Humana Insurance Company et al v. Houston Methodist Hospital et al

Filing 32

MEMORANDUM OPINION AND ORDER granting 21 MOTION for Partial Summary Judgment , mooting 31 Unopposed REQUEST for pre-motion conference. (Joint Discovery/Case Management Plan due by 7/26/2017. Scheduling Conference set for 7/28/2017 at 03:00 PM in Courtroom 9B before Judge Sim Lake.) (Signed by Judge Sim Lake) Parties notified. (aboyd, 4)

United States District Court
Southern District of Texas

ENTERED
July 17, 2017

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION

HOUSTON METHODIST HOSPITAL,
SAN JACINTO METHODIST HOSPITAL,
HOUSTON METHODIST ST. JOHN
HOSPITAL, HOUSTON METHODIST
ST. CATHERINE HOSPITAL,
METHODIST HEALTH CENTERS d/b/a
HOUSTON METHODIST WILLOWBROOK
HOSPITAL, HOUSTON METHODIST
WEST HOSPITAL, and HOUSTON
METHODIST SUGAR LAND HOSPITAL,
Plaintiffs,

V.

HUMANA INSURANCE COMPANY;
HUMANA MILITARY HEALTHCARE
SERVICES, INC. n/k/a HUMANA
GOVERNMENT BUSINESS, INC.;
HUMANA INC.; and HEALTH VALUE
MANAGEMENT, INC. d/b/a
CHOICECARE NETWORK,
Defendants.

§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§

David J. Bradley, Clerk

CIVIL ACTION NO. H-16-1469

MEMORANDUM OPINION AND ORDER

Plaintiffs, Houston Methodist Hospital, San Jacinto Methodist
Hospital, Houston Methodist St. John Hospital, Houston Methodist
St.

Catherine Hospital,

Methodist Health Centers d/b/a Houston

Methodist Willowbrook Hospital, Houston Methodist West Hospital,
and

Houston

"Methodist"),

Methodist
bring

Insurance Company

this

( "HIC") ,

Sugar
action

Land

Hospital

against

(collectively

defendants,

Humana

Humana Military Healthcare Services,

Inc. n/k/a Humana Government Business, Inc.
and

Health

Value

Management,

Inc.

("HGB"), Humana Inc.,

d/b/a

Choicecare

Network

( "Choicecare") (collectively "Humana") , asserting claims for breach
of contract, declaratory judgment pursuant to 28 U.S.C.
2202,

and violations of the Texas Insurance Code,

§§

2201-

specifically

provisions of the Texas Prompt Payment of Physicians and Providers
Act

(the "TPPA"), Texas Ins.

health

maintenance

Code Ann.

organizations

Chapter 843

("HMOs"),

and

(relating to
Chapter

1301

(relating to preferred provider benefit plans ( "PPBPs") .

Methodist

seeks

statutory

to

recover

penalties
arising

approximately

from Humana for
from

Medicare

$15,000,000.00

in

late payments of health care claims

Advantage,

1

fully-insured

ERISA, 2

and

individual commercial health plans.
Pending
Company,

before

court

is

Defendants

Humana Military Healthcare Services,

Government

Business,

Management,

Inc.

Summary Judgment
judgment

the

that

Inc.,

Humana

Inc . ,

Humana
Inc.
and

Insurance

n/k/a Humana
Health

Value

d/b/a Choicecare Network's Motion for Partial
(Docket Entry No.

Methodist's

TPPA

21) .

claims

Humana seeks
arising

from

summary
Medicare

Advantage and fully-insured ERISA health plans are preempted by
federal law.

Defendants also seek summary judgment that Humana

1

The Medicare Prescription Drug, Improvement and Modernization
Act of 2003, codified at 42 U.S.C. § 1305, et seq.
2

U.S.C.

Employee Retirement Income Security Act of 1974 ("ERISA"), 29
§ 101, et seq.
-2-

Inc. and HGB are not liable under the TPPA because none of the
plaintiffs' claims arise from health insurance policies issued by
those entities.

For the reasons stated below,

the motion for

partial summary judgment will be granted.

I.

Standard of Review

Summary judgment is authorized if the movant establishes that
there is no genuine dispute about any material fact and the law
entitles it to judgment.
material

facts

are

Fed. R. Civ. P. 56(a).

"genuine"

if

the

evidence

Disputes about
is

such

that

a

reasonable jury could return a verdict for the nonmoving party.
Anderson v. Liberty Lobby, Inc., 106 S. Ct. 2505, 2511 (1986)

The

Supreme Court has interpreted the plain language of Rule 56 to
mandate the entry of summary judgment "after adequate time for
discovery and upon motion,
showing

sufficient

to

against a party who fails to make a

establish

the

existence

of

an

element

essential to that party's case, and on which that party will bear
the burden of proof at trial."
S.

Ct.

"must

2548,

2552

(1986).

Celotex Corp.

v.

Catrett,

106

A party moving for summary judgment

'demonstrate the absence of a

genuine

issue of material

fact,' but need not negate the elements of the nonmovant's case."
Little v.

Liquid Air Corp.,

(en bane)

(per curiam) .

37 F.3d 1069,

1075

(5th Cir.

1994)

If the moving party meets this burden,

Rule 56 requires the nonmovant to go beyond the pleadings and show
by admissible evidence that genuine issues of material fact exist
-3-

for trial.

Id.

In reviewing the evidence "the court must draw all

reasonable inferences in favor of the nonmoving party, and it may
not make credibility determinations or weigh the evidence."

Reeves

v. Sanderson Plumbing Products, Inc., 120 S. Ct. 2097, 2110 (2000).
II.

Factual and Procedural Backqround3

Since at least March 1, 1999, Methodist and Humana have been
parties

to

Hospital

Participation

Agreements

("Provider

Agreements") and amendments thereto, in which Methodist agrees to
provide health care services to enrollees and beneficiaries of
Humana's health care plans in exchange for payment at a contractual
rate.

Humana

has

separate

contracts

with

the

enrollees

and

beneficiaries of its various health care plans including inter alia
Medicare Advantage health care plans ( "MA Plans") and fully insured
ERISA health care plans ("ERISA Plans").
On April 22, 2016, Methodist asserted a demand for arbitration
seeking over $15, 000, 000. 00
violations of the TPPA.

in statutory penal ties

for alleged

The demand for arbitration included a

spreadsheet with approximately 468 claims that Methodist alleged

3

The facts in this section are referenced in both Defendants
Humana Insurance Company, Humana Military Heal thcare Services, Inc.
N/K/A Humana Government Business, Inc., Humana Inc., and Health
Value Management, Inc. D/B.A. Choicecare Network's Motion for
Partial Summary Judgment ("Defendants' MPSJ") , Docket Entry No. 21,
pp. 11-14, and Plaintiffs' Response to Defendants' Motion for
Partial Summary Judgment ("Plaintiffs' Response") , Docket Entry
No. 23, pp. 9-11.
See also Declaration of Leslie Poff ( "Poff
Declaration"), Exhibit A to Defendants' MPSJ, Docket Entry No. 22,
and Affidavit of Bret Curran ("Curran Affidavit"), Exhibit 1 to
Plaintiffs' Response, Docket Entry No. 24-1.
-4-

Humana

paid

late. 4

Methodist

has

since

refined

its

list

of

allegedly late paid claims and grouped them into three categories:
( 1)

claims from MA Plans;

( 3)

claims

from

fully

$13,450,376.42

for

( 2)

claims from individual plans; and

insured

late

ERISA

payment

Plans. 5

of

MA

Methodist
Plan

seeks

claims,

and

$1,722,521.00 for late payment of fully insured ERISA Plan claims. 6
On May 25,

2016,

Humana filed its Original Complaint to Enjoin

Arbitration and for Declaratory Judgment
asserting

that

not

all

of

Methodist's

(Docket Entry No.
claims

are

subject

1) ,
to

arbitration.
On June 15, 2016, Methodist filed an Answer and Counterclaim
(Docket Entry No. 6)
is

moot

because

(1) stating that Humana's arbitration demand
Methodist

dismissed

the

previously

filed

arbitration proceeding in favor of asserting all of its claims in
this action and
contract,

(b)

( 2)

asserting counterclaims

violation of

the

Texas

for

(a)
Code

Insurance

breach of
based on

4

See Poff Declaration, Exhibit A to Defendants' MPSJ, Docket
Entry No. 22; and Spreadsheet, Exhibit A-1 thereto, Docket Entry
No. 22-1.
5

See Spreadsheet
Exhibit A- 2 to Defendants
MPSJ
Docket
Entry No. 22-2 (listing and color coding all of Methodist's claims:
Yellow for MA Plan claims; blue for individual plan claims; and
purple for fully insured ERISA plan claims) ; and Table, Exhibit A-3
to Defendants' MPSJ, Docket Entry No. 22-3 (identifying the claims
set forth in Exhibit A2, lines 2-332 as MA Plan claims, Lines 335340 as individual plan claims; and lines 343-358 as fully insured
ERISA Plan claims) .
6

I

I

Plaintiffs' Response, Docket Entry No. 23, p. 11.
-5-

I

Humana's alleged failure to timely pay for services in violation of
the TPPA, and (c) declaratory judgment that Methodist's TPPA claims
were not preempted by federal law.
named two additional defendants:
f/k/a Memorial

Sisters

of

Health Value Management,

Humana Health Plan of Texas, Inc.

