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Bristol Anesthesia Services, P.C. v. Carilion Clinic Medicare Resources, LLC

United States District Court, E.D. Tennessee, Greeneville

March 30, 2018




         This 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 disposition.


         Plaintiff 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].

         MajestaCare 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].

         MajestaCare 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].

         As of 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].

         Bristol 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 ¶ 47].[1] 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.]

         Bristol 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].[2] 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.].


         a. Breach of Implied-in-Fact Contract

         Tennessee 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 contract.”

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).

         Bristol 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, 239.09.[3]

         MajestaCare, 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].

         In 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 26, 2014?
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 separately.

         i. Before claims readjudication: July 9, 2012 - August 26, 2013

         The 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.

         It is 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].

         Regardless 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 ...

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