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The Charlotte-Mecklenburg Hospital Authority v. Optumhealth Care Solutions, Inc.

United States District Court, W.D. North Carolina, Charlotte Division

August 29, 2017

THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY d/b/a CAROLINAS HEALTHCARE SYSTEM; CAROLINAS PHYSICIANS NETWORK, INC.; MANAGED HEALTH RESOURCES, INC., Plaintiffs,
v.
OPTUMHEALTH CARE SOLUTIONS, INC., Defendant.

          ORDER

          FRANK D. WHITNEY CHIEF UNITED STATES DISTRICT JUDGE.

         THIS MATTER is before the Court following a bench trial held before the undersigned on June 19-20, 2017. Plaintiffs brought this action against Defendant for breach of a transplant services contract and seeking a declaratory judgment regarding the construction of the contract. Essentially, the parties dispute the application of increased rates for transplant surgeries and an escalator clause included in a third amendment to the contract. The heart of this dispute is whether the increased rates and escalator clause apply to (1) all transplant services performed after the effective date of the amendment (Plaintiffs' position) or (2) only those transplant services provided to a patient whose initial consult took place after the effective date of the amendment (Defendant's position).

         Following a hearing on April 6, 2017, the Court denied Plaintiffs' Motion for Summary Judgment (Doc. No. 59) concluding the contract was ambiguous. After hearing and weighing the evidence presented at trial, including documentary evidence and the testimony of seven witnesses presented over two days, and reviewing both parties' proposed findings of fact and conclusions of law (Docs. No. 80, 81), the Court finds Plaintiffs have failed to establish by a preponderance of the evidence that Defendant breached the parties' contract. The following constitutes the Court's findings of fact and conclusions of law. See Fed.R.Civ.P. 52(a)(1).

         I. FINDINGS OF FACT

         A. Background

         1. Defendant and its predecessor in interest, United Resource Network (“U.R.N.”), established and maintain a network of transplant centers. Hospital transplant programs, such as that operated by Plaintiffs, contract with Defendant to be included in a transplant network that Defendant offers to certain payors, including large employer groups, reinsurers and health plans. The payors contract with Defendant to obtain access to transplant services. (Trial Tr. Vol. I, pp. 160-63.)

         2. Under Defendant's contracts with both the payors and providers, the payor has the financial responsibility for all Transplant Health Services rendered by the provider. (Pls.' Ex. No. 1, § 3.1.)

         3. Providers submit claims for reimbursement for Transplant Health Services to Defendant, and Defendant adjudicates the claim according to the transplant services agreement with the provider. Defendant forwards the claim to the payor with financial responsibility for the claim for payment based on the payment terms and rates set forth in the transplant services agreement. (Trial Tr. Vol. I, p. 165.)

         4. Transplant Health Services are expensive and can trigger stop loss or reinsurance provisions. (Trial Tr. Vol. I, pp. 164-65.)

         5. Due to a patient's health status or having been placed on a wait list for an organ, several years may elapse between a patient's initial consult and the date the transplant surgery is performed. (Trial Tr. Vol. I, p. 165.)

         6. Insurers and other payors require predictable Transplant Health Services costs to properly underwrite and establish reserves. (Trial Tr. Vol. I, pp. 164-65, 182.)

         7. Relevant here, there are two types of pricing schemes that can be used for transplant services agreements:

a. Under Case Effective Date pricing, the payment terms applicable to a patient, including the rate for the transplant surgery, become effective on the date of the patient's initial consult with the provider, and those payment terms continue to apply for the life of the case. (Trial Tr. Vol. I, pp. 166-68, 180, 198-99; Trial Tr., Vol. II, p. 43.)
b. Under Date of Service pricing, the rates paid to a provider for services rendered to an individual patient are the rates in place at the time a transplant surgery is actually performed, regardless of the amount of time between the patient's initial consult with the provider and the time of surgery. (Id.)

         B. The Terms of the Original Transplant Services Agreement

         8. Effective April 22, 2005, Plaintiffs entered into a Transplant Services Agreement (“TSA”) with U.R.N., Defendant's predecessor. (Pls.' Ex. No. 1.)

         9. Russell Guerin signed the TSA for Plaintiffs on March 29, 2005, and Kevin O'Brien signed the TSA for U.R.N. on April 13, 2005. (Id.)

         10. The TSA provided for coverage and payment of pre- through post-organ transplant services to covered transplant patients (“Members”), including the organ transplant itself. (Id.)

