Houston Home Dialysis v. Blue Crossand Blue Shield of Texas
Filing
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MEMORANDUM AND OPINION entered: The motion to dismiss is denied, without prejudice. (Docket Entry No. 46). Blue Cross may raise the prudential standing and sovereign immunity issues at summary judgment or at trial. (Signed by Chief Judge Lee H Rosenthal) Parties notified.(leddins, 4)
United States District Court
Southern District of Texas
ENTERED
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
HOUSTON HOME DIALYSIS,
Plaintiff,
VS.
BLUE CROSS AND BLUE SHIELD
OF TEXAS, et al.,
Defendants.
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October 22, 2018
David J. Bradley, Clerk
CIVIL ACTION NO. H-17-2095
MEMORANDUM AND OPINION
Houston Home Dialysis, a Texas company that provides assisted in-home dialysis services,
has sued Blue Cross and Blue Shield of Texas, Horizon Blue Cross and Blue Shield of New Jersey,
and Health Care Services Corporation (collectively, “Blue Cross”), alleging that they underpaid
medical-benefit claims that Home Dialysis submitted to them. Home Dialysis alleges that six
patients received its services and assigned it their health benefits. Home Dialysis allegedly received
preauthorizations from Blue Cross, treated the patients, and submitted claims for payment.
According to Home Dialysis, Blue Cross paid the claims at lower rates than the patients’ insurance
policies required. Blue Cross has moved to dismiss under Federal Rule of Civil Procedure 12(b)(1),
asserting that Home Dialysis lacks standing to assert one patient’s claims because of an antiassignment clause, and that state sovereign immunity bars the claims arising from two other patients’
plans because the State of Texas would be liable to pay the judgment. After a careful review of the
pleadings, the motion, response, reply, and the applicable law, the court denies the motion without
prejudice so that these arguments may be considered on the more complete record of summary
judgment motions or at trial.
I.
The Background
a.
Factual and Procedural History
Kidney failure, or end-stage renal disease, is treated by dialysis to filter waste out of a
patient’s blood. Without dialysis, kidney failure leads to death. Hemodialysis, one type of dialysis,
involves running blood through a filtering machine and returning it to the patient. A dialyzer, the
filtering machine, controls for many factors in the blood and ordinarily requires a nurse or technician
to operate. Home Dialysis offers assisted in-home dialysis services, which requires a nurse or
technician to travel to the patient’s home with a dialyzer machine. Because assisted in-home
dialysis involves one-on-one treatment and travel time, it is expensive.
In 2016 and 2017, Home Dialysis treated six patients insured by Blue Cross. (Docket Entry
No. 45 at 6). Before treating the patients, Home Dialysis contacted Blue Cross and requested
preauthorization. (Id.). Blue Cross instructed Home Dialysis “to begin treatments as an ‘out-ofnetwork’ provider since each patient’s Blue Cross policy benefits covered the medically necessary
dialysis services.” (Id.). When Home Dialysis submitted the payment claims, Blue Cross agreed
to pay $357 per treatment under the patients’ plans. (Id. at 9).
In this suit, Home Dialysis alleged that Blue Cross underpaid the claims for four patients’
in-home dialysis treatment. (Docket Entry No. 1). Home Dialysis alleged that, as an out-of-network
provider, it was owed the “‘usual and customary’ rates for the same or similar medical services.”
(Id. at 7). Home Dialysis alleged that “‘in-network’ providers are usually paid $600.00 per
treatment,” and that “$12,720 is the recognized usual and customary charge for staff-assisted homedialysis treatments.” (Id. at 5). Blue Cross paid only $357 per treatment. (Id. at 5). Invoking the
patients’ assignments of their health-plan benefits, Home Dialysis asserted claims under the
Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq., and Texas
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common law, alleging that Blue Cross owed at least $450 per treatment but had reduced the $600
in-network fee by more than 25%. (Id. at 11–13).
Home Dialysis amended the complaint in December 2017 to assert the rights of two
additional patients insured by Blue Cross. (Docket Entry No. 13 at 8–9, 13). The amended
complaint alleged that Blue Cross preauthorized the treatments, that the patients assigned their
benefits to Home Dialysis, that Home Dialysis submitted the claims to Blue Cross, and that Blue
Cross underpaid. (Id. at 4–8). The ERISA and Texas law claims were the same. (Id. at 9–25).
