CAUSE NO. TEXAS ASSOCIATION OF IN THE DISTRICT COURT FOR THE HEALTH PLANS, Plaintiff, 419TH vs. JUDICIAL DISTRICT. Defendant. TRAVIS COUNTY, TEXAS

Transcription

1 D-1-GN CAUSE NO. 7/26/ :28 AM Velva L. Price District Clerk Travis County D-1-GN Ruben Tamez TEXAS ASSOCIATION OF IN THE DISTRICT COURT FOR THE HEALTH PLANS, Plaintiff, 419TH vs. JUDICIAL DISTRICT TEXAS DEPARTMENT OF INSURANCE, Defendant. TRAVIS COUNTY, TEXAS PETITION FOR DECLARATORY JUDGMENT TO THE HONORABLE JUDGE OF SAID COURT: COMES NOW Plaintiff Texas Association of Health Plans (TAHP) and files this Petition for suit against Defendant Texas Department of Insurance (TDI), and respectfully shows the Court the following: I. PARTIES 1. TAHP was founded in 1987 and is a not-for-profit trade association representing the legal and financial interests of licensed Texas health insurers, health maintenance organizations (HMOs) and other health plans licensed to operate in Texas. Its members provide health insurance and supplemental health benefits through employer-sponsored and other health plans, as well as through individual health insurance policies. TAHP s mission is to improve healthcare in Texas, including by improving the value and cost-effectiveness of healthcare services covered by its members plans.

2 2. TDI is the state regulatory agency that licenses health insurers and regulates health insurance in Texas, including through the promulgation of regulations concerning HMOs and issuers of preferred provider benefit (PPO plans) and exclusive provider benefit (EPO) plans. TDI may be served through its Commissioner, Kent Sullivan, at its main office, 333 Guadalupe, Austin, Texas 78701, via certified mail. Pursuant to Section of the Texas Civil Practice and Remedies Code, TDI must also be served through the Attorney General for the State of Texas by mailing a copy of this Petition to the Attorney General, Ken Paxton, via certified mail to the Office of the Attorney General, 300 West 15th Street, Austin, Texas II. JURISDICTION AND VENUE 3. This Court has subject matter jurisdiction and personal jurisdiction over TDI pursuant to Texas Government Code , which authorizes a suit challenging the validity of a rule in an action for declaratory judgment, requires that the state agency that made the rule be a party to the action, and requires that the suit be brought in a Travis County District Court. TAHP challenges the validity of TDI rules whose application interferes with the legal rights of TAHP members, including payments its members must make for out-of-network health services under PPO, HMO and EPO plans. Section is a grant of original jurisdiction and is an express waiver of the State s sovereign immunity. See Combs v. Entertainment Publications, Inc., 292 S.W.3d 712, 720 (Tex. App. Austin 2009, no pet.); Texas Logos, L.P. v. Texas Dep t of Transp., 241 S.W.3d 105, 123 (Tex. App. Austin 2007, no pet.) Page 2 of 17

3 4. Subject matter and personal jurisdiction also exist under the Texas Uniform Declaratory Judgments Act (UDJA), Texas Civil Practice and Remedies Code , which provides that a person interested under a written contract or whose rights, status, or other legal relations are affected by a statute may have determined any question of construction or validity arising under the statute [or] contract and obtain a declaration of rights, status or legal relations thereunder. Tex. Civ. Prac. & Rem. Code (a). The UDJA thus authorizes the Court to issue a declaratory judgment concerning any question of construction or validity arising under a statute and waives the sovereign immunity of the State for that purpose. See City of El Paso v. Heinrich, 284 S.W.3d 366, 373 n.6 (Tex. 2009). 5. TAHP is a proper plaintiff with standing to bring these claims because (a) its members would otherwise have standing to sue in their own right, (b) the interests it seeks to protect are germane to the organization s purpose, and (c) neither the claim asserted nor the relief requested requires the participation of individual members in the lawsuit. See Tex. Ass n of Business v. Tex. Air Control Bd., 852 S.W.2d 440, 447 (Tex. 1993). Specifically, TAHP members include HMOs and insurers that issue PPO and EPO benefit plans whose plans cover out-of-network services whose payments are affected by the regulations and statutes whose validity and construction are put at issue in this case. Page 3 of 17

