North Cypress Medical Center Operating Co., Ltd. et al v. Cigna Healthcare et al

Filing 692

FINDINGS OF FACT AND CONCLUSIONS OF LAW(Signed by Judge Keith P Ellison) Parties notified.(arrivera, 4)

United States District Court
Southern District of Texas

ENTERED
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
NORTH CYPRESS MEDICAL CENTER
OPERATING CO., LTD., et al,
Plaintiffs,
VS.
CIGNA HEALTHCARE, et al,
Defendants.

August 07, 2018
David J. Bradley, Clerk

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§ CIVIL ACTION NO. 4:09-CV-2556
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FINDINGS OF FACT & CONCLUSIONS OF LAW
The Court submits the following Findings of Fact and Conclusions of Law pursuant to
Rule 52(a)(1) of the Federal Rules of Civil Procedure.
I.

BACKGROUND
This case centers on the intricacies of healthcare insurance. Before the Court are the

procedures by which hospitals can bill patients and submit claims to an insurance company, and,
in turn, how that insurance company pays for patients’ care.
Plaintiffs North Cypress Medical Center Operating Co., Ltd. and North Cypress Medical
Center Operating Company, GP, LLC (collectively “NCMC”) filed suit against Defendants
Cigna Healthcare and Connecticut General Life Insurance Company (collectively “Cigna”) on
August 11, 2009, seeking relief under state law and the Employee Retirement Income Security
Act (“ERISA”). (Doc. No. 1.)
This Court initially made dispositive rulings several years ago, which both parties
appealed. The Fifth Circuit affirmed in part and reversed in part. N. Cypress Med. Ctr. Operating
Co. v. Cigna Healthcare, 781 F.3d 182 (5th Cir. 2015) (“North Cypress I”). Of importance here,

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the Fifth Circuit ruled that NCMC had standing to bring ERISA claims as assignee of the
patients. The Fifth Circuit “remand[ed] to allow the district court a full opportunity to consider
all of North Cypress’s claims for underpayment of benefits and its other closely related ERISA
claims with a fully developed record.” Id. at 197.
On remand, the parties developed a more complete record through discovery and filed
cross-motions for summary judgment. (Doc. Nos. 443, 447, 489.) Based on the Court’s summary
judgment ruling, this case was narrowed to NCMC’s ERISA § 502(a)(1)(B) claim and, within
that claim, to the 575 benefit claims for which NCMC exhausted its administrative remedies.
On October 10, 2017, this Court commenced a bench trial. Over the course of the eightday trial, the Court received evidence and heard sworn testimony. Having considered the
evidence, testimony, oral arguments presented during the trial, post-trial filings1, and the
applicable law, the Court sets forth the following Findings of Fact and Conclusions of Law.
Additionally, the Court rules on two pending motions filed by NCMC.
II.

FINDINGS OF FACT

Parties & Insurance Plans
1. North Cypress Medical Center Operating Company, Ltd. owns a hospital and North
Cypress Medical Center Operating Company, GP LLC is the general partner for the

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The post-trial filings include the parties’ post-trial briefs and proposed findings of fact
and conclusions of law, as well as later-filed letters and notices to the Court. (Doc. Nos. 662-68,
672-73, 675-79, 681-83, 689.) The post-trial filings note, in particular, three cases that the Fifth
Circuit decided after the conclusion of the instant bench trial: North Cypress Medical Center
Operating Company, Ltd. v. Aetna Life Insurance Company, No. 16-20674, 2018 WL 3635231
(5th Cir. July 31, 2018); Ariana M. v. Humana Health Plan of Texas, Inc., 884 F.3d 246 (5th Cir.
2018) (en banc); Connecticut General Life Insurance Company v. Humble Surgical Hospital.,
L.L.C., 878 F.3d 478 (5th Cir. 2017).
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limited partnership; collectively they are “NCMC,” the Plaintiff hospital in this case. (Tr.
1-94:22-95:2 (Behar).)2
2. The hospital is a general acute care hospital with an emergency room. (Tr. 1-77:10-15
(Behar).) It opened on January 4, 2007. (Tr. 1-90:14-15 (Behar).)
3. Cigna, the Defendant, is a health services company. (Tr. 4-198:15-19 (Sherry).)
4. Cigna administers insurance plans, the majority of which are self-funded. (Tr. 4-198:2022 (Sherry); see Def. Exh. 1.001-1.186 (collectively, the “plans”).) A self-funded
insurance plan is an “Administrative Services Only” (“ASO”) plan for which Cigna
administers claims, but an employer, such as a school district, is responsible for paying
all of the claims of its employee population. (Tr. 4-199:2-21 (Sherry); see e.g., Def. Exh.
1.035 at CIG-NCMC0582383.)
5. ASOs explicitly delegate to Cigna “the discretionary authority to interpret and apply plan
terms and to make factual determinations in connection with its review of claims under
the plans.” (See, e.g., Def. Exh. 1.051 (“Aperio Technologies ASO”); see also Doc. No.
677 at 15-16 (NCMC stating, in its own Proposed Findings of Fact, “all of the plans
provided Cigna with the discretionary authority to interpret the provisions of the plan”).)
6. Cigna has set up a network of healthcare providers who agree to give Cigna a discounted
rate off of their billed charges and agree to refer patients within the network. (Tr. 4197:20-198:11 (Sherry); see also Def. Exh. 82 at CIG-NCMC0011985.) Cigna’s innetwork healthcare providers agree to discounted fees in exchange for receiving access to
Cigna’s pool of plan members. (Tr. 4-202:25-203:6 (Sherry).)

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Citations to the trial transcript are identified as “Tr. X-Y:Z (Witness),” where X
indicates the day of trial, Y and Z identify the page and line number, and the name of the witness
is in parentheses.
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7. The amount a patient pays is called the “[c]oinsurance,” and it is defined in the plans as
“the percentage of charges for Covered Expenses that an insured person is required to pay
under the plan.” (See e.g., Def. Exh. 1.035 at CIG-NCMC0582391.)
8. Typically, a patient’s coinsurance is lower when the patient goes to an in-network
provider. (Tr. 4-203:18-24 (Sherry).) This is both because in-network providers have
agreed to discounted fees and because the insurer will pay a larger share of the fee. For
example, if a patient receives in-network care, the plan will pay 80 percent of the fee and
the patient will pay 20 percent of the fee; whereas, if a patient receives out-of-network
care, the plan will pay 60 percent of the maximum reimbursable charge and the patient
will pay 40 percent. (Tr. 4-205:13-206:12 (Sherry); e.g., Def. Exh. 1.035 at CIGNCMC0582394; see also Tr. 4-208:14-19 (Sherry) (this scheme “is absolutely
standard”).)
9. Payments for “charges which [the patient is] not obligated to pay or for which [the patient
is] not billed” are “specifically excluded” from the plans. (See, e.g., id. at CIGNCMC0582421.)
10. The Plans define the amounts to be paid as based on the “Maximum Reimbursable
Charge.” (See, e.g., Def. Exh. 1.035.) Some claims are covered by Maximum
Reimbursable Charge 1 (“MRC-1”) and others by Maximum Reimbursable Charge 2
(“MRC-2”).
11. MRC-1 is defined as “the lesser of: (1) the provider’s normal charge for a similar service
or supply; or (2) the policyholder-selected percentile of all charges made by providers of
such service or supply in the geographic area where it is received.” (Id. at CIGNCMC0582442; Tr. 4-206:19-22 (Sherry); see also Pl. Exh. 87 at CIG-NCMC0094360.)