Charity

Inc.

Methodist's counterclaim also

Insurance

( "HHP Texas")

and

d/b/a National Transplant Network

( "NTN") .
On July 18, 2016, Methodist filed (1) an Unopposed Motion to
Dismiss Without Prejudice as to Claims and Causes of Action Against
Humana Health Plan of Texas, Inc. f/k/a Memorial Sisters Of Charity
Insurance

And

Health

Value

Management,

Inc.

d/b/a

National

Transplant Network, (2) an Unopposed Motion to Realign the Parties,
and

(3)

an Unopposed Motion for Leave to File Amended Complaint

(Docket Entry No. 10)

The court granted Methodist's motion and

dismissed Methodist's claims against HHP Texas and NTN without
prejudice, realigned the parties so that the Methodist entities are
now the plaintiffs and the Humana entities are now the defendants,
and granted Methodist leave to file an amended complaint

(Docket

Entry No. 11) .
On August 11, 2016, Methodist filed Plaintiffs' First Amended
Complaint

(Docket Entry No.

12), asserting claims for breach of

contract,

violation of the TPPA' s

timely pay requirements,

and

declaratory judgment that its TPPA claims are not preempted by
federal law.

On September 6, 2016, Humana filed Defendants' Answer

-6-

to Plaintiffs'

First Amended Complaint and Counterclaim

(Docket

Entry No. 15) seeking declaration that Methodist's TPPA claims are
preempted by federal law; and on November 18, 2016, Humana filed
the pending motion for partial summary judgment.
III.

Analysis

Methodist's TPPA claims seek statutory penalties for Humana's
failure to pay "clean claims" within time periods required by the
Texas Insurance Code, i.e., Chapter 843 for claims from HMOs, and
Chapter 1301 for claims from PPBPs.

A "clean claim" is one that

complies with the applicable sections of the Texas Insurance Code.
See Tex.

Ins.

Code

843.336(a)

§§

and 1301.101.

Humana seeks

summary judgment on Methodist's TPPA claims arising from MA Plans
as expressly preempted under the Medicare Act, 42 U.S.C.

§

1395,

et seq., and on claims arising from fully insured ERISA Plans as
preempted
§

by

ERISA' s

express

preemption

provision,

1144 (a) , and principles of conflict preemption.

29

U.S. C.

Defendants' MPSJ

also seeks dismissal of the claims asserted against Humana Inc. and
HGB because neither of

these

entities

issued health

policies from which Methodist's TPPA claims arise. 7

insurance

Asserting that

the TPPA merely regulates the time for payment of clean claims, and
does not involve provision of benefits, Methodist argues that its
TPPA claims are not preempted. 8

7

Defendants' MPSJ, Docket Entry No. 21, pp. 11 and 14.

8

Plaintiffs' Response, Docket Entry No. 23, p. 11.
-7-

A.

Applicable Law

1.

Federal Preemption Law

Federal law recognizes both express and implied preemption.
Gade v. National Solid Wastes Management Association, 112 S. Ct.
2374,

2383

(1992).

explicitly

state

"Express

its

intent

preemption
to

preempt

requires
relevant

Congress
state

United States v. Zadeh, 820 F.3d 746, 751 (5th Cir. 2016)

to

laws."
(citing

Pacific Gas & Electric Co. v. State Energy Resources Conservation

& Development Commission, 103 S. Ct. 1713, 1722 (1983), and Jones
v. Rath Packing Co., 97 S. Ct. 1305, 1309 (1977)).

Absent explicit

preemptive language, the Supreme Court has recognized at least two
types

of

implied

preemption.

Id.

field

preemption:

preemption

and

conflict

"Field preemption occurs when Congress intends to

'occupy the field,' taking over a field of law to the exclusion of
state or local authority."

Id.

(quoting Sprietsma v.

Marine, 123 S. Ct. 518, 527 (2002)).
two forms:

Mercury

"[C]onflict preemption takes

(i) when compliance with both state and federal law is

impossible, and (ii) when a state law 'stands as an obstacle to the
accomplishment and execution of the full purposes and objectives of
Congress. '"

Id.

"Federal preemption of state law is fundamentally

'a question of Congressional intent.

I

II

Burkey v. Government

Employees Hospital Association, 983 F.2d 656, 659 (5th Cir. 1993)
(quoting English v.

General Electric Co.,

(1990)) .

-8-

110 S.

Ct.

2270,

2275

2.

Texas Prompt Pay Act

The

TPPA

requires

insurers

receiving

a

"clean

claim"

to

determine, within specified times, whether the claim is payable:
45

days

claims.
( 2)

for

non-electronic

claims

and

30

days

for

electronic

Within these times insurers must either (1) pay the claim,

partially pay and partially deny the claim and notify the

provider in writing of the reason for partial denial, or (3) deny
the claim in full and notify the provider in writing of the reason
for denial.

Tex. Ins. Code

§§

843.338, 1301.103.

The parties do

not dispute that the claims at issue in this action are "clean
claims." 9

The TPPA imposes a range of penalties for late payment

of payable "clean claims."

Tex.

Ins.

Code

§

843.342

(imposing

penalties when "a clean claim submitted to a health maintenance
organization is payable and the health maintenance organization
does not determine under this subchapter that the claim is payable
and pay the claim on or before the date the HMO is required to make
a

determination or adjudication of

the

claim"),

§

1301.137 (a)

(imposing penalties when "a clean claim submitted to an insurer is
payable and the insurer does not determine .

. that the claim is

payable and pay the claim on or before the date the insurer is
required to make a determination or adjudication of the claim").

9

Defendants' MPSJ, Docket Entry No.
Response, Docket Entry No. 23, p. 9.
-9-

21,

p.

11;

Plaintiffs'

B.

Methodist's TPPA Claims Arising from MA Plans Are Preempted.

1.

Medicare and Medicare Preemption

The Medicare program, which provides medical insurance for the
aged and disabled, is administered by the Center for Medicare and
Medicaid Services

( "CMS"),

Health and Human Services

a division of the U.S. Department of
( "HHS") .

See RenCare,

Ltd. v. Humana

Health Plan of Texas, Inc., 395 F.3d 555, 556 (5th Cir. 2004).
Medicare Act, 42 U.S.C.

§§ 1395-1395fff, consists of five parts,

labeled parts A, B, C, D, and E.
v.

Sebelius,

Part C -

499 F.

See Memorial Hospital at Gulfport

App'x 393,

395

(5th Cir.

2012).

the only part relevant to this case

passage of the Balanced Budget Act of 1997,
called the Medicare+Choice
Medicare+Choice
( June 2 9 ,

2000 ) .

Program

(M+C) program.
("M+C"),

65

Medicare

was created by

and was originally

See Medicare Program;

Fed.

Reg.

40170,

40171

M+C allowed Medicare eligible individuals to

receive benefits through a variety of private health plans.

Id. at

In 2003 Congress later passed the Medicare Prescription

40172.
Drug,

The

Improvement, and Modernization Act, which replaced the M+C

program with the Medicare Advantage

( "MA")

program.

Medicare

Program; Establishment of the Medicare Advantage Program, 70 Fed.
Reg. 4588, 4589 (Jan. 28, 2005).
Under the MA program CMS contracts with HMOs and other private
entities for health care services to Medicare enrollees.
4589-90.

Id. at

Entities entering into MA contracts with CMS are called

MA organizations.

42

C.F.R.

§

422.2.

-10-

MA organizations must

satisfy detailed requirements to qualify for inclusion in the MA
program.

42 C.F.R.

422.503.

§

enter into a contract,
organization
§

for

422.304(a).

Once CMS and an MA organization

CMS makes capitation payments to the MA

enrollee

health

care

services.

42

C.F.R.

A capitation payment is "a fixed per enrollee per

month amount paid for contracted services without regard to the
type,
§

cost,

or

frequency

422.350(b).

