Lake Cumberland Regional Hospital, LLC. v. Coventry Health and Life Insurance Company
OPINION AND ORDER: Coventrys motion to compel arbitration will GRANTED (DE 5 ), and Lake Cumberlands motion for leave to file a supplemental response is DENIED as moot (DE 15 ). Further, Lake Cumberlands notice of filing (DE 18) will be STRICKEN from the record. A separate judgment shall issue.. Signed by Judge Karen K. Caldwell on 9/14/2017. (JMB)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
LAKE CUMBERLAND REGIONAL
OPINION & ORDER
COVENTRY HEALTH & LIFE
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This matter is before the Court on the motion of defendant Coventry Health and Life
Insurance Company to compel arbitration (DE 5) and the motion of plaintiff Lake
Cumberland Regional Hospital, LLC for leave to file a supplemental response (DE 15).
For the following reasons, Coventry’s motion to compel will be GRANTED, and Lake
Cumberland’s motion for leave to file a supplemental response will be DENIED as moot.
Coventry is a managed care organization in Kentucky’s Medicaid program. (DE 1-1,
Compl. ¶ 3).
By contract, the Commonwealth of Kentucky pays Coventry to manage
healthcare services for segments of Kentucky’s impoverished populations. (DE 1-1, Compl. ¶
3). Lake Cumberland is a hospital in Somerset, Kentucky, which provides healthcare services
for an eleven-county region in the south-central part of the state. (DE 1-1, Compl. ¶ 1). Lake
Cumberland provides medical care to Kentuckians enrolled in Coventry’s Medicaid plans.
(DE 1-1, Compl. ¶ 4).
By law, Lake Cumberland is required to provide emergency care to individuals who
present to its emergency department. See 42 U.S.C. § 1395dd. Coventry reimburses Lake
Cumberland for fees associated with the emergency medical care provided to its members.1
Federal and state law require Coventry to employ the “prudent layperson standard” when it
makes determinations about these reimbursements. (See DE 1-1, Compl. ¶¶ 36–45).
The parties do not dispute that the prudent layperson standard governs important
aspects of their relationship. Rather, the parties disagree on how Coventry is to apply the
prudent layperson standard in making its reimbursement determinations. Presently, if
Coventry determines the prudent layperson standard has not been met, it will only pay the
hospital a $50 “triage fee.” (DE 1-1, Compl. ¶ 9).
In its complaint, Lake Cumberland argues that Coventry has unilaterally, and
improperly, changed the method by which it reimburses Lake Cumberland for the emergency
medical care the hospital provides to Coventry’s members who present for treatment. Lake
Cumberland contends that Coventry is using diagnostic codes and algorithms to determine
how it reimburses the hospital and argues this is in contravention of the proper manner by
which the prudent layperson standard should be applied.
In Lake Cumberland’s view, the prudent layperson standard requires Coventry to
reimburse the hospital “if the prudent layperson would have believed he or she was
experiencing a serious medical condition at the time of presentment, even if it later appears
that the condition was not as serious or imminent as the layperson believed when he or she
traveled to the [emergency department].” (DE 1-1, Compl. ¶ 88).
Lake Cumberland only challenges the reimbursement process for emergency claims. (See DE 9,
Response at 9 n.2) (“The review process for nonemergency services is not subject to the same federal
and state standards imposed for the review of emergency services, and the Hospital has not challenged
Coventry’s review process for non-emergency claims.”).
Lake Cumberland originally filed suit in Pulaski County Circuit Court in Pulaski
County, Kentucky. (DE 1-1). Coventry removed the case to federal court (DE 1) and filed the
instant motion to compel arbitration (DE 5).
Through its complaint, Lake Cumberland seeks declaratory and injunctive relief relating
to Coventry’s interpretation of the prudent layperson standard. Specifically, Lake
Cumberland asserts five counts against Coventry.