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12. Some Plans include a “note” in the MRC-1 section: “The provider may bill you for the
difference between the provider’s normal charge and the Maximum Reimbursable
Charge, in addition to applicable deductibles, copayments and coinsurance.” (Pl. Exh. 87
at CIG-NCMC0094360; Def. Exh. 1.026 at CIG-NCMC0156030; but see (Def. Exh.
1.035) (does not include the “may bill” language).)
13. MRC-2 is the lesser of the provider’s normal charge or a percentage of a Medicare-based
fee schedule adopted by the Plan. (Tr. 4-206:24-207:2 (Sherry).)
14. Emergency and urgent care services are an exception to the differing coinsurance rates
for in-network and out-of-network care. For emergency care, physicians are not restricted
to in-network referrals and the Plans pay the same amount regardless of whether the
provider was in-network. (See, e.g., Def. Exh. 1.060 (“CLARCOR Inc. ASO”) at CIGNCMC0618694; Def. Exh. 82 (“Behar-Cigna Contract”) at CIG-NCMC0011985.)
Assignments
15. When NCMC admitted patients to the hospital, the patients assigned their benefits to
NCMC. The paperwork that patients signed is called, “Consent to Treatment and Release
of Medical Information,” and it contains a section called, “Assignment of Benefits.” (See,
e.g., Pl. Exh. 2.) The Assignment of Benefits section explicitly assigned NCMC “the
right to collect any and all unpaid insurance benefits, penalties, attorney’s fees, court
costs, and all other recoverable damages of any nature from the medical insurance
company(ies) that provided coverage.” (Id.) NCMC’s policy is that “[e]very patient”
gives their consent and assignment. (Tr. 2-127:2-8, 11 (Jones).)

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16. NCMC informed Cigna of each patient’s assignment of benefits. When NCMC submitted
claims forms to Cigna (“UB-04 claims forms”), NCMC wrote “Benefits Assigned” on the
form. (See, e.g., Def. Exh. 84.)
NCMC’s Prompt Pay Discount for Out-of-Network Patients
17. When NCMC opened in 2007, it was out-of-network with Cigna and all the major
insurance carriers. (Tr. 1-252:13-21 (Behar).) NCMC remained out-of-network with
Cigna from January 4, 2007 through July 31, 2012, when it entered into an in-network
Hospital Services Agreement with Cigna. (Tr. 5-91:9-14 (Tankersley); Def. Exh. 83.)
18. NCMC created a program called the Prompt Pay Discount (or “Access NCMC”) to
simulate an in-network experience for patients. (See Def. Exh. 31 (“Access NCMC
Program Patient Participation Form”); Def. Exh. 33 (“Access NCMC Script”); Tr. 342:7-13, 3-45:7-20 (Jones); Tr. 5-110:8-20 (Tankersley).)
19. NCMC could determine Cigna’s in-network and out-of-network coinsurance rates by
calling Cigna. (Tr. 3-32:20-23 (Jones).)
20. NCMC calculated the amount to bill a patient through the Prompt Pay Discount “by
taking 125 percent of the Medicare fee schedule and multiplying it by the patient’s innetwork coinsurance rate.” (Tr. 5-115:25-116:12 (Tankersley).) NCMC documents
sometimes refer to this function as the “NCMC Fee Schedule calculator.” (Def. Exh. 30
(“NCMC Decision and Business Office Assistance Manual”) at NCMC 8 30069; see also
Def. Exhs. 101-104 (showing those calculations).) NCMC referred to the amount that
resulted from that calculation as the “estimated reasonable and customary in-network
allowed amount.” (Def. Exh. 31 (“Access NCMC Program Patient Participation Form”);
Tr. 3-45:7-20 (Jones).). If the patient paid that amount—125 percent of the Medicare rate

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multiplied by the in-network coinsurance rate—within 120 days, they would not have to
pay anything else. (Tr. 3-53:23-55:1 (Jones); see also Tr. 5-117:12-118:11 (Tankersley).)
21. The Prompt Pay Discount was offered to any patient with commercial insurance, with the
exception of patients who required emergency services. (Tr. 3-40:3-5 (Jones); Tr. 5114:22-115:1 (Tankersley).) The Prompt Pay Discount was not offered to patients with
Medicare. (Tr. 5-115:8-9 (Tankersley).)
22. Without the Prompt Pay Discount, patients may not have been able to afford care at
NCMC. (Tr. 3-52:5-16 (Jones).)
23. At the same time, the Prompt Pay Discount put the hospital in a better negotiating
position with insurance companies, and saved the hospital money in fee collection. (Def.
Exh. 37 (“Access NCMC Powerpoint”) at NCMC26 0069499-501; Tr. 1-84:1-24 (Behar)
(noting how much more money NCMC collected from patients than the typical hospital);
Tr. 2-190:13-19 (Jones) (same).)
Initial Communications About Billing Practices
24. When NCMC opened, NCMC and Cigna exchanged letters about billing practices. On
January 3, 2007, NCMC sent Cigna a letter titled “Notice of Discount” about its “Prompt
Pay Discount.” (Pl. Exh. 1 (“Notice of Discount Letters”) at CIG-NCMC0083279.)
NCMC’s letter stated, in part:
Until such time as we can establish a contractual relationship to serve all of
your beneficiaries, NCMC will provide “out-of-network” services to your
beneficiaries who request such services. Your beneficiaries will be eligible to
participate in the NCMC Prompt Payment Out-of-Network Discount Policy
on patient responsibility amounts for services and items rendered.
(Id.) The letter did not disclose how the Prompt Pay Discount was calculated.

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25. Over the course of the next two years, NCMC sent a substantially similar Notice of
Discount Letter to Cigna over twenty times via certified mail. (Pl. Exh. 1; see also Tr. 188:12-14 (Behar).)
26. In response to the first Notice of Discount Letter, Cigna replied, in part:
[Y]our letter would seem to propose a practice known as ‘fee-forgiving,’
whereby your organization accepts an insurer’s payment as payment and
waives any obligation of the patient to pay the amounts not covered by
insurance or a benefit plan or otherwise agrees to collect only in-network
coinsurance and deductibles rather than the deductible or co-insurance
requirements applicable to services obtained from a non-participating
provider.
...
It is [Cigna’s] view that “fee-forgiving” on any particular claim, or any
portion thereof, could constitute fraud and subject a provider to civil and
criminal liability . . .
Generally our health benefit plans exclude from coverage “charges which the
Employee or Dependent is not legally required to pay.” In other words, only
expenses which patients are legally obligated to pay are reimbursable.
...
. . . [C]laim forms submitted to CIGNA by North Cypress Medical Center
should reflect only the amount which North Cypress Medical Center will
accept as payment from the patient. Any portion of a charge which is in any
way waived or for which a patient is not personally responsible should not be
reflected on a claim form . . . For example, if your facility has agreed to only
charge a patient the amount of the in-network copayment (for example,
$50.00), then only the $50 charge can be submitted as a claim for
reimbursement under the benefit plan. Hence, if the patient has an out-ofnetwork benefit, the payment would be $40.
...
Accordingly, payment for any claims North Cypress Medical Center submits
may be delayed or denied until we have assurance that the charges shown on
claim forms are your actual charges to the patient and that patients will be
required to pay amounts such as out-of-network co-insurance and deductibles.
(Pl. Exh. 3B (“Morris Letter”).)