4 III. THE NATURE OF THE CASE 6. TAHP brings both rule validity and statutory construction challenges concerning payments health plans must make for out-of-network health services. 7. TDI rules require payments to out-of-network providers based on the providers unregulated charges. The relevant statutes do not require or authorize TDI to require such payments. 8. If the relevant statutes do require or authorize TDI to require such payments, the statutes unconstitutionally delegate government power to the providers private parties acting in their self-interest. IV. FACTUAL BACKGROUND 9. In-network health service providers contract with health plans to provide services to plan enrollees at negotiated rates paid by the plan. The network rate is the full payment for the service, and the insured patient faces no liability beyond a deductible and co-pay. 10. For any given health plan, out-of-network providers are providers that do not have a rate agreement with the health plan. Out-of-network provider charges are much higher than the rates that the health plan is able to negotiate with in-network providers. 11. Provider charges chargemaster prices are frequently uncollected, arbitrary and not dispositive of a reasonable price. In re North Cypress Medical Center Operating Co., Ltd., No , S.W.3d, 2018 WL *3-*4 (Tex. Page 4 of 17

5 Apr. 27, 2018, mot. reh g pending); see also Haywood v. De Esabedo, 356 S.W.3d 390, 394 (Tex. 2011) (explaining typical difference between provider charges and amounts they are entitled to collect). Out-of-network hospitals, generally expect to recover far less than they officially charge, but use their billed charges as a negotiating tool with health plans and other insurers. Such out-of-network providers have incentive to continue raising chargemaster prices. In re North Cypress Medical Center Operating Co., Ltd., 2018 WL at * The result is a complete market breakdown for pricing of these healthcare services services provided with no advance agreement on the price to be paid. 13. Some providers take advantage of this market breakdown in several respects, including by: billing after-the-fact for their egregious charges not disclosed before the service is provided, and by balance billing patients for the difference between the insurance payment and the excessively high billed charge. Using the threat to balance bill the insured, the out-of-network provider attempts to coerce the health plan to pay charges the provider has unilaterally set. 14. Payment of these unilaterally-set charges, or even a percentage of such charges, results in undeserved windfalls for the out-of-network provider payments bearing no relation to the provider s costs, and which are multiple times higher than the payments the provider receives from government programs and in-network payers for identical services. Page 5 of 17

6 15. In the case of each rule and statute at issue here, TDI has either made a rule or offered an interpretation that imposes an invalid burden on health plans to pay some or all of providers sky-high, non-market billed charges. 16. The additional payments harm the health plans themselves. They also harm the employees insured by the plans and their employers, who ultimately bear the cost of the higher premiums required to cover such payments. 17. The harmful effects of TDI s rules and interpretations on health plans and their insureds do not end there, however. By tilting the scales far in favor of providers in ways the Legislature never intended for payment of out-of-network services, TDI has not only directly caused health plans to bear these extravagant costs for those out-of-network services, it has also indirectly caused in-network payments to escalate. This is so because the out-of-network payment under TDI s rules is so high that it reduces the incentive for providers to join networks absent a similarly high rate. These impacts undercut, rather than advance, Legislative intent. V. CAUSES OF ACTION 18. TAHP seeks declaratory judgment under Texas Government Code and the Uniform Declaratory Judgments Act, Tex. Civil Prac. & Rem Code Ch. 37. (a) Rule validity claims brought under Section : TAHP challenges the validity of (i) three provisions of TDI s out-of-network payment rule applicable to PPO benefit plans (28 Tex. Admin. Code , hereinafter PPO Rule ), and (ii) the Page 6 of 17

7 hold harmless provisions of TDI s out-of-network payment rules applicable to HMOs (28 TAC (d)) and EPO benefit plans (28 TAC (d)). (b) Statutory claims brought under the UDJA: TAHP seeks a declaration concerning statutory provisions applicable to HMO and EPO plans, specifically: Texas Insurance Code (a) and (b), which provide that HMOs shall pay for emergency care and out-of-network care at the usual and customary rate or at an agreed rate, and Texas Insurance Code (a) and , which provide that EPOs shall reimburse emergency and out-of-network care at the usual and customary rate or at a rate agreed by the issuer and the nonpreferred provider. These statutes cannot be construed to validly require or authorize TDI to require health plans to pay out-of-network providers based on the out-of-network providers charges. If the statutes must be so construed, they unconstitutionally delegate the government s power to regulate private health plan payments to the self-interested providers. A. TDI S PPO RULE PROVISIONS LACK STATUTORY AUTHORITY 19. PPO Rule (a) is contrary to its authorizing statute because it requires out-of-network payments based upon provider charges for all emergency services, whether or not in-network emergency care was reasonably available. Insurance Code (b) provides the Legislature s only statement on out-of-network benefits required of PPOs. It requires non-network payments for emergency care [i]f an insured cannot reasonably reach a preferred provider. (Emphasis added.) In-network emergency services are generally widely available, and by this language in Section Page 7 of 17