Count I seeks a declaratory judgment that Coventry’s triage fee policy violates state law
and a judgment that defines the factors, parameters, and information to be considered in
applying the prudent layperson standard established by Kentucky law. Count II asserts a
violation of Kentucky’s Unfair Claims Settlement Practices Act. Count III asserts a violation
of the Kentucky Prompt Pay Act. Finally, Count IV seeks an injunction barring an assertion
of the defense of claim preclusion.
In its prayer for relief, Lake Cumberland asks the Court to do the following:
A. Declare that Coventry’s triage fee violates state and federal law;
B. Declare the evidentiary rules, including presumptions, factors, and parameters,
that govern the application of the “prudent layperson” standard, and more
specifically to order, among other things:
1. That the decision of a layperson member to travel to an emergency
department creates a rebuttable presumption that such layperson
was acting as a “prudent layperson”;
2. That expert evaluations are inadmissible to rebut the presumption
that a layperson who travels to an emergency department was
acting as a “prudent layperson”; and
2. That expert evaluations conducted after a member is seen in an
emergency department are inadmissible to evaluate the decision of
whether a layperson who travels to an emergency department was
acting as a “prudent layperson.”
C. Declare that retrospectively reviewing the determination of whether a
member’s condition was an emergency based on the patient’s final diagnosis,
instead of the patient’s symptoms at the time he or she presented in the
emergency department, violates state and federal law;
D. Declare that using a list of symptoms and diagnostic codes, or their equivalent,
to determine whether a condition was an emergency violates state and federal
E. Permanently enjoin Coventry from:
1. Failing to pay the hospital for emergency services at the rates
previously negotiated and set forth in the contract between Coventry
and the hospital;
2. Using the final diagnosis or using a list of symptoms or diagnostic
codes, including as part of a formulaic algorithm, to determine
whether to reimburse the hospital for treatment of Coventry’s
members who seek emergency care; and
3. Failing to rely upon a licensed physician’s determination of whether
a condition is an emergency and failing to provide the hospital with
the scientific or medical reasons why a claim was denied or reduced;
F. Declare that the triage fee is a violation of the Unfair Claims Settlement
Practices Act and the Kentucky Prompt Pay Act, and award the Hospital
damages, interest, and fees and expenses under those statutory actions;
G. Award the hospital its reasonable legal costs, fees, and expenses; and
H. Award the hospital such other general and equitable relief as this Court may
deem just, proper, and equitable.
(DE 1-1, Compl.).
Through its motion to compel arbitration, Coventry asks the Court to enforce the
arbitration provision found in the parties’ contract. That provision states in relevant part:
In the event a dispute between Coventry . . . and Hospital arises out of or is
related to the Agreement, the Parties involved shall make good faith efforts to
settle the dispute by negotiation between the Parties. If negotiation between
the Parties is unable to resolve a dispute within thirty (30) days of the date the
aggrieved party sends written notice of the dispute to the other Party, and if
any Party wishes to pursue the dispute, it shall be submitted to binding
arbitration . . . . Except for such relief expressly contemplated by the
Agreement, any dispute arising out of the Agreement must be submitted to
binding arbitration and jurisdiction shall not be found in a court of law.
(DE 5-2, Agreement ¶ 6.3).
Filings in this case reveal that the parties are already in arbitration. (See DE 5-1, Mem. at
4). Thus, the Court must determine whether any of Lake Cumberland’s claims must be
In its motion, Coventry argues that Lake Cumberland’s claims arise out of or are related
to the parties’ agreement and that this Court should compel arbitration and stay the present
proceeding. Lake Cumberland, on the other hand, disagrees that the issues arise out of or
are related to the contract between the parties and instead asserts that its claims can be
resolved without reference to the contract. Lake Cumberland also argues that, even if its
claims arise out of or are related to the contract, the parties’ agreement would be exempt
from arbitration under applicable Kentucky law as an insurance contract.