Blue Cross moved to dismiss on the grounds that: the amended complaint failed to state a
claim; Home Dialysis alleged insufficient facts for standing; Home Dialysis could not assert claims
against Blue Cross under both 29 U.S.C. § 1132(a)(1) and (a)(3); ERISA preempted the Texas-law
claims; and Blue Cross was not a plan administrator amenable to suit under 29 U.S.C. §§ 1132(c)
and 1133(2). (Docket Entry No. 21 at 11–12). Home Dialysis responded that the amended
complaint allegations were sufficient, but agreed that it could not recover under both § 1132(a)(1)
and (a)(3) and that Blue Cross was not a plan administrator for § 1132(c) purposes. (Docket Entry
No. 28 at 9–13). Home Dialysis contended that the Fifth Circuit has not resolved whether a plan
administrator can be sued under § 1133(2) and that ERISA did not preempt the Texas-law claims
because they arose from non-ERISA plans. (Id. at 14–22).
The court denied the motion to dismiss in part, finding that Home Dialysis had alleged
sufficient facts to state a plausible claim for relief as to its denial-of-benefits claim under
§ 1132(a)(1), and that the record contained insufficient evidence to decide the standing question.
(Docket Entry No. 39 at 5–7). The court granted the motion to dismiss, with prejudice, on the
claims under §§ 1132(a)(3) and 1133(2). (Id. at 7–13). The court dismissed without prejudice the
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Texas-law claims as preempted, with leave for Home Dialysis to amend to specify which patients’
plans were governed by Texas law. (Id. at 15–18).
Home Dialysis amended the complaint, seeking to cure the deficiencies the court had
identified in its June 2018 memorandum and opinion. (Docket Entry No. 45). The second amended
complaint clarified that the University of Texas system insured two of the patients, while the other
patients had plans subject to ERISA. (Id. at 6). In Count 1, Home Dialysis sought to enforce the
ERISA plan terms as to out-of-network claims. (Id. at 11–12). In Count 2, Home Dialysis asserted
Texas-law claims to enforce the non-ERISA plan terms relating to out-of-network claims. (Id. at
12). As to standing, the second amended complaint alleged that the patients had “signed an
assignment of benefits and a designation of authorized representative agreement to Houston Home
Dialysis.” (Id. at 9).
The second amended complaint alleged:
37. Before scheduling or performing any medical services, Houston Home Dialysis
called Blue Cross at the telephone number indicated on each covered member’s or
beneficiary’s healthcare card to verify the member or beneficiary’s coverage and
eligibility, including out-of-network benefit coverage and coverage for the specific
healthcare services performed by Houston Home Dialysis. Blue Cross never told
Houston Home Dialysis that staff-assisted home dialysis was not covered or that they
would not pay for it.
38. Upon receipt of Blue Cross’ authorizations, and in reasonable reliance on those
authorizations, Houston Home Dialysis performed medical services for the six
covered members and beneficiaries whose benefit claims are at issue in this lawsuit.
39. After medical services were performed, Houston Home Dialysis properly and
timely submitted claims, together with all necessary supporting documents and
information through Blue Cross’ designated claims handling channels.
40. Blue Cross, upon receiving these claims, either denied them, underpaid them,
or otherwise failed to pay them in accordance with the terms and conditions of the
covered member’s and/or beneficiary’s Plans.
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(Id. at 10).
Blue Cross moved to dismiss under Rule 12(b)(1), arguing that Home Dialysis lacked
standing to assert Patient 6’s claim (Count 1), because her insurance plan contained an antisubrogation clause. (Docket Entry No. 36 at 2). Blue Cross argued that state sovereign immunity
barred the claims of Patients 4 and 5 (Count 2), because the University of Texas would have to pay
any judgment against Blue Cross. (Id. at 6). Home Dialysis responded that Blue Cross had waived
the anti-assignment argument by failing to raise it earlier and that the University of Texas would not
be responsible for a judgment against Blue Cross. (Docket Entry No. 53 at 7). Blue Cross replied
that Home Dialysis had not told Blue Cross of the patients’ assignments until the litigation and that
the University was responsible for paying “all benefits owed to its members under the plan.”
(Docket Entry No. 54 at 3–5).
The parties submitted documents with the motion to dismiss, response, and reply, including
Patient 6’s insurance plan, the University’s request for proposals from plan administrators, Blue
Cross’s agreement with the University, and a declaration of Home Dialysis’s president. (Docket
Entries No. 46-1–46-3, 47, 53-1). The motion, the response, the reply, and applicable case law are
considered below.
II.