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27. NCMC replied to the Morris Letter by denying Cigna’s suspicions: “NCMC’s prompt
pay policy does not waive any portion of NCMC’s charges for a service.” (Pl. Exh. 37 at
CIG-NCMC0011457.) NCMC wrote that Cigna “confuse[s] the amount that NCMC is
willing to accept from a patient that promptly pays the patient portion of charges with the
amount that NCMC is willing to accept for the entire charge.” (Id. (emphasis in
original).) The letter did not explain how much a patient would be charged by NCMC,
what portion of the patient charge would be waived, or how NCMC was calculating those
amounts. (Tr. 1-239:24-240:9, 241:22-242:19 (Behar).)
NCMC’s Chargemaster and Bills to Cigna
28. When NCMC treated patients covered by the Plans, it submitted claims to Cigna for
reimbursement of those services using UB-04 claims forms. (Tr. 3-47:11-14 (Sherry).)
29. The fee calculations used for the Prompt Pay Discount were not used to bill Cigna. (Tr. 347:21-48:5 (Jones).)
30. Instead, NCMC used its Chargemaster to bill Cigna—and all other insurers to whom it
submitted claims.
31. The Chargemaster is a database that NCMC maintains of all of the charges that NCMC
could bill for a service. (Tr. 5-39:8:12-13 (Tankersley).) For example, it has separate
prices for individual pharmacy items. (Tr. 5-40:1-7 (Tankersley).) Before the hospital
opened, a third-party consultant set the charges in the Chargemaster. (Tr. 5-41:18-42:1
(Tankersley).) After the hospital opened, NCMC increased all Chargemaster prices, with
the exception of pharmacy and supply prices, by five percent on an annual basis. (Tr.
5:42:2-12 (Tankersley).)

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32. NCMC would bill Cigna the sum of the Chargemaster prices for different products and
services provided. (Tr. 3:48:3-5 (Jones); Tr. 1-104:14-18 (Behar).) This means that
NCMC calculated charges for patients based on an entirely different set of numbers than
the charges for Cigna.3 (Compare Def. Exh. 105 (“Chargemaster”) to Def. Exhs. 101-104
(“NCMC Fee Calculators,” each for a different year); see also Tr. 5-149:24-150:8
(Tankersley) (testifying that the amounts on the UB-04 claims forms come from the
Chargemaster and the amounts used to calculate patient fees under Prompt Pay Discount
do not come from the Chargemaster.).
33. NCMC’s Chargemaster rates are higher than Medicare rates. (Tr. 6-20:15-21 (May).)
NCMC’s Chargemaster rates sometimes exceeded 600% or even 1,000% of the
analogous Medicare rates. (Tr. 6-20:15-24 (May).) For example, patient CDH received
gall bladder surgery at NCMC (Def. Exh. 84.) Patient CDH was charged $823.84. (Id. at
NCMC37 141599; Tr. 5-139:19-140:3 (Tankerlsey).) That amount was based on 20
percent—an in-network coinsurance rate—of $4,119.24, the amount calculated via the
Prompt Pay Discount, where $4,119.24 was 125 percent of Medicare. (Def. Exh. 84; Def.
Exh. 103 (“NCMC Fee Calculator 2011”) at 66; Tr. 5-136:21-24, 140:12-17
(Tankersley).) Patient CDH paid $823.84 within 30 days and was never going to be
charged more. (Tr. 5-140:18-25 (Tankersley).) For that same gall bladder surgery of
patient CDH, NCMC billed Cigna $30,968.70. (Def. Exh. 84 at NCMC37 141578; Tr. 5147:17-148:1 (Tankersley).) The amount that formed the basis of the patient’s charges
came from Medicare and does not appear on the bill to Cigna; the amount that was billed

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Later, when Cigna and NCMC entered into an in-network Hospital Services Agreement
on July 31, 2012, the parties agreed to billing based upon NCMC’s Chargemaster. (Def. Exh. 83
at 1.3 (defining “Billed Charges”), III(A) (addressing how Chargemaster charges could
increase).)
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to Cigna came from NCMC’s Chargemaster. (Tr. 5-149:24-150:8 (Tankerlsey).) The
Chargemaster amount was more than nine times the Medicare amount and more than
seven times the 125 percent of Medicare amount that was used to calculate the patient’s
fee. (See Tr. 5-147:21-24, 149:18-23 (Tankersley).) The claim submission to Cigna for
patient CDH noted “Prompt Pay Discount” in the “Remarks” section. (Def. Exh. 84 at
NCMC37 141578.) NCMC made that remark on all UB-04 claims forms where it applied
the Prompt Pay Discount. (Def. Exh. 33; Tr. 5-51:17-21, 156:25-157:9 (Tankersley).)
34. Cigna witnesses testified that they expected the total amount entered on the UB-04 claims
forms to be the amount used to calculate the patient’s responsibility, as well as Cigna’s
responsibility. (Tr. 4-90:10-14, 91:10-12, 99:7-20 (Sherry).) Neither the Notice of
Discount letters nor the “Prompt Pay Discount” written into the UB-04 claims forms
disclosed the use of Medicare or in-network coinsurance rates. (See Tr. 5-156:14-18
(Tankersley).)
35. Notes from an NCMC business meeting indicated that the Business Office “is not to
disclose prompt pay amounts to insurance carriers should insurance request such” (Def.
Exh. 50 at NCMC26 0075813), and, outside of this litigation, NCMC did not disclose the
Prompt Pay Discount amounts or method of calculation to plan administrators.
36. From the time that NCMC opened through November 16, 2008, Cigna paid NCMC for
claims using the total amount provided on the UB-04 claims forms, from the
Chargemaster, to determine the out-of-network coinsurance amounts. In other words,
Cigna would pay NCMC approximately 80 percent of the charges that NCMC submitted.
(Tr. 4-18:4-24 (Sherry).) Cigna was using the first part of the MRC-1 definition, not the
alternative MRC-1 approach that would have compared to other hospitals. (Id.)

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Cigna’s Investigation Into NCMC’s Billing Practices & Response
37. For ASOs, Cigna was administering the payment, but the payment was actually the
employer’s money. At least one ASO plan sponsor complained about increasing out-ofnetwork costs to both Cigna and NCMC. (Tr. 3-192:20-24 (Sherry) (noting that
employers like Cypress Fairbanks School District “were losing a lot of money”); Tr. 243:3-7 (Behar) (“the Cypress-Fairbanks School District suffered”); Def. Exh. 62 at
NCMC8 29893 (noting that 20 percent of the Cypress Fairbanks School District out-ofnetwork claims were being paid to NCMC, for a total of $1.3 million dollars, and that this
rate and amount were not sustainable for Cypress Fairbanks School District).) Cypress
Fairbanks School District informed NCMC that, because of the ASO’s increase in out-ofnetwork expenses, “much” of which it attributed to NCMC, it would be raising premiums
on employees. (Def. Exh. 62 at NCMC8 29896.)
38. High out-of-network expenses generally made Cigna suspicious of fee-forgiving
activities. (Pl. Exh. 108 (Ramirez Testimony from March 17, 2011) at 50-53.)
39. Wendy Sherry, President of Payer Solutions at Cigna, testified that, in response to
complaints from employers, Cigna “launched an investigation” that involved people from
multiple areas of Cigna. (Tr. 3-90:21-91:17, 192:15-193:3 (Sherry).) Other facilities,
including Northwest Surgical Center and Cy-Fair Surgery Center were also investigated.
(Tr. 3- 157:14-24 (Sherry).)
40. Cigna’s Special Investigations Unit (“SIU”) was involved in investigating NCMC. (Tr. 4216:2-10 (Sherry).) The SIU sent 34 survey letters to Cigna plan members (i.e. patients)
about NCMC and received 19 responses. (Def. Exh. 14 at ¶ 4 (Declaration of Katrina
Sharrow).) Seven members were billed nothing and paid nothing to NCMC; one member

