32nd Street Surgery Center, LLC v. Right Choice Managed Care

United States Court of Appeals
For the Eighth Circuit
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No. 15-1727
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32nd Street Surgery Center, LLC
lllllllllllllllllllll Plaintiff - Appellant
v.
Right Choice Managed Care; HMO Missouri, Inc.
lllllllllllllllllllll Defendants - Appellees
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Appeal from United States District Court
for the Western District of Missouri - Joplin
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Submitted: November 18, 2015
Filed: April 26, 2016
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Before COLLOTON, GRUENDER, and SHEPHERD, Circuit Judges.
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GRUENDER, Circuit Judge.
32nd Street Surgery Center, LLC (“32nd Street”) sued insurance provider HMO
Missouri, Inc. and administrator RightCHOICE Managed Care, Inc. (collectively,
“insurers”)1 for quantum meruit, unjust enrichment, vexatious refusal to pay an
1
RightCHOICE provides certain administrative services for HMO Missouri,
including provider contracting, but does not itself underwrite healthcare claims.
insurance claim, and injunctive relief arising out of medical services provided to the
insurers’ insureds. The district court2 granted the insurers’ motion for summary
judgment and denied 32nd Street’s motion to compel discovery. 32nd Street now
appeals. We affirm.
I.
The insurers issue health insurance policies to groups and individuals. These
policies establish the method and rates for the reimbursement of insureds’ medical
claims. All of the insurers’ policies contain essentially the same language regarding
the maximum allowable amount at which the insurers will reimburse claims, with the
amount differing only as between network providers and non-network providers. A
network provider is a medical-service provider who has negotiated a contract to
participate in one or more of an insurer’s coverage networks, while a non-network
provider does not have such a contract. The benefits of participating in an insurer’s
networks include increased patient volume and marketing and promotion by the
insurer. In exchange for these benefits, a network provider generally agrees to receive
discounted reimbursement rates.
In the relevant geographical area, the insurers offer six different networks: Blue
Access, Blue Access Choice, Blue Preferred/Blue Preferred Plus, Blue Traditional,
Medicare Advantage HMO, and Medicare Advantage PPO. When an insured receives
services from a non-network provider, the insurers reimburse the insured directly.
However, when a service provider is a network provider, the insurers reimburse the
provider directly, pursuant to the network-provider contract.
2
The Honorable Gary A. Fenner, United States Judge for the Western District
of Missouri.
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Medical-service provider 32nd Street has operated as an outpatient ambulatory
surgical center in Joplin, Missouri since July 2008. Until May 22, 2011, 32nd Street
was a non-network provider with respect to the insurers. During that time, the
insurers reimbursed their insureds directly for services provided by 32nd Street
according to the maximum allowable amount in each insured’s policy. On May 22,
2011, 32nd Street entered into an ancillary-provider agreement with the insurers to
become a network provider. The agreement defines a network provider as “a provider
who [insurer] has designated to participate in one or more Networks . . . as designated
on the signature page and/or the Plan Compensation Schedule.” The signature page
of the ancillary-provider agreement provides that 32nd Street “will be designated as
a Network Provider in the following Programs: . . . Blue Traditional.” Central to the
current dispute, the agreement also contains an out-of-network-compensation
provision, specifying the compensation that applies when an ancillary service provider
renders services to insureds who belong to any of the insurers’ networks for which
the provider is not a network provider.
After 32nd Street joined the Blue Traditional network pursuant to the ancillary-
provider agreement, the insurers began to pay 32nd Street directly. The insurers paid
32nd Street the maximum allowable amount at the Blue Traditional rate, even for non-
Blue-Traditional insureds’ claims. 32nd Street, believing that it was entitled to
receive “reasonable rates” and that the Blue Traditional rates were not reasonable,
responded by using the insurers’ appeals system to appeal every claim in which the
insurers paid Blue Traditional rates for insureds belonging to non-Blue-Traditional
networks. When these appeals proved unsuccessful, 32nd Street responded by filing
this action in federal district court in December 2012.
In its complaint, 32nd Street asserted seven counts: (1) breach of
reimbursement obligations pursuant to 29 U.S.C. § 1132, (2) quantum meruit,
(3) unjust enrichment, (4) breach of contract – breach of duty of good faith and fair
dealing, (5) declaratory judgment, (6) injunctive relief, and (7) vexatious refusal. The
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district court granted the insurers’ motion to dismiss with respect to the breach-of-
reimbursement-obligation, breach-of-contract, and declaratory-judgment claims.