The Standard of Review
Blue Cross raised arguments based on state sovereign immunity, which is jurisdictional, and
based on prudential standing, which is not. See F.D.I.C. v. Meyer, 510 U.S. 471, 475 (1994)
(“Sovereign immunity is jurisdictional in nature.”); Cibolo Waste, Inc. v. City of San Antonio, 718
F.3d 469, 474 n.4. (5th Cir. 2013) (“[P]rudential standing, while not jurisdictional, nonetheless
affects justiciability.”); Lewis v. Knutson, 699 F.2d 230, 236 (5th Cir. 1983) (“[T]he prudential
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limitation goes to the court’s administrative discretion to hear the case.” (emphasis in original)).
Blue Cross argued that Home Dialysis lacks “standing” to assert a claim for Patient 6’s treatment
because her plan prohibited assignment. (Docket Entry No. 46 at 8). Under prudential standing, “a
plaintiff generally must assert his own legal rights and interests, and cannot rest his claim to relief
on the legal rights or interests of third parties.” Superior MRI Servs., Inc. v. All. Healthcare Servs.,
Inc., 778 F.3d 502, 504 (5th Cir. 2015) (quotation omitted); see also St. Paul Fire & Marine Ins. Co.
v. Labuzan, 579 F.3d 533, 539 (5th Cir. 2009) (describing prudential standing requirements).
A motion to dismiss based on sovereign immunity is properly considered under Federal Rule
of Civil Procedure 12(b)(1). Warnock v. Pecos Cty., Tex., 88 F.3d 341, 343 (5th Cir. 1996)
(“Because sovereign immunity deprives the court of jurisdiction, the claims barred by sovereign
immunity can be dismissed only under Rule 12(b)(1) and not with prejudice.”). “Unlike a dismissal
for lack of constitutional standing, which should be granted under Rule 12(b)(1), a dismissal for lack
of prudential or statutory standing is properly granted under Rule 12(b)(6).” Harold H. Huggins
Realty, Inc. v. FNC, Inc., 634 F.3d 787, 795 n.2 (5th Cir. 2011); see White Oak Realty, LLC v. U.S.
Army Corp of Eng’rs, No. 13-4761, 2014 WL 4387317, at *6 n.68 (“[P]rudential standing—in
whatever form it still exists—is properly considered on a motion to dismiss for failure to state a
claim upon which relief can be granted.”). The court considers the prudential standing argument
under Rule 12(b)(6) and the sovereign immunity argument under Rule 12(b)(1).
a.
The Rule 12(b)(1) Standard
In reviewing a motion to dismiss under Federal Rule of Civil Procedure 12(b)(1), a court
must “take the well-pled factual allegations of the complaint as true and view them in the light most
favorable to the plaintiff.” Griener v. United States, 900 F.3d 700, 703 (5th Cir. 2018) (quoting
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Lane v. Halliburton, 529 F.3d 548, 557 (5th Cir. 2008)). “This analysis is generally confined to a
review of the complaint and its proper attachments.” Lane, 529 F.3d at 557. Under Rule 12(b)(1),
however, “the court may find a plausible set of facts by considering any of the following: (1) the
complaint alone; (2) the complaint supplemented by the undisputed facts evidenced in the record;
or (3) the complaint supplemented by undisputed facts plus the court’s resolution of disputed facts.”
Id. (quoting Barrera–Montenegro v. United States, 74 F.3d 657, 659 (5th Cir. 1996)).
The Fifth Circuit distinguishes between a “facial” and “factual” attack on a complaint under
Rule 12(b)(1). Paterson v. Weinberger, 644 F.2d 521, 523 (5th Cir. 1981). If a defendant moves
to dismiss, without more, “the trial court is required merely to look at the sufficiency of the
allegations in the complaint because they are presumed to be true.” Id. The complaint stands “if
the jurisdictional allegations are sufficient.” Id. Where a defendant “submits affidavits, testimony,
or other evidentiary materials,” the plaintiff must also “submit facts through some evidentiary
method and has the burden of proving by a preponderance of the evidence that the trial court does
have subject matter jurisdiction.” Id. “In examining a Rule 12(b)(1) motion, the district court is
empowered to consider matters of fact which may be in dispute.” Ramming v. United States, 281
F.3d 158, 161 (5th Cir. 2001); see Holt v. United States, 46 F.3d 1000, 1003 (10th Cir. 1995)
(“When reviewing a factual attack on subject matter jurisdiction, a district court may not presume
the truthfulness of the complaint’s factual allegations.”). “Ultimately, a motion to dismiss for lack
of subject matter jurisdiction should be granted only if it appears certain that the plaintiff cannot
prove any set of facts in support of his claim that would entitle plaintiff to relief.” Ramming, 281
F.3d at 161.
b.
