County of Monterey v. Blue Cross of California

Background

County of Monterey, doing business as Natividad Medical Center, sued Blue Cross of California, doing business as Anthem Blue Cross, and Anthem Blue Cross Life and Health Insurance Company. Natividad sought payment of benefits under Section 502(a)(1)(B) of the Employee Retirement Income Security Act, 29 U.S.C. § 1132(a)(1)(B), as the assignee of benefits from patients covered by ERISA plans.

Natividad and Anthem had a Facility Agreement governing payment rates for healthcare services. When they entered the agreement, Natividad was not certified to provide trauma services, so the agreement did not establish a permanent trauma-services rate. It stated that trauma services were reimbursable under the emergency-services rate and contemplated a new trauma reimbursement rate after Natividad obtained certification. Natividad obtained certification in January 2015, but the parties did not agree on a new rate during negotiations in 2014, 2015, and 2016. Anthem applied the emergency-services rate to the trauma claims.

The parties’ dispute involved ten representative claims, but Natividad later withdrew one. The court therefore addressed nine remaining claims involving eight ERISA plans. Natividad alleged that those plans incorporated the Facility Agreement and required payment at reasonable and customary rates. It sought compensatory damages and declaratory relief.

Cross-Motions for Summary Judgment

The parties agreed that the court should review Anthem’s benefit-payment decision for abuse of discretion. Under that standard, the court did not decide which interpretation was most persuasive. Instead, it asked whether Anthem’s interpretation was unreasonable. An administrator abuses its discretion if it clearly conflicts with the plan’s language, makes another plan provision meaningless, or lacks a rational connection to the plan’s main purpose.

Natividad argued that the Facility Agreement contained no trauma rate and that applying the emergency-services rate was improper. Anthem argued that the agreement reasonably applied the emergency-services rate until the parties established a new trauma rate.

The court agreed with Anthem. The agreement stated that trauma services were reimbursable under the emergency-services rate and that a new trauma reimbursement rate would replace that rate. It also stated that the new rate would apply prospectively and would not require retroactive adjustments. The court concluded that the agreement’s language supported Anthem’s interpretation and that the agreement did not create a gap between the emergency-services rate and a later trauma rate.

The court also rejected Natividad’s argument that Anthem’s interpretation made other contract provisions meaningless. Instead, the court found that Natividad’s reading would make the agreement’s references to the current emergency-services rate and a future “new” trauma reimbursement rate difficult to explain. The court further concluded that Anthem’s interpretation had a rational connection to the ERISA plans’ purpose, which was to determine payment for covered treatment from participating providers.

Arbitration Award and Issue Preclusion

Natividad argued that the earlier arbitration award prevented Anthem from disputing that the emergency-services rate applied. The court rejected that argument. Because a California state court had confirmed the arbitration award, the court applied California’s rules for issue preclusion, a doctrine that can prevent relitigation of an issue already decided.

The court held that the arbitration did not decide the same issue presented in this case. The arbitration concerned an implied contract, quantum meruit, and the reasonable value of trauma services. The arbitrator concluded that the parties had impliedly agreed to reimbursement at 80% of billed charges. The federal case instead required the court to decide whether Anthem abused its discretion under ERISA when interpreting the Facility Agreement. The proceedings also applied different burdens and standards of proof. Therefore, the arbitration award did not resolve the ERISA issue.

Other Arguments and Dispositions

Because the court concluded that Anthem did not abuse its discretion, it did not decide Anthem’s alternative arguments that Anthem was not a proper defendant, that Natividad lacked authority to bring the claims, or that Natividad failed to exhaust administrative remedies.

The court granted Anthem’s motion for summary judgment as to the selected claims and denied Natividad’s motion for summary judgment as to those claims. The court also stated that it granted summary judgment to Anthem on the claim Natividad had withdrawn. Separately, the court denied as moot Natividad’s motion to strike the testimony of Anthem’s expert, Randall J. Moon, because the court did not reach the fiduciary-status issue and did not rely on the expert’s testimony.