by Roy Harmon, III of Health Plan Law, www.healthplanlaw.com

Horning v. Lab. Corp. of Am., 2009 U.S. Dist. LEXIS 80866 (N.D. Ill. Sept. 3, 2009)

The Hornings contend that their contract with the PPO provides that in return for the premiums they pay, the PPO makes payments to the providers on their behalf in accordance with the PPO’s contract with the provider. Moreover, the contract the PPO has with the provider ensures that the provider accepts payment at a discounted rate in consideration of the PPO’s referral of patients to the provider.

In sum, a reasonable inference can be drawn from the allegations in the complaint that the Hornings were the intended third-party beneficiaries of the contract between Labcorp and the PPO. Therefore, the Hornings may sue for what they perceive as a breach of the PPO-Labcorp agreement.

The district court holds that the plaintiff’s have stated a cause of action against the health care provider for balance billing, billing the balance owed after their health plan paid the PPO discounted rate.

Patricia Horning had laboratory tests performed by Labcorp under a United Healthcare PPO. Pursuant to the PPO’s explanation of benefits, the PPO paid Labcorp for the tests and Patricia was not required to make any additional payment. Shortly thereafter, the Hornings claim that Labcorp billed them and demanded payment. Asserting that Labcorp maintains a practice of accepting payment from an insurance company or PPO and later billing the patient for an amount greater than was specified in the explanation of benefits, the Hornings, as representatives of a putative nationwide class, filed a two-count complaint asserting a breach of contract claim and an Illinois Consumer Fraud Act claim.

In essence, the plaintiffs alleged that collecting or attempting to collect more from a patient than what is expressed in the explanation of benefits constitutes a breach of that contract.

The defendant moved to dismiss the complaint the contract claim on the grounds that the plaintiffs had not properly plead the existence of a contract. The plaintiffs countered that they plead the existence of a contract and the existence of their right to sue by virtue of their alleged relationship with the PPO and its contract with Labcorp, the defendant.

The Court found that the plaintiff’s theory could survive on the basis of third party contract theory, stating that “it is well-established in Illinois that if a contract is entered into for the direct benefit of a third person, then the third person can sue for breach of contract despite being a stranger to the contract and consideration.

Citing Olson v. Etheridge, 177 Ill. 2d 396, 686 N.E.2d 563, 566, 226 Ill. Dec. 780 (Ill. 1997), the Court held that:

The Hornings contend that their contract with the PPO provides that in return for the premiums they pay, the PPO makes payments to the providers on their behalf in accordance with the PPO’s contract with the provider. Moreover, the contract the PPO has with the provider ensures that the provider accepts payment at a discounted rate in consideration of the PPO’s referral of patients to the provider. In sum, a reasonable inference can be drawn from the allegations in the complaint that the Hornings were the intended third-party beneficiaries of the contract between Labcorp and the PPO. Therefore, the Hornings may sue for what they perceive as a breach of the PPO-Labcorp agreement.

The plaintiffs’ complaint was undone, however, on the rather simple issue of damages. The problem was that the plaintiffs never actually paid the balance billed amount. While seemingly trivial, the damages element is a part of the legal claim. Thus, the Court thus dismissed the complaint, observing that:

Nowhere in the Hornings’ complaint do they state they paid the bill Labcorp presented to them. In their response, they concede never having paid it. Without contending that the Hornings sustained any damage arising out of Labcorp’s alleged breach, their claim for breach of contract cannot lie. As such, Labcorp’s motion to dismiss the breach of contract claim is granted.

Had the plaintiffs paid the balanced billed amount, they would still be in court. The question of ERISA preemption was not before the Court and lurks as another issue where patients assert such claims. This case was in federal court based upon its class action status.

Providers will quickly send a provider lien letter on receipt of a subpoena for medical records, often anticipating an opportunity for reimbursement from a liability policy or some other third party settlement, such as workers’ compensation claims. If the provider is party to a network discount arrangement, is this a breach of contract? The Horning opinion stands for the proposition that it is on appropriate facts.

PPO Agreements – The patient does appear to be an intended third party beneficiary of the PPO agreement. On the other hand, does that agreement contain exemptions for such third party claims?

Is there a potential fiduciary breach if a plan fiduciary fails to monitor whether the billed rates comport with the plan’s benefit structure? I have not seen this issue raised, but it appears plausible on some factual scenarios.

The featured case points up the need for careful evaluation of balance billing practices.

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This entry was posted by Adam V. Russo on Friday, October 2nd, 2009 at 4:17 pm and is filed under News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.