Zipperer v. Premera Blue Cross Blue Shield of Alaska

          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 ...