OSF Healthcare System d/b/a Saint Francis Medical Center v. EMCG LLC Employee Benefit Plan et al

Filing 16

ORDER & OPINION entered by Judge Joe Billy McDade on 7/24/13. Plaintiff has not stated a federal claim for which relief can be granted. Plaintiff did not exhaust its administrative remedies before filing suit against Defendant, and its claim as to Co unt I is rejected on those grounds. Therefore, Defendant's Motion to Dismiss pursuant to Rule 12(b)(6) is GRANTED, and Counts II and III of Plaintiff's Complaint are REMANDED to the Circuit Court of Peoria County. SEE FULL ORDER.(FDT, ilcd)

E-FILED

Thursday, 25 July, 2013 08:38:53 AM
Clerk, U.S. District Court, ILCD

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF ILLINOIS
PEORIA DIVISION
OSF HEALTHCARE SYSTEM, d/b/a
SAINT FRANCIS MEDICAL CENTER,
Plaintiff,
v.
EMCG LLC EMPLOYEE BENEFIT
PLAN, and ERIN CRIBBS,
Defendants.

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Case No. 13-cv-1146

ORDER & OPINION
This matter is before the Court on Defendant EMCG LLC Employee Benefit
Plan’s1 Motion to Dismiss Plaintiff’s Second Amended Complaint (“Complaint”).
Plaintiff filed a Response to the Motion (Doc. 12). Defendant then filed a Motion for
Leave to File a Reply (Doc. 14). Because the Court finds Defendant’s Reply helpful,
the motion is granted. Defendant has also requested oral arguments on the Motion
to Dismiss. Because the Court finds that it can determine this issue based upon the
record and written arguments before it, Defendant’s request is denied. For the
reasons stated below, Defendant’s Motion to Dismiss is granted.

Because this order addresses only Defendant EMCG LLC Employee Benefit
Plan’s Motion to Dismiss, any references to “Defendant” hereinafter refer to
Defendant EMCG LLC Employee Benefit Plan, unless indicated otherwise.

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RELEVANT FACTUAL BACKGROUND 2
In September 2010, Defendant Erin Cribbs received medical care from
Plaintiff OSF Healthcare. (Doc. 6 at 1). At the time Cribbs sought treatment from
Plaintiff, she had health insurance coverage through Defendant EMCG LLC
Employee Benefit Plan. (Doc. 6 at 2). The health insurance plan provides that
Defendant would pay 80% of Covered Medical Services until Cribbs met her annual
out of pocket maximum of $2,000.

(Doc. 6-2 at 11). Once Cribbs reached that

maximum, Defendant would pay 100% of the Covered Medical Expenses. (Doc. 6-2
at 11).
Following Cribb’s treatment, Plaintiff submitted to Defendant a claim for
payment of benefits amounting to $27,499.90. (Doc. 6 at 1-2). Defendant paid to
Plaintiff $4,192.59, but denied paying the remaining balance as those charges
“exceed[ed] the Plan’s Allowable Claim Limits.” (Doc. 6-5 at 1). On March 4, 2011,
Defendant sent Plaintiff a Notice of Adverse Benefit Determination, which
explained why it was denying payment, and outlined the appeal procedures
Plaintiff should follow if it elected to appeal the determination. (Doc. 6-5 at 14-17).
The appeals process allows a claimant to file an appeal of an Adverse Benefit
Determination denying benefits within 180 days of that denial. (Doc. 6-3 at 48). If
the first appeal is denied, a claimant may file a second appeal within sixty days.
(Doc. 6-3 at 48). At the first appeal level, a claimant must submit in writing all
pertinent information, including “[a]ll facts and theories supporting the Claim for
benefits,” and a statement expressing why the claimant is entitled to benefits under
Unless otherwise noted, facts are taken from the Complaint, or exhibits, and
are taken as true.