The Rule 12(b)(6) Standard
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Rule 12(b)(6) requires dismissal if a plaintiff fails “to state a claim upon which relief can be
granted.” FED. R. CIV. P. 12(b)(6). Rule 12(b)(6) must be read in conjunction with Rule 8’s
requirement of “a short and plain statement of the claim showing that the pleader is entitled to
relief.” FED. R. CIV. P. 8(a)(2). A complaint must contain “only enough facts to state a claim to
relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Rule 8
“does not require ‘detailed factual allegations,’ but it demands more than an unadorned,
the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(quoting Twombly, 550 U.S. at 555). “A claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable inference that the defendant is liable for
the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). “The plausibility standard is not
akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has
acted unlawfully.” Id. (citing Twombly, 550 U.S. at 556).
To withstand a Rule 12(b)(6) motion, a “complaint must allege ‘more than labels and
conclusions,’” and “a formulaic recitation of the elements of a cause of action will not do.” Norris
v. Hearst Tr., 500 F.3d 454, 464 (5th Cir. 2007) (quoting Twombly, 550 U.S. at 555). “Nor does a
complaint suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’” Iqbal,
556 U.S. at 678 (alteration in original) (quoting Twombly, 550 U.S. at 557). “[A] complaint ‘does
not need detailed factual allegations,’ but must provide the plaintiff’s grounds for entitlement to
relief—including factual allegations that when assumed to be true ‘raise a right to relief above the
speculative level.’” Cuvillier v. Taylor, 503 F.3d 397, 401 (5th Cir. 2007) (quoting Twombly, 550
U.S. at 555). “Conversely, when the allegations in a complaint, however true, could not raise a
claim of entitlement to relief, this basic deficiency should be exposed at the point of minimum
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expenditure of time and money by the parties and the court.” Id. (quotation and alteration omitted).
In considering a motion to dismiss for failure to state a claim, the court is to consider “the
contents of the pleadings, including attachments.” Collins v. Morgan Stanley Dean Witter, 224 F.3d
496, 498 (5th Cir. 2000). Documents “attache[d] to a motion to dismiss are considered part of the
pleadings, if they are referred to in the plaintiff’s complaint and are central to [its] claim.” Id. at
498–99 (quoting Venture Assocs. Corp. v. Zenith Data Sys. Corp., 987 F.2d 429, 431 (7th Cir.
1993)). The court may also “take judicial notice of matters of public record.” Norris, 500 F.3d at
461 n.9.
When a plaintiff’s complaint fails to state a claim, the court should generally give the
plaintiff a chance to amend under Rule 15(a) before dismissing the action with prejudice, unless it
is clear that to do so would be futile. See Carroll v. Fort James Corp., 470 F.3d 1171, 1175 (5th Cir.
2006) (“[Rule 15(a)] evinces a bias in favor of granting leave to amend.” (quotation omitted)); Great
Plains Tr. Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305, 329 (5th Cir. 2002) (“[D]istrict
courts often afford plaintiffs at least one opportunity to cure pleading deficiencies before dismissing
a case, unless it is clear that the defects are incurable or the plaintiffs advise the court that they are
unwilling or unable to amend in a manner that will avoid dismissal.”). A court may deny a motion
to amend for futility if an amended complaint would fail to state a claim upon which relief could be
granted. Pervasive Software Inc. v. Lexware GmbH & Co., 688 F.3d 214, 232 (5th Cir. 2012). The
decision to grant or deny leave to amend “is entrusted to the sound discretion of the district court.”
Id.
III.
Standing
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Blue Cross claimed that Home Dialysis lacks standing to sue because Patient 6’s contract
forbids assignments. (Docket Entry No. 46 at 4–5). In support, Blue Cross submitted Patient 6’s
insurance plan. (Docket Entry No. 46-1). The plan’s anti-assignment clause states that “[r]ights and
benefits under the Plan shall not be assignable, either before or after services and supplies are
provided.” (Docket Entry No. 46-2 at 11). The court may consider Patient 6’s insurance plan
because it is central to, and referred to in, the second amended complaint. Collins, 224 F.3d at
498–99.
This provision is presumptively enforceable. La. Health Servs. & Indem. Co. v. Rapides
Healthcare Sys., 461 F.3d 529, 537 (5th Cir. 2006), cert. denied 549 U.S. 1279 (2007) (“[A]n antiassignment provision in a plan is permissible under ERISA.”); Encompass Office Sols., Inc. v. La.
