Vernell, Louis, In Re:

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
__________________________
FILED
No. 99-10114 U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
__________________________ 04/13/00
THOMAS K. KAHN
CLERK
D.C. Docket No. 98-00087-1:CIV-MMP
SHANDS TEACHING HOSPITAL AND CLINICS, INC.,
Plaintiff-Appellant,
versus
BEECH STREET CORPORATION,
UNISYS CORPORATION,
Defendants-Appellees.
__________________________
Appeal from the United States District Court
for the Southern District of Florida
__________________________
(April 13, 2000)
Before CARNES, BARKETT and MARCUS, Circuit Judges.
BARKETT, Circuit Judge:
Shands Teaching Hospital and Clinics, Inc. appeals the dismissal of its
complaint against Unisys Corporation and Beech Street Corporation. Shands sued
Unisys and Beech Street for the non-payment of monies due to Shands for medical
services provided to employees of the State of Florida pursuant to the state health
insurance plan. The district court concluded that although the State of Florida was
not named as a defendant in the suit, a judgment granting the relief sought by
Shands would have to be satisfied from the state coffers, and thus the suit is barred
by the Eleventh Amendment. Accordingly, the district court dismissed the claim
pursuant to Federal Rule of Civil Procedure 12(b)(6), for failure to state a claim
upon which relief can be granted.
BACKGROUND
Shands Hospital provides health care services to enrollees in the Florida
State Group Health Insurance Plan. The plan, established in accordance with
Florida Statutes § 110.123 for the benefit of state officers, employees, retirees and
their eligible dependents, is a self-insured plan funded by annual appropriations
from the state legislature and premium payments by enrollees. Under the statute,
the Department of Management Services (“DMS”) is responsible for contract
management and day-to-day management of the state program, including the
determination of health care benefits to be provided, and the negotiation of
contracts for health care and health care administrative services. See Fla. Stat.
Ann. § 110.123(3)(d) (West 1992 & Supp. 2000). The statute authorizes the DMS
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to employ a professional administrator to process claims, and in 1995, after a
competitive bidding process, the DMS contracted with Unisys to fulfill this
function. Although Unisys is responsible for employee enrollment, premium
collection, payment to health care providers and other administrative functions
related to the program, the DMS retains final decision-making authority
concerning the existence of coverage or benefits under the plan. Id. at §
110.123(5)(c).
In addition to serving as third party administrator, Unisys is also required
under the contract with the State to provide a preferred provider organization
(PPO) network. To fulfill the PPO component of its contract, Unisys, with the
approval of the State, entered into a subcontract with Beech Street, a national
managed care company that maintains a network of health care service providers
with whom it has negotiated preferred rates.1 Shands had been a provider in the
Beech Street PPO network since 1989. Thus, by virtue of the contract between
Beech Street and Unisys, Shands became a covered hospital for state plan
enrollees.
The gravamen of Shands’ claims against Unisys and Beech Street is that
1
Beech Street, as PPO subcontractor, is never in possession of any state funds, but
simply is paid an access or rental fee for the term in which its network is used.
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Shands has not been paid for medical services in accordance with its PPO network
agreement with Beech Street or in accordance with Unisys’ administrative
responsibilities pursuant to Unisys’ agreement with the State. The district court
found, however, that any judgment for Shands would necessarily come from state
funds, and thus that the State’s Eleventh Amendment immunity bars this suit.
Accordingly, the district court dismissed Shands’ complaint pursuant to Rule
12(b)(6) for failure to state a claim upon which relief can be granted. Shands now
appeals.
We review the dismissal of a complaint for failure to state a claim de novo,
construing all allegations in the complaint as true and in the light most favorable to
the plaintiff. See Lowell v. American Cyanamid Co., 177 F.3d 1228, 1229 (11th
Cir.1999). Dismissal under Rule 12(b)(6) is appropriate “only if it is clear that no
relief could be granted under any set of facts that could be proved consistent with
the allegations” of the complaint. Hishon v. King & Spalding, 467 U.S. 69, 73
(1984).
DISCUSSION
In its complaint, Shands asserts two different claims: (1) that Unisys refused
to reimburse Shands for certain medical services which Shands contends are
“covered services” under the state plan; and (2) that Unisys made only partial
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payment for some medical services rendered. Shands argues that its cause of
action is directed against the two private corporations, not against the State, and
that Eleventh Amendment immunity does not extend to Unisys or Beech Street
under such circumstances.
The Eleventh Amendment provides that:
The Judicial power of the United States shall not be construed to extend to
any suit in law or equity, commenced or prosecuted against any one of the
United States by Citizens of another State or by Citizens or Subjects of any
Foreign State.