After discovery, the insurers moved for summary judgment as to the remaining
counts, while 32nd Street filed a motion to compel the insurers to produce data and
work papers from 2003, 2008, and 2012 and to produce memoranda from 2003, 2005,
2008, and 2012. 32nd Street asserted that these documents were relevant to
uncovering the methodologies the insurers used to determine the maximum-allowable
rates for out-of-network providers. The court denied the motion to compel, finding
the 2003, 2008, and 2012 documents irrelevant and the 2005 memorandum protected
by attorney-client privilege. The court also granted the insurers’ motion for summary
judgment on the claims of quantum meruit, unjust enrichment, vexatious refusal, and
injunctive relief. 32nd Street now appeals.
II.
We review de novo a district court’s grant of summary judgment. Evance v.
Trumann Health Servs., LLC, 719 F.3d 673, 677 (8th Cir. 2013). Summary judgment
is appropriate only when, viewing the facts in the light most favorable to the
nonmoving party, there is no genuine issue of material fact, and the moving party is
entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Raines v. Safeco Ins.
Co. of Am., 637 F.3d 872, 874 (8th Cir. 2011).
The district court found that contracts governed the rates at which the insurers
were obligated to reimburse services 32nd Street rendered to insureds both before and
after the ancillary-provider agreement. The court concluded that, before the ancillary-
provider agreement, the insurance policies established the rate at which the insurers
would reimburse their insureds’ claims. Later, the ancillary-provider agreement set
forth the maximum rates at which 32nd Street would be reimbursed for services
provided to all insureds covered by the insurers, not only Blue Traditional insureds.
The district court found that, through the ancillary-provider agreement, 32nd Street
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had agreed to accept reimbursement at the Blue Traditional rate even when the
insureds belonged to one of the insurers’ other networks. The district court concluded
that these express contracts barred 32nd Street’s quantum meruit and unjust
enrichment claims. Similarly, the court concluded that 32nd Street’s vexatious-refusal
claim failed because the insurers had paid the amounts due under those contracts.
Finally, the court found that, because 32nd Street did not go into business until 2008
and because the 2011 ancillary-provider agreement controlled how the insurers
reimbursed 32nd Street for claims of insureds from both the Blue Traditional and the
insurers’ other networks, all the work papers and memoranda 32nd Street sought to
compel were irrelevant, except for the 2005 memorandum. However, the court found
this memorandum protected by attorney-client privilege. Accordingly, the district
court granted summary judgment in favor of the insurers as to the quantum-meruit,
unjust-enrichment, and vexatious-refusal claims and denied 32nd Street’s motion to
compel.
A.
32nd Street first argues that the district court erred by rewriting an
unambiguous contract through its interpretation of the ancillary-provider agreement.
32nd Street asserts that Section 2.33, which sets forth the reimbursement rates that
apply to claims from insureds who participate in networks for which the provider is
not a “network provider,” does not apply to it because it participates as a network
provider in the Blue Traditional network. Instead, 32nd Street argues, the ancillary-
provider agreement governs reimbursement only for Blue Traditional insureds, while
Missouri law requires the insurers to make “reasonable payments” for services
rendered to insureds belonging to the insurers’ five other networks. Such “reasonable
payments,” according to 32nd Street, would result in higher compensation to 32nd
Street for claims of non-Blue-Traditional insureds. The district court, however,
rejected 32nd Street’s reading as rendering Section 2.33 meaningless. We agree.
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“Interpretation of an insurance policy is a matter of state law.” Gohagan v.
Cincinnati Ins. Co., 809 F.3d 1012, 1015 (8th Cir. 2016) (quoting Progressive N. Ins.
Co. v. McDonough, 608 F.3d 388, 390 (8th Cir. 2010)). Here, Missouri law applies
because Missouri is the forum state, and neither party has argued that the law of any
other state applies. See id. “[T]he primary rule of [contract] construction is to give
effect to the parties’ intent, which is to be determined solely from the four corners of
the contract itself.” Comp & Soft, Inc. v. AT & T Corp., 252 S.W.3d 189, 194 (Mo.
Ct. App. 2008). “In construing contractual provisions, this court is to avoid an
interpretation that renders other provisions meaningless.” Nodaway Valley Bank v.
E.L. Crawford Constr., Inc., 126 S.W.3d 820, 827 (Mo. Ct. App. 2004).