8 (b), the Legislature expressly limited the non-network payment to those emergency services for which the insured cannot reasonably reach a network provider. Therefore, TDI lacks the authority to declare all emergency services to require the nonnetwork payment. 20. PPO Rule (b)(1) creates from whole cloth a PPO payment obligation set at a minimum, at the usual or customary charge for the service. As TDI itself had previously recognized, no statute permits TDI to impose any specific level of payment on PPOs for out-of-network services, much less a payment obligation tied to provider charges. In its rulemaking order, TDI relied on three statutory provisions: Texas Insurance Code (the general rulemaking provision), (b) and (b). According to TDI, its rule clarifies those provisions. See 38 Tex. Reg. 827, 833 (Feb. 15, 2003). However, none of those statutory provisions authorizes a PPO payment rule based upon provider charges. Rather, those provisions discuss co-insurance percentages and the preferred level of benefits without mentioning a payment amount. TDI also cited House Bill 1772 as statutory authority (see id. at 860), but that legislation created and addressed EPO plans and did not prescribe or authorize TDI to set a payment rate for PPO plans. 21. TDI s rulemaking order, asserting statutory authority for a PPO out-ofnetwork payment amount, is at odds with its own previous statements including its Page 8 of 17

9 Biennial Report to the 80th Legislature 1 that the Insurance Code does not contain a PPO payment standard for non-network services. In that report, TDI addressed the Amount of [Out-Of-Network] Reimbursement by PPO plan issuers, and stated: Texas law contains no specific standard, such as usual and customary, to regulate the amount of this figure. TDI Biennial Report at 13 (also stating that the only legal restriction is that an insurer offering a [PPO] shall ensure that both preferred provider benefits and basic level benefits are reasonably available to all insureds within a designated service area, thus making clear that this requirement did not authorize TDI to set payment amount). TDI further explained to the Legislature that [s]ince no specific statutory guidance exists, [PPOs] reimburse under several different standards. Id. at 14. After receiving TDI s report, the Legislature did not amend the Insurance Code to provide any payment amount, thus leaving PPOs free to continue to determine appropriate out-ofnetwork payments. When promulgating PPO Rule (b) a few years later, without any additional statutory support, TDI simply ignored its prior statements statements that had correctly identified the lack of a statutory payment standard applicable to PPO out-of-network payments. 22. Finally, by requiring payment based on provider charges, PPO Rule (b)(1) also undercuts and is inconsistent with an important legislative objective: that disputes over non-network payments be mediated a policy the Legislature has promoted and expanded since See Tex. Ins. Code Ch (mandatory mediation 1 Available at: (last visited June 5, 2018). Page 9 of 17

10 applicable to PPO benefit plans for balance bills greater than $500 from all types of outof-network providers treating patients at in-network hospitals and all out-of-network providers of emergency services). 23. PPO Rule (b)(3), requiring insurers to credit patient payments for out-of-network services to their in-network out-of-pocket maximum payable amount, is equally lacking in statutory support. TDI asserted in its rulemaking order that this rule clarifies the statutory requirements at Texas Insurance Code and.155. See 38 Tex. Reg. at 862. But these statutory provisions instead require that the insurer shall reimburse a physician or health care provider who is not a preferred provider at the same percentage level of reimbursement as a preferred provider would have been reimbursed had the insured been treated by a preferred provider, and shall provide reimbursement for the following emergency care services at the preferred level of benefits until the insured can reasonably be expected to transfer to a preferred provider. Tex. Ins. Code (b) and.155(b) (Emphasis added.) B. TDI S HMO AND EPO HOLD HARMLESS RULE PROVISIONS LACK STATUTORY AUTHORITY 24. TDI has promulgated rules applicable to HMO and EPO plans requiring that HMOs and insurers hold enrollees harmless for out-of-network bills. 25. EPO Rule (d). For out-of-network emergency care services or services rendered when an in-network provider is not available, 28 Tex. Admin. Code (d) requires EPO plans to ensure that the insured is held harmless for any Page 10 of 17