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was billed and paid $45.00; four members were billed and paid $100.00; one member
was billed and paid $102.00; four members were billed and paid amounts ranging from
$320.00 to $575.12; one member was billed $3,000 by NCMC but paid nothing; and one
member could not remember if NCMC had billed her anything. (Id. at ¶ 7.) NCMC did
not bill any of the members the amounts they were required to pay under their plans. (Id.
at ¶ 7; see also Pl. Exh. 86.)
41. During its investigation, the SIU did not learn that NCMC was calculating patient
responsibility based on 125 percent of Medicare. (See Tr. 4-222:11-15 (Sherry).)
42. On November 10, 2008, Cigna informed NCMC, by letter, that Cigna believed there was
“evidence of a pattern of behavior by NCMC in which NCMC generally collects $100
from the CIGNA Participant, if any amount is collected at all.” (Pl. Exh. 39 at 00063637; Tr. 3-202:20-203:6 (Sherry).) In that letter, Cigna informed NCMC that it would
reimburse claims based on the assumption that a patient was only billed $100; therefore,
Cigna would imagine that $100 amount to be the patient’s coinsurance amount for out-ofnetwork services, and Cigna would pay the plan’s corresponding coinsurance amount
based on that. (Pl. Exh. 39.) This practice would continue until NCMC presented “clear
evidence” that: “(1) the charges shown on the NCMC submitted billing are NCMC’s
actual charges for the services rendered; and (2) the CIGNA participant has paid their
applicable out-of-network coinsurance and/or deductible in accordance with their Cigna
benefit plan.” (Id. at 000636-37.) This letter described, and marked the start of, Cigna’s
SIU’s “Fee-Forgiving Protocol,” which calculated the amount Cigna would pay based on
the assumption that the patient’s portion of the payment was $100. (Id.; see also Tr. 4217:15-20 (Sherry).)

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43. NCMC responded, “NCMC assures you that charges on claim forms submitted to Cigna
are NCMC’s actual charges . . . Cigna insureds are liable for amounts such as [out-ofnetwork] co-insurance and deductibles, though, as indicated in NCMC’s correspondence
and bills to CIGNA, the patient portion of charges may be reduced if a patient meets the
requirements of NCMC’s prompt pay policy.” (Pl. Exh. 46.)
44. Ms. Sherry testified that the Fee-Forgiving Protocol applied only to claims covered by
MRC-1, and not to claims covered by MRC-2. (Tr. 4-217:21-218:5 (Sherry).)
45. The Fee-Forgiving Protocol resulted in a sharp reduction in how much Cigna paid to
NCMC per claim. (See Pl. Exh. 64 at CIG-NCMC0082919 (“our spend[ing] at North
Cypress Medical Center as [sic] come down from $2Million/month to $200 thousand a
month”).)
46. One of Cigna’s goals in implementing the Fee-Forgiving Protocol was to get NCMC to
the negotiating “table” to work toward an in-network agreement. (See Pl. Exh. 16 at CIGNCMC0398827; Pl. Exh. 23; Pl. Exh. 53 (discussing what contract to offer NCMC after
implementing the Fee-Forgiving Protocol); Pl. Exh. 108 (Ramirez Testimony from March
17, 2011) at 104-05.)
47. Also when the fee-forgiving protocol began, Cigna stopped applying its cost-containment
program to NCMC claims subject to the Fee-Forgiving Protocol. (Tr. 4-44:23-45:4,
151:6-10 (Sherry) (noting, however, that Cigna did continue to collect vendor fees).)
Cost-containment programs can result in Cigna collecting savings in some circumstances.
Once the cost-containment programs were “turned off” with respect to NCMC claims, the
amount of money that Cigna made on NCMC claims decreased. (Id.; Pl. Exh. 85B
(summary of fees, showing that Cigna made significantly more money from fees on

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NCMC claims in 2008 before the protocol was in place, than it did for the entirety of
2009 to 2012, though it made money throughout); Pl. Exh. 62 (showing “a large savings”
of approximately $621,000 on North Cypress claims from December 2008).)
48. Once Cigna implemented the Fee-Forgiving Protocol, an initial reviewer would
determine if the claim submitted by NCMC was an MRC-2 claim, and then all other
NCMC claims were flagged and sent to the SIU. (Pl. Exh. 49; Pl. Exh. 50; Pl. Exh. 82
(“continue applying SIU processing rules to ALL claims at this point.”); Pl. Exh. 85D at
2 (Ms. Sherry’s handwritten notes stating, “[f]lag a provider  all claims go to SIU”);
Tr. 4-119:22-120:1 (Sherry) (Ms. Sherry confirming the meaning of her handwritten
notes).) The SIU would make a recommendation on the claim. (Pl. Exh. 104 (RemlingerSharrow Testimony from Feb. 3, 2017) at 64.) This was a change in practice from how
claims were previously processed.
49. Where there were processing errors, the claim processor would not follow the SIU’s
recommendation. (Id. at 66-67.)
50. After the Fee-Forgiving Protocol was implemented, Cigna’s SIU sent 29 more survey
questionnaires to plan members and received 8 responses. (Def. Exh. 14 at ¶ 9.). The
results of the responses were that five members were billed nothing and paid nothing, two
members were billed amounts greater than 0 but less than was required, and one member
could not remember, but thought NCMC had charged him a “copay” of “several hundred
dollars. (Id. at ¶ 11.)

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NCMC’s Appeals of Claims
51. Cigna maintained its position on the Fee-Forgiving Protocol in the months that followed,
even as NCMC protested and appealed some claims. (See Pl. Exh. 66; Pl. Exh. 70 (“July
31, 2009 Letter”).)
52. When NCMC appealed a claim to which the Fee-Forgiving Protocol was applied, Cigna
would respond by letter. Letters that upheld the original decision would say that it was
based on Cigna’s policy of not paying for charges that “patients are not legally obligated
to pay.” (See Pl. Exh. 86B at 1.) The letters would then explain the process for submitting
a second appeal. (See id. at 2.)
53. As set out in the plans, Cigna has a multi-level appeals procedure. (See Def. Exh. 1.014 at
CIG-NCMC0114174-5 (describing two levels of appeals and an additional, separate
“Independent Review Procedure”); Def. Exh. 1.035 at CIG-NCMC0582434-5 (same).)
Appeals of claims are to be “reviewed and the decision made by [someone/a health
professional] not involved in the initial decision.” (See Def. Exh. 1.014 at CIGNCMC0114174; Def. Exh. 1.035 at CIG-NCMC0582435.)
54. Ms. Sharrow, who worked for the SIU until April 2011 (Def. Exh. 14 at ¶ 2), was
involved in the appeals process. (Pl. Exh. 86). Notes indicate that Ms. Sharrow received
or handled thousands of appeals and “sent back w/ direction” or “sent back w/ with
instruction.” (Id.) The same notes indicate: “The appeals unit will are [sic] the ones who
make the final decision of how claim is going to be handled. SIU can only make
recommendations that is why we do not get involved with appeals.” (Id. at CIGNCMC0012252.) In a discussion of an NCMC claim on December 1, 2009, Ms.
Sharrow’s notes say, “We will continue to handle on a claim by claim basis.” (Id. at CIG-

16

NCMC0012254.) Notes from that same date state, “recd 1 appeal, handled without SIU
recommendation.” (Id.) In a discussion of an NCMC claim on November 4, 2009, Ms.
Sharrow writes, “I advised why OON [out-of-network] claim should remain denied and
recommended not to enhance since NCMC does not collect member responsibility,” but
indicates that if NCMC can show how member is being held responsible for the entire
amount, then she would advise differently. (Id. at CIG-NCMC0012256.) The SIU
sometimes communicated with Cigna’s in-house counsel. (See, e.g., Pl. Exh. 86 at CIGNCMC0012256.)
55. Sometimes the person reviewing the claim would respond to Ms. Sharrow’s
recommendation to indicate that the appeal would be upheld—and sometimes this
affirmation email would be sent the same day that Ms. Sharrow sent her
recommendation. (Pl. Exh. 86A at CIG0NCMC0547692.)
III.