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the health plan. (Doc. 6-3 at 49). A second appeal, if filed, must also be submitted in
writing and include the same information as required for the first appeal. (Doc. 6-3
at 50). Further, the plan states “[a]ll claim review procedures provided for in the
Plan must be exhausted before any legal action is brought.” (Doc. 6-4 at 1). Plaintiff
was made aware of this appeal process when it received the initial denial of benefits
letter from Defendants. (Doc. 6-5 at 7-13).
On June 4, 2011, Plaintiff appealed the denial of benefits by letter. (Doc. 6-5
at 3-4) Then, on July 12, 2011, Defendant denied Plaintiff’s appeal, explaining that
the charges were in excess of the allowable limits under the health plan, and setting
forth the procedure for a second appeal. (Doc. 6-5 at 7-13).
Cribbs paid a deductible and co-pay amounting to $1,548.15 on October 16,
2012. (Doc. 6 at 2; Doc. 6-5 at 21). The total amount of payment Plaintiff received
thus amounts to $5,740.74. (Doc. 6 at 1). Therefore, a balance of $21,759.16 remains
unpaid. Plaintiff has filed suit against both Defendant and Cribbs seeking payment
of the remaining balance. In Count I, Plaintiff makes claims against Defendant
under the Employee Retirement Income Security Act (“ERISA”). In Counts II and
III, Plaintiff makes claims against Cribbs under state law theories.
LEGAL STANDARD
In ruling on a motion to dismiss for failure to state a claim pursuant to Rule
12(b)(6), “the court must treat all well-pleaded allegations as true and draw all
inferences in favor of the non-moving party.” In re marchFIRST Inc., 589 F.3d 901,
904 (7th Cir. 2009). The complaint must contain a “short and plain statement of the
claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). To

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survive a Rule 12(b)(6) motion to dismiss, a plaintiff’s complaint must contain
sufficient detail to give notice of the claim, and the factual allegations must
“plausibly suggest that the plaintiff has a right to relief, raising that possibility
above a ‘speculative level.’” EEOC v. Concentra Health Servs., Inc., 496 F.3d 773,
776 (7th Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)).
Although a plaintiff need not present detailed factual allegations, a “formulaic
recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at
555. In ruling on a 12(b)(6) motion, courts can consider the complaint, and any
attached exhibits. Thomson v. Ill. Dep’t. of Prof’l Regulation, 300 F.3d 750, 753 (7th
Cir. 2002). If an exhibit contradicts allegations made in the complaint, “the exhibit
ordinarily controls.” Bogie v. Rosenberg, 705 F.3d 603, 609 (7th Cir. 2013).
DISCUSSION
The Court now considers Defendant’s Motion to Dismiss. Defendant argues
that Plaintiff’s Complaint is deficient on its face for two reasons: “(1) OSF failed to
exhaust administrative remedies under the Plan and (2) the Plan does not provide
for any additional benefits under the terms of the Plan document beyonf [sic] what
has already been paid.” (Doc. 8 at 2). Additionally, Defendant argues that OSF is
“not entitled to recover interest under the prompt pay statute” because ERISA
preempts the state statute. (Doc. 8 at 2).
Plaintiff raises four arguments in its Response to Defendant’s Motion. First,
Plaintiff claims that the Motion must be denied, as it is “not a True Motion to
Dismiss.” (Doc. 13 at 4). Second, Plaintiff argues that it did exhaust the available
administrative remedies. Third, Plaintiff alleges that additional payment is

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warranted. Lastly, Plaintiff claims that the Illinois Prompt Pay Statute is not
preempted by ERISA.
Regarding Plaintiff’s first claim, the Court finds Defendant has filed a proper
Motion to Dismiss. Defendant seeks dismissal for failure to state a claim, which is
precisely the goal of a motion to dismiss pursuant to Rule 12(b)(6). The Motion
attacks the sufficiency of Plaintiff’s complaint, alleging that the facts do not
plausibly state a claim for relief. Plaintiff is correct that ordinarily exhaustion of
remedies is an affirmative defense that a plaintiff need not anticipate and plead
around in its complaint. However, for ERISA actions, a district court may address
failure to exhaust by evaluating the pleadings. See Shine v. University of Chicago,
No. 12 C 8182, 2013 WL 1290206, *4 (N.D. Ill. Mar. 28, 2013) (citing Ahr v.
Commonwealth Edison Co., No. 036645, 2005 WL 6115023, at *3 (N.D. Ill. Feb.24,
2005); Potter v. ICI Americas Inc., 103 F.Supp.2d 1062, 1065–66 n. 2 (S.D.Ind. Oct.4,
1999); Coats v. Kraft Foods, Inc., 12 F.Supp.2d 862, 869 (N.D.Ind.1998)). Therefore
the Court finds the Motion proper and does not further consider Plaintiff’s first
claim.
As explained below, the Court finds that Plaintiff has not adequately alleged
exhaustion of its administrative remedies, and therefore has failed to state a
plausible claim to relief. Accordingly, the Court does not consider the remaining
arguments, and Defendant’s Motion to Dismiss is granted.
I. Count I
Defendant argues that by not filing a second appeal, Plaintiff failed to
exhaust its administrative remedies, and therefore Count I must be dismissed. (Doc.