We begin with the plain language of the ancillary-provider agreement. The
agreement defines “Network Provider” as “a provider who [insurer] has designated
to participate in one or more Networks. Provider is a Network Provider as designated
on the signature page and/or the Plan Compensation Schedule.” Section 2.33, the
“Out of Network Compensation” provision central to this dispute, provides, in
relevant part:
In the event [32nd Street] is not a Network Provider as specified below,
[32nd Street] shall receive compensation, remuneration or reimbursement
as set forth in this provision. Provision 2.33.1 shall apply to
ANCILLARY PROVIDER’s [sic] who are required by Plan to submit
Claims on a UB-04 claim form or its successor.
32nd Street argues that Section 2.33 does not apply to a provider who participates in
any of the six networks. It asserts that the definition of network provider as one
“designated to participate in one or more Networks” specifically allows for a provider
to participate in only one network. 32nd Street argues that because it is a network
provider in the Blue Traditional network, Section 2.33 does not apply to it. However,
this argument ignores the next sentence in the definition: “Provider is a Network
Provider as designated on the signature page and/or the Plan Compensation
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Schedule.” Both locations designate 32nd Street as participating in the Blue
Traditional network and as not participating in the five other networks. Thus, 32nd
Street is a network provider in the Blue Traditional network, but, for the other
networks, 32nd Street “is not a Network Provider as specified below.” Section 2.33
therefore controls 32nd Street’s compensation for claims arising from the five other
networks.
Within Section 2.33, “Provision 2.33.1 shall apply to ANCILLARY
PROVIDER’s [sic] who are required by Plan to submit Claims on a UB-04 claim
form.” Because the ancillary-provider agreement requires 32nd Street to submit all
of its claims on a UB-04 claim form, Section 2.33.1 applies. According to this
provision:
In the event ANCILLARY PROVIDER’s participation is limited to
[Blue] Traditional . . . ANCILLARY PROVIDER shall accept, unless
otherwise required by statute, regulation, or the Covered Individual’s
[policy], the Company Rate for [Blue] Traditional as set forth in the Plan
Compensation Schedule(s) . . . .
Under these terms, because 32nd Street’s participation indeed is “limited to [Blue]
Traditional,” 32nd Street also must accept the Blue Traditional rates for services
rendered to insureds on the five other networks. The Ambulatory Surgical Center
Network Participation attachment to the ancillary-provider agreement lends further
support to this reading of Sections 2.33 and 2.33.1. This attachment states that 32nd
Street “agrees to accept compensation in accordance with the Out of Network
Compensation provision of the Agreement, or as otherwise provided in the Covered
Individual’s Health Benefit Plan” for any services 32nd Street performs for insureds
“NOT supported by a Network designated on [32nd Street’s] Plan Compensation
Schedule.” Again, 32nd Street has agreed to have its compensation governed by the
“Out of Network Compensation provision”—i.e., Section 2.33—whenever it provides
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services to an insured not covered by the “Network designated on [32nd Street’s] Plan
Compensation Schedule”—i.e., the Blue Traditional network.
The plain language of these provisions thus supports the district court’s
conclusion that, in the ancillary-provider agreement, 32nd Street agreed to accept the
Blue Traditional rate for services rendered to insureds belonging to all of the insurers’
networks.
B.
32nd Street next argues that the district court erred by finding that the insureds’
policies with the insurers before the ancillary-provider agreement and, later, the
ancillary-provider agreement, barred 32nd Street’s quantum meruit and unjust
enrichment claims. 32nd Street asserts that the insurers engaged in three types of
“unjust and inequitable” practices: (1) sending reimbursement payments to insureds
instead of directly to 32nd Street, (2) failing to pay “reasonable amounts” for 32nd
Street’s services, and (3) from the date the ancillary-provider agreement went into
effect, reimbursing at Blue Traditional rates for services provided to insureds
belonging to non-Blue-Traditional networks. The district court found these equitable
claims barred by the contracts governing the reimbursement rates paid by the insurers:
first, insureds’ policies with the insurers, then, from May 22, 2011 onward, the
ancillary-provider agreement. We agree.
