Dual Diagnosis Treatment Center v. Blue Cross Blue Shield of Tennessee

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF TENNESSEE

CHATTANOOGA DIVISION

DUAL DIAGNOSIS TREATMENT )

CENTER, et al., )

) 1:22-CV-00073-DCLC-CHS

Plaintiffs, )

)

v. )

)

BLUECROSS BLUESHIELD OF )

TENNESSEE )

Defendant.

MEMORANDUM OPINION AND ORDER

Plaintiffs brought this action asserting underpayment and misdirected payment under one

or more health insurance plans (the “plans”) of validly assigned benefits owed to them by

Defendant BlueCross BlueShield of Tennessee (BCBST) [See Doc. 1-1]. BCBST moved to

dismiss the Complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6)

[Doc. 16]. For the reasons stated below, the Court RESERVES RULING as to Plaintiff Dual

Diagnosis until Monday, September 26, 2022 during which time Dual Diagnosis may respond to

an additional argument in BCBST’s reply [Doc. 30, at 4]. As to the remaining Plaintiffs, BCBST’s

motion is DENIED.

I. BACKGROUND

Plaintiffs provide healthcare for patients suffering from substance abuse and mental health

issues [Doc. 1-1, ⁋ 2]. Some of these patients carry health insurance administered by Defendant

BCBST [Id., ⁋⁋ 16–17]. Plaintiffs allege that BCBST contracts with “in-network” healthcare

providers to provide discounted services to patients [Id., ⁋ 1]. By contrast, as “out-of-network”

(OON) providers, Plaintiffs lack a direct contractual relationship with BCBST [Id., ⁋⁋ 4, 46].

Because many patients are unable to pay for services out of pocket, Plaintiffs engage in a

process designed to protect their right to compensation for their services. Before receiving

treatment, patients provide information about their insurance [Id., ⁋⁋ 26–27]. Plaintiffs call

BCBST to verify coverage and obtain pertinent details including the percent of billed services

subject to repayment [Id., ⁋⁋ 27–38]. Plaintiffs prompt patients to sign forms assigning to Plaintiffs

exclusive rights to benefits for healthcare services Plaintiffs provide [Id., ⁋ 48].

After obtaining assignments from and treating each of the patients at issue in this litigation,

Plaintiffs submitted claims notifying BCBST of the assignments and claim amounts [Id., ⁋ 237].

BCBST “continued to interact” with Plaintiffs over extended periods of time, including for the

purpose of receiving and processing claims forms, communicating about services and claims, and

requesting additional information for the claims [Id., ⁋ 238]. Despite requests, BCBST has not

provided operative plan documents to Plaintiffs [Id., ⁋ 266].

When payment was not forthcoming, Plaintiffs initiated an investigation which uncovered

payments from BCBST directly to the patients [Id., ⁋⁋ 264–66]. For each of the claims at issue,

Plaintiffs allege that the payments were significantly below what the patient’s plan required and

that for most of these patients, Plaintiffs have recovered less than or none of the amount that

BCBST paid [Id., ⁋⁋ 246–49]. At no time did BCBST notify Plaintiffs of payments to patients,

the reasons for the alleged underpayment, nor the process for administrative appeal [Id.].

II. LEGAL STANDARD

Federal Rule of Civil Procedure 8(a)(2) requires the complaint to contain a “short and plain

statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2).

Dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6) eliminates a pleading or portion

thereof that fails to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). A

motion to dismiss under Rule 12(b)(6) requires the Court to construe the allegations in the

complaint in the light most favorable to the plaintiff and accept all the complaint’s factual

allegations as true. Meador v. Cabinet for Human Res., 902 F.2d 474, 475 (6th Cir. 1990). The

Court may not grant a motion to dismiss based upon a disbelief of a complaint’s factual allegations.

Lawler v. Marshall, 898 F.2d 1196, 1199 (6th Cir. 1990). The Court liberally construes the

complaint in favor of the opposing party. Miller v. Currie, 50 F.3d 373, 377 (6th Cir. 1995).