U.S. Const. amend. XI. The Eleventh Amendment largely shields states from
being sued in federal court without their consent, leaving parties with claims
against a State to bring them, if the State permits, in the State's own tribunals. See
Hess v. Port Authority Trans-Hudson Corp., 513 U.S. 30, 48 (1994). The
amendment is rooted in a recognition that the States, although a union, maintain
certain attributes of sovereignty, including sovereign immunity. See Hans v.
Louisiana, 134 U.S. 1, 13 (1890). It is well established that Eleventh Amendment
immunity encompasses not only cases in which the State itself is named as a
defendant, but also certain actions against state agents and state instrumentalities.
See Regents of the Univ. of Cal. v. Doe, 519 U.S. 425, 429 (1997).
Shands recognizes that Eleventh Amendment immunity may extend to
defendants other than the State based upon: (1) how state law defines the entity;
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(2) what degree of control the State maintains over the entity; and (3) from where
the entity derives its funds and who is responsible for judgments against the entity.
See Stewart v. Baldwin County Board of Education, 908 F.2d 1499, 1509 (11th
Cir. 1990); Tuveson v. Florida Governor’s Council on Indian Affairs, Inc., 734
F.2d 730, 732 (11th Cir. 1984). However, Shands argues that Unisys and Beech
Street cannot be deemed arms of the state under any of these analytical prongs
because they are autonomous private corporations that are not controlled by the
State of Florida, and do not derive their funding from the State of Florida.
Shands’ argument misses the mark. The pertinent inquiry is not into the
nature of a corporation’s status in the abstract, but its function or role in a
particular context. Thus the question in this case is whether and to what extent
these corporations are contractually acting as representatives of the State. Under
the laws of Florida and the contractual provisions between the parties, it is clear
that Unisys and Beech Street are simply administrators acting at the behest of the
State with reference to Florida’s health insurance program. The program is funded
through annual legislative appropriations, and the State of Florida retains virtually
complete control over the actions of its administrators.2 Although we have found
2
For example, contractual provisions between the State and Unisys reserve to the State
the right to terminate the third party administrator contract for convenience, to inspect Unisys’
records and work, and to conduct an audit. In addition, the State must approve all subcontracts
and all printed materials. The State has on-line access to files, approves the claims
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no case directly on point that has accorded Eleventh Amendment immunity to a
private corporation such as Unisys, in analogous circumstances courts have found
that sovereign immunity bars suits against private corporations acting as fiscal
intermediaries in actions relating to federal Medicare reimbursement. See
e.g., Pani v. Empire Blue Cross Blue Shield, 152 F.3d 67, 72 (2d Cir. 1998);
Anderson v. Occidental Life Ins. Co., 727 F.2d 855, 856 (9th Cir. 1984); Pine
View Gardens, Inc. v. Mutual of Omaha Ins. Co., 485 F.2d 1073, 1074-75 (D.C.
Cir. 1973); see also Matranga v. Travelers Ins. Co., 563 F.2d 677, 677 (5th Cir.
1977); Peterson v. Weinberger, 508 F.2d 45, 51 (5th Cir. 1975). Thus, although
these are private corporations that are neither controlled nor funded by the state,
they are protected by governmental immunity when they are clearly acting as
agents of the state. This is not to say that an agent of the government, be it federal
or state, is totally immune to liability either in tort or in contract, or for actions
exceeding their authority to act on the government's behalf. These cases do not
extend blanket immunity to Medicare fiscal intermediaries, rather, immunity has
been granted only to the extent that a judgment would expose the government to
financial liability or interfere with the administration of government programs.
In line with the reasoning of these cases, we look to “the effect of the relief
administration manual, and owns all the program information and data.
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sought,” Pennhurst State School & Hospital v. Halderman, 465 U.S. 89, 107
(1984) in order to determine whether Shands’ claims are barred. The dispositive
question for Eleventh Amendment purposes is whether a judgment against Unisys
or Beech Street would implicate the state treasury or interfere with the
administration of the state group insurance program, or whether the claims
constitute a private cause of action, arising out of tort or contract, for which Beech
Street or Unisys would be financially responsible.
1. Dispute over “covered services.”
Shands maintains that certain medical services which it has provided for the
benefit of plan enrollees, and which Unisys has declined to reimburse under the
state plan, are in fact “covered services” within the meaning of the state plan. In
Count I of its complaint, Shands seeks declaratory judgment on the rights and
liabilities of the parties under the implementing contracts for the state insurance
plan. We agree with the district court that this claim is in substance one against the
State of Florida.
