George Schoedinger v. United Healthcare

Citation: Not availableDocket: 07-3317

Court: Court of Appeals for the Eighth Circuit; March 4, 2009; Federal Appellate Court

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George Schoedinger, an orthopedic surgeon, and his employer, Signature Health Services, Inc., filed a lawsuit against United Healthcare of the Midwest, Inc. for wrongful denial and reduction of 295 health care insurance claims. The case was removed to federal court because 289 claims fell under the Employee Retirement Income Security Act of 1974 (ERISA). The plaintiffs later amended their complaint to include state law claims for breach of contract and violations of the Missouri Prompt Payment Act, alongside federal claims under ERISA and the Racketeer Influenced and Corrupt Organizations Act (RICO).

During a bench trial, evidence revealed that United’s claims processing system was flawed, resulting in improper denials, reductions, and delays in payments for Dr. Schoedinger’s services. Specific errors included continued application of in-network discounts after Dr. Schoedinger's departure from the provider agreement, incorrect bundling of procedures, improper downcoding, and excessive information requests before processing claims. Consequently, Signature incurred significant costs to manage and correct these errors, with United's payments often $200,000 to $600,000 overdue.

The district court awarded the plaintiffs $28,874.04 for ERISA claims, $4,768.62 for non-ERISA claims, and $284,261.47 in pre-judgment interest, attorneys’ fees, and costs—none of which are contested on appeal. However, the court dismissed the RICO claim and determined that United did not breach any independent contract related to the ERISA claims, that ERISA preempts additional penalties under the MPPA, and that broad injunctive relief was not warranted. The plaintiffs appealed these rulings, but the appellate court affirmed the district court's decisions. Dr. Schoedinger was out-of-network for the claims in question, having terminated his in-network agreement effective April 15, 2003.

United's claim procedures apply uniformly to both in-network and out-of-network providers. At trial, United acknowledged that patients' assignments of plan benefits formed a contractual basis for the claims under ERISA and non-ERISA laws. Plaintiffs contended that the claims procedures outlined on United's website and in other materials constituted a separate contractual promise to compensate Dr. Schoedinger for his services to United plan members. However, the district court, drawing comparisons to Missouri case law on employment contracts, found that United's documents lacked language suggesting a willingness to enter into a contract, leading to the conclusion that no offer or contract existed. The court's findings were deemed not clearly erroneous upon review. Dr. Schoedinger testified that his contracts were only with patients, not United. United's website provides guidelines for verifying patient eligibility and submitting claims, but the reimbursement policy is described as a general reference that can be modified. The administrative guide was characterized by the court as an instruction manual rather than a contractual offer, and the insurance cards explicitly state they do not guarantee coverage.

Regarding the Missouri Prompt Payment Act (MPPA), which imposes penalties on health carriers for delays in claim processing, the district court awarded interest for United's violations concerning six non-ERISA claims but denied relief for 289 ERISA claims, ruling that MPPA remedies are preempted by ERISA. This ruling is subject to de novo review. ERISA preempts state laws that conflict with its provisions, as established by Supreme Court precedents indicating that state claims duplicating ERISA remedies are preempted. The Eighth Circuit has previously ruled that ERISA preempts claims for penalties under Missouri's Vexatious Refusal to Pay Statute, reinforcing that ERISA provides exclusive remedies.

ERISA's comprehensive remedial scheme preempts any state law remedies, as established in Werdehausen v. Benicorp Ins. Co. Plaintiffs contend that a state law requiring ERISA plan administrators to promptly pay healthcare providers is not preempted due to its 'remote' impact. They cite Baylor Univ. Med. Ctr. v. Ark. Blue Cross Blue Shield, where the Texas Prompt Pay Law was deemed not completely preempted. However, the court finds the MPPA more directly affects ERISA plans, as it regulates payments to claimants, including ERISA participants. Unlike the provider agreement in Baylor, Dr. Schoedinger’s claims arise from patients’ assignments of benefits, thus the MPPA's impact on plan administration is significant. The court also notes that even independent contract claims may be preempted if they affect ERISA plan administration. The analysis in Baylor regarding complete preemption is viewed as inconsistent with the Supreme Court's ruling in Davila, which favored broader preemption. Consequently, the district court's ruling affirming ERISA preemption of MPPA claims is upheld. Additionally, the district court's award of interest for delayed ERISA benefit payments is deemed appropriate under 29 U.S.C. 1132(a)(3)(B).

The RICO claim involves allegations of conducting enterprise affairs through racketeering activity, defined by mail fraud statutes. The majority of claims arise from patients covered under ERISA plans self-funded by railroad employers, processed by United under specific contracts. United's compensation for claims did not depend on the outcome of payment decisions. For out-of-network claims, United was required to submit claims to Coalition America, Inc., which provided additional provider networks for discounted rates, highlighting the complexity of claims processing and potential implications for RICO allegations.

United was obligated under its contracts to pay benefit claims based on 're-pricing' information from Coalition, which received a fee from the plans based on savings, while Coalition had no role in claims administration. After processing claims, United provided a computer-generated explanation of benefits (EOB) to Signature, which reflected errors in the processing of 295 claims. The EOBs indicated when out-of-network discounts were applied, identified the associated 'rented' provider network, and suggested that Signature contact Coalition to dispute discounts, a process described as slow and unsatisfactory by trial witnesses. Plaintiffs’ RICO claim alleged that United intentionally avoided paying full claims amounts, with errors in EOBs constituting mail fraud. The district court dismissed the RICO claim, stating that Plaintiffs failed to provide sufficient evidence to support it and ruled that Plaintiffs lacked standing based on a precedent requiring proof of detrimental reliance on alleged fraudulent acts. However, during the appeal, the Supreme Court clarified that reliance is not necessary to establish a RICO claim based on mail fraud. Plaintiffs argued for reversal of the dismissal, contending that the review should favor them based on factual conflicts. The district court's ruling was based on partial findings permitted under Rule 52(c), which requires a high standard to overturn factual findings. Furthermore, the court expressed doubt regarding whether the Plaintiffs' evidence met other necessary elements for a RICO damage claim. Notably, it was acknowledged that United unilaterally determined discounts and incorrectly classified Dr. Schoedinger as in-network after a specified date.

Plaintiffs did not establish the necessary elements for a RICO claim under 18 U.S.C. § 1962(c), as they failed to demonstrate that United was distinct from the alleged enterprise involved in racketeering activities. While there is a possibility that the plans and Coalition created an 'association-in-fact' enterprise, the plans, which had independent contracts with United and Coalition, were not accused of wrongdoing. Evidence did not support that United and Coalition acted together, nor did it show United directed the enterprise's affairs. The court did not address these issues due to lack of factual findings but upheld the district court's conclusion that the absence of detrimental reliance was detrimental to Plaintiffs' RICO claim, despite a subsequent ruling in Bridge altering that standard.

Further, United's actions in calculating payments to Dr. Schoedinger were deemed improper but were transparently explained in the Explanation of Benefits (EOBs). The EOBs accurately reflected discounts applied and were not materially false. Plaintiffs failed to provide evidence of intentional deceit or a scheme to defraud, only showing repeated errors. Thus, while the reliance conclusion was undermined, the court affirmed the dismissal of the RICO claim based on the trial record's sufficiency.

Regarding injunctive relief, the district court denied Plaintiffs' request for a detailed injunction on how United should process claims, reasoning that it is not in the insurance business and that adequate remedies exist under ERISA and state law. This decision was reviewed for abuse of discretion, and the court affirmed the district court's judgment, noting that ERISA allows recovery of costs and attorney fees in addition to unpaid benefits.