         11. The relevant provisions of the TSA are as follows:

a. Section 1.3 of the TSA identifies three “Periods of Care” for a patient: “Pre-Transplant, ” “Transplant, ” and “Post-Transplant.” (Pls.' Ex. No. 1.) Section 1.3 specifies when the three Periods of Care begin and end, but it does not delineate when the rates applicable to any Period of Care begin or end. (Trial Tr. Vol. I, pp. 201-02.)
b. Section 3.2 specifies the rate for the Transplant Period, which is called the “Case Rate Payment.” A table in Section 3.2 lists the specific Case Rate for kidney, liver, and heart transplants. (Id.)
c. Section 1.2 specifically defines the Case Rate Payment as “The fixed fee payment made to Provider for Transplant Health Services provided to a Member during the Transplant Period” and “represents payment in full for all such services.” (Id. (emphasis added).)
d. The last sentence of Section 2.2, which specifies when payment terms in the TSA attach and for how long, (Trial Tr., Vol. I, p. 200), provides: “The payment terms begin at the time of the Member's Case Effective Date, and not before, and will continue to apply as long as the Member is on Provider's active status to receive, or has already received, a Transplant.” (Pls.' Ex. No. 1 (emphasis added).) Pursuant to Section 2.2, the Case Effective Date remains in place as long as the case is open, including through the transplant. (Trial Tr., Vol I, p. 174).
e. Section 1.1 of the TSA defines “Case Effective Date” as “the date the rates in this Agreement become effective for the Member's case, which shall be the earlier of the Member's initial consult with Provider for a transplant or the initiation of diagnostic testing related to the Transplant for the Member.” (Pls.' Ex. No. 1.) The Case Effective Date is a standard term that delineates the date on which reimbursement rates and other terms shift from the Member's underlying health plan to the TSA. (Trial Tr. Vol. I, pp. 167-68.)
f. The “payment terms” referenced in Section 2.2 are the payment terms contained in Section 3, which include rates applicable to Transplant Health Services rendered during each of the three Periods of Care. (Trial Tr. Vol. I, pp. 200-01.)
g. The last sentence of Section 7.1 of the TSA states: “Provider may give U.R.N. thirty (30) days prior written notice before the end of the term that Provider intends to renegotiate the reimbursement terms outlined in Section 3.” (Pls.' Ex. No. 1.)
h. Finally, Section 7.2 of the TSA states, in part, that the agreement can be terminated “by either U.R.N. or [Plaintiffs] upon ninety (90) days prior written notice.” (Id.)

         12. Plaintiffs never invoked their rights under Section 7.1 of the TSA and did not seek to renegotiate the reimbursement terms outlined in Section 3 during the first seven (7) years of the parties' relationship. (Trial Tr. Vol. I, p. 175.)

         13. Thus, between 2005 and 2013, the Case Rates in the TSA remained unchanged.

         14. Plaintiffs also never terminated the TSA for any reason under Section 7.2, including dissatisfaction with reimbursement rates received under the TSA. (Trial Tr. Vol. I, p. 127.)

         15. The terms of the TSA reflect that the parties intended and agreed to use a Case Effective Date, not Date of Service, pricing scheme. The specific terms of the TSA that reflect Case Effective Date pricing are the definition of Case Effective Date found in Section 1.1 and the last sentence of Section 2.2. (Trial Tr. Vol. I, pp. 166, 169, 202, 220, 239-40; Trial Tr. Vol. II, pp. 43-44).

         16. Despite amending the TSA three times, as discussed in more detail below, the parties never amended or modified Sections 2.2 or 1.1. (Pls.' Ex. Nos. 2-4; Trial Tr. Vol. I, p. 78.)

         17. A Date of Service contract typically uses specific language declaring that the contract is a Date of Service contract and, therefore, would contain different terms than those in the TSA.

a. For example, a Date of Service contract would include a multi-year term with different rates for different time periods. (Trial Tr. Vol. I, pp. 202-03; Trial Tr. Vol. II, p. 44.)
b. Also, in a Date of Service contract, the last sentence of Section 2.2 of the TSA would have been deleted and modified to state that the provider would be paid based on the rates in effect on the date of service (i.e., the transplant surgery). (Id.) Indeed, including the last sentence of Section 2.2 would not make any sense if the parties had intended Date of Service pricing because there would be no need to include a statement that rates continued to apply beyond the date of service. (Id.)

         18. Susan Davis, an Assistant Vice President for Contracting and Payor Relations for Plaintiffs, could not identify a single managed care contract to which Plaintiffs are a party, including the TSA, that specifies the applicable rate is the rate in effect when the services are performed. (Trial Tr. Vol. I, pp. 82-83.) Davis testified that she “infers” date of service pricing for some contracts “without regards to the language of the contracts.” (Id.)

         19. Paul Harnett, another Assistant Vice President for Contracting and Payor Relations for Plaintiffs, also testified Plaintiffs have consistently “inferred” the existence of Date of Service pricing terms despite the absence of such terms ...


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