CONCLUSIONS OF LAW

Legal Standard
1. A benefits plan participant may bring a civil action under ERISA § 502(a)(1)(B) “to
recover benefits due him under the terms of the plan, to enforce his rights under the terms
of the plan, or to clarify his rights to future benefits under the plan.” 29 U.S.C. §
1132(a)(1)(B). Healthcare providers may bring ERISA suits standing in the shoes of their
patients. N. Cypress I, 781 F.3d at 191.
2. ERISA claimants are required to exhaust administrative remedies prior to filing a lawsuit.
Denton v. First Nat’l Bank of Waco, 765 F.2d 1295, 1301 (5th Cir. 1985); see also Hall v.
Nat’l Gypsum Co., 105 F.3d 225, 231 (5th Cir. 1997) (the exhaustion requirement “is not
one specifically required by ERISA, but has been uniformly imposed by the courts in

17

keeping with Congress’s intent in enacting ERISA”). “Exhaustion is to be excused only
in the most exceptional circumstances.” Davis v. AIG Life Ins. Co., No. 95-60664, 1996
WL 255215, at *2 (5th Cir. Apr. 26, 1996) (citing Commc’ns Workers of Am. v. AT&T,
40 F.3d 426, 433 (D.C. Cir. 1994)). A claimant is excused from demonstrating
exhaustion if she can show that pursuit of administrative remedies would have been
futile. Bourgeois v. Pension Plan for Employees of Santa Fe Int’l Corps., 215 F.3d 475,
479 (5th Cir. 2000). To qualify for the futility exception to the exhaustion requirement,
the claimant must show a “certainty of an adverse decision.” Id. (citing Commc’ns
Workers of Am., 40 F.3d at 433) (emphasis in original); see also Rando v. Standard Ins.
Co., 182 F.3d 933 (10th Cir. 1999); Lindemann v. Mobil Oil Corp., 79 F.3d 647, 650 (7th
Cir. 1996). The claimant is also required to show hostility or bias on the part of the
administrative review committee. McGowin v. ManPower Int’l, Inc., 363 F.3d 556, 559
(5th Cir. 2004). The focus of futility is on the bias in the review process, not based on
company officials’ views. Bourgeois, 40 F.3d at 479–80 (reasoning that a “company’s
preclusive interpretation . . . does not establish that the actual Committee would not have
considered his claim.”); see also Commc’ns Workers of Am., 40 F.3d at 433 (“[T]his
Court will not assume that, merely because members of a pension-plan review committee
are drawn from a company’s management, the review committee will never reach an
interpretation of the plan different from that of the company.”).
3.

The Fifth Circuit has adopted a multi-step process for determining whether a plan
administrator such as Cigna abused its discretion in construing a plan’s terms.

4. “The first question is whether Cigna’s reading of the plans is ‘legally correct.’” Conn.
Gen. Life Ins. Co. v. Humble Surgical Hosp., L.L.C., 878 F.3d 478, 483 (5th Cir. 2017)

18

(“Humble”) (quoting North Cypress I, 781 F.3d at 195). The most important factor at this
stage is whether the contested interpretation is consistent with a fair reading of the plan.
Gosselink v. Am. Tel. & Tel., 272 F.3d 722, 727 (5th Cir. 2001). Because ERISA requires
that plan descriptions be written in a manner calculated to be understood by the average
plan participant, the court must assess whether the administrator’s interpretation is
consistent with the plan language in its “ordinary and popular sense.” 29 U.S.C. §
1022(a); Stone v. UNOCAL Termination Allowance Plan, 570 F.3d 252, 260 (5th Cir.
2009). Additional factors in determining whether an administrator’s interpretation is
legally correct include whether the administrator has given the plan a uniform
construction and whether there are any unanticipated costs resulting from different
interpretations of the plan. Crowell, 541 F.3d at 312. If the plan is legally correct, “the
inquiry ends and there is no abuse of discretion.” Humble, 878 F.3d at 483 (quoting
Stone, 570 F.3d at 257).
5. Second, if the court finds the insurer’s interpretation was legally incorrect, the court must
then determine whether it was an abuse of discretion. Id. This is the “functional
equivalent of arbitrary and capricious review.” Id. (citing Anderson v. Cytec Indus., Inc.,
619 F.3d 505, 512 (5th Cir. 2010) (quoting Meditrust Fin. Servs. Corp. v. Sterling
Chems., Inc., 168 F.3d 211, 214 (5th Cir. 1999))). “A decision is arbitrary if it is made
without a rational connection between the known facts and the decision.” Id. (citation
omitted). “[O]rdinarily,” the abuse of discretion factors that courts consider are “whether
[the administrator] had a conflict of interest, as well as the internal consistency of the
plan and the factual background of the determination and any inferences of lack of good
faith.” Id. at 484 (quotation omitted).

19

6. In some circumstances, “where an administrator’s interpretation is supported by prior
case law, it cannot be an abuse of discretion—even if the interpretation is legally
incorrect.” Id. (applying the rule that an administrator may interpret plans consistent with
prior case law without adopting this as a bright-line rule).
7. Third, the court determines whether the insurer’s decision to deny benefits was supported
by substantial evidence. Id. (citation omitted).
8. Deviation from the three-step test is possible; the court may “skip the first step if it can
more readily determine that the decision was not an abuse of discretion.” Id. at 483-84
(citing Holland, 576 F.3d at 246 n.2).
9. The abuse of discretion standard, however, does not apply to insurance policies that were
effective or amended after January 1, 2012; for those policies, courts apply de novo
review. Ariana M. v. Humana Health Plan of Texas, Inc., 884 F.3d 246 (5th Cir. 2018).
Reconsideration of Administrative Exhaustion
10. The Court granted summary judgment “to Cigna for all claims for which [NCMC] did not
exhaust administrative remedies.” (Doc. No. 521 at 15-16.) In 3 of 24 appeals presented
in the cross-motions for summary judgment, Cigna reversed its decision and paid the full
requested amount, and in 3 other appeals Cigna partially reversed itself. (Doc. No. 521 at
15-16.) The Court adopted Cigna’s claim-by-claim exhaustion analysis from summary
judgment briefing because NCMC failed to meaningfully address it. (Doc. No. 568.)
Thus, 575 claims for benefits remained under ERISA § 502(a)(1)(B).
11. Before trial, NCMC moved, for a second time, for the Court to reconsider its
administrative exhaustion ruling. (Doc. No. 577.) At trial, the Court permitted NCMC to
present exhaustion-related evidence in the form of an “offer of proof.”

