Texas hospital's $58M lawsuit against BCBS gets second life

The Fifth Circuit Appellate Court has revived a Texas hospital's $58 million lawsuit against 16 independent insurers and claims administrators doing business under the Blue Cross and/or Blue Shield trademarks across the U.S. over alleged underpayments.

Here are 10 things to know about the lawsuit:

1. In 2012, Victory Medical Center-San Antonio (Texas), previously Innova Hospital San Antonio, sued the BCBS independent insurers and claims administrators in Texas state court. In the lawsuit, which was removed to federal court, the hospital alleged the insurers failed to reimburse it for covered claims or reimbursed it at significantly below applicable rates.

2. The insurers moved to dismiss the lawsuit for failure to state a claim, arguing the hospital needed to identify the provisions in specific plan documents that the insurers allegedly breached.

3. The case was administratively closed in early 2013 and reopened later that year after the parties failed to reach a settlement. The hospital filed a second amended complaint containing allegations relating to medical services provided in 863 separate instances to patients with benefit plans governed by either Employee Retirement Income Security Act plans or non-ERISA contracts. The complaint alleged more than $58 million in damages.

4. Victory Medical Center was an out-of-network provider, and the hospital alleged the insurers reimbursed it at an average rate of 11 percent, when they were required to reimburse out-of-network providers at 80 percent of "reasonable and customary" expenses after the deductible. Like the two prior complaints, the second amended complaint did not include the actual plan language from an ERISA or non-ERISA contract at issue.

5. The insurers once again moved to dismiss the case for failure to state a claim, arguing the second amended complaint failed the plausibility pleading standard because the terms of the various benefit plans were essential allegations not included in the complaint. The district court granted the motions to dismiss, reasoning that the hospital's second amended complaint was insufficient because it did not identify the specific plan provisions at issue. The hospital filed an appeal in the case.

6. On appeal, the hospital argued the district court's requirement that it plead specific plan language to survive the motion to dismiss conflicted with pleading requirements established in case law. According to the hospital, the district court created a "heightened pleading standard" by requiring the hospital to plead information that it did not have access to without the insurers' cooperation.

7. The appellate court agreed with the hospital's arguments. Citing case law, the appellate court said ERISA plaintiffs should not be held to an excessively burdensome pleading standard that requires them to identify particular plan provisions when it may be extremely difficult for them to access the plan provisions. The court also emphasized that the hospital was unable to obtain plan documents even after good-faith efforts to do so.

8. The appellate court held that the factual allegations in the second amended complaint allowed the court "to draw the reasonable inference" that the insurers are liable for the misconduct alleged. "We agree with the hospital that it pleaded sufficient facts in its second amended complaint to survive the insurers' motion to dismiss the claim for ERISA plan benefits," states the court's opinion.

9. The appellate court also held that the lower court erred in dismissing the hospital's breach of contract claim. "The hospital has alleged the existence of valid contracts (non-ERISA plans), performance by the hospital, breach of the contracts by the insurers, and damages in the form of underpayment or non-payment sustained as a result of the breach," states the court's opinion. "The hospital's second amended complaint adequately states a claim for breach of contract under Texas law."

10. The appellate court remanded the case to the district court for further proceedings.

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