To survive dismissal, the plaintiff must allege facts that are sufficient “to raise a right to

relief above the speculative level” and “to state a claim to relief that is plausible on its face.” Bell

Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007); see Ashcroft v. Iqbal, 556 U.S. 662,

678–79 (2009). “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.” Ashcroft, 556 U.S. at 678. The court is “not bound to accept as true a legal conclusion

couched as a factual allegation,” Papasan v. Allain, 478 U.S. 265, 286 (1986), and dismissal is

appropriate “if it is clear that no relief could be granted under any set of facts that could be proved

consistent with the allegations.” Hishon v. King & Spalding, 467 U.S. 69, 73 (1984).

III. DISCUSSION

A. Standing

BCBST argues that Plaintiffs lack standing to bring a claim for benefits owed under the

plans because Plaintiffs have failed to plead adequate assignments [Doc. 16, 4–6]. Except as

explained further below as to Plaintiff Dual Diagnosis, this argument is without merit.

Although healthcare providers are generally not “beneficiaries” under ERISA and therefore

lack direct standing to sue for benefits, a valid assignment of benefits confers derivative standing.

Brown v. BlueCross BlueShield of Tenn., 827 F.3d 543, 545–46 (6th Cir. 2016). In such a case, a

motion to dismiss for lack of ERISA standing is proper if a plaintiff has failed to plausibly allege

valid assignments of rights to payment under a plan. See id. at 547; DaVita, Inc. v. Marietta Mem’l

Hosp. Emp. Benefit Plan, 978 F.3d 326, 343 (6th Cir. 2020), rev’d on other grounds, 142 S. Ct.

1968 (2022); see also Twombly, 550 U.S. at 555, 570.

Here, Plaintiffs have adequately pleaded assignments of patients’ rights to receive payment

under the plans. Each patient signed a form containing language like the following, allegedly

signed by patient Ja.Is. at Plaintiff Shreya Health of California’s behest:

I patient/policyholder irrevocably assign, transfer, and convey to Provider the

exclusive rights to benefits, insurance proceeds or other moneys otherwise due to

me for services rendered by Providers (“Benefits”) from my insurer, employee

benefit plan, welfare benefit plan, government plan, tortfeasor, or other liable third

party (“Liable Third Parties”) and all administrative, arbitral, judicial, or other

rights I may have relating to the recovery of Benefits from Liable Third Parties

[Doc. 1-1, ⁋ 136] (emphasis added).

BCBST protests that Plaintiff’s allegations fall short of Twombly-Iqbal pleading standards

because they allege assignments only to non-specified “Providers.” Yet the Complaint is crystal

clear for each patient that one or more of the Plaintiffs had the patient sign an assignment form as

a condition of receiving treatment. In Ja.Is.’s case, for example, the Complaint specifies Shreya

Health and Vedanta as the parties that requested the forms [id.]. BCBST’s argument therefore

amounts to an assertion that Shreya Health and Vedanta have not plausibly alleged that they are

the “Providers” named in Ja.Is.’s form. Yet this is exactly what the Complaint alleges. These

allegations are plausible, and Twombly and Iqbal require nothing further.1

1 Indeed, unlike the Shreya Health form, the Vedanta form does name Vedanta as the

assignee. Thus, Defendants’ argument applies only to those providers who used forms that fail to

identify the provider.

BCBST cites Bishop v. Lucent Technologies in support of its argument. 520 F.3d 516, 519

(6th Cir. 2008). Bishop is inapposite. There, the court affirmed the grant of a motion to dismiss

an ERISA case where plaintiffs alleged facts indicating that their claims were likely barred by the

statute of limitations. Id. at 521. The Court reasoned that when a complaint discloses a likely time

bar, a plaintiff cannot raise a right to relief above the speculative level simply by relying on bare

assertions to the contrary. Id. Here, there is no indication that Plaintiffs’ claims are untimely, and

BCBST has pointed to no facts in the Complaint that render Plaintiffs’ right to relief speculative.

