Aetna Life Insurance Company v. Humble Surgical Hospital, LLC

Filing 310

OPINION on Debt and Truculence terminating 267 , 303 , 306 . Hospitals that obtain patients through illegal remuneration to them or their doctors may not be paid under the plans. (Signed by Judge Lynn N Hughes) Parties notified. (ghassan, 4)

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF TEXAS
United States District Court
Southern District of Texas

ENTERED
Aetna life Insurance Company,
Plaintiff,
'Versus

Humble Surgical Hospital, llC,
Defendant.

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December 31, 2016
David J. Bradley, Clerk

Civil Action H-I2-I206

Opinion on Debt and Truculence
I.

I nlroduclion.
A hospital waived patient fees and paid kickbacks to referring physicians. In

three years it billed more than $86.2 million to an insurer. Because the hospital's
dishonest bills and illegal payments tricked the insurer into overpaying claims, the
insurer can elect to take one of three remedies.

2.

Background.
Humble Surgical Hospital, llC, is a five-bed hospital in Humble, Texas. Since

it opened in August 2010, it has collected over $41.4 million from Aetna life Insurance
Company for services to Aetna members.

A.

Plans.

Aetna insures patients through an array of plans that vary broadly in cost and
coverage. All of the plans have three things in common: (a) the insurer pays a portion
of the patient's bill; (b) the insurer pays a smaller portion when the patient uses a
hospital with which the insurer does not have a fee schedule; and (c) the insurer does
not pay when a hospital waives the patient's share.

In-network healthcare providers contract with Aetna to serve patients at agreed
prices; out-of-network providers do not. A patient who seeks care from an out-ofnetwork hospital pays more out of his pocket than if he had used an in-network
hospital. Aetna does not have a relationship with Humble; it is outside of Aetna's
network of hospitals. Humble charges a lot more than a hospital in Aetna's network
would.

B.

Scheme.

Humble is a five-bed, out-of-network hospital that set its prices comparable to
major Houston hospitals. In fact, it used Memorial Hermann in the Medical Center
with 3,803 beds as its standard. Because no economically rational patient would choose
it over an in-network provider, Humble paid referral fees to doctors, waived patient
costs, and submitted inflated bills to Aetna.
Humble was joined byr03 doctors through a written proposal- printed in four
colors - that offered them thirty percent of facility fees it collected from Aetna in
exchange for referrals. Each doctor paid Humble only $3, 500 in yearly" administrative
and investment fees" - not a contribution of capital- to be entitled to the kickbacks.
To hide the referral-fee arrangement, the doctors created their own limited
liability companies - shell entities. Humble agreed with the shells that they would
pretend to assume Humble's billing responsibilities. Then they would do nothing,
giving Humble and its affiliate, K&s Consulting, LLC, (a) control of billing and
payments, and (b) five percent of the fees collected from Aetna. K&s Consulting would
charge Aetna - identifying only Humble as the provider - and Aetna would pay the
allowed amounts on each bill into Humble's bank account. Humble would kick back
to the shells thirty percent of the facility fee paid by Aetna. In sum, Humble got seventy
percent and the doctors got thirty percent. I
Humble also promised patients (a) that their out-of-pocket expenses would be
equal to or less than in-network, and (b) possibly a refund if their insurer paid in full.
Without disclosing the illegal conditions under which it agreed to treat patients,
Humble submitted claims. Aetna processed and paid them based on Humble's
certification that each one was "true, accurate, and complete."2

I

See the Appendix.

, UB-04 Uniform

Bill.

Aetna sues Humble for (a) money had and received, fraud, and negligent misrepresentation, and (b) relief under the Employee Retirement Income Security Act. The
court now addresses the claim for money had and received.3

3.

Monry Had and Received.
A case for money had and received looks solely to whether the defendant holds

money that belongs to the plaintiff. Aetna must show that Humble has been paid
money that - in equity - belongs to Aetna.4

A.

Assignments.

As an out-of-network provider, Humble is only entitled to a patient's benefits
through an assignment. 5 Despite having obtained assignments for its services only,
Humble testified that the shells actually performed the services for which Aetna paid.
No assignments exist from the patients to the shells, and Humble has no assignments
from the shells to bill and collect for their services. The shells are not licensed; had they
assigned any claims to Humble, the assignments would have been void for their
multifaceted illegality.6
Without an assignment, Humble has no right to be paid under Aetna's
contracts with the patients. Aetna will recover $41,4II,6so.98 from Humble for
overpayments from August 2010 through October 2013 - an amount that Humble
concedes.

