Hospital Offering Patient Discounts not Entitled to Full Reimbursement by Insurer

Cigna Healthcare emerged victorious from a lawsuit filed by a Houston hospital that had accused it of underpaying claims to the tune of at least $50 million.

In an August 7 ruling, U.S. District Court Judge Keith Ellison of the Southern District of Texas found that the insurer did not abuse its discretion when it lowered benefit payments to North Cypress Medical Center after learning that the hospital offered fee-forgiving – a practice whereby out-of-network providers charge patients less than what they owe under their health insurance plans.

The hospital had created a program it called the “Prompt Pay Discount” under which patients who paid out-of-network charges promptly could receive discounts from the provider, which, in turn, billed Cigna for the full amount. It calculated the amount to bill a patient by taking 125 percent of the Medicare fee schedule and multiplying it by the patient’s in-network coinsurance rate. In this case, Cigna was an out-of-network provider.

The discount was offered to any patient with commercial insurance, except those who required emergency services and those with Medicare.

After sending out surveys asking patients how much, if anything, they were asked to pay the hospital, Cigna came to the determination that certain patients were receiving discounts.

In response to the hospital’s actions, Cigna created a policy in which it paid providers based on what they charged the patient. Cigna reasoned that if North Cypress did not bill patients for their coinsurance responsibility, then Cigna was not paying for charges that patients were not legally obligated to pay.

The case dates back several years during which the hospital sued Cigna under ERISA as its patients’ assignee under their health plan. The district court granted Cigna summary judgement agreeing that North Cypress did not have standing to seek payment from the insurer because the patient was not at risk of owing the hospital any additional money. However, the case was appealed to the Fifth Circuit, which reversed noting that the hospital had standing to sue. It then instructed the district court to consider that issue on remand.

On remand, the parties developed a more complete record through discovery and filed cross-motions for summary judgment.

Based on the court’s summary judgment ruling, the case was narrowed to the hospital’s ERISA § 502(a)(1)(B) claim and, within that claim, to the 575 benefit claims for which the hospital had exhausted its administrative remedies.

During an eight-day bench trial that took place in October 2017, the court heard evidence from both sides and on August 7, the court ruled in favor of Cigna.

While hospitals may see such discounts as being beneficial to business, this ruling should serve as a bellwether for other healthcare providers with regard to how courts might rule on this issue in the future.

If you have any questions or concerns about reimbursements, contact us at 305-358-4500 or send us an email to info@vitalehealthlaw.com.

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