United States District Court, E.D. Tennessee, Greeneville
AMENDED MEMORANDUM OPINION AND ORDER
RONNIE GREER, UNITED STATES DISTRICT JUDGE.
matter is before the Court following a bench trial in this
case, which took place on September 26th and 27th of 2017.
Following the proceedings, the parties were instructed to
file proposed findings of fact and conclusions of law with
the Court by January 5, 2018. Bristol Anesthesia filed its
proposed findings with the Court on January 5, 2018, [Docs.
124 and 125], and MajestaCare replied, [Doc. 136].
MajestaCare also filed its proposed findings on January 5,
2018, [Doc. 127], to which Bristol Anesthesia replied, [Doc.
128]. This matter is now ripe for review and final
Bristol Anesthesia Services, P.C. (“Bristol
Anesthesia” or “BAS”) is a medical practice
formed and located in Tennessee that provides anesthesia
services to patients at various healthcare facilities,
including Bristol Regional Medical Center
(“BRMC”). [Doc. 124 ¶ 1]. From approximately
July 2012 through December 2014, Carilion Clinic Medicare
Resources, d/b/a MajestaCare (“MajestaCare”), a
for-profit Virginia managed care organization
(“MCO”), provided health insurance coverage to
Virginia Medicaid participants, [Doc. 127 ¶¶ 1, 2],
pursuant to a contract with the Virginia Department of
Medical Assistance Services (“DMAS”). MajestaCare
was paid a capitated rate by DMAS for each enrollee and
MajestaCare was responsible for payment of medical claims
submitted by providers for medical care, including anesthesia
service provided to Medicaid enrollees. DMAS required
MajestaCare to pay providers at least the amount established
by a DMAS rate schedule or other negotiated rate. DMAS rates
are generally less than that of standard private billing
rates. [Doc. 124 ¶ 80].
entered into contracts with various healthcare providers
throughout Virginia and northeastern Tennessee to provide
services to Virginia Medicaid participants. These providers
comprise MajestaCare's “network.” [Doc. 127
¶¶ 3-4]. Some of MajestaCare's
“network” providers have privileges or provide
care at BRMC, a facility for which Bristol Anesthesia was the
exclusive anesthesia provider. [Doc. 127 ¶ 25]. When
MajestaCare patients were treated at BRMC and other
healthcare centers in Tennessee, Bristol Anesthesia provided
anesthesia services to MajestaCare's patients through
Bristol Anesthesia's contracts with those healthcare
centers. Bristol Anesthesia was never in MajestaCare's
approved provider network, and did not enter into any written
contract with MajestaCare regarding rates for its services,
nor was Bristol Anesthesia under any contract with DMAS to
provide services to Virginia Medicaid enrollees. [Doc. 127
¶ 27; Doc. 124 ¶ 18]. Medicaid insureds, including
MajestaCare members, are sometimes covered for services
provided by providers who are “out of network, ”
or do not have a contract with the Medicaid plan. [Doc. 127
¶ 9]. Bristol Anesthesia provided anesthesia services to
MajestaCare's patients from about July 2012 to November
2014, when the MajestaCare plan ceased to operate.
[Id. ¶ 52; Doc. 124 ¶ 30].
contracted with Aetna to manage the plan as a third-party
administrator and to negotiate contracts with providers.
Aetna's responsibilities included setting up the billing
system and processing, adjudicating, and paying claims. [Doc.
127 ¶5; Doc. 124 ¶ 14]. Aetna developed an
algorithm to calculate the appropriate payment for anesthesia
services such as those provided by Bristol Anesthesia.
Anesthesia claims are billed in “base units” and
“time units.” [Doc. 127 ¶ 13]. Time units
are measured in fifteen-minute increments in Northeast
Tennessee. [Doc. 124 ¶ 45]. The total number of units
for a particular procedure is then multiplied by a
“conversion factor, ” expressed in dollars. [Doc.
