United States District Court, D. Alaska
JOHN D. ZIPPERER, JR., M.D., Plaintiff,
v.
PREMERA BLUE CROSS BLUE SHIELD OF ALASKA, Defendant.
ORDER AND OPINION [RE: MOTION AT DOCKET 26]
JOHN
W. SEDWICK SENIOR JUDGE
I.
MOTION PRESENTED
At
docket 26, Defendant Premera Blue Cross and Blue Shield of
Alaska (“Premera”) filed a motion to dismiss the
First Amended Complaint filed by John D. Zipperer, Jr., M.D.
(“Plaintiff”). Plaintiff responded at docket 31.
Premera replied at docket 35. Oral argument was heard on July
27, 2016.
II.
BACKGROUND
Plaintiff
is a doctor practicing in Alaska. He owns and operates
Zipperer Medical Group (“ZMG”), which is a clinic
that specializes in providing interventional pain management
and addiction recovery services in Anchorage, Wasilla, Eagle
River, and Fairbanks. The dispute in this case involves
unpaid insurance claims ZMG filed with Premera for laboratory
services that were provided to patients enrolled in various
Premera health plans with dates of service ranging from
December 2014 to the present. Plaintiff asserts that all the
insurance claims at issue were properly assigned to him from
insured patients.
ZMG
operates laboratories in Alaska and Tennessee. According to
Plaintiff’s complaint, the laboratory in Tennessee is a
“physician office laboratory, ” as that term is
defined under federal regulations because it is owned by ZMG,
bills under ZMG’s billing number, is used solely for
ZMG patients, and is registered with Medicare as a location
of the physician group.[1] Its Alaska laboratory does not maintain
a certain compliance certification and, as a result, cannot
process some types of laboratory tests needed by ZMG
patients. Therefore, ZMG uses its Tennessee laboratory when
necessary to service its Alaskan patients. Plaintiff alleges
that for the laboratory claims at issue here, the insured
patient would meet with a doctor in Alaska and provide a
sample. The sample was then sent to the Tennessee laboratory
for processing.
When
filing a claim for payment for these Tennessee laboratory
services, ZMG completes Premera’s standard claim form
referred to as the “HCFA 1500.” In Box 32 of that
form, ZMG marks that the laboratory service location was
Alaska, not Tennessee, because Alaska is where the doctor and
patient had the face-to-face contact and where the sample was
taken from the patient. Plaintiff asserts that this practice
is proper and required under HIPAA and its transaction and
code set rules. However, to be transparent, ZMG also lists
the Tennessee laboratory’s identification number in Box
23 of the form to show that the samples were processed in
Tennessee rather than Alaska. Premera believes that Box 32 of
the form should reflect that the laboratory services were
performed in Tennessee regardless of where the doctor-patient
contact took place. Premera also asserts that claims for
laboratory services performed for patients enrolled in
Premera’s health insurance plan for federal employees
(referred to as the “Service Benefit Plan”)
should be sent to Blue Cross and Blue Shield of Tennessee for
payment processing.
On
March 19, 2015, Premera wrote ZMG informing ZMG that Premera
was placing it on pre-payment review of all laboratory
claims. The letter stated that prepayment review was
necessary to review laboratory codes used by ZMG and that any
electronic insurance claim submitted to Premera “will
pend and a statement may be sent to the provider indicating
the need for additional documentation in order to determine
the location where the laboratory services were
performed.”[2] It also stated that ZMG was filling out
Box 32 improperly and further instructed that for patients
enrolled in the federal Service Benefit Plan, claims for
laboratory tests processed in Tennessee must be sent to Blue
Cross Blue Shield of Tennessee.[3]
Plaintiff
filed its complaint against Premera. Count I alleges a
violation of Alaska’s Prompt Pay Statute, AS §
21.36.495. The Prompt Pay Statute requires Premera to pay
insurance claims or provide notice to the claimant as to what
is needed to process the claim or setting forth the reasons
for denial within thirty calendar days of its receipt of the
claim. Plaintiff alleges that Premera has failed to pay,
deny, or provide the necessary notice as to the insurance
claims at issue here. He further alleges that Premera’s
decision to place ZMG on pre-payment review is “in fact
a pretext to avoid application of the [Prompt Pay
Statute].”[4] Plaintiff asks that the court
“declare that [Permera] is in violation of the [Prompt
Pay Statute] due to its failure to pay or deny the claims at
issue and failure to meet the specific notice requirements
within 30 calendar days after it received the
claim”[5] and that the court order Premera to pay
the claims with interest as required under the law. He also
requests that the court direct Premera to rescind its notice
placing ZMG under pre-payment review. Count II is brought
pursuant to HIPAA. Plaintiff asks the court to “declare
that ZMG has submitted all laboratory claims at issue with
the proper [code] in Box 32, as is consistent with
HIPAA.”[6]
Both
parties agree that some of the insurance claims at issue
involve patients enrolled in the Service Benefit Plan, which
is created pursuant to FEHBA, and some of the insurance
claims at issue involve patients enrolled in health benefit
plans governed by ERISA. The remaining claims are those
brought under other Premera health insurance plans. Premera
argues: 1) that Count I should be dismissed as to
Plaintiff’s insurance claims for laboratory services
rendered to patients insured under the Service Benefit Plan
because the Prompt Pay Act is expressly preempted pursuant to
FEHBA, displaced by federal common law, impliedly preempted
by FEHBA, and barred by the federal government’s
sovereign immunity; and 2) that Count I should be dismissed
as to Plaintiff’s insurance claims relating to
laboratory services rendered to patients insured under
self-funded ERISA-governed health benefit plans because the
Prompt Pay Statute is preempted by ERISA as to those claims.