"assume [s]

Upon

full

provision of

of

payment

financial

the

services
from

furnished."

CMS,

the

MA

42

C.F.R.

organization

risk on a prospective basis for the

health care

services

required to be provided," 42 U.S.C.
and maintain arrangements

§

for

which benefits

are

1395w-25(b), and "must adopt

satisfactory

to

CMS

to

protect

its

enrollees from incurring liability (for example, as a result of an
organization's
payment

of

any

organization."

insolvency or other
fees

that

42 C.F.R.

are
§

the

financial
legal

422.504(g) (1).

difficulties)

obligation of

for

the

MA

MA organizations may

contract with third parties for administrative and health care
services to enrollees.

42 C.F.R.

§

422.200-204.

Contracts between

MA organizations and providers are negotiated freely,

federal

requirements.

regulations

MA

with few

do however require

that

contracts between MA organizations and providers contain prompt pay
provisions.

See 42 C.F.R.

§

422.520.

The Medicare Act contains an express preemption provision
stating:

-11-

Relation to State laws. The standards established under
this part shall supersede any State law or regulation
(other than State licensing laws or State laws relating
to plan solvency) with respect to MA plans which are
offered by MA organizations under this part.
42

U.S.C.

§

1395w-26 (b) (3) (2003).

Before

2003

the

Medicare

preemption provision stated that federal standards would supersede
state law and regulations with respect to MA Plans only if a state
law or regulation was "inconsistent" with Medicare standards.
U.S.C.

§

1395w-26(b) (3) (A) (2000) . 10

The

legislative

42

history

reflects that the 2003 amendment was intended to increase the scope
of preemption, stating that "the [MA Program] is a federal program
operated under Federal rules and that State laws,
should not apply,

do not,

and

with the exception of state licensing laws or

state laws related to plan solvency."

H. Conf. Rep.

108-391 at

557, reprinted in 2003 U.S.C.C.A.N. 1808, 1926 (November 21, 2003).
CMS has however stated that preemption occurs only when CMS creates
standards in the area regulated.

See Medicare Prescription Drug

Benefit, 70 Fed. Reg. 4194-01, 4320 (January 28, 2005).
2.

Application of the Law to the Undisputed Facts

Humana argues that Methodist's TPPA claims arising from MA
Plans are preempted by the Medicare Act because the TPPA is a state

10

The
state
standards
specifically
superseded
were:
"(i) Benefit requirements (including cost-sharing requirements).
(ii) Requirements relating to inclusion or treatment of providers.
(iii) Coverage determinations (including related appeals and
grievance processes).
(iv) Requirements relating to marketing
materials and summaries and schedules of benefits regarding a
Medicare+Choice plan."
42 U.S.C. § 1395w-26 (b) (3) (B) (2000),
amended by 42 U.S.C. § 1395w-26(b) (3) (2003).
-12-

law with respect to MA Plans that "is neither a state licensing law
nor a

law relating to plan solvency which

saved

from

standards

MA preemption, " 11

governing

and

because

prompt

the only laws

[were]
"CMS

payment

has

established

providers." 12

of

In

support of its argument, Humana cites South Texas Health System v.
Care

Improvement

Plus

of

Texas

Insurance

Co.,

Civil

Action

No. 7:14-CV-912, 2015 WL 9257021, at *6 (S.D. Tex. Sept. 28, 2015)
("The Court finds that the Secretary of

[HHS],

through CMS,

has

established, by regulation, standards under Part C of Medicare that
regulate the prompt payment of claims under MA Plans.

Accordingly,

Plaintiff's claims under the [TPPA] are expressly preempted.") ; and
General Surgical Associates, P.A. v. Humana Health Plan of Texas,
Inc., No. SA-14-CA-31-RP (HJB), 2015 WL 1880276, at *8
March 17,

2015)

("Because CMS 'actually create[d]

(W.D. Tex.

standards'

for

the prompt payment of claims, the TPPA is expressly preempted under
[42 U.S. C.]

§

13 95w-26 (b) ( 3) . ") , report and recommendation adopted

sub nom. General Surgical Associates, P.A. v. Humana Health Plan of
Texas,

Inc.,

No.

5:14-CV-031-RP,

2015

WL

1880298

(W.D.

Tex.

April 23, 2015).
Methodist argues that its TPPA claims arising from MA Plans
are not preempted because the TPPA is not a state law with respect
to

MA

Plans

but

is,

instead,

a

state

law

with

uDefendants' MPSJ, Docket Entry No. 21, p. 17.
12Id.

-13-

respect

to

arrangements,
providers. 13

i.e.,

contracts

Citing RenCare,

between

at 559,

MA

organizations

and

Methodist argues that the

Fifth Circuit has recognized that the CMS regulations governing
prompt payment regulate arrangements or provider agreements, not MA
Plans. 14
(a)

The TPPA is a State Law "With Respect to" MA Plans.

As Methodist recognizes
an "MA Plan" is a "plan of health insurance" or a plan
providing "health benefits coverage" offered by an MA
Organization.
Thus,
the Medicare Act preemption
provision is intended to expressly preempt "any State law
or regulation
with respect to [plans of health
insurance or health benefits coverage plans] which are
offered by MA organizations under this Part [C] . " 15
Methodist's argument that the TPPA is not a state law with respect
to MA Plans because

the TPPA regulates only arrangements with

providers is contradicted by provisions of the Texas Insurance Code
expressly stating that the TPPA applies to HMOs and to insurers.
See Tex. Ins. Code
HMOs

receiving

providers); and

§

843.338 (imposing timely pay requirements on

clean
§

claims

1301.103

from

participating

physicians

or

(imposing timely pay requirements on

insurers receiving clean claims from preferred providers) .

The

Texas Insurance Code states that "'Health Maintenance Organization'
means a person who arranges for or provides to enrollees on a

13

Plaintiffs' Response, Docket Entry No. 23, pp. 11-20.

14

Id. at 22.

15

Id. at 14.
-14-

prepaid basis a health care plan,
plan,
§

or

a

single

843.002(14),

and

health
that

care

a limited health care service
service

'"Insurer'

plan,"

means

a

Tex.

life,

Ins.
health,

Code
and

accident insurance company, health and accident insurance company,
health insurance company, or other company operating under Chapter
841,

842,

deliver,

884,

885,

or issue

policies."

982,

or 1501,

that is authorized to issue,

for deli very in this

Tex. Ins. Code§ 1301.001(5).

state health insurance
Moreover, the provision

governing the TPPA' s applicability to preferred providers expressly
states that it applies to preferred provider benefit plans:
(a)
Except as otherwise specifically provided by
this chapter, this chapter applies to each preferred
provider benefit plan in which an insurer provides,
through the insurer's health insurance policy, for the
payment of a level of coverage that is different
depending on whether an insured uses a preferred provider
or a nonpreferred provider.
{b)
Unless otherwise specified,
an exclusive
provider benefit plan is subject to his chapter in the
same manner as a preferred provider benefit plan.
Texas

Ins.

Code

§ 1301.0041

provision identifies plans

(a)- (b) .

Subsection

(c)

to which that chapter of

of

the Texas

Insurance Code does not apply:
(c) This chapter does not apply to:
(1) the child health plan program under Chapter 62,
Health and Safety Code; or
(2) a Medicaid managed care program under Chapter
533, Government Code.
Texas Ins. Code

§

1301.0041 (c).

-15-

this

Because

the

TPPA provisions

of

the

Texas

Insurance

Code

expressly apply to HMOs who receive clean claims from participating
physicians or providers and to insurers who receive clean claims
from preferred providers, because the applicability provision of
Chapter 1301 governing PPBPs expressly exempts some plans but does
not mention MA Plans,

and because Methodist

fails

to cite any

provision of the Texas Insurance Code showing that the TPPA is a
state law with respect to arrangements or provider agreements, the
court concludes that the TPPA is not state law that only regulates
providers,

as Methodist argues -

a

arrangements, i.e., contracts with

but is instead a state law with respect to HMOs and

insurers who provide preferred provider and exclusive provider
benefit plans, including MA Plans.
(b)

CMS Standards Exist for Prompt Payment of Claims.

In Part C of the Medicare Act Congress expressly preempted all
but a limited number of state laws,
licensing or plan solvency.

i.e., state laws relating to

See 42 U.S.C.

§

1395w-26 (b) (3) (2003).

The parties do not dispute that the TPPA does not fall
limited category of state laws excepted from preemption.

in the
CMS has

stated, however, that preemption "operates only when CMS actually
creates standards in the area regulated."
Drug Benefit,

70 Fed. Reg.

4194-01,

4320

Medicare Prescription
(Jan.

28,

2005).