20

12. First, NCMC’s present motion for reconsideration is largely based upon two exhibits that
were produced in discovery in August 2017 (after the Court’s ruling on exhaustion). (See
Doc. No. 578 (cover letter to document production, dated August 31, 2017.) The exhibits
are the case notes of members of the SIU at Cigna. (See Pl. Exh. 86.) NCMC argues that
these documents show that the SIU improperly controlled the appeals process, rendering
appeals futile.
13. The recently-produced case notes cover a critical time period, but the information in them
about how the SIU was involved in appeals was not new. The case notes produced in
August 2017 are a continuation of case notes that had been produced several years ago.
(Doc. No. 581-4 (Letter from J. Douglas Sutter to Joshua Simon, Aug. 14, 2017).) The
previously-produced notes covered the time period of November 8, 2008 through January
14, 2010. (Id.) The new notes cover the time period of January 14, 2010 through July 31,
2012. In summary, the case notes show that the SIU received or handled thousands of
appeals and “sent back w/ direction” or “sent back w/ with instruction.” (Pl. Exh. 86.)
They were being sent back to the actual claims administrators. The same “sent back with
direction” language appears in the earlier set of case notes; which were available to
NCMC years before the summary judgment motions and exhaustion rulings. (See Doc.
No. 582-5 at CIG-NCMC0012251.)
14. The recently-produced case notes do not alter the fact that—as Cigna demonstrated at
summary judgment—NCMC could not show certainty of denial because Cigna was
willing to grant some appeals and modify some payments. Also, there are occasional
instances where the case notes indicate that Cigna would “adjust” a claim based on how
much the patient paid the provider, demonstrating that, with more information about the

21

patient’s share of the payment, Cigna would reassess its benefits determination. (See Doc.
No. 578 at CIG NCMC0719000 (“With regards to NCMC your EOB reflects $250 but
we will adjust your claim accordingly since you paid the provider $1103.35.”), CIG
NCMC0719004 (“if the employer has proof of payment from a member showing what
the member paid at the time of service such as a credit card receipt, etc. we will adjust
claim accordingly possibly allowing an additional payment”).)
15. Second, NCMC maintains that the Court was wrong on the law by applying a “certainty
of an adverse decision” on appeal standard. This Court maintains that it applied the
correct standard. A claimant is excused from demonstrating exhaustion if she can show
that pursuit of administrative remedies would have been futile. Bourgeois, 215 F.3d at
479. To qualify for the futility exception to the exhaustion requirement, the claimant must
show a “certainty of an adverse decision.” Id. (citing Commc’ns Workers of Am., 40 F.3d
at 433) (emphasis in original).4
16. The cases that NCMC cites are inapposite. First, in Encompass Office Sols., Inc. v. Conn.
Gen. Life Ins. Co., 2017 WL 3260834 (N.D. Tex., July 31, 2017), the district court did
not reach the question of administrative exhaustion. Second, in Encompass Office Sols.,
Inc. v. La. Health Srv. & Indemn. Co., 2013 WL 12310676 (N.D. Tex. Sept. 17, 2013),
the district court was convinced that the single exhausted claim was evidence that seeking

4

NCMC suggests that instead this court follow an approach from another circuit, citing
to Productive MD, LLC v. Aetna Health, Inc., 969 F. Supp. 2d 901 (M.D. Tenn.). In Productive
MD, an out-of-network medical test provider alleged that a health insurer wrongfully failed to
pay claims in order to coerce it into network contract at unreasonably low reimbursement rates.
About 45 claims were exhausted and denied, and the provider argued that exhausting the others
(approximately 120 claims) would be futile. The district court agreed that it would have been
futile based on the futility factors set out in Fallick v. Nationwide Mut. Ins. Co., 162 F.3d 410
(6th Cir. 1998). The Fifth Circuit has never cited to Fallick. See also Gosselink v. Am. Tel. &
Tel., Inc., No. CIV.A. H-97-3854, 1999 WL 33737443, at *3 n.3 (S.D. Tex. Aug. 9, 1999).

22

further review of other claims meant they would be denied because the claims were “very
similar” and “would merely produce an avalanche of duplicative proceedings.” Id., at *15
(quoting In re Household Int’l Tax Reduction Plan, 441 F.3d 500, 501-02 (7th Cir. 2006)
(holding that unnamed class members are not required to exhaust remedies as a condition
to being members of the class)). Later in that case, the district court found a demand letter
indicating the insurer’s intention to reject any claim for benefits to be a compelling basis
for futility. (Findings of Fact and Conclusions of Law at 5, Encompass Office Sols., Inc.
v. La. Health Srv. & Indemn. Co., 3:11-cv-01471-M, ECV Doc. No. 601.) Here, in
contrast, Cigna explained what information was necessary on appeals and, once again,
did sometimes change the amount paid on a claim. Third, in Arapahoe Surgery Ctr. LLC
v. Cigna Healthcare, Inc., 2016 WL 1089697 (D. Colo., March 21, 2016), the district
court recognized that the Seventh Circuit applies the (same) certainty standard and found
that exhaustion was futile because of Cigna’s blanket fee-forgiving policy, but the district
court did not recognize that any claims were successfully appealed, in contrast to the
present circumstances.
17. Third, NCMC objects that Cigna’s appeal requirements were not clear and NCMC was
not provided the plans. This argument also fails. A plaintiff cannot be excused from
exhausting administrative remedies on the basis that he was not provided with plan
documents or a summary plan description unless there was no other way for him to know
how to appeal. Gonzalez v. Aztex Advantage, 547 Fed. Appx. 424, 428 (5th Cir. 2013)
(lack of summary plan description was no excuse for failure to exhaust administrative
remedies where the notice of denial clearly stated where to address the appeal); see also
Bourgeois, 215 F.3d at 480-81 (provided limited relief to a plaintiff who was not

23

provided a summary plan description where the only way the plaintiff could have found
the address of the appeals committee was in the summary plan description). Here, the
denial letters indicated the process for submitting a second-level appeal.
18. NCMC’s Motion for Reconsideration is DENIED.
Scope of Remaining Claims
19. The Fifth Circuit found that the patients assigned their rights under their insurance
contracts to NCMC, and that NCMC has standing under ERISA to enforce the contracts.
N. Cypress I, 781 F.3d at 191-95. On remand, at the summary judgment stage, NCMC
was unable to produce written assignments of benefits for a fraction of the benefits
claims. (Doc. No. 521 at 16.) The Court considered whether those patients had actually
assigned their benefits to be a disputed issue of material fact. (Id. at 17.) Based on
reliable trial testimony that all patients actually assigned their benefits, this Court finds
that all of the claims at issue were properly assigned to NCMC. See also Encompass
Office Solutions v. Cigna, 2017 WL 3268034, at *9 (N.D. Tex., July 31, 2017).
20. Of the 575 claims remaining at trial, 395 were MRC-2 claims. Cigna argued at trial that
395 of them were MRC-2 claims to which the Fee-Forgiving Protocol was not applied.
Trial testimony demonstrated that the parties no longer dispute the (non-emergency
room) MRC-2 claims. Cigna did not apply the Fee-Forgiving Protocol to the MRC-2 and
those are no longer within the scope of this case. NCMC’s own witness stated that the
Fee-Forgiving Protocol “was not intended to be applied against [MRC-2] claims” (Tr. 4187:9-13 (Sherry)), and NCMC’s expert admitted that Cigna generally didn’t apply the
Fee-Forgiving Protocol to MRC-2 claims (Tr. 5-196:16-18 (Tankersley)). Then, in its
post-trial brief, NCMC writes, “by its own admission, Cigna did not apply the [Fee-