Premera also argues that Count I should be dismissed in its
entirety. It asserts Plaintiff has not adequately stated a
claim for which relief can be granted under the Prompt Pay
Statute. Premera also argues that Count I should be dismissed
as to all insurance claims because Plaintiff has failed to
exhaust his administrative remedies provided for under
Alaska’s Insurance Code.
As for
the HIPAA claim in Count II, Premera argues that Plaintiff
does not have standing to bring such an action in relation to
insurance claims filed under the federal Service Benefit
Plan.
III.
STANDARD OF REVIEW
Rule
12(b)(6) tests the legal sufficiency of a plaintiff’s
claims. In reviewing such a motion, “[a]ll allegations
of material fact in the complaint are taken as true and
construed in the light most favorable to the nonmoving
party.”[7] To be assumed true, the allegations,
“may not simply recite the elements of a cause of
action, but must contain sufficient allegations of underlying
facts to give fair notice and to enable the opposing party to
defend itself effectively.”[8] Dismissal for failure to
state a claim can be based on either “the lack of a
cognizable legal theory or the absence of sufficient facts
alleged under a cognizable legal theory.”[9] “Conclusory
allegations of law . . . are insufficient to defeat a motion
to dismiss.”[10]
To
avoid dismissal, a plaintiff must plead facts sufficient to
“‘state a claim to relief that is plausible on
its face.’”[11] “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.”[12] “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.”[13] “Where a complaint pleads facts
that are ‘merely consistent with’ a
defendant’s liability, it ‘stops short of the
line between possibility and plausibility of entitlement to
relief.’”[14] “In sum, for a complaint to
survive a motion to dismiss, the non-conclusory
‘factual content, ’ and reasonable inferences
from that content, must be plausibly suggestive of a claim
entitling the plaintiff to relief.”[15]
IV.
DISCUSSION
A.
Failure to state a Prompt Pay Statute claim
Premera
argues that Count I should be dismissed in its entirety
because Plaintiff failed to adequately allege a violation of
Alaska’s Prompt Pay Statute. It argues that its March
19, 2015 letter to Plaintiff constituted proper notice under
the Prompt Pay Statute, and therefore, Plaintiff’s
claims are not “clean” claims subject to prompt
payment. The letter, however, is not adequate notice under AS
§21.36.495(b). According to the statute, the notice
required must provide “the basis for denial or the
specific information that is needed for the insurer to
adjudicate the claim.”[16] Here, the letter did not
address any specific insurance claim, but rather, just put
Plaintiff on notice that Premera was placing ZMG on
pre-payment review status. That is, it did not state that it
was going to deny a claim or a group of claims, nor did it
set forth “the specific information that is needed for
the insurer to adjudicate the claim.” Rather, the
letter merely stated that any electronically submitted
laboratory claims “will pend and a statement may be
sent to the provider indicating the need for additional
documentation.”[17]
Premera
also argues that Plaintiff’s claim for prompt payment
in Count I is inadequate because Premera “is within its
contractual right to keep Plaintiff on prepayment review for
reasons unrelated to Box 32 or the entity to which
[Plaintiff] submitted the claim.”[18] However, as
Plaintiff notes in his response brief, his “argument
has nothing to do with whether [Premera] has the general
contractual right to place a provider on prepayment
review.”[19] His argument is that regardless of
ZMG’s prepayment status, Premera has nonetheless
violated the Prompt Pay Statute by failing to pay or provide
the requisite notice. The court concludes that Count I
properly alleges a violation of the Prompt Pay Statute.
B.
Failure to exhaust administrative remedies
Premera
argues that Count I should be dismissed in its entirety
because Plaintiff failed to exhaust his state administrative
remedies. Here, administrative remedies are provided for
under the state insurance code. An insured may file a
complaint with the director of Alaska’s division of
insurance and then the director may conduct an investigation
to determine whether a person is engaged in an unfair method
of competition or a practice prohibited under Chapter 36 of
the insurance code, which includes the Prompt Pay
Statute.[20] The director may then provide for an
administrative proceeding as set forth in the insurance
code.[21] However, while an administrative remedy
is provided for under Chapter 36 of the insurance code, there
is nothing in the insurance code, including the Prompt Pay
Statute itself, that indicates this administrative process is
a mandatory step before an insured, or his or her provider,
can file a lawsuit against an insurer.
