintiffs filed the initial complaint in this action on June 1, 2021 and filed an Amended Complaint on February 25, 2022. (ECF Nos. 1, 35.) On April 14, 2022, the Court set the deadline for fact discovery as September 30, 2022, and scheduled a settlement conference to occur in October 2022. (ECF No. 41.) The parties then began to exchange documents, including relevant Plan documents and claim denial letters. On July 14, 2022, Plaintiffs provided Defendants with an amended list of Medical Claims.

On September 27, 2022, the parties submitted a letter stating that Defendants intended to move to dismiss the amended complaint and that the parties “agreed it would be most efficient to stay discovery until a decision is rendered on Defendants' motion to dismiss.” (ECF No. 47.) In lieu of staying discovery, the Court extended the fact discovery deadline to December 19, 2022. (ECF No. 48.) On October 19, 2022, following an unsuccessful settlement conference with the parties, the Court set a briefing schedule for the motion to dismiss. (ECF No. 49.) The Court subsequently adjourned that briefing schedule in light of Plaintiff's request to file an amended...