127 ¶ 15]. The DMAS regulated conversion factor was
$12.84 per unit from 2012 to 2014. [Id. ¶ 17;
Doc. 124 ¶ 72]. From July 2012 until August 26, 2013,
Bristol Anesthesia billed MajestaCare for anesthesia services
on a per unit basis at their standard billing rate based on
the American Society of Anesthesiologists' Relative Value
Guide. [Doc. 124 ¶¶ 46, 75, 92; Defendant's
Trial Exhibit 62]. In the absence of a contract to bill
a certain rate, Bristol Anesthesia bills all patients the
same amount. [Testimony of Kimberly Hilton, Trial
Transcript Vol. II at 137]. MajestaCare paid for these
services, in full or in part, based on the algorithm
developed for the plan by Aetna, which used the DMAS
reimbursement rate schedule for anesthesia units. [Doc. 127
¶ 40; Doc. 124 ¶¶ 90-114].
January 1, 2012, federal regulations required that anesthesia
services be reported in minutes rather than
“units.” [Doc. 127 ¶ 34]. When Aetna
developed the algorithm for anesthesia services, Aetna failed
to change the calculation from “units” to minutes
as required by the changed regulations. [Id. ¶
35]. MajestaCare states that its “mistake” in the
algorithm “resulted in minutes being calculated as if
they were time units (15-minute increments), in turn
resulting in the time unit used to adjudicate claims being 15
times greater than it should have been.”
[Id.]. As a result, MajestaCare claims that it made
overpayments to Bristol Anesthesia as well as other providers
of anesthesia services. By late October 2013, the mistake had
been noticed and corrected in the algorithm, and MajestaCare
began re-adjudicating claims. [Id. ¶ 47].
MajestaCare “sent out corrected remittance advices
re-adjudicating past reimbursement claims, and applying
overpayments to newly submitted reimbursement claims to
resolve overpayments.” [Id. at ¶ 50].
MajestaCare informed Bristol Anesthesia of the alleged
overpayments between July 9, 2012 and August 26, 2013, and
its intention to recoup the overpaid amount. [Doc. 124 ¶
125; Doc. 127 at ¶ 41; Defendant's Trial
Exhibits 51, 52].
Anesthesia claims that in the first 13 and a half months,
before payments were re-adjudicated, MajestaCare paid 46.4%
of Bristol Anesthesia's billed charges. [Doc. 124 ¶
114]. MajestaCare, however, claims that it paid only 41.2% of
the amounts billed by Bristol Anesthesia prior to the
re-adjudication. [Doc. 127 ¶ 40]. Beginning on August
27, 2013, MajestaCare began applying a “Q”
modifier which resulted in a 50% discount to claims submitted
by anesthesiology practices where Certified Registered Nurse
Anesthetists (“CRNAs”) were involved in
performing anesthesiology services. [Id. at ¶
Between the months of August, 2013, and the closure of the
MajestaCare plan in November of 2014, Bristol Anesthesia
continued to submit bills to MajestaCare for reimbursement in
the same manner and at the same rates as before.
[Id. at ¶¶ 51-52]. Some of the claims
MajestaCare approved for payment were approved at the rate of
$6.42 a unit or less, because it applied the Q-modifier when
services for which “Bristol Anesthesia sought
reimbursement was directly performed by a CRNA employed by
BRMC and not Bristol Anesthesia.” [Id. ¶
51]. Any amount approved during the dates of August 27, 2013
and November 26, 2014 was not paid to Bristol Anesthesia, but
was credited to the balance which MajestaCare claimed Bristol
Anesthesia owed for the previous overpayments. [Id.]
Anesthesia brought suit against MajestaCare for breach of
implied-in-fact contract, quantum meruit, and
wrongful recoupment, seeking compensatory damages of $368,
393.70, the difference between Bristol Anesthesia's
standard billing amount and the rate actually paid by
MajestaCare. [Complaint at ¶ 35]. MajestaCare
brought a counterclaim for unjust enrichment and restitution
based on the same facts as described above. [Doc. 44].
MajestaCare states that when it discovered the mistake, it
had made overpayments of $94, 623.33, and has recouped only
$15, 847.93. [Doc. 127 at 19]. MajestaCare therefore claims
that it is entitled to judgment for the outstanding amount of
$78, 775.40. [Id.].