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8 at 2). “As a pre-requisite to filing suit, an ERISA plaintiff must exhaust his
internal administrative remedies.” Zhou v. Guardian Life Ins. Co. of Am., 295 F.3d
677, 679 (7th Cir. 2002). The exhaustion requirement encourages “private
resolution of ERISA-related disputes,” and “enhances the ability of plan fiduciaries
to expertly and efficiently manage their plans by preventing premature judicial
intervention.” Powell v. A.T.&T. Communications, Inc., 938 F.2d 823, 825-26 (7th
Cir. 1991). Further, the requirement is consistent with Congress’s apparent intent
in requiring internal claim procedures, “to minimize the number of frivolous
lawsuits, to promote consistent treatment of claims, to provide a nonadversarial
dispute resolution process, and to decrease the cost and time of claims settlement.”
Wilczynski v. Lumbermens Mut. Cas. Co., 93 F.3d 397, 402 (7th Cir. 1996). An
ERISA plaintiff’s claim must sufficiently allege exhaustion, or that an exception to
the exhaustion requirement applies. Id. at 402.
In the present case, the internal administrative remedy is the two-step
appeal process outlined in the health care plan. (Doc. 6-3 at 48-50). The appeals
process allows a claimant to file a written appeal including the required information
within 180 days of the denial of benefits. (Doc. 6-3 at 48). If that appeal is denied, a
second appeal may be filed, and must include the same information as the first.
(Doc. 6-3 at 48). Additionally, the plan states that this appeals process must be
exhausted before a claimant may bring legal action against Defendant. (Doc. 6-4 at
1). The initial denial of benefits letter from Defendant made Plaintiff aware of the
appeal process. (Doc. 6-5 at 7-13).

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Plaintiff claims that its Complaint should not be dismissed on this ground
and raises three arguments in support of this claim, asserting: 1) Plaintiff contacted
Defendant twice regarding reconsideration of its denial of payment; 2) the second
level of appeal is not clearly required of health care providers; and 3) further
appeals would have been futile.
Plaintiff has not provided enough facts to demonstrate that it exhausted its
administrative remedies. For the following reasons, the Court finds that Plaintiff
did not exhaust its administrative remedies, and thus Defendant’s Motion to
Dismiss pursuant to Rule 12(b)(6) is granted.
A. Plaintiff’s Contact with Defendant
Plaintiff fails to show that it complied with the required appeal process and
exhausted its administrative remedies. Plaintiff admits it did not file a second
written appeal, as required by the plan’s appeal process. (Doc. 13 at 7-8). However,
without providing specific information, Plaintiff argues that it “did contact
[Defendant] twice for reconsideration,” and that these requests for reconsideration
“complied with the plan’s requirement for two appeals.” (Doc. 13 at 7). As Defendant
states in its Reply, “[m]erely contacting [Defendant] to discuss a claim does not
constitute an appeal.” (Doc. 14-1 at 7).
Even if Plaintiff did contact Defendant regarding the denial of benefits, such
contact does not comply with the plan’s stated appeal process, as appeals are to be
submitted in writing with specific information included. (Doc. 6-3 at 49-50). Thus,
the purported contact does not meet the requirements set forth by the plan’s appeal
process.

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B. Appeal Process for Healthcare Providers
Further, Plaintiff argues that because it is a health care provider, rather
than an individual claimant, the appeal process does not apply to Plaintiff in the
same way. (Doc. 13 at 7). Plaintiff makes two erroneous claims concerning this
argument.
First, Plaintiff states that only one level of appeal is required of providers.
(Doc. 13 at 7). However, in support of that contention, Plaintiff cites to the health
plan, which clearly states that providers who file an appeal must comply with the
same requirements set forth for claimants, meaning that two levels of written
appeals are required in order to exhaust administrative remedies. (Doc. 6-4 at 1).
Additionally, the appeal requirements were sent to Plaintiff by Defendant in the
Notice of Adverse Benefits Determination, thereby notifying Plaintiff that providers
are to follow the same appeals process as other claimants. (Doc. 6-5 at 10-12).
Second, Plaintiff states that a second appeal is elective and that no clear
language “requires a provider to file a second appeal letter.” (Doc. 13 at 7).
Certainly, Plaintiff was not required to file a second appeal – it had the option of
accepting Defendant’s decision following the first appeal, and apparently chose that
option by not filing the second appeal and by instead seeking payment directly from
Cribbs. However, a second appeal is required in order to fully comply with the
plan’s appeals process and exhaust all administrative remedies before filing suit,
and Plaintiff, by choosing not to file a second appeal, failed to comply with that
process.