Thus, accepting all nonconclusory factual allegations as true, Plaintiffs have standing.

B. Plaintiff Dual Diagnosis

For the first time in its reply brief, BCBST argues that the Complaint is silent as to any

involvement of Dual Diagnosis in the claims alleged in the Complaint and that Dual Diagnosis

should therefore be dismissed from the case [Doc. 30, pg. 4]. Ordinarily, arguments not raised in

an initial brief are waived. See, e.g., Ramsbottom v. Ashton, No. 3:12-CV-00272, 2022 WL

106733, at *30 (M.D. Tenn. Jan. 11, 2022). Nonetheless, as explained above, to obtain derivative

standing under a theory of assignment, Dual Diagnosis must allege a valid assignment. Dual

Diagnosis has not responded to this argument, either by requesting to file a sur-reply or filing a

motion to strike. Accordingly, the Court will RESERVE RULING as to Plaintiff Dual Diagnosis

on BCBST’s motion until Monday, September 26, 2022 during which time Plaintiff may respond

to the argument contained in BCBST’s reply.

C. Preemption

BCBST next argues that ERISA preempts Plaintiffs’ state law claims. The Court finds this

argument to be premature because the Complaint does not—and need not—allege that any of the

plans at issue are governed by ERISA. As applicable here, ERISA preemption applies to “any or

all State laws insofar as they may now or hereafter relate to any employee benefit plan.” 29 U.S.C.

§ 1144(a).2 State-law breach of contract claims are preempted as to any claim for benefits against

a plan covered by ERISA. See Girl Scouts of Middle Tenn. v. Girl Scouts of the U.S.A., 770 F.3d

414, 419 (6th Cir. 2014) (“ERISA specifically provides for remedies for breaches of contract . . . ,

so any state law claim that granted relief for these breaches would ‘duplicate, supplement, or

supplant the ERISA civil remedies.”); see also Caffey v. Unum Life Ins. Co., 302 F.3d 576, 582

(6th Cir. 2002) (quoting Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54 (2002)) (explaining that

Congress intended ERISA to be the “exclusive vehicle for actions by ERISA-plan participants and

beneficiaries asserting improper processing of a claim for benefits.”). A plan is covered by ERISA

if (1) the plan is outside the Department of Labor’s safe-harbor regulations, see 29 C.F.R. § 2510.3-

1(j); (2) a “reasonable person could ascertain the intended benefits, class of beneficiaries, source

of financing, and procedure for receiving benefits”; and (3) the employer “established or

maintained the plan with the intent of providing benefits to employees.” Thompson v. Am. Home

Assurance Co., 95 F.3d 429, 434–45 (6th Cir. 1996).

Here, Plaintiffs’ allegations do not establish whether the patients’ plans are ERISA plans.

To be sure, the allegations provide extensive detail on the intended benefits and at least some

information on the procedure for receiving them. Plaintiffs allege that all plans included “coverage

for substance abuse/mental health treatment and preferred provider organization (‘PPO’)

coverage” [Doc. 1-1, ⁋ 42]. For each patient, the Complaint further describes deductibles, annual

2 This form of preemption, termed “express preemption,” contrasts with “complete preemption,”

a jurisdictional doctrine permitting federal courts to hear cases removed from state court which,

although predicated solely on state-law claims, are nonetheless displaced by ERISA’s

comprehensive remedial scheme. K.B. v. Methodist Healthcare – Memphis Hosps., 929 F.3d 795,

800 (6th Cir. 2019). Here, Plaintiffs allege ERISA as a basis for recovery of underpaid claims,

and therefore, complete preemption does not apply.

maximums, coverage information, percent coverage, precertification requirements, billable codes,

and out-of-state restrictions on plans [Doc. 1-1, ⁋ 140]. Absent from the Complaint is any

information concerning financing of the plans, nor does the Complaint describe any classes of

beneficiaries. The allegations are similarly silent as to employers’ intentions in establishing these

plans, as well as the employer’s level of involvement as is necessary to assess the applicability of

the safe-harbor regulations. See 29 C.F.R. § 2510.3-1(j); Gooden v. Unum Life Ins. Co. 181 F.