Even

though the court has concluded that the TPPA is a state law with
respect to MA Plans, Methodist's TPPA claims will only be preempted
if CMS has created standards for prompt payment of claims.
-16-

Citing 42 C.F.R.

§

422.520,

Humana argues that Methodist's

TPPA claims are preempted because CMS has created standards for
prompt payment of claims . 16 Asserting that
between non-contracted providers

§

422.4520 distinguishes

and contracted providers

like

itself, Methodist responds that its TPPA claims are not preempted
because
provider
§

they

arise

from

agreements . 17

the

parties'

Methodist

private

argues

that

arrangements
under

422.520 there is a distinction between subsection

42

or

C.F.R.

(a),

which

governs providers who do not have arrangements with insurers or who
choose to submit claims on behalf of enrollees under the enrollees'
MA private fee-for-service plans and agree to accept payment for
their services at rates determined under the plans,

pursuant to

which the TPPA would be a regulation with respect to an MA Plan,
and

subsection

(b)

pursuant

to which

the

TPPA,

as

applied to

providers who make claims based on their arrangements, pursuant to
which the TPPA would not be a state regulation with respect to MA
Plans. 18

Methodist argues that

[p]roviders who choose to accept payment under the terms
of an enrollee's MA Plan cannot recover under [the] TPPA
because (1) a provider must have a contract with the
insurer to assert TPPA claims (see Christus Health Gulf
Coast v. Aetna, Inc., 397 S.W.3d 651, 654 (Tex. 2013)
(holding "the Prompt Pay Statute contemplates contractual
privity between HMOs and providers")) and (2) even if the

16

Defendants' MPSJ, Docket Entry No. 21, p. 17 & n.20.

17

Plaintiffs' Response, Docket Entry No. 23, pp. 14-20.

18

Id. at 16-17.
-17-

provider has a contract, the TPPA would be preempted as
applied to claims asserted in this manner.
In these
circumstances, i.e., claims asserted pursuant to an MA
Plan, the TPPA would be a regulation "with respect to MA
Plans. " 19
Methodist contends, however, that
[a] different result obtains under [§] 422.520(b). That
section covers situations in which the MA Organization
and the Provider have a contract, transforming the
relationship into an "Arrangement."
Because "MA Plan"
does not include "Arrangements," subsection (b) is not a
regulation with respect to an MA Plan.
Likewise, then,
the TPPA, as applied to providers who make claims
pursuant to their Arrangements, is not a State law or
regulation with respect to MA Plans.
Because Medicare
preemption only applies to "State laws or regulations
with respect to MA Plans," TPPA as applied to
Methodist's claims based on its Arrangements with
Defendants does not fall within Medicare's domain of
preemption. 20
Citing RenCare, 395 F.3d at 559, Methodist argues that "the Fifth
Circuit

has

recognized

[that

§]

422.520(b)

regulates

MA

organization-provider contracts (Arrangements), not MA Plans." 21
Humana

responds

"Methodist's

that

reconciled against 42 U.S.C.

§

position

cannot

be

1395w-26(b) (3) 's express preemption

language, nor can it be sustained in the face of applicable legal
authority which recognizes
law,

[that]

federal regulations, not state

govern Humana' s prompt payment obligations. " 22

19

Id. at 17.

21

Humana also

Id. at 22.

22

Humana Defendants' Reply to Plaintiffs' Response to the
Humana Defendants' Motion for Partial Summary Judgment ("Humana's
Reply"), Docket Entry No. 25, p. 4.
-18-

argues that Methodist's reliance on RenCare, 395 F.3d at 555, is
misplaced

because

that

case

involved

field

preemption

and

exhaustion of administrative remedies and did not involve express
preemption at issue here. 23
The CMS regulation at 42 C.F.R.

§

422.520 requires contracts

between CMS and MA organizations, and between MA organizations and
health care providers, to contain prompt pay provisions:
(a)

Contract between CMS and the MA organization.
(1)

(2)

All other claims from non-contracted providers
must be paid or denied within 60 calendar days
from the date of the request.

(1)

Contracts
between
MA
organizations
and
providers and suppliers. Contracts or other
written agreements between MA organizations
and providers must contain a prompt payment
provision, the terms of which are developed
and agreed to by both the MA organization and
the relevant provider.

(2)

23

The MA organization must pay interest on clean
claims that are not paid within 30 days in
accordance with sections 1816(c) (2) (B) and
1842 (c) (2) (B) .

(3)

(b)

The
contract
between
CMS
and
the MA
organization
must
provide
that
the
MA
organization will pay 95 percent of the "clean
claims" within 30 days of receipt if they are
submitted by, or on behalf of, an enrollee of
an MA private fee- for- service plan or are
claims for services that are not furnished
under
a
written
agreement
between
the
organization and the provider.

The MA organization is obligated to pay
contracted providers under the terms of the
contract between the MA organization and the
provider.

Id. at 3 and 10.
-19-

Methodist's argument that the distinction in§ 422.520 between
contracted and non-contracted providers precludes preemption of
TPPA claims arising from arrangements or provider agreements with
Humana fails because the text of § 422.520 provides standards for
prompt payment of claims regardless of whether they are submitted
by contracted or non-contracted providers.

Section 422.520(a)

requires prompt payment of claims for enrollees "of an MA private
fee- for- service

plan"

and

"claims

for

services

that

are

not

furnished under a written agreement between the organization and
42

the provider. "
provides

CMS

for

receive

"from

422.520(a) (3).

§ 422.520(b) (1)

For

That section also

§ 422.520(a) (1).

oversight

organizations
§

C.F.R.

prompt

payment

of

non-contracted

contracted

claims

that

providers."

providers

like

MA
Id.

Methodist,

requires MA organizations like Humana to include

prompt pay provisions

in their contracts,

and

§

422.520 (b) ( 2)

states that "[t]he MA organization is obligated to pay contracted
providers

under

organization

the

and

§ 422.510(a) (4) (v)

terms

the

of

the

contract

between

Moreover,

provider."

the

42

MA

C.F.R.

authorizes CMS oversight regarding payment of

contracted and non-contracted providers alike; in either case, "CMS
terminate a

may

contract

if CMS determines

that

the MA

organization . . . [s]ubstantially failed to comply with the prompt
payment requirements in§ 422.520."
Humana

has

submitted

evidence

42 C.F.R. § 422.510(a) (4) (v).
that

the

amended

Hospital

Participation Agreements between Humana's MA entity, Health Value
-20-

Management, Inc. d/b/a Choicecare Network, and Methodist effective
January 2012 and March 2015 include prompt-pay provisions.
pertinent part the January 2012 agreement states:

In

"The parties

agree that Payor will process all claims for Covered Services which
are accurate and complete ("Clean Claims") within thirty (30) days
from the date of receipt.

For the purpose of this Amendment, Clean

Claims means claims that conform to the requirements under original
Medicare." 24

In pertinent part the March 2015 agreement states:

"The parties agree that Payor will process all claims for Covered
Services which are accurate and complete

("Clean Claims") within

thirty (30) days from the date of receipt.

For the purpose of this

Clean

Amendment,
requirements
desired,

under

Claims

means

original

claims

that

Medicare. " 25

Had

conform
the

to

the

parties

so

they could have included penalties for late payment in

their agreements, but neither agreement does so.
The court is not persuaded by Methodist's argument that in
RenCare,
§

395

F.3d

at

559,

the

Fifth

Circuit

recognized

that

422.520(b) regulates MA arrangements or provider agreements, but

not MA Plans.

In RenCare, RenCare- a provider of kidney dialysis

24

Declaration of Stacy Ferguson ("Ferguson Declaration"),
Exhibit D to Defendants' MPSJ, Docket Entry No. 22-34; and January
2012 Medicare Advantage Amendment to ChoiceCare Agreement,
Exhibit D-4 to Defendant's MPSJ, Docket Entry No. 22-38, p. 1
~ 4.b.
25

Ferguson Declaration, Exhibit D to Defendants' MPSJ, Docket
Entry No. 22-34; and March 2015 Medicare Advantage Amendment to
ChoiceCare Agreement, Exhibit D-6 to Defendant's MPSJ, Docket Entry
No. 22-40, p. 1 ~ S.b.
-21-

services

sued Humana in state court for breach of contract,

detrimental reliance,

fraud,

and violations of state law seeking

reimbursement for services provided to Humana enrolles under a
contract between RenCare and Humana.

395 F.3d at 556.

Humana

removed the action to federal district court arguing that RenCare' s
claims were completely preempted by the Medicare Act.

When RenCare

moved to remand, the court remanded the claims relating to Humana's
commercial enrollees and retained jurisdiction over claims relating
to Humana's MA Plan enrollees.