Under Missouri law, quantum meruit and unjust enrichment are separate, but
related, remedies in quasi-contract. Johnson Grp., Inc. v. Grasso Bros., 939 S.W.2d
28, 30 (Mo. Ct. App. 1997); see also Comp & Soft, 252 S.W.3d at 196 (“[T]he
purpose of quantum [meruit] is to prevent unjust enrichment.”). However, Missouri
law does not allow a plaintiff to maintain an action for either of these quasi-contract
remedies when an express contract governs the subject matter for which recovery is
sought. Lowe v. Hill, 430 S.W.3d 346, 349 (Mo. Ct. App. 2014) (barring recovery
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under an equitable theory when there is “an express contract for the very subject
matter for which [plaintiff] seeks to recover”); see also Burrus v. HBE Corp., 211
S.W.3d 613, 619 (Mo. Ct. App. 2006) (“[A] plaintiff may not maintain an action in
quantum meruit where the plaintiff’s relationship with the defendant is governed by
an existing contract.”); R & R Land Dev., L.L.C. v. Am. Freightways, Inc., 389 S.W.3d
234, 243 (Mo. Ct. App. 2012) (“[I]f the plaintiff has entered into an express contract
for the very subject matter for which he seeks recovery, unjust enrichment does not
apply, for the plaintiff’s rights are limited to the express terms of the contract.”). In
such cases, “the plaintiff’s sole theory of recovery must lie on the contract.” Burrus,
211 S.W.3d at 619.
In the previous section, we established that, once effective, the ancillary-
provider agreement obligated 32nd Street to accept the Blue Traditional
reimbursement rate for all insureds’ claims across the insurers’ networks. We thus
turn to the relationship between 32nd Street and the insurers before the ancillary-
provider agreement. During that time, the insurers’ policies with their insureds set
forth the method and rates for the reimbursement of claims for services rendered by
both network providers and non-network providers. Before entering into the
ancillary-provider agreement, 32nd Street was a non-network provider. For a non-
network provider, the terms of the policies provide for a maximum allowable amount
of reimbursement equal either to an “amount negotiated” or, “[i]n the absence of a
negotiated amount,” an amount that “[insurers] shall have discretionary authority to
establish.” Non-network providers then had the right to seek to recover from the
insureds any difference between the amount billed and the maximum allowable
amount through a practice known as “balance billing.” Accordingly, these policies
governed the rates the insurers were obligated to pay for 32nd Street’s services to
insureds before the ancillary-provider agreement took effect—the insurers were not
obligated to pay their insureds more than the rates set forth in the policies. The parties
do not dispute that the insurers directly reimbursed their insureds for healthcare
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services provided by 32nd Street at the rate established in the insureds’ policies.3
32nd Street chose not to engage in balance billing, opting instead to collect only
deductibles, co-payments, and co-insurance amounts. We thus agree with the district
court’s conclusion that express contracts governed the rates at which the insurers were
obligated to provide reimbursement for healthcare services 32nd Street rendered to the
insurers’ insureds—first, the insureds’ policies, then, later, the ancillary-provider
agreement. Because express contracts govern and the insurers undisputedly already
have paid the amounts due under those contracts, we also agree with the district
court’s determination that those contracts bar 32nd Street’s quantum meruit and unjust
enrichment claims. See Lowe, 430 S.W.3d at 349.
32nd Street nevertheless contends that, before the ancillary-provider agreement,
it lacked contractual privity with the insurers. This argument proves unavailing. As
noted above, Missouri law does not permit recovery in quantum meruit or unjust
enrichment when “the plaintiff’s relationship with the defendant is governed by an
existing contract.” Burrus, 211 S.W.3d at 619. A relationship may be governed by
a set of existing contracts even without contractual privity if, “[d]espite the absence
of privity, the agreements, when read together, clearly intend to govern the rights and
obligations of the parties with respect to payment.” Comp & Soft, 252 S.W.3d at 196.
We agree with the district court that the insureds’ policies and the ancillary-provider
agreement “clearly intend to govern” the amounts the insurers were obligated to pay
on behalf of their insureds for 32nd Street’s services. Before the ancillary-provider
agreement, the policies the insurers issued to their insureds established the maximum
allowable amount at which the insurers provided reimbursement for services rendered
3
On this point, 32nd Street highlights instances in its suggestions in opposition
to summary judgment in which it described as controverted that the insurers had paid
“a fair rate” or “reasonable value” for 32nd Street’s services. This evidence, however,
merely asserts 32nd Street’s opinion as to the “reasonableness” of the defendants’
payments without disputing the fact that the insurers actually paid at the rates
established in the policies.