3

Ij. Pomeroy, Equity Jurisprudence §§ 108, 174 (5th ed. 1941).

3 J Pomeroy, Equity Jurisprudence §§ 869, 910 (5th ed. 1941); Staats v. Miller, 243 s.w.2d
686,687 (Tex. 1951); City Bank of Hous. v. First Nat. Bank of Hous., 45 Tex. 203, 217-18
(18 7 6).

4

5

Harris Methodist Fort Worth v. Sales Support Servs., 426 F.3d 330, 333'34 (5th Cir. 2005).

6

Morrison v. City of Fort Worth, 155 s.w.2d 908, 909 (Tex. 1941).

B.

In-network.

Texas does not allow hospitals to bill patients one way and the plan another?
Humble is an out-of-network hospital, but it did not oblige patients to pay out-ofnetwork amounts. Instead, it told patients that its services' costs would be equal to or
less than at an in-network facility.
From August 2, 2010, to May II, 2012, Humble submitted $68,626,126]1
of out-of-network claims, and Aetna paid $27,813,°59.61. If Humble had billed Aetna
the same way it told the patients it would - at in-network rates - Aetna would have paid

$7,5 64,799.9 6.
Aetna will take $20,248,259.65 - the difference between what it paid Humble
as an out-of-network provider from August 2, 2010, to May II, 2012, and what it
would have paid Humble as an in-network provider.

C.

Kickbacks.

Humble tries to characterize its agreements with the unlicensed shells as leases
for use of its hospital. Unlicensed entities cannot lease hospitals. 8 An entity that does
nothing except cash checks does not need hospital space - it is a conduit. Humble's
agreements with the shells are referral-fee arrangements, not leases.
Texas prohibits hospitals from paying doctors to refer patients. 9 Because
Humble kicked back to the doctors thirty percent of its collections, Aetna is entitled to

$12,423,495.29 - thirty percent of the $41AII,650.98 it paid Humble.
4.

Preemption.
Aetna seeks to recoup money that it improperly paid because of Humble' s fraud.

Humble says that Aetna' s claims attempt to enforce the plans with state law, improperly
circumventing ERISA's enforcement provisions.

7 Tex. Ins. Code

§ 1204.055; Tex. Oee. Code § 101.201.

8 25 Tex. Admin. Code
9 Tex. Oee. Code

§ 133.2I(e)(1).

§ 102.001(a).

Claims that seek to enforce the plans -like a plaintiff suing an insurer for denial
of benefits - are covered by the Act. Aetna's claims do not seek to enforce the plans.
Aetna wants to recoup the money Humble tricked it into paying for no benefit at all to
the patients; the plans are merely the context of Humble's fraud.IO
The Act does not give comprehensive regulations and procedures for all
eventualities that might be tangentially related to a benefit plan. It is silent about
overpayment by an insurer to a provider. Recourse to the common-law right to recover
an insurer's overpayments does not interfere with the national scheme. I I Aetna's claims
are not preempted.

Defenses.

5.

Humble has no defense.

A.

Voluntary Payment.

Humble says that Aetna cannot recover because it knowingly paid what
Humble charged it when it could have contested those payments. Humble
misunderstands Aetna's claim. Aetna does not claim merely that Humble overcharged.

It says that Humble overcharged it and (a) did not charge patients as the plans required,
(b) did not provide the services for which it was billing, (c) had no assignments from
the shells, and (d) paid kickbacks to referring doctors.
Because Aetna had no knowledge of these facts and never led Humble to believe
that its bills would not be challenged if they turned out to be false, the voluntary
payment rule cannot apply.12

B.

Accord and Satisfaction.

Humble has not shown that Aetna disputed the bills, and intentionally agreed
to relinquish any claims it might have had against Humble for its overcharges.'3

IO

T rs. of AITRA Health Fund v. Biondi, 303 F.3d 765, 779 (7th. Cir. 2002).

II

Geller v. Cty.line Auto Sales, Inc., 86 F.3d 18, 19-23 (2nd Cir. 1996).