24

Forgiving] Protocol to MRC-2 plan claims.” (Doc. No. 662 at 70.) This leaves 180
remaining claims.
21. Trial testimony also indicates that the parties no longer dispute the emergency room
claims. Where Cigna applied the Fee-Forgiving Protocol to them, those claims remain
within the scope of the dispute.
Reconsideration of Abuse of Discretion
22. All of the 180 claims remaining in this case are subject to self-funded plans or to
insurance policies that predate January 1, 2012. Therefore, the abuse of discretion
standard applies, and Ariana M. has no bearing on this case.
23. Before trial, this Court believed part of its legal analysis on NCMC’s ERISA §
502(A)(1)(b) claim was collaterally estopped by the district court decision in Connecticut
General Life Insurance Co., et al. v. Humble Surgical Hosp., LLC, C.A. No. 4:13-cv3291, 2016 WL 3077405 (S.D. Tex. Jun. 1, 2016). (Doc. No. 521 at 8-9 (applying
collateral estoppel and holding that Cigna’s interpretation of the plan language was
legally incorrect).) Shortly after trial in the present case, the Fifth Circuit vacated in part
and reversed in part the district court opinion that this Court previously relied upon.
Humble, 878 F.3d 478. Humble concerned Cigna’s application of the Fee-Forgiving
Protocol, and the Fifth Circuit stated, “even if [Cigna’s] construction of the plans’
exclusionary language was legally incorrect, its interpretation still fell within its broad
discretion.” Id. at 484. The Court will therefore reconsider its ruling on NCMC’s §
502(A)(1)(b) claim.
24. In two recent cases the Fifth Circuit has skipped the legal correctness analysis. Humble,
878 F.3d at 483-84 (citing Holland, 576 F.3d at 246 n.2). One of those cases involved

25

Cigna’s Fee-Forgiving Protocol, id, and the other involved NCMC’s Prompt Pay
Discount. This Court will do the same.
25. Cigna interpreted the plans to require an out-of-network healthcare provider to collect the
full portion of coinsurance from a patient. With the Fee-Forgiving Protocol, Cigna would
pay benefits claims amounts to NCMC based on the assumption that what NCMC
charged the patient was the correct coinsurance amount, calculated using the coinsurance
percentages in the plans. Thus, Cigna would assume that what the patient had paid was
40 percent of the “normal” charge for the service, and Cigna would pay the remaining 60
percent. Cigna invited NCMC to appeal these determinations by providing proof of the
amounts that the patient paid. (See Pl. Exh. 39.)
26. In Humble, Cigna had interpreted plans the same way. The Fifth Circuit held that Cigna’s
interpretation falls within its “broad discretion.” Humble, 878 F.3d at 484. Fifth Circuit
noted the Supreme Court’s explanation that deference to the plan administrator’s
decisions “serves the interest of uniformity, helping to avoid a patchwork of different
interpretations of a plan, like the one here, that covers employees in different
jurisdictions—a result that ‘would introduce considerable inefficiencies in benefit
program operation, which might lead those employers with existing plans to reduce
benefits, and those without such plans to refrain from adopting them.’” Id. (quoting
Conkright v. Frommert, 559 U.S. 506, 517 (2010)). The Fifth Circuit dismissed the
ordinary abuse of discretion factors in favor of a legal policy that “where a plan
administrator’s interpretation is supported by prior case law, it cannot be an abuse of
discretion—even if the interpretation is legally incorrect.” Id. (citing Hinkle ex rel. Estate
of Hinkle v. Assurant Inc., 390 Fed. Appx. 105, 108 (3d Cir.) (applying the rule that an

26

administrator may interpret plans consistent with prior case law without adopting this as a
bright-line rule); McGuffie v. Anderson Tully Col., 2014 WL 4658971, at *3-4 (S.D.
Miss. Sept. 17, 2014).
27. The Fifth Circuit concluded that Cigna did not abuse in Humble because “[a]t least two
other courts have effectively or explicitly concluded that the provision at issue here was
legally correct. Id. at 485 (citing Kennedy v. Connecticut General Life Insurance Co.,
924 F.2d 698, 701 (7th Cir. 1991) (the Seventh Circuit stated a nearly identical provision
“means that the patient must be legally responsible for the whole charge.”); N. Cypress I,
781 F.3d at 196 (this Court’s summary judgment ruling, which was vacated on other
grounds, was relevant for most of the relevant period that Cigna was interpreting the
disputed plan language here)).
28. One of the courts to which the Fifth Circuit referred had effectively concluded that the
provision at issue here was legally correct at the time that Cigna was administering
NCMC’s claims. In Kennedy, Judge Easterbrook had highlighted the benefits of requiring
patients to pay for part of their medical care, even when insured: “Co-payments sensitize
employees to the cost of health care, leading them not only to use less but also to seek out
providers with lower fees. The combination of less use and lower charges . . . makes
medical insurance less expensive and enables employers to furnish broader coverage (or
to pay higher wages coupled with the same level of coverage).” 924 F.2d at 699.
Accordingly, the Seventh Circuit found that Cigna was entitled to withhold payment
where a healthcare provider had intentionally collected its entire fee from Cigna by
waiving patient contribution. Id. The reasoning in Kennedy is sound.

27

29. Cigna explicitly relied on Kennedy by citing it in letters that Cigna sent to NCMC. (See,
e.g., Pl. Exh. 3B.)
30. Additionally, in a case that the Fifth Circuit recognizes involves “substantially similar
facts” as the instant case, the healthcare provider’s ERISA claim failed as a matter of law.
North Cypress Medical Center Operating Company, Ltd. v. Aetna Life Insurance
Company, No. 16-20674, 2018 WL 3635231, at *1 n.1 (5th Cir. July 31, 2018) (“North
Cypress II”). NCMC was also the plaintiff in North Cypress II, and brought an ERISA
claim against a different plan administrator for underpayment of benefits. NCMC was
also out-of-network with that insurer and offering patients the Prompt Pay Discount. The
plan administrator was recognized to have “discretionary authority to determine
eligibility for benefits and construe plan terms.” Id. at * 1.
31. In the interest of uniformity of decisions, Conkright, 559 U.S. at 517, and adhering to the
prior case law of Kennedy, Humble, 878 F.3d at 484, this Court concludes that Cigna did
not abuse its discretion.
32. A review of the traditional abuse of discretion factors supports this conclusion. First,
while Cigna had a conflict of interest, trial testimony that Cigna took steps to reduce its
conflict (with respect to the cost-containment plan). (Tr. 4-44:23-45:4, 4-151:6-10
(Sherry).) Cigna “turned off” the cost-containment programs that could result in Cigna
collecting savings in some circumstances when it implemented the Fee-Forgiving
Protocol. (Id.) Also, a trial exhibit showing summaries of fees revealed that Cigna made
significantly more money from fees on NCMC claims before the Fee-Forgiving Protocol
was in place than in the years in which it was implemented. (See Pl. Exh. 85B.) “[W]here
the administrator has taken active steps to reduce potential bias and promote accuracy,”