Health Serv. & Indem. Co., No. 3:11-cv-1471, 2013 WL 12310676, at *10 (N.D. Tex. Sept. 17,
2013) (“Anti-assignment clauses in ERISA plans are generally enforceable.”); cf. El Paso Field
Servs., L.P. v. MasTec N. Am., Inc., 389 S.W.3d 802, 810–11 (Tex. 2012) (“The role of the courts
is not to protect parties from their own agreements, but to enforce contracts that parties enter into
freely and voluntarily.”). Home Dialysis responded that Blue Cross has “waived the anti-assignment
provision and is estopped from raising it.” (Docket Entry No. 53 at 10).
a.
Waiver
“Fifth Circuit case law distinguishes estoppel from waiver, and ‘defines waiver as a
voluntary or intentional relinquishment of a known right.’” Gilmour v. Intertek USA, Inc., No. 3:16cv-00266, 2018 WL 3059682, at *7 (S.D. Tex. May 30, 2018) (quoting High v. E-Systems Inc., 459
F.3d 573, 581 (5th Cir. 2006)). Home Dialysis must show that Blue Cross “voluntarily and
knowingly relinquished [the] right to rely on the Plan’s anti-assignment language through [its]
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course of conduct.” Id. Based on the complaint’s allegations, Home Dialysis cannot do this.
Because the complaint alleges no facts supporting an inference that Blue Cross intended to
relinquish the anti-assignment clause, this argument fails.
b.
Estoppel
“Unlike constitutional standing,” a defendant may waive a challenge based on prudential
standing “if not asserted timely.” Encompass Office Sols., Inc. v. Conn. Gen. Life Ins. Co., No. 3:11cv-02487, 2017 WL 3268034, at *13 (N.D. Tex. July 31, 2017) (quoting Bd. of Miss. Levee
Comm’rs v. EPA, 675 F.3d 409, 417–18 (5th Cir. 2012)). In Hermann Hospital v. MEBA Medical
& Benefits Plan, 959 F.2d 569, 574 (5th Cir. 1992), the Fifth Circuit considered whether an insurer
was estopped from enforcing an anti-assignment clause. The case concerned a hospital patient who
assigned her insurance benefits to the hospital in a written agreement. Id. The hospital told the
patient’s insurer that she had assigned her benefits, and the insurer confirmed that her plan covered
the treatment. Id. During the patient’s six-month stay, the hospital and insurer continuously
communicated about payment, but the insurer declined to pay pending an investigation. Id. After
three years, the hospital sued. Id. At trial, the insurer claimed that an anti-assignment clause in the
patient’s plan precluded the hospital from recovering. Id.
The Fifth Circuit estopped the insurer from enforcing the anti-assignment clause “because
of [the insurer’s] protracted failure to assert the clause when [the hospital] requested payment
pursuant to a clear and unambiguous assignment of payments for covered benefits.” Id. at 575. In
the Fifth Circuit’s view, “it was unreasonable for [the insurer] to lie behind the log for three years
without once asserting the anti-assignment clause, of which [the hospital] had no knowledge, while
duplicitously dragging out the ongoing negotiations to liquidate the claim.” Id. at 574. The insurer
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was responsible for “notify[ing the hospital] of [the anti-assignment clause] if it intended to rely on
it to avoid any attempted assignments.” Id.
Following Hermann Hospital, courts have equitably estopped insurers from asserting antisubrogation clauses only if the treatment provider obtained a clear and unambiguous assignment,
confirmed coverage with the insurer, and the insurer failed to inform the provider of the antisubrogation clause after it became clear that the provider was relying on the assignment. See
Encompass Office Sols., 2017 WL 3268034, at *13; Shelby Cty. Health Care Corp. v. Genesis
Furniture Indus., Inc., 100 F. Supp. 3d 577, 581–82 (N.D. Miss. 2015); Sleep Lab at W. Hous. v.
Tex. Children’s Hosp., No. H-15-0151, 2015 WL 3507894, at *5 (S.D. Tex. June 2, 2015); La.
Health Serv. & Indem., 2013 WL 12310676, at *10.
In this case, the second amended complaint alleged:
Before scheduling or performing any medical services, Houston Home Dialysis
called Blue Cross at the telephone number indicated on each covered member’s or
beneficiary’s healthcare card to verify the member or beneficiary’s coverage and
eligibility, including out-of-network benefit coverage and coverage for the specific
healthcare services performed by Houston Home Dialysis. Blue Cross never told
Houston Home Dialysis that staff-assisted home dialysis was not covered or that they
would not pay it.