The court subsequently dismissed

the claims that remained in federal court, finding that RenCare had
failed to exhaust its administrative remedies under the Medicare
Act.

Id.

because

at 556-57.

RenCare's

reliance,

fraud,

The Fifth Circuit reversed,

claims
and

for

breach

violations

of
of

holding that

contract,
state

law

detrimental
were

not

"'inextricably intertwined,' with a claim for Medicare benefits,"
those claims did not "arise" under the Medicare Act, and were not
subject to federal jurisdiction or federal administrative remedies.
Id. at 559-60.
Humana argues that RenCare is irrelevant to the dispute in
this case because RenCare did not address express preemption under
42 U.S.C.

§

1395w-26(b) (3), but instead addressed the question of

whether the claims at issue there were "claims arising under" the
Medicare Act and,
§§
§

therefore,

subject to review under 42 U.S.C.

405(g) and (h), made applicable to the Medicare Act by 42 U.S.C.
1395ii,

and

whether

the

Medicare
-22-

Act's

exhaustion

of

administrative remedies requirements gave rise to federal question
jurisdiction,

subjects that are not at issue in this case.

The

court concludes that Humana is correct.
Applying the provisions of 42 U.S.C.

§

405(h),

the RenCare

court held that "RenCare's claims are not intertwined, much less
'inextricably intertwined,' with a claim for Medicare benefits" so
as to be claims arising under the Medicare Act.

Id.

The issue

considered by the RenCare court differs from the express preemption
provision of

42

U.S.C.

1395w-26 (b) (3)

§

at

issue

here,

which

provides for preemption only when standards have been established
by CMS under the Medicare Act.
between [MA]

While stating that

organizations and providers are subject to very few

restrictions," RenCare acknowledges that 42 C.F.R.
requires

"contracts

contracts

between

MA

organizations

contain prompt pay provisions.
As explained above,

§

and

§

422.520(b)

providers

to

395 F.3d at 559.

422.520(b) (2) requires Humana to comply

with the prompt pay provision included in the parties' contract,
and

§

422.510(a) (4) (v)

authorizes

CMS

to

terminate

Humana's

contract if it substantially fails to comply with that prompt pay
provision.

Because

these

payment

standards

were

clearly

established "with respect to MA plans which are offered by MA
organizations under this part," they "supersede any State law or
regulation (other than State licensing laws or State laws relating
to plan solvency)."

42 U.S.C.

CMS has "actually create[d]

§

1395w-26(b) (3).

Moreover, since

standards" for the prompt payment of
-23-

claims,

the

TPPA's

prompt

payment

preempted under§ 1395w-26(b) (3).

provisions

are

expressly

See Medicare Prescription Drug

Benefit, 70 Fed. Reg. 4194-01, 4320.

Thus, Humana is entitled to

summary judgment on Methodist's TPPA claims arising from MA Plans
because those claims are expressly preempted by the Medicare Act.
See South Texas Health System, 2015 WL 9257021, at *6 (TPPA claims
arising from MA Plans expressly preempted by the Medicare Act);
General Surgical Associates, 2015 WL 1880276, at *8 (same).

C.

Methodist's TPPA Claims Arising from Fully Insured ERISA Plans
Are Preempted.

Humana argues that Methodist's TPPA claims arising from fully
insured

ERISA

Plans

are

preempted

by

ERISA

because

the

TPPA

"relates to" ERISA Plans, the TPPA is not saved from preemption,
and

if

saved,

the

TPPA

is

nevertheless

preempted because

its

statutory deadlines and late pay penalties conflict with ERISA'S
claim processing regulations. 26

Methodist argues that its TPPA

claims against fully insured ERISA Plans are not preempted because:
First, a claim that implicates the timing of payment as
set out in a provider agreement, rather than the right to
payment under the terms of a benefit plan, is not
expressly preempted. Second, Methodist's claims (a) do
not relate to any ERISA plan, (b) do not directly affect
the relationship among the traditional ERISA parties; and
(c) do not conflict with ERISA. 27

26

Defendants' MPSJ, Docket Entry No. 21, pp. 24-31.

27

Plaintiffs' Response, Docket Entry No. 23, p. 22.
-24-

1.

Law of ERISA Preemption

ERISA preemption is addressed in two different provisions
often referred to as providing for complete and express or conflict
preemption:

29 U.S.C. § 1132(a) and§ 1144(a).

ERISA'S preemption

provisions are intended
"to ensure that plans and plan sponsors would be subject
to a uniform body of benefits law; the goal was to
minimize the administrative and financial burden of
complying with conflicting directives among States or
between States and the Federal Government . . . , [and to
prevent] the potential for conflict in substantive law
requiring the tailoring of plans and employer
conduct to the peculiarities of the law of each
jurisdiction."
New York State Conference of Blue Cross & Blue Shield Plans v.
Travelers

Ins.

Co.,

Ingersoll-Rand Co.

v.

115

S.

Ct.

McClendon,

1671,
111 S.

1677
Ct.

(1995)
478,

of

regulation

in order

to

484

(1990)).

. was to avoid a

"[T]he basic thrust of the pre-emption clause .
multiplicity

(quoting

permit

uniform administration of employee benefit plans."

the

nationally

Id. at 1677-78.

See also Rush Prudential HMO, Inc. v. Moran, 122 S. Ct. 2151, 2166
(2002) (recognizing that ERISA was intended to induce "employers to
offer benefits by assuring a predictable set of liabilities, under
uniform

standards

ultimate

remedial

of

primary conduct

orders

and

occurred"); Aetna Health Inc.
(2004)

and a

awards

v.

Davila,

when

uniform regime
a

124 S.

violation
Ct.

2488,

of
has

2495

(To further its goal, "ERISA includes expansive pre-emption

provisions

which are intended to ensure that employee benefit

plan regulation would be 'exclusively a federal concern.'").
-25-

(a)

29 U.S.C.

Preemption under

§

1132(a):

Complete Preemption

1132 (a) , often called "complete preemption,"

§

occurs when federal law so completely occupies an area of law that
state causes of action are entirely displaced by federal

law.

Ellis v. Liberty Life Assurance Company of Boston, 394 F.3d 262,
276 & n.34 (5th Cir. 2004), cert. denied, 125 S. Ct. 2941 (2005).
"Section

[1132 (a)],

by providing a

civil

enforcement

cause of

action, completely preempts any state cause of action seeking the
same relief, regardless of how artfully pleaded as a state action."
Id.

Complete preemption is not at issue here.
(b)

29 U.S.C.

Preemption
"conflict
See id.

under

§
§

1144(a): Conflict or Express Preemption
1144(a),

often

called

"express"

or

preemption," constitutes a defense to state law claims.
ERISA'S conflict preemption structure derives from three

statutory provisions:

(1) the "Preemption Clause," (2) the "Saving

Clause," and (3) the "Deemer Clause."

See 29 U.S.C.

§

1144.

The

Preemption Clause provides that ERISA will "supersede any and all
State laws insofar as they may now or hereafter relate to any
employee benefit plan."
operates

to

"save"

or exempt

"regulate[ ] insurance
such cases,

29 U.S.C.

II

from

The Saving Clause

1144(a).

§

preemption

See 29 U.S.C.

§

state

laws

that

1144 (b) (2) (A)

In

even laws that clearly "relate to" employee benefit

plans are exempt from ERISA preemption.

Finally, the Deemer Clause

ensures that ERISA Plans are not "deemed"
-26-

to be engaged in the

insurance business for purposes of determining if the Saving Clause
applies.

See 29 U.S.C.

§

1144 (b) (2) (B).

Nevertheless, the Supreme

Court has held that an otherwise "saved" law may be preempted if it
directly conflicts with congressional policies behind ERISA.

See

Davila, 124 S. Ct. at 2500.

Thus, in determining whether a law is

preempted under 29 U.S.C.

1144(a), courts first look to whether

§

the law "relates to" employee benefit plans.
not preempted;

if so,

If not, the law is

the court must address whether the law is

"saved" by the Saving Clause.

If the law is "saved" by the Saving

Clause, the court must determine whether the Deemer Clause applies
so that the Saving Clause does not protect the law from preemption.
2.

Application of the Law to the Undisputed Facts

Humana argues that the TPPA is preempted because it "relates
to" ERISA Plans, is not saved by the Saving Clause, and conflicts
with the policies behind ERISA. 28

Methodist argues that its TPPA

claims are not preempted because they do not "relate to" any ERISA
plan, and do not conflict with policies behind ERISA. 29
(a)

The TPPA "Relates to" an ERISA Plan.

The Supreme Court has described ERISA's express preemption
clause,

29

U.S.C.