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C. Futility Exception to the Exhaustion Requirement
Lastly, Plaintiff argues that, even if the Court finds it did not exhaust its
administrative remedies, Plaintiff is exempt from complying with the exhaustion
requirements because “any further appeal on this matter would have been futile.”
(Doc. 13 at 7). An exception to the exhaustion requirement exists where “further
administrative appeal is futile.” Zhou, 295 F.3d at 680. However, in order to succeed
on a futility claim, a plaintiff “must show that it is certain that [its] claim will be
denied on appeal, not merely that [it] doubts that an appeal will result in a different
decision.” Lindemann v. Mobil Oil Corp., 79 F.3d 647, 650 (7th Cir. 1996) (internal
quotation marks omitted). A plaintiff claiming that exhaustion is futile must proffer
“facts indicating that the review procedure that he initiated will not work.” Zhou,
295 F.3d at 680.
Plaintiff argues that a second appeal would have been futile because “[a]t the
time that another appeal would have been contemplated, the appeal would not have
been considered,” as it would have been untimely. (Doc. 13 at 8). Plaintiff then
elected not to file a second appeal, and to instead pursue Cribbs directly for the
remaining payment. (Doc. 13 at 7). Plaintiff has not shown that a second appeal
would fail. Rather, Plaintiff alleges that by the time it decided it should file a second
appeal the time limit had expired. (Doc. 13 at 8). A decision not to file a timely
appeal does not render that appeal futile, and a party cannot circumvent the
exhaustion requirement by waiting until the deadline has expired. Plaintiff has not
shown that its claim was certain to be denied on appeal, and has instead indicated
that it made a conscious decision not to file a second appeal.

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Additionally, Plaintiff claims that a second appeal’s review would have been
biased because a more senior member of the same office would have reviewed the
appeal. (Doc. 13 at 8). The Vice President of ELAP Services, LLC,3 reviewed
Plaintiff’s first appeal, and had Plaintiff filed a second appeal, the President of
ELAP would have reviewed it. (Doc. 13 at 8; Doc. 6-5 at 11, 13). Plaintiff thus
argues that the review procedures for the second appeal would not have been “an
independent review of any kind,” and that the outcome “was . . . not likely to change
by having the president, instead of the vice-president, review the file.” (Doc. 13 at
8). However, case law establishes that a denial of benefits and subsequent review of
an appeal being conducted by the same company is “not enough to constitute
futility.” Robyns v. Reliance Standard Life Ins. Co., 130 F.3d 1231, 1238 (7th Cir.
1997); see also Dale v. Chicago Tribune Co., 797 F.3d 458, 467 (7th Cir. 1986).
Moreover, the review procedures in question appear to comply with 29 C.F.R.
§ 2560.503-1(h)(3)(ii), which requires that a person reviewing a second appeal be
neither the same individual who reviewed the first appeal, nor a subordinate of that
individual. 29 C.F.R. § 2560.503-1(h)(3)(ii). Further, § 2560.503-1(h)(3)(ii) requires
that the individual reviewing a second appeal not give deference to the decision of
the first appeal. Plaintiff admits that the second appeal would have been reviewed
by ELAP’s president, (Doc. 13 at 8), who is neither the same person who reviewed
the first appeal, nor a subordinate of that person.