(Docket Entry No. 45 at 10). These allegations, if proven, would show that Home Dialysis called
Blue Cross to preauthorize the in-home dialysis treatment, but not that Home Dialysis informed Blue
Cross of Patient 6’s assignment before the litigation.1 Hermann Hospital turned on an insurer’s
failure to notify a medical provider of an anti-assignment clause despite knowing that the provider
had a “clear and unambiguous assignment.” Hermann Hosp., 959 F.2d at 574–75. In this case,
1
In response to the motion to dismiss, Home Dialysis submitted an affidavit from its president,
Akihiro Mochizuki. (Docket Entry No. 53-1). The court cannot consider this document on a Rule12(b)(6)
motion. Even if it could, the affidavit asserts only that Blue Cross preauthorized Patient 6’s treatment at
Home Dialysis’s request, not that Home Dialysis informed Blue Cross of the assignment. (Id. at 1).
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neither the complaint nor the attachments properly considered plausibly plead facts showing that
Blue Cross knew that Home Dialysis had been assigned Patient 6’s benefits. The complaint
allegations are only that Home Dialysis confirmed coverage with Blue Cross. That Home Dialysis
sought and obtained preauthorization did not put Blue Cross on notice that Patient 6 had assigned
her health benefits to Home Dialysis. The complaint allegations are insufficient to warrant the
equitable remedy Home Dialysis seeks at this stage of the litigation.
While Patient 6’s plan contains a presumably enforceable anti-assignment clause, discovery
could reveal that Blue Cross knew of Patient 6’s assignment but failed to tell Home Dialysis about
the anti-assignment clause. If so, an equitable remedy might be warranted.
The court denies the motion to dismiss, without prejudice, so that the parties may raise this
issue at summary judgment or at trial, on a more complete record. See Grand Parkway Surgery Ctr.,
LLC v. Health Care Serv. Corp., No. H-15-0297, 2015 WL 3756492, at *2 (S.D. Tex. June 16, 2015)
(“It is necessary and appropriate in this case to consider the effect of the anti-assignment clauses and
the waiver and estoppel issues on a Motion for Summary Judgment when the plans, the assignments,
and evidence regarding the parties’ dealings are in the record. At the current stage, the Court
concludes that Plaintiff has adequately alleged that it obtained a valid Assignment of Benefits from
each patient and, as a result, the Court denies the Motion to Dismiss for lack of jurisdiction.”).
IV.
Sovereign Immunity
Home Dialysis submitted a declaration of its president in response to the motion to dismiss
based on sovereign immunity. (Docket Entry No. 53). The court may consider the declaration and
other matters of fact and grant the motion to dismiss only if Home Dialysis has not shown any set
of facts entitling it to relief. Ramming, 291 F.3d at 161.
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Absent an unequivocal waiver or congressional abrogation, the Eleventh Amendment bars
suits in federal court by a state’s citizens against their own state or a state agency or department.
Coll. Sav. Bank v. Fla. Prepaid Postsecondary Educ. Expense Bd., 527 U.S. 666, 669–70 (1999);
Clark v. Tarrant Cty., Tex., 798 F.2d 736, 743 (5th Cir. 1986) (citing Pennhurst State Sch. & Hosp.
v. Halderman, 465 U.S. 89 (1984)); see U.S. CONST. amend. XI. Eleventh Amendment immunity
extends to “any state agency or entity deemed an ‘alter ego’ or ‘arm’ of the state.” Perez v. Region
20 Educ. Serv. Ctr., 307 F.3d 318, 326 (5th Cir. 2002) (citing Vogt v. Bd. of Comm’rs, 294 F.3d 684,
688–89 (5th Cir. 2002)). The question is whether the lawsuit “is effectively against the sovereign
state.” Earles v. State Bd. of Certified Pub. Accountants of La., 139 F.3d 1033, 1037 (5th Cir. 1998).
The Fifth Circuit has identified six factors as helpful to answer this question. The factors
are: (1) “[w]hether the state statutes and case law view the agency as an arm of the state”; (2) the
“source of the entity’s funding”; (3) the “entity’s degree of local autonomy”; (4) “[w]hether the
entity is concerned primarily with local as opposed to statewide, problems”; (5) “[w]hether the entity
has authority to sue and be sued in its own name”; (6) “[w]hether the entity has the right to hold and
use property.” U.S. ex rel. Barron v. Deloitte & Touche, LLP, 381 F.3d 438, 440 (5th Cir. 2004)
(quoting Hudson v. City of New Orleans, 174 F.3d 677, 679 (5th Cir.1999)).