Premera
contends that while the language of the statute is not
mandatory the court should nonetheless conclude that
exhaustion is required. It argues that exhaustion is required
any time an administrative remedy is provided for under a
statute and when the disputed matter involves factual issues
rather than a challenge to the validity of the statute
itself. The court disagrees with Premera’s assessment
of the law. Under Alaska law, exhaustion is usually required
when the matter involves an agency decision, which is not the
case here.[22] When discussing whether a court should
require exhaustion the Alaska Supreme Court has indicated
that the court must assess the “benefits obtained
through affording an agency an opportunity to review the
particular action in dispute” and that one of the
purposes of the exhaustion requirement is “to correct
its own errors so as to moot judicial
controversies.”[23] Indeed, the cases that Premera relies
on to support its exhaustion argument involve disputes over
agency actions[24] or employment disputes with a municipal
employer, [25] not private insurance disputes. The
court declines to require Plaintiff to pursue an
administrative remedy.
C.
FEHBA preemption of the Prompt Pay Statute as to Service
Benefit Plan insurance claims
Premera
argues that Count I should be dismissed as to
Plaintiff’s insurance claims that were filed for
laboratory services rendered to patients enrolled in the
federal Service Benefit Plan. It argues that as to these
insurance claims the Prompt Pay Statute is preempted by the
contract terms between the federal government and Blue Cross
Blue Shield of Alaska (“BCBSA”) pursuant to
FEHBA, 5 U.S.C. § 8902(m)(1).
1.
FEHBA in general
Congress
enacted FEHBA to provide health benefits to federal
employees. Under FEHBA, the U.S. Office of Personnel
Management (“OPM”) has the discretion to
establish insurance plans with multiple
insurers.[26] OPM contracted with BCBSA to provide the
Service Benefit Plan to federal employees in Alaska. Premera
is a local BCBSA licensee that insures and administers the
Service Benefit Plan. Under FEHBA, OPM has the authority to
determine the benefit structure of each plan and set forth
the plan’s statement of benefits.[27] OPM has
established a mandatory administrative remedy at the agency
level for those who believe that the carrier has wrongfully
denied benefits.[28] If OPM upholds the denial of benefits,
the enrollee, or his or her medical provider, can bring suit
only against OPM and not the carrier or carrier’s
subcontractors. Furthermore, there is no allowance for the
recovery of penalties or interest.[29]
2.
Preemption
FEHBA
contains an express preemption provision, 5 U.S.C. §
8902(m)(1), which states as follows:
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.[30]
“The
policy underlying section 8902(m)(1) is to ensure uniformity
in the administration of FEHBA benefits.”[31] Under the
statute, two conditions must be met to warrant preemption:
“(1) the FEHBA contract terms at issue ‘relate to
the nature, provision, or extent of coverage or benefits
(including payment with respect to benefits)’ and (2)
the state or local law ‘relates to health insurance or
plans.’”[32] “A law ‘relates to’ an
employee benefit plan, in the normal sense of the phrase, if
it has a connection with or reference to
such a plan.”[33] Under FEHBA’s exemption provision,
“state law-whether consistent or inconsistent with
federal plan provisions-is displaced on matters of
‘coverage or benefits’” under
FEHBA.[34]
Premera
has identified the specific contract provisions between OPM
and BCBSA that relate to “payments with respect to
benefits” that should preempt Alaska’s Prompt
Payment Statute. These provisions include ones that (1)
specify the particular remedies available in disputes over
payments of FEHBA benefits, but that do not allow for
interest; (2) call for the processing of claims within time
frames that are more lenient than the thirty days required
under the Prompt Pay Statute; and (3) allow Premera to
request information needed to demonstrate the claims are
payable before Premera pays a claim.[35] Plaintiff argues that
these contract provisions are procedural ones not aimed at
“coverage, benefits, or payments with respect to
benefits” and thus do not preempt the Prompt Pay
Statute.
The
Fifth Circuit has held that other states’ prompt pay
laws are preempted by FEHBA insurance contracts with similar
terms. In Burkey v. Government Employees Hospital
Association, the court held that Louisiana’s
prompt pay statute calling for penalties for delays in
processing health insurance claims was preempted under §
8902(m)(1).[36] It rejected the plaintiff’s
argument that her claim for penalties against the insurer
under the state’s prompt pay law only related to
remedies and not to matters of coverage or
benefits.[37] The court stated that “[t]ort
claims arising out of the manner in which a benefit claim is
handled are not separable from the terms of the contract that
governs benefits.”[38] The Fifth Circuit reasserted its
preemption holding as to Texas’s prompt pay law earlier
this year. It stated that “[b]y imposing penalties for
late payments, [the state prompt pay law] mandates that
insurers process and pay claims within the set time periods,
” and, as a result the law, “would directly
affect the operation of the plans and expand FEHBA
carriers’ duties under the plans.”[39]
The
Ninth Circuit has not specifically addressed preemption of a
state prompt pay law pursuant to FEHBA. However, in Hayes
v. Prudential Insurance Co. of America, the court
examined whether the plaintiff’s state law claims,
which involved “the manner in which a benefit claim is
handled, ” were preempted pursuant to
FEHBA.[40] It rejected the plaintiff’s
argument that preemption does not apply to laws that deal
with how a claim is processed. Analogously, a ...