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Emergency Medical Care Facilities, P.C. v. Bluecross Blueshield of Tennessee, Inc.

United States District Court, W.D. Tennessee, Eastern Division

June 5, 2015



J. DANIEL BREEN, Chief District Judge.


The Plaintiff, Emergency Medical Care Facilities, P.C. ("EMCF"), is a professional corporation comprised of physicians and healthcare workers, located in Jackson, Tennessee, that provides services at hospital emergency departments. Defendant BlueCross BlueShield of Tennessee, Inc. ("BCBSTN"), a corporation organized and doing business under the laws of the State of Tennessee, underwrites and administers health insurance to its enrollees in Tennessee. Defendant Volunteer State Health Plan, Inc. ("VSHP"), a wholly-owned subsidiary of Southern Diversified Business Services, Inc., which is a wholly-owned subsidiary of BCBSTN, operates as a TennCare HMO under the plan names BlueCare and TennCare Select.

TennCare is Tennessee's managed care system for state residents eligible for Medicaid. Chattanooga-Hamilton Cnty. Hosp. Auth. v. United Healthcare Plan of the River Valley Inc., No. M2013-00942-COA-R9-CV, 2014 WL 2568456, at *1 (Tenn. Ct. App. June 6, 2014), appeal granted (Oct. 23, 2014). Medicaid, established by an amendment to the Social Security Act, see 42 U.S.C. § 1396, et seq., is "a cooperative federal-state program through which the federal government provides financial aid to states that furnish medical assistance to eligible low-income individuals." Fuller ex rel. Smith v. Emkes, No. M2010-01590-COA-R3-CV, 2011 WL 2571537, at *4 (Tenn. Ct. App. June 28, 2011). States receiving funds under the Medicaid program are required to comply with relevant federal statutes and regulations. Id. In order to provide healthcare services to TennCare enrollees, managed care organizations ("MCOs") privately contract with healthcare providers and reimburse them at mutually agreed-on rates for medical services rendered. Chattanooga-Hamilton Cnty. Hosp. Auth., 2014 WL 2568456, at *1.

VSHP serves as an MCO for the western region of Tennessee, which includes Madison County, where Jackson is located. The State of Tennessee pays MCOs a per capita amount monthly to cover the cost of health coverage. River Park Hosp., Inc. v. BlueCross BlueShield of Tenn., Inc., 173 S.W.3d 43, 48 (Tenn. Ct. App. 2002). In return for this payment, the MCO must make it possible for medically necessary services to be provided to TennCare members. Id. If the MCO pays out less to providers than the total amount it receives in these payments, it turns a profit. Id. If it spends more on enrollee care than it receives from the state, the MCO must absorb the loss. Id. Thus, it is the MCO which bears the economic risk associated with the administration of healthcare services to those enrolled in TennCare. Id.

The relationships of MCOs such as VSHP with the Tennessee Bureau of TennCare are governed by contractor risk agreements. These contracts require that MCO provider agreements "incorporate[] by reference all applicable federal law and regulations and state laws, TennCare rules and regulations, consent decrees or court orders, and revisions of such laws, regulations, consent decrees or court orders shall automatically be incorporated into the provider agreement, as they become effective." at § A. MCOs must also "implement State Budget Reductions and Payment Reform Initiatives." Id. at § A.

To participate in the BlueCare network, providers are required to enter into a Group Practice Agreement (the "Agreement") and the BlueCare Attachment, as amended. An amendment to the BlueCare Attachment permits providers to also participate in the TennCare Select program and to render services to its members. Effective October 1, 2008, EMCF entered into the contracts, pursuant to which it became a participating provider in the BlueCare and TennCare Select programs. The BlueCare Attachment, as amended, stated that the provider would be compensated the lesser of the fee schedule or billed charges. Section Q thereof provided as follows:

The parties agree to recognize and abide by all applicable State and Federal laws, regulation, and guidelines.
In addition, all applicable Federal and State laws or regulations, and revisions of such laws or regulations shall automatically be incorporated by reference herein as they become effective. In the event that changes in the Group Practice Agreement, or this BlueCare Attachment, as a result of revisions in applicable Federal or State law materially affect the position of one or more parties, the parties agree to negotiate further Attachments as may be necessary to correct any inequities.

(D.E. 1-3 at PageID 173.)

In its fiscal year 2011-12 budget, the Tennessee General Assembly appropriated $1.8 billion for TennCare medical services. In making this allocation, the legislature authorized the Tennessee Commissioner of Finance and Administration "to impose service limitations, to reduce optional eligibility categories, mandate standardized reimbursement levels, and/or reduce, or limit, optional benefits in the TennCare Program as necessary to control program expenditures." (Id. at PageID 373 (2011 Tenn. Pub. Acts Ch. 473, § 48, Item 6).)

A notice was issued by VSHP on May 6, 2011 advising providers of rate reductions/reimbursement changes to be made by all TennCare MCOs as a result of the state fiscal year 2012 budget, including payments made to emergency department physicians. The changes included a $50 cap on reimbursement for non-emergency professional services performed in hospital emergency departments. In an updated notice issued December 6, 2011, providers were advised that "[w]hether or not [a hospital emergency department] visit is deemed emergent will be determined by looking at diagnosis codes 1 and 2 on the claim and cross referencing with the Medical Emergency Code List [on VSHP's website]." (Id. at PageID 241.) These notices, Defendants aver, constituted changes in state law that were automatically incorporated into the Agreement.

On August 13, 2014, the Plaintiff brought a putative class action against BCBSTN in the Circuit Court of Madison County, Tennessee, alleging breach of contract and breach of implied covenant of good faith under Tennessee law, and violation of Tennessee's prompt pay requirement under Tennessee Code Annotated §§ 56-32-109 and 56-7-105, et. seq. and of the Tennessee Consumer Protection Act, Tennessee Code Annotated § 47-18-101, et. seq. ("TCPA"). EMCF also sought declaratory judgment pursuant to Tennessee Code Annotated § 29-14-101, et seq.

An amended complaint was filed on January 6, 2015, in the state action, adding VSHP as a Defendant, dropping the prompt pay claim, and citing to federal law in support of Plaintiff's breach of contract and declaratory judgment claims. On January 29, 2015, the Defendants removed the action to this Court on the grounds that these claims presented federal questions falling within this Court's jurisdiction under 28 U.S.C. § 1331. Before ...

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