No single factor is determinative. Barron, 381 F.3d at 440. They aim to help the court
“determine ‘if the state is the real, substantial party in interest because the suit seeks to impose a
liability which must be paid from public funds in the state treasury.’” Id. (quoting Hudson, 174 F.3d
at 681); see Carter v. Seamans, 411 F.2d 767, 770 (5th Cir. 1969) (“The general rule is that a suit
is against the sovereign if ‘the judgment sought would expend itself on the public treasury or
domain, or interfere with the public administration, or if the effect of the judgment would be to
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restrain the Government from acting, or to compel it to act.’” (quoting Dugan v. Rank, 372 U.S. 609,
620 (1963))). Because the “Eleventh Amendment exists mainly to protect state treasuries,” the
“weightiest factor” is the “source of the entity’s funding” or, in other words, “whether the state
would be liable for a judgment against the defendant.’” Barron, 381 F.3d at 440 (quoting Hudson,
174 F.3d at 687). The third and fourth factors are “difficult to evaluate in the context of a private
corporation.” Id. at 441.
The Texas Legislature has authorized the University of Texas system to provide health
insurance benefits to “recognize and protect the investment of the [University] in each employee by
promoting and preserving economic security and good health among employees.” TEX. INS. CODE
ANN. § 1601.002(4). The Legislature charged the University with “implement[ing] a uniform
program” and “determin[ing] basic procedural and administrative practices for insurance coverage.”
Id. § 1601.051. For full-time employees, the University may contribute “the full cost of basic
coverage for the employee” and “ not more than 50 percent of the cost of dependent coverage.” Id.
§ 1601.201(b)(1)–(2).
In implementing this mandate, the University issued a proposal soliciting the services of
administrators for a health insurance plan called “UT Select PPO.” (Docket Entry No. 46-3). Blue
Cross responded and the University selected Blue Cross as the plan’s administrator. The University
and Blue Cross executed a service contract incorporating the Proposal and defining their
relationship. (Docket Entry No. 47). The Proposal stated:
The UT SELECT PPO is financed on a fully self-funded basis. The contract to be
executed in accordance with this document shall involve no insurance or reinsurance.
The contract shall be for administrative services, claims processing, network
management and credentialing, utilization review, and disease management services
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as described within this [Proposal]. The cost to meet the requirements described in
this [Proposal] shall be recovered by the [administrator] only by making provision
for such expense in the [administrator’s] Administrative Fee Proposal included with
the response to this [Proposal].
(Docket Entry No. 46-3 at 29). Interpreting similar language, the Supreme Court of Texas has
explained that, under a self-funded benefit plan, the employer
assumes the risk of providing health insurance to its employees, instead of ceding the
risk to a third-party insurance company. The employer then either sets aside funds
for its employees’ covered medical expenses or pays for such expenses out of its
general accounts. Self-funded plans typically hire third parties to administer the plan
and often purchase stop-loss insurance to limit financial exposure to catastrophic
loss.
Tex. Dep’t of Ins. v. Am. Nat’l Ins. Co., 410 S.W.3d 843, 846 (Tex. 2012). The Proposal required
that the administrator set a fee “adequate to cover costs incurred for the performance of all services
described within this [Proposal].” (Docket Entry No. 46-3 at 29). The administrator was to “process
and pay all claims submitted under UT SELECT” and maintain “funds which are sufficient to
provide for the costs incurred.” (Id. at 30). Each week, the administrator had to “present an invoice
to the [University] for claim payments made.” (Id.). The University would then reimburse the
administrator. (Id.). As to liability, the Proposal provided:
Although UT SELECT is self-funded, it is the intent of the [University] that the
[administrator] assume, pursuant to the Contract, fiduciary duties and liability for all
of its actions associated with the performance of its duties under the Contract. . . .
The [administrator] must ensure timely and accurate payment of UT SELECT
claims.
(Id. at 32). The administrator assumed “100% liability for incorrect payments which result from
policy or [University] errors attributable to the [administrator] in whole or part,” but the
administrator could not litigate overpayments “unless authorized” by the University. (Id. at 52).