As a preliminary matter, the Court recognizes the Federal Arbitration Act’s application
in this case. The FAA creates a “body of federal substantive law of arbitrability, applicable to
any arbitration agreement within the coverage of the Act.” Moses H. Cone Mem’l Hosp. v.
Mercury Constr. Corp., 460 U.S. 1, 24 (1983). Under the FAA, there is a strong presumption
favoring arbitration and any doubts regarding arbitrability must be resolved in favor of
arbitration. Glazer v. Lehman Bros., Inc., 394 F.3d 444, 450 (6th Cir. 2005).
However, this policy “is not so broad that it compels the arbitration of issues not within
the scope of the parties’ arbitration agreement.” Watson Wyatt & Co. v. SBC Holdings, Inc.,
513 F.3d 646, 649 (6th Cir. 2008). Thus, “[b]efore compelling an unwilling party to arbitrate,
[a] court must engage in a limited review to determine whether the dispute is arbitrable;
meaning that a valid agreement to arbitrate exists between the parties and that the specific
dispute falls within the substantive scope of that agreement.” Id. (internal quotation marks
In this case, the parties both acknowledge the arbitration provision contained in their
agreement. However, the parties disagree as to whether Lake Cumberland’s claims fall
within the scope of that provision.
The parties’ arbitration provision is broadly written. In such a case, “only an express
provision excluding a specific dispute, or the most forceful evidence of a purpose to exclude
the claim from arbitration, will remove the dispute from consideration by the arbitrators.”
Highlands Wellmont Health Network, Inc. v. John Deere Health Plan, Inc., 350 F.3d 568, 577
(6th Cir. 2003) (internal quotation marks omitted). Moreover, “broadly written arbitration
clauses must be taken at their word and extend to situations that fall within their purview.”
Watson Wyatt, 513 F.3d at 650.
Whether Lake Cumberland’s claims are covered by the arbitration provision depends
on whether the Court can resolve the hospital’s claims “without reference to the agreement
containing the arbitration clause. If such a reference is not necessary to the resolution of a
particular claim, then compelled arbitration is inappropriate, unless the intent of the parties
indicates otherwise.” NCR Corp. v. Korala Assocs., Ltd., 512 F.3d 807, 814 (6th Cir. 2008)
(citation omitted). “A claim, regardless of the legal label assigned to it, falls within the scope
of this extremely broad arbitration clause if the allegations underlying the claim or its
defenses involve matters covered by the agreement.” First Union Real Estate Equity & Mortg.
Invs. v. Crown Am. Corp., 23 F.3d 406 (6th Cir. 1994) (unpublished table decision), available
at 1994 WL 151338, at *3.
The easiest claim for the Court to dispense with is Lake Cumberland’s request that the
Court permanently enjoin Coventry from “[f]ailing to pay the Hospital for emergency services
at the rates previously negotiated and set forth in the contract between Coventry and the
Hospital.” (DE 1-1, Compl.). This claim clearly arises out of the agreement between the
parties and must be arbitrated. Lake Cumberland concedes as much. (DE 9, Response at 11)
(“If the Court concludes that the FAA applies to this dispute, the Hospital will strike this
claim from the Complaint and submit it to arbitration.”).
As for Lake Cumberland’s other requests for relief, the Court must consider the context
in which Lake Cumberland’s claims are made. Although Lake Cumberland fervently argues
that Coventry’s obligations to pay the hospital derive from sources other than the contract
between the parties, the fact remains that the parties do have an agreement and that the
agreement does obligate Coventry to pay Lake Cumberland for the emergency services the
hospital provides to Coventry’s members. Moreover, the parties’ agreement does incorporate
the prudent layperson standard, which is essential to Lake Cumberland’s claims and
Coventry’s defenses. Finally, the parties’ agreement does contain an arbitration provision,
which requires the arbitration of claims that arise out of or relate to the agreement.