28

conflicts of interest are afforded less weight in the abuse of discretion analysis. Hagen v.
Aetna Ins. Co., 808 F.3d 1022, 1027 (5th Cir. 2015); see also Arapaho Surgery Center,
LLC, 171 F.Supp.3d at 1113 (even where there is a conflict of interest, a court can
conclude that an administrator did not abuse its discretion). Second, Cigna’s
interpretation of the plans was consistent with other parts of the plans.5 Third, this Court
previously concluded that the factual background and lack of good faith factor weighed
“heavily” in NCMC’s favor because there were “strong inferences” that Cigna did not act
in good faith. (Doc. No. 521 at 14.) The Court’s position was based on evidence that
Cigna’s “true motivation for the Fee-Forgiving Protocol was to negotiate an in-network
contract, not to prevent harmful externalities in the insurance market.” (Id.) Some trial

5

The Court’s conclusion about consistency of plan language is unchanged since
summary judgment. (See Doc. No. 521 at 12.) NCMC presented the same arguments then that it
does now. First, NCMC argues that the following two parts of the plans are inconsistent: (1)
Payment for “charges which [the patient is] not obligated to pay or for which you are not billed”
are “specifically excluded” from the plan; and (2) “The provider may bill you for the difference
between the provider’s normal charge and the Maximum Reimbursable Charge, in addition to
applicable deductibles, copayments and coinsurance.” (See Pl. Exh. 87 at CIG-NCMC0094360;
Def. Exh. 1.026 (“TransCore, LP ASO”) at CIG-NCMC0156030; Def. Exh. 1.035 (“Cy Fair ISD
ASO”) at CIG-NCMC0582421.) NCMC argues that Cigna’s interpretation converts the “may”
language to “shall” language. Those statements are not clearly inconsistent. Rather than reading
as if the provider has discretion as to whether to charge a patient their coinsurance amount, it
seems to suggest that the provider could charge patients more than their coinsurance amount
where the provider’s normal charge exceeds what reimbursements the plans contemplate.
Second, NCMC argues that Cigna interpreted the plan language inconsistently across
providers. This is not the question of internal inconsistency that the abuse of discretion factor
raises. And, in fact, Cigna has consistently reduced payments to out-of-network providers when
it concluded that the out-of-network providers were not collecting the full coinsurance amount.
Humble, 878 F.3d 478; Arapaho Surgery Center, LLC, 171 F.Supp.3d 1092.
Third, NCMC argues that Cigna applied its interpretation of the plans inconsistently
between MRC-1 and MRC-2 claims and between in-network and out-of-network providers.
(Doc. No. 662 at 79.) Again, NCMC’s arguments are not based on plan language inconsistencies,
but plan application inconsistencies. These arguments are unpersuasive. MRC-1 and MRC-2 are
different types of charges. Enforcing coinsurance rates for out-of-network providers and not for
in-network providers is consistent with the policy of encouraging patients to seek in-network
care to keep health care costs lower for the employers who fund the ASOs.
29

evidence suggests that both the Prompt Pay Discount and the Fee-Forgiving Protocol
were implemented to improve each party’s respective negotiating position. (See Def. Exh.
37 (“Access NCMC Powerpoint”) at NCMC26 0069499-501; Pl. Exh. 16 (“Targeted non
par facility e-mail and powerpoint”) at CIG-NCMC0398827; Pl. Exh. 23; Pl. Exh. 53
(discussing what contract to offer NCMC after implementing the Fee-Forgiving
Protocol).) At the same time, trial testimony presented two good faith bases for the FeeForgiving Protocol: (1) concerns that the employer sponsors of ASOs were losing money
while NCMC administered the Prompt Pay Discount and would have to raise the price of
insurance on all plan members (Tr. 3-192:20-24 (Sherry); Def. Exh. 62 (E-mail from
Jurney to Behar) at NCMC8 29896); and (2) the importance of “sensitiz[ing] employees
to the cost of health care, leading them . . . to seek out providers with lower fees” and
make medical insurance less expensive for all, Kennedy, 924 F.2d at 699. See also
SmileCare Dental Grp. v. Delta Dental Plan of Cal., Inc., 88 F.3d 780, 783 (9th Cir.
1996) (noting approval of an insurer prohibiting waiver of coinsurance).
33. The Court must also address whether Cigna’s interpretation was based on substantial
evidence.
34. “Substantial evidence is more than a scintilla, less than a preponderance, and is such
relevant evidence as a reasonable mind might accept as adequate to support a
conclusion.” Humble, 878 F.3d at 485 (quoting Corry v. Liberty Life Assurance Co. of
Bos., 499 F.3d 389, 398 (5th Cir. 2007)). In making this inquiry, the Court is “constrained
to the evidence before the plan administrator.” Id. (citing Killen v. Reliance Standard Life
Ins. Co., 776 F.3d 303, 312 (5th Cir. 2015)).

30

35. Where Cigna has reduced benefits payments based on survey responses, that show the
healthcare provider forgave out-of-network coinsurance amounts, courts have found
Cigna’s actions to be supported by substantial evidence. Both in Humble and in the
present case, Cigna sent surveys to patients who had received treatment at the applicable
provider and requested additional information. There, Cigna received 154 responses that
supported Cigna’s determination that the provider was fee-forgiving, and the Fifth Circuit
considered that substantial evidence. Humble, 878 F.3d at 485-86. Similarly, a district
court in Colorado concluded that where, as a result of patient surveys, Cigna concluded
that the provider was only charging patients 150 percent of Medicare and then paid the
provider accordingly, Cigna’s interpretation of the plans was based on substantial;
however, where Cigna completely denied coverage, it had abused discretion.6 Arapaho
Surgery Center, LLC, 171 F.Supp.3d at 1113.
36. Here, Cigna sent a total of 62 survey letters and received 19 responses before
implementing the Fee-Forgiving Protocol, as well as an additional 8 responses after
implementing the Fee-Forgiving Protocol. (Def. Exh. 14 at ¶¶ 4, 9 (Declaration of
Katrina Sharrow).) NCMC did not bill any of the members the amounts they were
required to pay under their plans. (Id. at ¶ 13; see also Pl. Exh. 86 (SIU Case Notes).)
Moreover, NCMC had informed Cigna, in Notice of Discount Letters and on UB-04
claims forms that it offered patients discounts, though NCMC did not explain the
discounts. (See, e.g., Pl. Exh. 1; Def. Exh. 84.) Cigna had substantial evidence of that
NCMC was discounting or forgiving out-of-network coinsurance.

6

It is unclear how many survey responses Cigna received in Arapahoe.
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37. Twelve of the 19 initial respondents said they were billed nothing and paid nothing. (Id.)
Five of the other initial respondents paid around $100, which is the amount that Cigna
believed NCMC was charging patients, as it told NCMC. (Id. at ¶ 7.) Cigna then
administered claims based on the assumption that the patients had paid $100 in
coinsurance. At no time—when collecting the survey responses or in communications
with NCMC prior to this litigation—did Cigna learn that NCMC was calculating patient
responsibility based on 125 percent of Medicare. Cigna had “more than a scintilla” of
relevant and reasonable evidence that the normal charges for claims produced $100
coinsurance amounts for patients. Humble, 878 F.3d at 485.
IV.

CONCLUSION
Any Finding of Fact that should be a Conclusion of Law shall be deemed such, and any

Conclusion of Law that should be a Finding of Fact shall be deemed such.
Based on the foregoing Findings of Fact and Conclusions of Law, the Court finds and
holds for Cigna. Accordingly, NCMC’s Motion to Compel Cigna to Adjudicate Claims (Doc.
No. 418) is DENIED as moot.
IT IS SO ORDERED.
SIGNED at Houston, Texas, on this the 7th day of August, 2018.

THE HONORABLE KEITH P. ELLISON
UNITED STATES DISTRICT JUDGE

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