In accordance with the Proposal, Blue Cross’s Contract with the University required it to
16
process and pay claims in a timely fashion. (Docket Entry No. 47). The Contract included the
following indemnification provision:
To the fullest extent permitted by law, [Blue Cross] will and does hereby agree to
indemnify, protect, defend with counsel approved by [the University], and hold
harmless [the University], and [University] affiliated enterprises, regents, officers,
directors, attorneys, employees, representatives and agents (collectively
“Indemnitees”) from and against all damages, losses, liens, causes of action, suits,
judgments, expenses, and other claims of any nature, kind, or description, including
reasonable attorneys’ fees incurred in investigating, defending or settling any of the
foregoing (collectively “Claims”) by any person or entity, arising out of, caused by,
or resulting from [Blue Cross’s] performance under or breach of this Agreement and
that are caused in whole or in part by any negligent act, negligent omission or willful
misconduct of [Blue Cross], anyone directly employed by [Blue Cross] or anyone for
whose acts [Blue Cross] may be liable.
(Id. at 5–6). The Contract continued: “Except for [the University’s] obligation (if any) to pay [Blue
Cross] certain fees and expenses, [the University] will have no liability to [Blue Cross] or to anyone
claiming through or under [Blue Cross] by reason of the execution or performance of this
Agreement.” (Id. at 12 (emphasis omitted)). The Contract made clear that “[Blue Cross] is an
independent contractor and is not a state employee, partner, joint venturer, or agent of [the
University].” Id. at 6.
Blue Cross could be entitled to sovereign immunity if the University would be liable for a
judgment against it. Barron, 381 F.3d at 440. But the Contract states that the Blue Cross has
indemnified the University, and the Proposal provides that Blue Cross has assumed “100% liability
for incorrect payments.” (Docket Entry No. 46-3 at 52). Based on the Proposal and Contract, the
University would not be liable for a judgment against Blue Cross for claim underpayment because
Blue Cross has “100% liability for incorrect payments.” (Id.).2 On the current record, the court
2
Blue Cross cited cases dealing with the Federal Employees Health Benefits Act and other federal
frameworks. (Docket Entry No. 46 at 9–10). Those cases concern the specific contract and statutory
relationships between the federal government and plan administrators. See Mentis El Paso v. Health Care
17
cannot decide this issue because it is unclear whether Patients 4 and 5 were insured under the UT
Select PPO, or some other University plan. This matters, because the University’s liability for
judgments against Blue Cross might differ depending on the contract arrangements for one plan or
another. Again, the court denies the motion to dismiss, without prejudice, so that the parties may
supplement the record and raise this issue at summary judgment or, if appropriate, at trial.
V.
Conclusion
The motion to dismiss is denied, without prejudice. (Docket Entry No. 46). Blue Cross may
raise the prudential standing and sovereign immunity issues at summary judgment or at trial.
SIGNED on October 22, 2018, at Houston, Texas.
______________________________________
Lee H. Rosenthal
Chief United States District Judge
Serv. Corp., 58 F. Supp. 3d 745, 752–56 (W.D. Tex. 2014); Innova Hosp. San Antonio, L.P. v. Blue Cross
& Blue Shield of Ga., Inc., No. 3:12-cv-1607, 2014 WL 360291, at *5–*6 (N.D. Tex. Feb. 3, 2014). They
are not dispositive in this case.
In Kirby v. Health Care Service Corporation, 88 F. Supp. 3d 717, 718–19 (W.D. Tex. 2015), a more
analogous case, the district court considered whether Blue Cross was entitled to sovereign immunity when
serving as an administrator for a health insurance plan funded by the Texas School Employees Uniform
Group Coverage Trust Fund. Blue Cross had agreed to indemnify the Trust for liabilities arising out of its
contract performance, and the contract stated that Blue Cross was not the Trust’s agent. Id. at 721. The
district court, however, found that Blue Cross was entitled to sovereign immunity, pointing to contract
language that gave the Trust final decision-making authority as to “whether or not coverage exists” and made
it “solely responsible for all funding, payments, and liabilities.” Id. at 721–22; see also McAllen Anesthesia
Consultants, P.A. v. United Healthcare Servs., Inc., No. 7:14-cv-913, 2015 WL 9257154, at *8 (S.D. Tex.
Dec. 14, 2015) (plan administrator was entitled to sovereign immunity because the Employees Retirement
System of Texas was “responsible for paying claims for Plan benefits, which are paid with State funds”). The
current case differs because the Proposal and Contract require that Blue Cross “review claims for eligibility”
and bear “100% liability for incorrect payments.” (Docket Entry No. 46-3 at 52–53).
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