Under the Florida statute establishing the state insurance plan, Unisys’ duties
as third party administrator extend to employee enrollment, premium collection,
payment to health care providers and other administrative functions related to the
program, but the DMS retains final decision-making authority over the existence of
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coverage or benefits under the plan. Fla. Stat. Ann. § 110.123(5)(e) (“Final
decisions concerning the existence of coverage or benefits under the state group
health insurance plan shall not be delegated or deemed to have been delegated by
the department.”). Indeed, the state plan specifically provides a process whereby
initial benefits determinations may be appealed to the DMS, to be reviewed in
conjunction with the Agency for Health Care Administration. The agency’s denial
of an appeal is subject to an administrative hearing and judicial review pursuant to
Florida Statutes Chapter 120.
It is clear from the state law establishing the plan, and the implementing
contracts to which the State and Unisys are party, that the DMS retains ultimate
authority over Unisys’ administrative actions with respect to benefits
determinations. The denial of coverage is an administrative action within the
scope of Unisys’ duties as an agent of the DMS. Moreover, although Shands seeks
only declaratory judgment on this issue, it is clear that such a judgment would
ultimately affect the state treasury, insofar as the state insurance fund would be
obliged to increase payouts on the number of covered services. Any analysis by
the court of the State’s obligations under the various contractual provisions would
impermissibly intrude upon the future administration of the state program. For
these reasons, we affirm the district court’s dismissal of Shands’ claim regarding
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covered services.
2. Partial Payment
Shands’ second claim seeks damages arising from Unisys’ failure to pay the
full amount due to Shands for medical services which it rendered to state plan
enrollees. The 1989 Hospital Provider Agreement whereby Shands agreed to
become part of the Beech Street PPO network entitles payors3 to a “courtesy
adjustment” or discount of thirty-five percent, “except [when] the Hospital has not
received payment within thirty (30) days after the date the claim is approved in
writing by Beech Street.” Shands contends that although payments were not made
within the requisite thirty days for the application of the discounted rate, Unisys
nonetheless only paid at the discounted rate.4
Here again, we find that a judgment on this claim would implicate state
funds. The Hospital Provider Agreement expressly provides that the penalty for
3
Because the Hospital Provider Agreement is a standard contract, and Beech Street
makes its PPO network available to a number of different insurance plans, the third party payor
is not expressly designated in the contract. For the purposes of the state plan, although the State
of Florida was the ultimate payor of benefits, Unisys acted as administrative payor on behalf of
the State.
4
Shands’ claim against Beech Street is based upon a contractual provision in the
Hospital Provider Agreement that “Beech Street will use its best efforts to ensure that its Payors
make payment to [Shands] on all approved claims within thirty (30) days of receipt of claim by
Beech Street. If payment is not received within thirty (30) days of receipt of approved claim by
Beech Street, then Payor will pay [Shands] the amount of the approved claims.” Shands’
complaint does not allege that Beech Street failed to perform any specific duties required under
the “best efforts” clause. The mere fact that payment was not made by Unisys within thirty days
is not sufficient to sustain a claim that Beech Street failed to use best efforts.
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the failure to reimburse claims within thirty days is payment of the full amount of
the claims. Such payment for medical services rendered is an obligation of the
State. We reject Shands’ contention that because Unisys may be contractually
obligated to indemnify the State for the additional expense,5 Unisys is also directly
liable to Shands in the first instance. In the event that the State is obliged to make
full payment to Shands due to negligence on the part of Unisys or Beech Street, the
State may seek its remedy from the party at fault. However, the availability of this
avenue to the State does not invest Shands with a cause of action against Unisys.
Nor does the fact that the State may ultimately seek indemnification from a third
party bear on the State’s liability in the first instance. As the district court found
such indemnification provisions are immaterial for purposes of Eleventh
Amendment. “The Eleventh Amendment protects . . . [a] State from the risk of
adverse judgments even though the State may be indemnified by a third party . . . it
is the entity’s potential legal liability, rather than its ability or inability to require a
third party to reimburse it, or to discharge the liability in the first instance, that is
relevant.” Regents of the Univ. of Cal. v. Doe, 519 U.S. 425, 431 (1997).
5
Under the contract with Unisys, the State may institute proceedings to seek liquidated
damages as the remedy for errors and delays in claims processing. The contract also obligates
Unisys to post a performance bond with the DMS as beneficiary to protect the DMS against loss
if Unisys fails to faithfully perform required services, and to indemnify the State for claims or
losses resulting from its erroneous, negligent or willful acts.
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For the foregoing reasons the judgment of the district court is
AFFIRMED.
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