Breach of Implied-in-Fact Contract
law recognizes two types of implied contracts, those
implied-in-fact and those implied-in-law. Angus v. City
of Jackson, 968 S.W.2d 804, 808 (Tenn. Ct. App. 1997).
Implied-in-fact contracts arise under “circumstances
which show mutual intent or assent to contract” between
the parties. Givens v. Mullikin, 75 S.W.3d 383, 407
(Tenn. 2002) (quoting Angus, 968 S.W.2d at 808). An
implied-in-fact contract requires mutual assent,
consideration, and a lawful purpose. Id.
An express oral contract and a contract implied in fact are
very similar with the primary difference between them being
the manner in which the parties manifest their assent.
“In an express contract, the parties assent to the
terms of the contract by means of words, writings, or some
other mode of expression. . . . In a contract implied in
fact, the conduct of the parties and the surrounding
circumstances show mutual assent to the terms of the
Thompson v. Hensley, 136 S.W.3d 925, 930 (Tenn. Ct.
App. 2003) (quoting River Park Hospital, Inc. v.
BlueCross BlueShield of Tennessee, Inc., 2002 WL
31302926 at *10 (Tenn. Ct. App. Oct. 11, 2002)). Such
surrounding circumstances and additional facts that manifest
mutual assent of an implied contract include course of
dealing and continued performance. See Le-Jo Enterprises,
Inc. v. Cracker Barrel Old Country Store, Inc., 2013 WL
6155622 at *8 (Tenn. Ct. App. Nov. 20, 2013).
Anesthesia argues that MajestaCare breached an
implied-in-fact agreement between the parties beginning in
November, 2013, when MajestaCare began “unilaterally
paying Bristol Anesthesia for its services at substantially
lower rates in accordance with the Medicaid fee-for-service
rate schedule set by DMAS.” [Complaint, Doc. 1
at 7]. Bristol Anesthesia argues that the parties'
behavior during the first six months of their relationship
demonstrates mutual assent. [Doc. 124 at 28]. Specifically,
because MajestaCare paid the claims that Bristol Anesthesia
submitted based on the billed rates for a period of at least
six months, this sufficiently creates an implied contract by
performance. [Id.]. Bristol Anesthesia claims that,
during the first six months of the parties' relationship,
MajestaCare paid 82.7% of the billed charges, and for that
reason, MajestaCare is liable for 82.7% of Bristol
Anesthesia's total billings. [Doc. 96]. Bristol
Anesthesia asserts that its total billed charges amounts to
$605, 535.00, and 82.7% of that figure is $500, 777.45, which
it claims under an implied-in-fact contract theory.
[Id.]. Because MajestaCare has previously paid $114,
538.36 before recoupments, however, Bristol Anesthesia claims
that this reduces the damages on Count I to $386,
however, argues that there was no meeting of the minds
between the parties to pay Bristol Anesthesia's
“full, standard billing rates for anesthesia
services.” [Doc. 127 at 11]. In support of its claim of
lack of mutual assent, MajestaCare states that it was not
paying Bristol Anesthesia its full billed charges, but
instead basing its payments on the DMAS conversion factor.
[Id.]. Further, it argues that the inadvertent
payments, “calculated without regard to Bristol
Anesthesia's billings whatsoever … do not manifest
an agreement to pay Bristol Anesthesia its billed
charges.” [Id. at 12]. MajestaCare further
argues that even if the parties' performance amounted to
an implied-in-fact contract, “their post January 25,
2013 performance, with no objection whatsoever from Bristol
Anesthesia, amended that contract to reflect reimbursements
based on the $12.84 conversation factor, units based on the
Procedure Fee File, and a correct calculation of anesthesia
time units.” [Doc. 127 at 12].
considering the implied contract claim, the Court must view
the payment scheme and behavior between the parties in two
time periods. The first time period at issue begins on the
date of the inception of the relationship between the parties
in July of 2012, and continues through August 26, 2013. This
is the time period when MajestaCare consistently paid based
on its initial algorithm, and MajestaCare eventually
readjudicated all claims during this time. The second time
period begins on August 27, 2013, and continues until the end
of the parties' relationship on November 26, 2014. Donna
Littlepage, current President of MajestaCare, testified at
trial as follows:
Q: What is the significance of August 27, 2013 to November
A: That's where the payment, the claims adjudication
software system had been corrected to correct the algorithm
and apply a Q modifier both; so now there's no
intervention needed, the claims could just go through and pay
on their own.