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by 32nd Street. Later, the ancillary-provider agreement expressly governed payments
due to 32nd Street for services rendered to insureds across all of the insurers’
networks. Accordingly, because contracts governed the insurers’ payment obligations
for 32nd Street’s services at all times relevant to this litigation, 32nd Street’s argument
fails. See Lowe, 430 S.W.3d at 349. The district court thus did not err by granting
summary judgment for the insurers on 32nd Street’s quantum meruit and unjust
enrichment claims.
C.
32nd Street next argues that the district court erred by granting summary
judgment on its claim for vexatious refusal to pay an insurance claim under Missouri
Revised Statute § 375.420 because the insurers violated the statute by failing to pay
“reasonable amounts” to 32nd Street and by issuing reimbursement payments to
insureds instead of directly to 32nd Street.4 Missouri’s vexatious-refusal statute
states:
In any action against any insurance company to recover the amount of
any loss under a policy of . . . health . . . or other insurance . . . , if it
appears from the evidence that such company has refused to pay such
loss without reasonable cause or excuse, the court or jury may, in
addition to the amount thereof and interest, allow the plaintiff
damages . . . .
Mo. Rev. Stat. § 375.420. Courts have interpreted a claim under this statute to require
a plaintiff to prove three elements: (1) an insurance policy, (2) the insurer’s refusal to
pay, and (3) refusal without reasonable cause or excuse. D.R. Sherry Constr., Ltd. v.
Am. Family Mut. Ins. Co., 316 S.W.3d 899, 907 (Mo. 2010).
4
Although the parties dispute whether the vexatious-refusal statute encompasses
RightCHOICE as an insurance administrator, for the purposes of our analysis we
assume without deciding that the statute applies to RightCHOICE.
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Given these requirements, as the district court noted, 32nd Street fails to
establish any genuine issue of material fact that the insurers refused to pay an amount
due under an insurance policy. Indeed, 32nd Street does not argue that the insurers
failed to pay an amount due under an insurance policy, contending instead that, before
the ancillary-provider agreement, the insurers’ unreasonable reimbursement rates and
issuance of reimbursements directly to insureds instead of to 32nd Street amount to
refusals to pay a “loss” under the statute. In light of our determination that
contracts—first, the insurance policies and later, the ancillary-provider
agreement—controlled the amounts the insurers were obligated to pay for 32nd
Street’s services, we fail to see how the insurers’ undisputed payment pursuant to
those contracts could constitute a refusal to pay a loss under them. Additionally,
although the policies “authorize [insurers] to make payments directly to Providers for
Covered Services,” that language does not obligate the insurers to do so. Even if the
insurers’ reimbursement practices somehow were to comprise the requisite “refusal,”
however, we conclude that those practices occurred pursuant to contracts and not
“without reasonable cause or excuse” as both the statute and the case law require. See
State Farm Mut. Auto. Ins. Co. v. Shahan, 141 F.3d 819, 824 (8th Cir. 1998) (applying
the Missouri vexatious-refusal statute in finding that “refusal to pay . . . based on the
clear and unambiguous language of the insurance policies” is “clearly not without
reasonable cause”). The district court thus did not err in granting summary judgment
to the insurers on the vexatious-refusal claim.
D.
Finally, we address 32nd Street’s argument that the district court abused its
discretion by denying 32nd Street’s motion to compel production of the insurers’
internal documents. 32nd Street argues that, because the insurers used the
methodologies contained in a series of data, work papers, and memoranda from 2003,
2005, 2008, and 2012 to determine the maximum allowable amount of reimbursement
for non-network providers, those documents were relevant to 32nd Street’s claims of
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inadequate reimbursement. We review a district court’s discovery rulings “in a
manner ‘both narrow and deferential,’ and reversal is only warranted if an erroneous
ruling amounted to a ‘gross abuse of discretion.’” Robinson v. Potter, 453 F.3d 990,
994-95 (8th Cir. 2006). In light of our determination that express contracts governed
the rates at which the insurers provided reimbursement for 32nd Street’s services at
all times relevant to this litigation, we see no relevance of the requested documents,
including the 2005 memorandum the district court found to be protected by attorney-
client privilege. Accordingly, the district court’s denial of 32nd Street’s motion to
compel could not have been “an erroneous ruling.” Id. at 994. We thus find no abuse
of discretion.
III.
For the reasons set forth above, we affirm the district court’s grant of summary
judgment in favor of HMO Missouri and RightCHOICE.
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