To explain it differently, the parties’ agreement incorporates the prudent layperson
standard. Thus, all of Lake Cumberland’s claims will require an interpretation of that
standard, which is incorporated by and essential to the contract between the parties. See
First Union, 1994 WL 151338, at *3. As Coventry explained in its reply brief, “the very
analysis of whether and how the Provider Agreement incorporates the prudent layperson
standard must be analyzed with reference to the Provider Agreement.” (DE 12, Reply at 6).
Even more so, although the Court has not granted Lake Cumberland leave to file a
supplemental response, that filing does not alter the Court’s determination of the proper
nature of ordered arbitration. Instead, certain statements within that filing undercut Lake
Cumberland’s assertion that this matter can be decided without reference to the contract. By
way of illustration, Lake Cumberland references a statement Coventry made to the Kentucky
Department of Medicaid Services that the triage fee would remain in effect “for those
providers that do not have year-end settlement clauses.” (DE 15-1, Proposed Supp. Response
at 3). This statement helps demonstrate the contractual nature of the relationship between
the hospital and Coventry.
In addition, Lake Cumberland’s argument that the parties’ agreement is an insurance
contract under Kentucky law is without merit. Under KRS 417.050(2), arbitration clauses in
insurance contracts are unenforceable. See Nat’l Home Ins. Co. v. King, 291 F. Supp. 2d 518,
528 (E.D. Ky. 2003). However, Kentucky case law dictates that “[i]n the absence of a specific
definition of insurance in KRS 417.050, the word is used in its common application.” Buck
Run Baptist Church, Inc. v. Cumberland Sur. Ins. Co., Inc., 983 S.W.2d 501, 504 (Ky. 1998).
In Buck Run, the Supreme Court of Kentucky explained common characteristics of an
An insurance policy is a contract of indemnity whereby the insurer agrees to
indemnify the insured for any loss resulting from a specific event. The insurer
undertakes the obligation based on an evaluation of the market’s wide risks
and losses. An insurer expects losses, and they are actuarially predicted. The
cost of such losses are spread through the market by means of a premium.
Id. at 504–05.
The parties’ agreement was not an “insurance contract” as that phrase is used in its
common application. Instead, the parties had a service contract, which takes their agreement
out of the purview of KRS 417.050(2).
Thus, the parties’ arbitration provision is enforceable, and because Lake Cumberland’s
claims fall within that provision’s broad purview, the Court will grant Coventry’s motion to
To simply state the facts of this case, Coventry has developed a system to lessen the
amount of money it has to pay to healthcare entities, including Lake Cumberland, for
emergency services provided to its members. Lake Cumberland dislikes Coventry’s method
for determining the amount of reimbursements Coventry will provide and asks this Court to
define the parameters that govern the standard—the prudent layperson standard—that
Coventry is to use when making its reimbursement decisions.
However, the parties’ agreement contains a broad arbitration provision, which requires
claims that arise out of or relate to the agreement to be submitted to binding arbitration.
Lake Cumberland’s claims and requests for relief necessarily involve matters that arise out
of or relate to the parties’ contract, particularly its challenges to the method by which
Coventry interprets and applies the prudent layperson standard. Thus, Lake Cumberland’s
claims must be arbitrated.
Moreover, because all of Lake Cumberland’s claims will be submitted to arbitration, this
case will be dismissed rather than stayed. See Hensel v. Cargill, Inc., 198 F.3d 245 (6th Cir.
1999) (unpublished table decision), available at 1999 WL 993775, at *4 (citing Alford v. Dean
Witter Reynolds Inc., 975 F.2d 1161, 1164 (5th Cir. 1992) (holding that dismissal is proper
where all claims must be submitted to arbitration)).
Accordingly, Coventry’s motion to compel arbitration will GRANTED (DE 5), and Lake
Cumberland’s motion for leave to file a supplemental response is DENIED as moot (DE 15).
Further, Lake Cumberland’s notice of filing (DE 18) will be STRICKEN from the record. A
separate judgment shall issue.
Dated September 14, 2017.
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