§

1144(a),

as

"terse

but

comprehensive."

Gobeille v. Liberty Mutual Ins. Co., 136 S. Ct. 936,

943

28

Defendants' MPSJ, Docket Entry No. 21, pp. 23-31.

29

Plaintiffs' Response, Docket Entry No. 23, p. 22.
-27-

(2016).

Nevertheless,

the Supreme Court has long recognized that

"[i] f

'relate to' were taken to extend to the furthest stretch of its
indeterminacy,

then for all practical purposes pre-emption would

never run its course," id. (quoting Travelers, 115 S. Ct. at 1677),
and that "is a result 'no sensible person could have intended.'"
Id.

(quoting California Division of Labor Standards Enforcement v.

Dillingham Construction, N.A.,
(Scalia, J., concurring)).
led the Court to reject
clause."

Id.

Inc.,

117 S. Ct.

832,

843

(1997)

"[T]he need for workable standards has
'uncritical literalism'

in applying the

(citing Travelers, 115 S. Ct. at 1677).

In Gobeille

the Court recognized that
case law to date has described two categories of state
laws that ERISA pre-empts.
First, ERISA pre-empts a
state law if it has a "reference to" ERISA plans . . . To
be more precise, "[w]here a State's law acts immediately
and exclusively upon ERISA plans
or where the
existence of ERISA plans is essential to the law's
operation.
. , that 'reference' will result in preemption." [Dillingham, 117 S. Ct. [at 838] . . . Second,
ERISA pre-empts a state law that has an impermissible
"connection with" ERISA plans, meaning a state law that
"governs .
. a central matter of plan administration"
or
"interferes
with
nationally
uniform
plan
administration." Egelhoff v. Egelhoff [ex rel. Breiner] ,
A state law also
[] 121 s. Ct. 1322 [, 1328] (2001).
might have an impermissible connection with ERISA plans
if "acute, albeit indirect, economic effects" of the
state law "force an ERISA plan to adopt a certain scheme
of substantive coverage or effectively restrict its
choice of insurers." Travelers, [] 115 S. Ct. [at 1683]
Id.

The

Court

formulations
receives

said

ensure

that
that

" [w] hen
ERISA's

the broad scope Congress

considered
express

together,

pre-emption

intended while

clause's susceptibility to limitless application."
-28-

these
clause

avoiding
Id.

the

Citing Egelhoff, 121 S. Ct. at 1327-28, Humana argues that the
TPPA falls in the second category of state laws that the Gobeille
Court recognized are preempted, i.e., laws that govern or interfere
with

the

uniformity

of

plan

administration

impermissible connection with ERISA Plans. 30

and

so

have

an

In Egelhoff the Court

stated that "to determine whether a state law has the forbidden
connection [to ERISA plans], we look both to 'the objectives of the
ERISA statute as

a

guide

to

the

scope of

the

state

law that

Congress understood would survive,' as well as to the nature of the
effect of the state law on ERISA plans.n
Dillingham,

117 S.

Ct.

at

The

838).

Id.

at 1327

(quoting

Fifth Circuit has

cited

Egelhoff for having recognized that "ERISA'S preemption provision
is intended 'to establish a uniform administrative scheme, which
provides a set of standard procedures to guide processing of claims
and disbursement of benefits.'n

Bank of Louisiana v. Aetna U.S.

Healthcare Inc., 468 F.3d 237, 242 (5th Cir. 2006), cert. denied,
127 S. Ct. 1826 (2007)
Fifth Circuit

has

(quoting Egelhoff, 121 S. Ct. at 1328).

recognized

that

"[a]

uniform

The

administrative

scheme serves to minimize administrative and financial burdens by
avoiding the need to tailor plans to the peculiarities of the law
of each state."

Id.

(citing Ingersoll-Rand Co. v. McClendon, 111

S. Ct. 478, 484 (1990)).

The Fifth Circuit applies the following

two-prong test to the defense of ERISA preemption. A
defendant pleading preemption must prove that: (1) the

30

Defendants' MPSJ, Docket Entry No. 21, pp. 24, 30.
-29-

claim "addresses an area of exclusive federal concern,
such as the right to receive benefits under the terms of
the [ERISA] Plan; and (2) the claim directly affects the
relationship
among
traditional
ERISA
entities-the
employer,
the plan and its fiduciaries,
and the
participants and beneficiaries.
Bank of Louisiana,

468 F.3d at 242

(citing Mayeaux v. Louisiana

Health Services and Indemnity Co.,
2004)).
Co.,

376 F.3d 420,

432

(5th Cir.

See also Memorial Hospital System v. Northbrook Life Ins.

904 F.2d 236,

245

(5th Cir.

1990)

(recognizing that Fifth

Circuit cases finding preemption of state law causes of action have
(1)

at least two unifying characteristics:

the state law claims

address areas of exclusive federal concern;
directly

affect

relationship

among

the

(2)

the claims

traditional

ERISA

"Because ERISA preemption is an affirmative defense,

entities) .
[Humana]

the

and

Bank of

bears the burden of proof on both elements."

Louisiana, 468 F.3d at 242

(citing Metropolitan Life Ins. Co. v.

Taylor,

1546

107

S.

Ct.

1542,

(1987)

(ERISA preemption

is

a

defense) .
(1)

Methodist's TPPA Claims Address
Exclusive Federal Concern.

Areas

of

Humana argues that Methodist's TPPA claims address areas of
exclusive

federal

concern

because

processing and payment of benefits. 31

the

TPPA

regulates

claims

Methodist does not dispute

that claims processing and benefit payment are areas of exclusive
federal concern but argues that its TPPA claims do not address

31

Defendants' MPSJ, Docket Entry No. 21, p. 24.
-30-

those areas. 32

Asserting that "[t]here is no dispute about the

amount owed or paid to Methodist, only that the claims were paid
late, " 33 and that it "has Provider Agreements with Defendants, " 34
Methodist argues that its TPPA claims are not preempted under 29
U.S.C.

§

1144(a) because its "claims involve only the timing of

payment under the Provider Agreements,
under the ERISA plans. " 35
coverage

determination

regulations,

not the right to payment

Methodist argues that while timing for
is

governed

by

ERISA

Plans

and

ERISA

timing for payment of clean claims is governed by

Provider Agreements, i.e. , contracts between insurers and providers
and the TPPA's remedies for late payment, neither of which address
areas of exclusive federal concern. 36
Humana

does

not

dispute

that

Provider

Agreements

with

Methodist exist for its fully insured ERISA Plans, but argues that
the

Provider

Methodist's

Agreements
TPPA

claims

do

not

because

prevent
those

ERISA
claims

preemption
seek

of

statutory

32

Plaintiffs' Response, Docket Entry No. 23, pp. 25-27.

33

Id. at 25.

34

Id. at 26.

36

Id. at 29.
See also Plaintiffs' Response to Defendants'
Advisory of Additional Authority, Docket Entry No. 28, pp. 2-3
("Claims for benefits under ERISA plans relate to benefits
processing, a core concern of ERISA.
. The claims of providers
like Methodist for payment of contractual rates specified in
provider agreements in compliance with statutory payment periods
are not the same type of claims and do no implicate any core area
of ERISA concern.").
-31-

penalties for alleged violations of state law,

i.e.,

the TPPA's

timely pay requirements, not damages for alleged breaches of the
Provider Agreements. 37

Methodist

acknowledges

that

the

cross-

motions for summary judgment now before the court do not involve
claims for breach of its Provider Agreements with Humana. 38
Methodist's argument that the TPPA's timely pay provisions do
not address areas of exclusive federal concern such as processing
and paying of claims, 39 conflicts with the Fifth Circuit's holding
in Health Care Service Corp. v. Methodist Hospitals of Dallas, 814
F.3d

242,

255

(5th

Cir.

2016),

that

the

TPPA's

provisions do address processing and paying of claims.

timely

pay

In Health

Care Service Corp., 814 F.3d at 242, the Fifth Circuit analyzed a
virtually identical argument made by Methodist with respect to
whether the Federal Employee Health Benefits Act ( "FEHBA") preempted
TPPA claims for statutory penalties.