ELAP Services, LLC, is “the Designated Decision Maker” for Defendant and
in this capacity, ELAP makes claim determinations and reviews appeals for
Defendant. (Doc. 6-5 at 7).
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Further, Plaintiff has not cited to any case law in support of its claim that the
review process is problematic. Plaintiff also has provided no facts demonstrating
that ELAP’s president would have given deference to the vice president’s decision.
Finally, Plaintiff also asserts that the clarity of Defendant’s first denial of its
claim showed that an appeal would be futile. (Doc. 13 at 7). The Court must reject
this argument as absurd. Defendant’s denials of benefits should be clear. Plaintiff’s
argument would have the Court establish a rule that only uncertain or vague
denials trigger the second-appeal requirement. This would undercut the purpose of
the two-appeal process by making the first appeal superfluous, as well as leading to
unnecessary litigation over the subjective, fact-based question of whether a denial of
benefits was “clear” or “vague.”
Though Plaintiff doubts that a second appeal would result in a different
outcome, Plaintiff has not shown that the appeal was certain to fail. See
Lindemann, 79 F.3d at 650. Therefore, Plaintiff does not demonstrate that a second
appeal would have been futile. Accordingly, Plaintiff’s argument based on the
futility exception is rejected.
Therefore, the Court grants Defendant’s Motion to Dismiss, because Plaintiff
has not shown that it exhausted its administrative requirements. Plaintiff’s
purported contact with Defendant does not constitute an appeal, as it does not
comply with the health plan’s appeal process. Further, Plaintiff has not shown that,
as a health care provider, it was exempt from following the stated appeal process.
Lastly, Plaintiff has not shown that a second appeal would be futile. Thus, Count I
of Plaintiff’s Complaint is dismissed.

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II. Counts II and III
The remaining Counts in Plaintiff’s Complaint are state law claims against
Cribbs. In its Response to the Motion to Dismiss, Plaintiff questions how the claims
against Cribbs could be resolved if Defendant is dismissed from this case, arguing
that there needs to be a determination on the merits of what amount of money each
Defendant owes to Plaintiff. (Doc. 13 at 14). While the Court understands that this
issue is of importance to Plaintiff, the Court may only consider the issues currently
before it and over which it can properly exercise jursidiction. In granting the
Motion, the Court finds that the state law claims in Counts II and III should be
remanded to the state courts.
According to 28 U.S.C. § 1367, when a district court has original jurisdiction
over a claim, the courts shall also “have supplemental jurisdiction over all other
claims that are so related to the claims in action within such original jurisdiction
that they form part of the same case or controversy.” 28 U.S.C. § 1367(a). However,
the district courts can decline to “exercise supplemental jurisdiction over a claim
under subsection (a) if . . . the district court has dismissed all claims over which it
had original jurisdiction.” 28 U.S.C. § 1367(c). A district court should consider and
weigh the factors of judicial economy, convenience, fairness, and comity in deciding
whether to exercise jurisdiction over pendent state-law claims rather than resolving
them on the merits. Wright v. Associated Ins. Co. Inc., 29 F.3d 1244, 1251 (7th Cir.
1994) (citing Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350 (1988)). “Thus, the
general rule is that, when all federal-law claims are dismissed before trial, the
pendent claims should be left to the state courts.” Id. at 1252. The Seventh Circuit

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has identified circumstances in which district courts may rebut that presumption:
when the statute of limitation has run on the state law claim, when “substantial
judicial resources” have been expended such that remand would cause a
“substantial duplication of effort”, or when it is “absolutely clear” how the state law
claims will be decided. RWJ Management Co., Inc., v. BP Products North America,
Inc., 672 F.3d 476, 480 (7th Cir. 2012).
Because the Court here is dismissing Plaintiff’s Complaint as to Count I, the
remaining Counts would be in federal court only under supplemental jurisdiction.
The statute of limitations has not yet run on the state law claims, duplication of
effort is not a concern as substantial judicial resources have not been committed,
and it is not clear how the state law claims will be decided. The Court therefore
follows the aforementioned general rule, and, considering the factors of judicial
economy, convenience, fairness, and comity, declines to retain jurisdiction over
Plaintiff’s state law claims against Cribbs, finding they would be better heard in the
state courts.

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CONCLUSION
Plaintiff has not stated a federal claim for which relief can be granted.
Plaintiff did not exhaust its administrative remedies before filing suit against
Defendant, and its claim as to Count I is rejected on those grounds. Therefore,
Defendant’s Motion to Dismiss pursuant to Rule 12(b)(6) is GRANTED, and Counts
II and III of Plaintiff’s Complaint are REMANDED to the Circuit Court of Peoria
County.

Entered this 24th day of July, 2013.

s/ Joe B. McDade
JOE BILLY McDADE
United States Senior District Judge

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