11 amounts beyond the copayment, deductible, and coinsurance percentage that the insured would have paid had the insured received services from a preferred provider. 26. HMO Rule (d): For emergency care services rendered in a nonnetwork facility, services rendered by a non-network facility-based physician in a network facility, or services rendered by a non-network provider when an in-network provider is not available, 28 Tex. Admin. Code (d) requires HMO plans to ensure that the enrollee is held harmless for any amounts beyond the copayment or other out-of-pocket amounts that the enrollee would have paid had the HMO network included network physicians or providers from whom the enrollee could obtain the services. 27. No statutory authority exists for these rules. TDI asserted in its rulemaking order for the EPO hold harmless requirement that House Bill 1772, authorizing EPO plans, provided for payment of claims in cases of emergency that tracks the health maintenance organization statutory language. See 38 Tex. Reg TDI also claims that [t]he legislature was aware that the department has construed the health maintenance organization statutes to require that health maintenance organizations hold enrollees harmless in these situations. Id. TDI s adoption in 2017 of the HMO hold harmless requirement is based on the same rationale. See 42 Tex. Reg ( [TDI s] long-standing interpretation of an HMO s obligation to an enrollee based on Insurance Code , coupled with the Legislature s knowledge of this interpretation for at least a decade and lack of action to change the interpretation, supports the language in the rule. ). Page 11 of 17

12 28. TDI relies on Insurance Code , but that statute requires that plans reimburse certain out-of-network providers at the usual and customary rate or at an agreed rate, 2 saying nothing about requiring insurers to hold enrollees harmless for balance billing. 29. In fact, the only hold harmless provision in the Insurance Code specifies that HMO network agreements (the terms of which providers agree to when they join HMOs) must require that those in-network providers must hold the patient harmless in case of non-payment, see Tex. Ins. Code The invalid requirements that HMOs and EPOs hold enrollees harmless for any amounts above and beyond in-network amounts effectively makes the plans liable for any balance bill amount which effectively makes the plans liable for the full provider chargemaster charge a very different amount than a negotiated network rate. Again, there is no statutory authority for making health plans liable for provider charges. 3 C. TEXAS INSURANCE CODE PROVISIONS CONCERNING HMO AND EPO OUT-OF- NETWORK AND EMERGENCY PAYMENTS CANNOT BE CONSTITUTIONALLY CONSTRUED TO AUTHORIZE OR REQUIRE PAYMENTS BASED UPON PROVIDER CHARGES. 31. TAHP seeks declaratory relief pursuant to the UDJA concerning Insurance Code provisions addressing out-of-network payments applicable to HMOs and EPO plans 2 Compare Tex. Ins. Code (a), (b) with (b), Alternatively, if the hold harmless rules require plans to pay of full provider charges (through the combination of paying the usual and customary rate and holding the insured harmless for the full balance bill amount), then they violate non-delegation law by effectively allowing providers to unilaterally determine payments they receive from insurers. See Texas Workers Comp. Com n v. Patient Advocates of Texas, 136 S.W.3d 643, 654 (Tex. 2004). Page 12 of 17

13 (as explained above, the Insurance Code contains no similar provision applicable to PPO plans). 32. HMO provisions: Texas Insurance Code (a) provides that an HMO shall pay for emergency care performed by non-network physicians or providers at the usual and customary rate or at an agreed rate. (Emphasis added.) Texas Insurance Code (b) similarly provides: If medically necessary covered services are not available through network physicians or providers, the [HMO], on the request of a network physician or provider and within a reasonable period, shall: (1) allow referral to a non-network physician or provider; and (2) fully reimburse the nonnetwork physician or provider at the usual and customary rate or at an agreed rate. (Emphasis added.) 33. EPO provisions: Texas Insurance Code provides: If a nonpreferred provider provides emergency care to an enrollee in an exclusive provider benefit plan, the issuer of the plan shall reimburse the nonpreferred provider at the usual and customary rate or at a rate agreed to by the issuer and the nonpreferred provider for the provision of the services. (Emphasis added.) Section (a) similarly provides: If a covered service is medically necessary and is not available through a preferred provider, the issuer of an exclusive provider benefit plan, on the request of a preferred provider, shall: (1) approve the referral of an insured to a nonpreferred provider within a reasonable period; and (2) fully reimburse the nonpreferred provider at the usual and customary rate or at a rate agreed by the issuer and the nonpreferred provider. (Emphasis added.) Page 13 of 17

