Gordon Surgical Group, P.C. v. Empire HealthChoice HMO, Inc.

Background

Between 2015 and 2020, Gordon Surgical Group, P.C., Premier Medical Associates of the Hudson Valley, LLP, and Northern Westchester Surgical Associates, LLP provided surgical services to patients covered by health plans administered by Empire HealthChoice HMO, Inc. and Empire HealthChoice Assurance, Inc. The providers were out of network and sought more than $1 million in reimbursement for medical claims. The opinion notes inconsistencies between the complaint’s allegations and its exhibit: the complaint referred to 299 claims involving 130 patients, while the exhibit listed 291 claims involving 126 patients. The court relied on the exhibit for purposes of the motion.

The second amended complaint asserted two ERISA claims and five state-law claims. The ERISA claims alleged that the defendants breached plan terms by denying or underpaying reimbursement requests, in violation of Section 502(a)(1)(B), and failed to provide a full and fair review of claims, in violation of Section 502(a)(3). The state-law claims alleged breach of express contract, breach of implied contract, unjust enrichment, tortious interference with contract, and breach of third-party-beneficiary contract rights.

The defendants moved to dismiss under Rule 12(b)(6), which allows dismissal when a complaint does not adequately state a legal claim. Magistrate Judge Katharine H. Parker recommended granting the motion in full and denying leave to amend. The providers objected, and Judge Woods reviewed the challenged portions of the recommendation.

Rulings on the ERISA Claims

The court dismissed the Section 502(a)(1)(B) claims concerning 209 medical claims governed by ERISA plans. First, the court held that the providers had not adequately pleaded exhaustion of administrative remedies. The complaint described two examples of appeals and alleged that the other claims followed a similar pattern, but it did not identify the appeal requirements for each plan or allege sufficient facts showing that the providers or patients followed those procedures for each claim. The court also rejected the providers’ argument that pursuing appeals would have been futile.

Second, the court held that the providers had not adequately pleaded wrongful denial of benefits. The complaint did not identify the plan provision supporting the requested reimbursement for each claim, explain how the alleged incorrect reimbursement rates were applied, or adequately allege that the providers were entitled to the requested amounts.

Third, the court dismissed claims involving 84 medical claims because the providers did not adequately plead that they were participants or beneficiaries entitled to sue under the relevant ERISA plans. The plans included anti-assignment provisions. The court rejected the providers’ arguments that the defendants had consented in writing to assignments, waived the anti-assignment provisions, or made those provisions ineffective through direct-payment provisions or dealings with the providers. It also rejected the argument that federal and state emergency-services laws made the anti-assignment provisions unenforceable.

Fourth, the court dismissed 37 medical claims as time-barred under the applicable plans. The providers conceded that these claims fell outside the plans’ contractual limitations periods, which began when the medical services were provided. The court modified part of the magistrate judge’s reasoning concerning whether regulatory violations could affect or toll those limitations periods. It did not decide that issue because the providers had not adequately pleaded regulatory violations for each allegedly untimely claim.

The court also dismissed the Section 502(a)(3) claim for failure to state a claim. That claim sought equitable and injunctive relief based on alleged failures to provide specific reasons for denials or underpayments and to identify the plan provisions used for those decisions. The court concluded that the same deficiencies involving participant-or-beneficiary status and wrongful denial of benefits supported dismissal.

State-Law Claims and Leave to Amend

The court adopted the recommendation to decline supplemental jurisdiction over the state-law claims and dismissed them. Supplemental jurisdiction is the court’s authority to hear related state-law claims alongside federal claims. The providers did not object to this part of the recommendation.

The court rejected the recommendation to deny leave to amend. It granted the providers permission to file a third amended complaint because they had not yet received the court’s analysis of the pleading deficiencies and the identified problems might be corrected. The amended complaint had to be filed within 45 days of the opinion.

The court expressed substantial concerns that claims involving 291 medical claims and 72 separate insurance plans may have been improperly joined in one action. It also questioned whether it had supplemental jurisdiction over claims involving non-ERISA plans. The court stated that it expected to issue a separate order requiring the parties to address those issues. Judge Woods therefore accepted and adopted the magistrate judge’s report and recommendation nearly in full, modified the reasoning on the timeliness issue, granted the motion to dismiss, and granted leave to amend.