Supp. 3d. 465, 471 (E.D. Tenn. 2016) (assessing whether the employer contributed to or endorsed

an insurance program). Accordingly, the Complaint fails to establish whether any patient’s plan

is governed by ERISA.

Plaintiffs concede that “to the extent the claims are made under ERISA, the breach of

contract claims are preempted for those patients” [Doc. 18, pg. 33]. The Court agrees. Further

factual development could reveal that ERISA governs some or all the plans and therefore preempts

the state law claims. At that time, a proper motion on the state law claims would be appropriate.

See Schachner v. Blue Cross and Blue Shield of Ohio, 77 F.3d 889, 896 (6th Cir. 1996) (vacating

district court’s dismissal of state law claims based on the possibility that members of a proposed

Rule 23 class had claims predicated on non-ERISA plans). For now, it suffices that Plaintiffs

allege that either ERISA or state law governs each of the claims.

The Court similarly rejects BCBST’s argument that the Complaint fails because it omits

specific plan language. A beneficiary may sue under ERISA to recover benefits under the terms

of a plan. 29 U.S.C. § 1132 (a)(1)(B). Plaintiffs have alleged the existence and material terms of

the plans under which they seek payment. [See Doc. 1-1, ⁋⁋ 52–235.] The Complaint details for

each patient the portion of billed services BCBST owed Plaintiffs under the plans—ranging from

50% to 60% depending on the patient—and that in each case, BCBST paid significantly less than

what was owed. [See id. ⁋⁋ 52–235.] Plaintiffs confirmed these terms during numerous telephone

calls to BCBST.3

D. Exhaustion of Administrative Remedies

ERISA requires that employee benefit plans “afford a reasonable opportunity to any

participant whose claim for benefits has been denied for a full and fair review by the appropriate

named fiduciary of the decision denying the claim.” 29 U.S.C. § 1133. Although ERISA does not

expressly require exhaustion of administrative remedies at the plan level, courts have read such a

requirement into the statute. Coomer v. Bethesda Hosp., Inc., 370 F.3d 499, 504 (6th Cir. 2004).

The exhaustion requirement is subject to exceptions, however. Id. at 505. A court may, for

example, exercise its discretion to excuse non-exhaustion where resort to administrative appeal

would be futile or the remedy would be inadequate. Id. (quoting Fallick v. Nationwide Mut. Ins.

Co., 162 F.3d 410, 419 (6th Cir. 1998)). ERISA regulations further provide that a claimant is

deemed to have exhausted remedies if the plan fails to “establish or follow claims procedures

consistent with the requirements” of the regulation. 29 C.F.R. § 2560.503-1(l). The exhaustion

requirement seeks to preserve the efficiency of plan fiduciaries’ activities, permit independent

interpretation and self-correction, and facilitate judicial review. Coomer, 370 F.3d at 504. Yet, in

3 BCBST attaches to its motion a document purporting to be a “UHS Plan” governing patient

Dr. Al.’s claim [Doc. 16-1]. BCBST argues that under the terms of this plan, contrary to Plaintiffs’

assertions, BCBST had the right to pay either Dr. Al. or Plaintiffs at its discretion regardless of

any assignment of benefits. A document referenced in a complaint becomes part of the complaint

for purposes of a motion to dismiss. Fed.R.Civ.P. 10(c); Commercial Money Ctr., Inc. v. Ill. Union

Ins. Co., 508 F.3d 327, 335 (6th Cir. 2007). By contrast, when a party includes materials outside

the complaint, a court may consider the materials and convert the motion to a motion for summary

judgment. Fed.R.Civ.P. 12(d); Tackett v. M&G Polymers, USA, LLC, 561 F.3d 478, 487 (6th Cir.