[Trial Transcript Vol. II at 14]. MajestaCare
summarized the data for all claims for MajestaCare patients
treated by Bristol Anesthesia into Defendant's Trial
Exhibit 62, which uses this date delineation. Bristol
Anesthesia did not object to this exhibit as a summary of the
data. [Id. at 5]. Therefore, the Court has found
sufficient evidence in the record that these date ranges are
accurate, and that the two time periods should be analyzed
Before claims readjudication: July 9, 2012 - August 26,
first patient treated by Bristol Anesthesia under the
MajestaCare plan incurred charges on July 9, 2012. Dr.
William Smith, an anesthesiologist and president of Bristol
Anesthesia, testified that Bristol Anesthesia physicians
treat patients without regard to insurance provider or
ability to pay [Trial Transcript Vol. I. at 29], and
set their billing rates according to the Relative Value
Guide. [Id. at 32]. Bristol Anesthesia treated
patients who were enrolled in the MajestaCare MCO plan at
BRMC. The rate Bristol Anesthesia charged on MajestaCare
claims was the same amount that it bills for all patient
claims. [Testimony of Kimberly Hilton, Trial Transcript
Vol. II. at 137-138]. MajestaCare paid these billed
charges based on the DMAS schedule, but using the algorithm
which did not account for the fifteen minute time unit
conversion. [Doc. 127 at ¶¶ 33-42]. In some cases,
this resulted in a full payment of the charges billed by
Bristol Anesthesia. In some other cases, MajestaCare only
reimbursed a portion of the charges billed for anesthesia
services. See Plaintiff's Trial Exhibit 24;
Defendant's Trial Exhibit 64.
undisputed that the parties were operating under no written
contractual agreement during this time period. An expert on
the operation and practices of Virginia MCOs testified that,
in the absence of a contractual agreement, MCOs would be
required to “pay the fee that was charged, the billed
charges, because they don't have a contract to pay a
different amount if they authorize that service[.]”
[Testimony of MacGregor Gould, Trial Transcript Vol.
II at 78]. However, Patrick Brosnan, the interim Chief
Executive Officer at MajestaCare during this dispute,
testified that it is “standard practice” for
Virginia MCOs to reimburse bills at the Virginia DMAS fee
schedule, and include any modifiers that might discount the
reimbursement rate, [Trial Transcript Vol. I at
182], and that Bristol Anesthesia accepted such rates without
complaint. [Id. at 176-77]. The agreement between
Virginia DMAS and MajestaCare provides that
“out-of-network claims must be paid in accordance with
the Medicaid fee schedule[.]” [Id. at 154;
Defendant's Trial Exhibits 34, 35, and 36;
Plaintiff's Trial Exhibits 13, 14, and 15].
of what MajestaCare now claims it should have paid Bristol
Anesthesia, however, MajestaCare submitted payment at a set
rate, without any modifiers, for thirteen months. Bristol
Anesthesia accepted these payments when they were received,
and there is no evidence that it ever contested the amount it
received from MajestaCare. In fact, Bristol Anesthesia's
practice manager testified that she did not know that
MajestaCare “had anything to do with Medicaid”
until she received the recoupment notices. [Trial
Transcript Vol. II at 184]. Therefore, Bristol
Anesthesia had no reason to expect that the reimbursed
amounts it was receiving from MajestaCare were incorrect. At
trial, Kimberly Hilton, the practice manager for Bristol
Anesthesia, testified as follows:
Q: Prior to receiving notice of the readjudications and then
getting remittances showing that readjudicated claims, at no
point prior to that did Bristol Anesthesia challenge the
reimbursements that it has received from MajestaCare, right?
A: That's correct.
Q: You accepted them as … for what ...