12 Miga v.Jensen, 299 S.W.3d 98,103 (Tex. 2009).
'3

Lopez v. Munoz, Hockema f:rReed, L.L.P.,

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S.W.3d 857,863 (Tex. 2000).

Aetna never released its right to seek a refund from Humble on any claim. In
fact, Humble expressly agreed that all payments by Aetna are subject to the patients'
policy and Aetna was not guaranteeing any payment.I4

C.

Unclean Hands.

Aetna's hands are clean. Humble is filthy up to the elbows from lies and corrupt
bargains.

D.

Express Contract.

Humble says that because it is an assignee of the patients' benefit plans, Aetna's
right to a refund is barred by the express contract rule. The plans do not cover
overpayments to a provider much less claims tainted by illegal inducements that lured
patients and doctors.Is
As explained, Humble has no assignments from patients. Even if it did,
overpayments under a contract can be recovered under a theory of restitution or unjust
enrichment. 16 Aetna's claims are not eliminated.

Sanctions.

6.

AssumingAetna's motion for judgment was not meritorious, Humble's answer
and counterclaims would be struck. From the beginning Humble has been recalcitrant
and obstreperous. Through six sets of lawyers, countless orders, hearings, and
conferences, Humble's behavior has ranged from openly defiant to evasive - always
feigning compliance. The court has admonished Humble time and time again. These
points are illustrative:

A.

Humble refused to comply with the court's orders to produce. A year
later, when threatened with contempt, Humble finally produced some
of its records, despite claiming that it had complied all along.

14

Dkt. No. 2.09- 12, Exhibit 6.

S. Williston, A Treatise on the Law of Contracts § I:6 (4th ed. I990); Fortune Prod. Co. v.
Conoco, Inc., S2 S.w.3d 67I, 683-84 (Tex. 2000).
IS I

16

Sw. Electric Power Co. v. Burlington N. R.R. Co., 966 s.w.2d 467,469'70 (Tex. I998).

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B.

In an effort to deliberately obstruct discovery, Humble removed from
its papers "some of the references to use and co-management
agreements in the summary as it would be prepared for Hughes. "'7

C.

Only after Aetna collaterally discovered in related litigation Humble's
use agreements did Humble admit it had them.

D.

Though it finally capitulated and produced what was ordered, Humble
restricted access to its papers by using the court's order on
confidentiality improperly - Humble designated all of its papers for
attorneys only without determining whether the restriction was proper.
It then blamed Aetna and sought sanctions against it for violating the
confidentiality order.

E.

Unhappy with the court's denying it relief, Humble surreptitiously
sought to re-litigate the issue by suing in Connecticut'S and
unjustifiably seeking to intervene in a proposed class action in New
Jersey.'9

This case has had a tortured existence, and the bulk of the activity has been
trying to force Humble to tell the truth. Humble has conducted guerrilla warfare against
this court, Aetna, the patients, and common decency.
Humble has been repeatedly warned about its conduct. It has been given the
opportunity to reform and has not done so. Its answer and counterclaims are struck as
a consequence of its malfeasance.

'7 Dkt. No. 2.60-1, Exhibit A.
,S Humble Surgical Hosp., LLC v. Aetna life Ins. Co., No. 13-1903 (D. Conn. filed Dec. 17,2.013).
'9

TRI 3 Enters., LLC v. Aetna, Inc., No. 11-392.1 (D. NJ filed May 16, 2.011).

7.

Conclusion.
Hospitals that obtain patients through illegal remuneration to them or their

doctors may not be paid under the plans. At its election, Aetna will take from Humble:

A.

$41,4II,650.98 - the amount Aetna paid Humble from August 2010

through October 2013;

B.

$20,248,259.65 - the difference between what Aetna paid Humble as

an out-of-networkproviderfromAugust 2,2010, to May I 1,2012, and
what it would have paid Humble as an in-network provider; or

C.

$12,423,295.29 - the thirty percent kickbacks paid by Humble with

Aetna's money.

Signed on December 31,2016, at Houston, Texas.

6<$

_

~j.11 ~ _____

LynnN.H'"
United States DistrictJudge

Appendix
Fund Flows
Aetna v. Humble Surgical Hospital

100% of Adjusted
Payment
Claim for
Hospital's Use

Kickback

Rebate as
Accounting

Claim for the Surgery
Aetna Paid in Full