14 34. The language usual and customary rate is not defined by statute or TDI rule. 4 These statutory provisions, requiring payments at the usual and customary rate, cannot validly be construed to require payments based on provider charges, yet TDI has in various statements said that they do. As explained above, in its PPO rulemaking order, TDI made clear that it considers insurance payment rates to be equivalent to provider charges. TDI said that it considers the PPO Rule s term usual and customary charge to be a reasonable interpretation of the EPO statutory (Tex. Ins. Code ) term usual and customary rate. See 38 Tex. Reg Further, in rejecting comments against the PPO Rule, TDI analogized the PPO Rule s new term usual and customary charge to the HMO statutory term usual and customary rate. Id. at 858. TDI expressly stated that the HMO statute requires payments for emergency and inadequate network claims at the full billed charge or an agreed rate. Id. (emphasis added). 35. TAHP therefore seeks a declaration that these statutes cannot be validly construed to delegate such unchecked legislative power to private entities. See Tex. Boll Weevil Eradication Found., Inc. v. Lewellen, 952 S.W.2d 454, (Tex.1997). 36. Following the maxim that statutes should be construed to avoid constitutional problems if possible, the HMO and EPO Insurance Code provisions should be given an alternative construction that ties rates to payments rather than charges. 4 Note that the PPO Rule s language usual and customary charge is also not defined by TDI rule. However, TDI has made clear that payments based on something other than billed charges would not be in compliance with TDI s reimbursement rules. See TDI website: TDI releases report on PPO out-of-network payments, September 13, 2016, available at Page 14 of 17

15 37. Based on the plain language of the statutes, usual and customary rates cannot mean provider charges. These statutes describe the reimbursement required by health plans and do not attempt to regulate provider charges. Because the term rate relates to the plan, not the provider, it must be interpreted to mean the amount the plan usually or customarily pays rather than the amount usually or customarily charged. 38. Moreover, in the context of insurance payments for health services, payment rates and provider charges cannot be considered equivalents. Each providers sets its charges, and all do so at levels the providers know will not be paid. See, e.g., In re N. Cypress Med. Ctr. Operating Co., Ltd., 2018 WL , at *3 (describing the increasingly arbitrary nature of chargemaster prices, and noting that, over time, they have lost any direct connection to costs or to the amount the hospital actually expect[s] to receive in exchange for its goods and services. ) (internal quotation and citation omitted); see also, id. (stating as fact that hospitals generally expect to recover far less than they officially charge and noting study estimating that [t]he gap between charges and actual payments (net patient revenues) now averages about 255 percent and is growing rapidly. ). Thus, in the context of healthcare payment regulation, rates as used in these statutes should not be considered the equivalent of provider charges. If the Legislature did intend to authorize or require health plans to pay providers unilaterally-set billed charges, then the statutes are unconstitutional delegations of Legislative authority to self-interested private entities. Boll-Weevil, 952 S.W.2d at 472. Page 15 of 17

16 VI. PRAYER AND REQUEST FOR DECLARATORY RELIEF WHEREFORE, PREMISES CONSIDERED, TAHP respectfully requests that the Court grant the following declaratory relief: (i). That the PPO Rule provisions descried above, 28 Tex. Admin. Code (a), (b)(1) and (b)(3) are invalid exercises of TDI s statutory authority to regulate PPOs; (ii). The HMO and EPO Rule provisions described above, requiring health plans to hold harmless enrollees for their payments to out-of-network providers, 28 Tex. Admin. Code (d) and (d) are invalid exercises of TDI s statutory authority to regulate HMOs and EPOs; (iii). That if Texas Insurance Code (a), (b), (a), and , the provisions setting out-of-network payments applicable to HMOs and EPOs at usual and customary rates, must be construed to require payment of the usual or customary rates providers charge for such services then those statutes be declared invalid and unconstitutional; and, (iv). That TAHP have judgment for costs of court and for any other general relief at law or in equity to which TAHP may show itself justly entitled. Page 16 of 17

17 Respectfully Submitted, GRAVES, DOUGHERTY, HEARON & MOODY, PC 401 Congress Avenue, Suite 2200 Austin, Texas (512) (telephone) (512) (facsimile) By: /s/ Matthew Baumgartner Matthew Baumgartner State Bar No David A. King State Bar No CERTIFICATE OF SERVICE I hereby certify that on this day, July 26, 2018, a true and correct copy of the foregoing petition was served on the following: Commissioner Kent Sullivan, via certified mail, return receipt requested Texas Department of Insurance 333 Guadalupe Austin, Texas Texas Attorney General Ken Paxton, via certified mail, return receipt requested Office of the Attorney General 300 West 15 th Street Austin, Texas /s/ Matthew Baumgartner Matthew Baumgartner Page 17 of 17