There the Fifth Circuit wrote:

Methodist argues that Chapter 1301 [, i.e., the TPPA,]
does not "relate to" FEHBP plans because it permits a
claim for statutory penalties only after an affirmative

37

Defendants' MPSJ, Docket Entry No. 21, p. 11 ( "Humana asserts
the affirmative defense of conflict preemption under ERISA§ 503(a)
as to claims arising from fully-insured ERISA plans . . . The issues
of whether the Methodist Hospitals' claims were 'clean claims' or
whether the claims were timely paid are not presently before the
Court as this Motion addresses Humana' s federal preemption defenses
to the TPPA.") .
38

Plaintiffs' Response, Docket Entry No.
23, p.
9 n.2
("Regardless whether this Court grants Defendants'
motion,
Methodist's claims that Defendants breached the Provider Agreements
remain pending and are not affected by Defendants' motion.").
39

Id. at 26.
-32-

coverage decision and therefore requires no inquiry into
any substantive coverage determination. But this reasoning ignores the effect of Chapter 1301:
By imposing
penalties for late payments of approved claims, Chapter
1301 also imposes claims-processing deadlines on FEHBP
carriers.
[I]mposition of Chapter 1301's penalties
would expand FEHBP carriers' duties under the plans and
force them to comply with divergent state deadlines for
claims processing and payment.
Further, any inquiry
under Chapter 1301 requires an inquiry into how an FEHBP
carrier administers a plan under its contract with the
OPM [(Office of Personnel Management)].
Although Methodist fails to acknowledge the effect
of Chapter 1301, its impact on FEHBP carriers is clear.
As noted above, section 1301.103 requires insurers
receiving a "clean claim" first to "make a determination
of whether the claim is payable" within 45 days for
nonelectronic claims and 30 days for electronic clams,
then either ( 1) pay the claim, ( 2) partially pay and
partially deny the claim and notify the provider in
writing of the reason for partial denial, or (3) deny the
claim and notify the provider in writing of the reason
for denial.
By imposing penalties for late payments,
Chapter 1301 mandates that insurers process and pay
claims within the set time periods.
Consequently,
Chapter 1301 would directly affect the operation of the
plans and expand FEHBP carriers' duties under the plans.
On this basis, Chapter 1301 does relate to FEHBP plans.
[P]reemption is supported by the recognition
that the penalties compel coverage determinations and
payments within state-imposed time periods, thereby
affecting the administration of the plans and altering
FEHBP carriers' obligations under their contracts with
the OPM.
In as much as application of Chapter 1301 to
FEHBP carriers would disrupt the uniformity of FEHBP plan
administration, we hold that FEHBA preempts Chapter
1301's application to the claims processed by BCBSTX
under FEHBP plans.
Id. at 254-55.
In reaching its conclusion that the FEHBA preempts TPPA claims
for statutory late pay penalties,

the Fifth Circuit cited with

approval America's Health Ins. Plans v. Hudgens,
-33-

915 F. Supp. 2d

1340, 1359 (N.D. Ga. 2012), aff'd, 742 F. 3d 1319 (11th Cir. 2014),
for its statement that the Georgia
(Prompt Pay Statute
requires health plans,
including ERISA plans, to process and to pay provider
claims, or to send notices denying the claims, within 15
or 30 days, depending on whether the claim is submitted
electronically or in paper. Although not explicit, the
statute necessarily requires that benefit eligibility
determinations (i.e., determinations as to whether the
claim is covered) also be made within 15 or 30 days, in
time to satisfy the payment or notice timing requirement.
These requirements, when applied to ERISA plans, have at
least a "connection" with the plans.)
Id. at 254 & n.52.

See also id. at n.53 (citing Hudgens, 742 F.3d

at 1331 for "(holding that ERISA preempts application of Georgia's
prompt-pay statute to self-funded employer plans because 'employers
offering

self-funded health benefit plans

different

timeliness

obligations

in

would be

different

faced with

states,

thereby

frustrating Congress's intent')."
The
Service,

Fifth

Circuit's

analysis

814 F.3d at 254-55,

of

the

TPPA

in

Health Care

regarding FEHBA preemption applies

with equal force to ERISA preemption because the express preemption
clauses of both statutes require the court to determine if the
claims at issue "relate to" plans governed by the respective acts, 40

40

The FEHBA's express preemption provision states:

The terms of any contract under this chapter which relate
to the nature, provision, or extent of coverage or
benefits (including payments with respect to benefits)
shall supersede and preempt any State or local law, or
any regulation issued thereunder, which relates to health
insurance or plans.
5

u.s. c.

§

8902 (m} (1).
-34-

and the policies underlying both acts are essentially the same. 41
See

Health Care

requires

Service,

insurers

814

receiving a

F.3d at

253.

"clean claim"

Because
first

to

the

TPPA

"make

a

determination of whether the claim is payable" within 45 days for
non-electronic claims and 30 days for electronic claims, Tex. Ins.
Code§ 1301.103, the TPPA mandates that ERISA insurers process and
pay claims

within

set

time

periods

established by state

law.

Claims processing and paying are areas that both the Fifth Circuit
and the Supreme Court have characterized as areas of exclusive
federal concern.

See Bank of Louisiana, 468 F.3d at 242 (citing

Hubbard v. Blue Cross & Blue Shield Association, 42 F.3d 942, 946
(5th Cir. 1995)

(holding that a claim that would require inquiry

into how benefit

claims

were

exclusive federal concern)).

processed

implicates

an area of

See also Egelhoff, 121 S. Ct. at 1328

(recognizing that payment of benefits as "a central matter of plan
administration").

Because claims processing and paying are areas

of exclusive federal concern, the court concludes that the TPPA and
the claims that Methodist asserts thereunder satisfy the first
prong of the "relates to" test by addressing areas of exclusive
federal concern.

41

"The policy underlying § 8 902 (m) ( 1) is to ensure nationwide
uniformity of the administration of FEHBA benefits." Health Care
Service, 814 F.3d at 253 (quoting Burkey, 983 F.2d at 660).
-35-

Methodist's TPPA Claims Directly Affect
Relationship Among Traditional Entities.

(2)

the

Humana argues that Methodist's TPPA claims directly affect the
relationship among traditional

ERISA entities because the TPPA

regulates ERISA Plan administrators' and fiduciaries' performance
of their duties to ERISA Plans. 42

Methodist argues that its TPPA

claims do not directly affect the relationship among traditional
ERISA entities because its claims are brought by non-fiduciary
third-party

medical

traditional

ERISA

providers

entities,

who

i.e.,

are

not

employers,

one

of

the

three

plans

and

their

fiduciaries, and participants and beneficiaries. 43 Although "courts
are less likely to find preemption when the claim merely affects
relations between an ERISA entity and an outside party, rather than
between two ERISA entities," Hubbard,

42 F.3d at 947,

the Fifth

Circuit has stated that "[t]he critical determination [is] whether
the claim itself created a relationship between the plaintiff and
defendant that is so intertwined with an ERISA plan that it cannot
be separated."

Bank of Louisiana,

468 F.3d at 243.

In Bank of

Louisiana the Fifth Circuit reasoned that a cause of action for
delay in processing and paying a claim implicated the insurer's
fiduciary

relationship

under

the

plan,

second prong of the "relates to" test.
42

thereby

satisfying

Id. at 244.

Defendants' MPSJ, Docket Entry No. 21, pp. 27-28.
Humana's Reply, Docket Entry No. 25, p. 14.
43

the

See also

Plaintiffs' Response, Docket Entry No. 23, p. 27 ("Providers
like Methodist who contract with insurers are not parties to this
triparty relationship.").
-36-

Because

as

explained

in

the

preceding

section,

the

TPPA

requires ERISA insurers receiving a "clean claim" first to "make a
determination of whether the claim is payable" within 45 days for
non-electronic claims and 30 days for electronic claims, Tex. Ins.
Code

§

1301.103, the TPPA mandates that ERISA insurers process and

pay claims

within set

time

periods

established by state

law.

Consequently, as recognized by the Fifth Circuit in Health Care
Service,
FEHBA,

814 F.3d at 255, with respect to plans governed by the

the TPPA' s

"penalties compel coverage determinations and

payments within state-imposed time periods, thereby affecting the
administration

of

the

plans

and

altering

carriers'

obligations under their contracts with [plan sponsors]."
application

of

the

TPPA

to

ERISA

relationship between

traditional

relationship

the

between

Plans

directly

ERISA entities

plaintiff

and

Because

affects

the

by creating a

defendant

that

is

intertwined with an ERISA Plan that it cannot be separated,

so
the

second prong of the "relates to" test is satisfied.
(3)

Because

the

Conclusion

TPPA

and

the

claims

that

Methodist

asserts

thereunder satisfy both the first and second prongs of the Fifth
Circuit's

"relates

to"

test

by addressing

areas

of

exclusive

federal concern and by directly affecting the relationship between
traditional

ERISA entities,

"relates to" an ERISA Plan.

the

court

concludes

that

the TPPA

This conclusion comports with the
-37-

purpose of ERISA, which as stated in Travelers, 115

s.