2009). The Complaint, however, does not reference this document, and the Court cannot determine

at this early stage that this UHS Plan is indeed the governing document for Plaintiffs’ derivative

claim as to Dr. Al. [See Doc. 1-1, ⁋⁋ 103–109.] Accordingly, the Court declines to look outside

the Complaint to consider this document on BCBST’s motion to dismiss.

a recent case holding that fiduciaries must include explanations of internal appeal procedures in

underlying plan documents, the Sixth Circuit indicated that the exhaustion requirement and its

exceptions must be read in light of ERISA’s “central goal[]” of “enabl[ing] beneficiaries to learn

their rights and obligations at any time.” Wallace v. Oakwood Healthcare, Inc., 954 F.3d 879, 887

(6th Cir. 2020) (quoting Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 83 (1995)).

In an analogous case in a sister district, a court declined to dismiss a claim by a healthcare

provider who obtained a valid assignment of benefits from a patient and was denied

reimbursement. Spectrum Health v. Valley Truck Parts, No. 1:07-CV-1091, 2008 WL 2246048,

at *6 (W.D. Mich. May 30, 2008). The insurer informed the provider that it was denying the

provider’s claim because of its determination that the patient had a preexisting condition, yet in a

yearlong series of communications contesting the denial, the insurer failed to inform the provider

of the 180-day timeline for appeal. Id. at *3. The Court rejected the insurer’s claim that the

provider failed to exhaust its administrative remedies because the provider lacked an opportunity

for full and fair review. Id. at *5.

Like the provider in Spectrum Health, Plaintiffs engaged in a protracted series of

communications with BCBST regarding their claims [Doc. 1-1, ⁋ 238], and BCBST never notified

them of either the payments to the patients or the process for appeal [Id., ⁋⁋ 264, 266]. Because

Plaintiffs were never informed of the payments to the patients, they were not even in a position to

contest them. Cf. Spectrum Health, 2008 WL 2246048, at *6 (recognizing ambiguity as to whether

telephone conversations concerning claim denial constituted an appeal). By the time Plaintiffs

learned about the alleged underpayments, the 180-day window for administrative appeal had

closed, cutting off availability of full and fair review.

Plaintiffs further cite Curry v. Contract Fabricators Inc. Profit Sharing Plan, 891 F.2d 842

(11th Cir. 1990) in support of their argument that they should be deemed to have exhausted their

administrative remedies. Although Curry is not binding on this Court, its reasoning is instructive.

There, an employer withheld plan documents supporting a denial of benefits and detailing review

procedures. Id. at 844. In upholding the district court’s award of a penalty and attorneys’ fees,

the court explained that it is within a district court’s discretion to excuse non-exhaustion when a

plan administrator denies meaningful access to review procedures then seeks dismissal based on a

claimant’s failure to follow the procedures. Id. at 846–47.

Here, Plaintiffs have adequately alleged that BCBST has denied them meaningful access

to review procedures. Despite submitting claims for payment directly to BCBST, Plaintiffs allege

that BCBST has never notified them of payments made directly to patients or provided information

on review procedures [Doc. 1-1, ⁋⁋ 264–66]. Rather than learning of the alleged underpayments

from BCBST, Plaintiffs only found out about the payments to patients after conducting their own

investigation [Id.]. BCBST failed to provide access to plan documents where appeal information

could likely be found despite repeated requests from Plaintiffs [Id.]. Far from promoting

efficiency, self-correction, and orderly judicial review, BCBST’s denial of access to review

procedures impedes Plaintiffs’ ability to learn their rights at any time.

Accordingly, the Court excuses Plaintiffs’ non-exhaustion of administrative remedies.

IV. CONCLUSION

For the foregoing reasons, the Court RESERVES RULING as to Plaintiff Dual Diagnosis

until Monday, September 26, 2022 during which time Dual Diagnosis may respond to an

additional argument in BCBST’s reply [Doc. 30, at 4]. As to the remaining Plaintiffs, BCBST’s

motion is DENIED.

SO ORDERED:

s/ Clifton L. Corker

United States District Judge