Ct. at 1677-

78, is "to avoid a multiplicity of regulation in order to permit
the nationally uniform administration of employee benefit plans."
(b)

The TPPA is Not "Saved" from Preemption.

Citing Ellis,

394

F.3d at

262,

and North Cypress Medical

Center Operating Co., Ltd. v. Cigna Healthcare, 781 F.3d 182 (5th
Cir. 2015), Humana argues that ERISA'S "Saving Clause," 29 U.S.C.
§

1144 (b) ( 2) (A) , does not save the TPPA from preemption. 44

In Ellis

the Fifth Circuit held that
for a state law to be deemed a "law . . . which regulates
insurance" under Section 1144 (b) (2) (A) and thus be exempt
from traditional ERISA preemption, such law must (1) be
directed toward entities engaged in insurance, and
(2) substantially affect the risk pooling arrangement
between the insurer and the insured.
394 F.3d at 276 (citing Kentucky Association of Health Plans, Inc.
v. Miller,

123 S. Ct. 1471,

1479

(2003)).

In North Cypress the

Fifth Circuit recognized that the TPPA could indirectly impact the
risk pooling arrangement between insurer and insured, but based on
the Supreme Court's holding in Miller, the Fifth Circuit held that
"these potential indirect impacts do not 'substantially affect the
risk pool arrangement between the insurer and the insured.'" 781
F.3d at 200 (citing Miller, 123 S. Ct. at 1479).

Thus, the North

Cypress court held that the TPPA is not saved from preemption.
Methodist has neither argued nor cited any evidence capable of

44

Defendants' MPSJ, Docket Entry No. 21, pp. 29-30.
-38-

establishing that the TPPA substantially affects the risk pooling
arrangement between the insurer and insured.

ERISA'S Saving Clause

does not save Methodist's TPPA claims from preemption.
(c)

The TPPA's Late Pay Penalties Conflict with ERISA'S
Claim Processing Regulations.

Citing 29 U.S.C. § 1133(2) and 29 C.F.R. § 2560-503.1, Humana
argues that Methodist's TPPA claims are also preempted because its
statutory deadlines and late pay penalties conflict with ERISA'S
claim processing regulations. 45 Asserting that§ 1133(2) authorizes
the

Department

of

Labor

("DOL")

to

develop

claim-processing

regulations so that ERISA plan enrollees receive a full and fair
review of their claims, Humana argues that the DOL has promulgated
regulations

setting

uniform

deadlines

for

benefits claims like the TPPA at issue here.

processing

health

Humana argues that

ERISA' s federal regulations require that ERISA plans
provide notice of a claim denial within 3 0 days of
receipt of the claim. The period may be extended by 15
days in certain circumstances "due to matters beyond the
control of the plan."
However,
the TPPA impermissibly shortens this
deadline by narrowing the scope of the 15-day extension
from the deadline within which a plan must take action on
a claim. Thus, electronically submitted claims must be
adjudicated within 30 days, even when additional time is
needed and permitted by federal regulation "due to
matters beyond the control of the plan." This conflict
is precisely the type of situation Congress sought to
avoid by promulgating ERISA and the comprehensive claims
regulations contained with[in] 29 C.F.R. § 2650.503-1.
As recognized by the Supreme Court, a principal goal of

45

Id. at 24-31.
-39-

ERISA is "to establish a uniform administrative scheme,
which provides a set of standard procedures to guide
processing of claims and disbursement of benefits."
Application of the TPPA to ERISA plans frustrates that
goal by imposing regulations on plans that conflict with
those set forth [in 29 U.S.C. § 1133(2)] . 46
Methodist responds that the TPPA as applied to its claims does
not conflict with ERISA'S claims processing regulations because the
TPPA does not regulate the timing of benefits payments to ERISA
beneficiaries.
§

Asserting

that

"ERISA

regulation

29

C.F.R.

2560.503-1 specifies 'employee benefit plan procedures pertaining

to

claims

for

benefits

by

participants

and

beneficiaries,

47
I

"

Methodist argues that "[t]he regulations pertaining to ERISA plans
clearly do not conflict with [the] TPPA as applied to [its] claims
submitted as a provider." 48

Methodist's argument that its TPPA

claims do not conflict with ERISA because its claims are submitted
as a provider not as a participant or beneficiary is essentially
the same argument that Methodist made to show that its TPPA claims
do not "relate to"

ERISA Plans,

i.e. ,

because the TPPA permits

claims for statutory penalties only after an affirmative coverage
decision,
coverage

the TPPA does not require inquiry into any substantive
determination.

But

as

the

court

stated

in

section

III.C.2.a., above, Methodist's argument ignores the fact that by

46

Id. at 32-33.

47

Plaintiffs' Response, Docket Entry No. 23, p. 31.

-40-

imposing penalties for late payments of approved claims the TPPA
imposes claims-processing deadlines on ERISA administrators,

and

allowing states to regulate the timing of claims administration by
ERISA administrators would conflict with ERISA'S purpose "to avoid
a multiplicity of regulation in order to permit the nationally
uniform administration of employee benefit plans."

Travelers, 115

s.

TPPA to ERISA

Ct.

at

1677-78.

Because application of

the

carriers would disrupt the uniformity of ERISA plan administration,
the court holds that the TPPA directly conflicts with congressional
policies behind ERISA.

D.

See Health Care Service, 815 F.3d at 255.

Humana is Entitled to Summary Judgment on the TPPA Claims
Asserted Against Humana Inc. and HGB.

Citing the Declaration of Leslie Poff, Humana argues that it
is entitled to summary judgment on the TPPA claims asserted against
Humana Inc. and HGB because neither of these entities issued health
insurance policies from which Methodist's TPPA claims arise. 49

In

pertinent part, the Poff Declaration states:
there are no claims on the Responsive Demand Spreadsheet
attached as Exhibit A-2 arising from health plans issued
by Humana Military Healthcare Services, Inc. n/k/a Humana
Government Business, Inc. Similarly, as Humana Inc. does
not offer any health plans, no claims on the Responsive
Demand Spreadsheet attached as Exhibit A-2 arise from a
Human Inc. health plan. 50

49

Defendants' MPSJ, Docket Entry No. 21, pp. 11, 14, 33-34.

50

Poff Declaration, Exhibit A to Defendants' MPSJ, Docket Entry
No. 22, p. 3 ~ 5.
-41-

::

Methodist

has

not

submitted any

evidence

contradicting

Poff' s

declaration that none of the TPPA claims asserted in this action
arise from health plans issued by Humana Inc. or HGB.
~[w]ithout

Methodist merely states that

Instead,

waiving its right to do so

in other proceedings, in this action Methodist is not pursuing any
claims against entities with which it does not have a contract." 51
Because Methodist has failed to present any evidence capable of
creating a fact issue as to the TPPA claims asserted against Humana
Inc. and HBG, Humana is entitled to summary judgment on Methodist's
TPPA claims against these defendants.
IV.

Conclusions and Order

For the reasons stated in

§

III.B above, the court concludes

that Methodist's TPPA claims arising from MA Plans are preempted by
the Medicare Act;

for the reasons stated in

III.C above,

§

the

court concludes that Methodist's TPPA claims arising from fully
insured ERISA Plans are preempted by ERISA; and for the reasons
stated

in

§

III. D above,

the

court

concludes

that

Humana

is

entitled to summary judgment on the TPPA claims asserted against
Humana Inc.
Company,

and HGB.

Defendants Humana Insurance

Humana Military Healthcare Services,

Government

Business,

Management,

Inc.

51

Accordingly,

Inc.,

Humana

Inc . ,

Inc.
and

n/k/a Humana
Health

d/b/a Choicecare Network's Motion for

Plaintiffs' Response, Docket Entry No. 23, p. 32.
-42-

Value
Partial

Summary Judgment

(Docket Entry No.

21)

is GRANTED.

Methodist's

claims for prompt pay penalties identified in Exhibits A-2 and A-3
(Docket Entry Nos. 22-2 and 22-3), specifically Medicare Advantage
claims (lines 2 through 332); ERISA claims (lines 343 through 358);
and Methodist's claims against Humana Inc. and Humana Government
Business, Inc. are hereby DISMISSED WITH PREJUDICE.
The court will conduct a scheduling conference on July 28,
2017,

at 3:00 p.m.,

in Courtroom 9-B,

9th Floor,

Courthouse, 515 Rusk Avenue, Houston, Texas 77002.

United States
The parties are

ORDERED to file an Amended Joint Discovery/Case Management Plan by

July 26, 2017.
SIGNED at Houston, Texas, on this the 17th day of July, 2017.

SIM LAKE
UNITED STATES DISTRICT JUDGE

I

!

-43-