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Appalachian Regional Healthcare, et al. v. Coventry Health and Life Insurance Company

March 28, 2013



This matter is before the Court on the motion of Plaintiffs Appalachian Regional Healthcare, Inc. and ARH Mary Breckinridge Health Services, Inc., collectively "ARH," for partial summary judgment on reimbursement for out-of-network services. For the reasons discussed below, ARH's motion will be granted.


On November 1, 2011, Kentucky implemented a managed care program for most of the

state's Medicaid recipients. The Cabinet for Health and Family Services ("Cabinet") awarded contracts to three managed care organizations, one of which was Coventry Health and Life Ins. Co. ("Coventry"). Coventry entered into a Letter of Agreement ("LOA") with ARH to provide services to Coventry members, and the parties were to negotiate toward a full participation agreement. If no participation agreement was agreed upon, the LOA was to continue until June 30, 2012 and for as long thereafter as mutually agreed by the parties. The LOA rates Coventry agreed to pay ARH providers equaled or exceeded the Kentucky Medicaid Fee Schedule ("Medicaid rate"). [DE 24-5].

On March 28, 2012, Coventry notified ARH that it was terminating the LOA effective May 4, 2012 and that any future agreement would require lower reimbursement rates. A few weeks later, Coventry notified ARH that it would not authorize treatment or services at ARH facilities except as required by law. Subsequently, Coventry proposed to pay ARH the out-of-network ("OON") rate agreed upon between Coventry and the Cabinet, which is 90 percent of the Medicaid rate. DE 54-2 at 2. ARH claims that payments at this rate would cover only about 67 percent of its costs. DE 54 at 7.

Following an evidentiary hearing, the Court granted in part ARH's motion for a preliminary injunction and required Coventry to maintain the status quo under its LOA with ARH until November 1, 2012. The Court found that the "health and well being of thousands of these [Region 8] patients hang in the balance, and many have already suffered hardships, stress and confusion as a result of Coventry's sudden notice of termination of its contract with ARH." The Court could "not allow patients to be cut off from their life-long physicians and hospitals without an adequate opportunity to become informed regarding the impact of the termination of ARH's contract and the choices for the patients to make as a result." DE 67 at 20. An appeal of the preliminary injunction is currently pending in the Sixth Circuit Court of Appeals.

ARH moves for partial summary judgment against Coventry for a declaration of rights regarding the rates ARH should be paid as an out-of-network provider when it provides non-emergency services to Coventry members. ARH argues that it cannot be bound by the "90 percent of the Medicaid fee schedule/rate" provision in the agreement between the Cabinet and Coventry because ARH is not a party to that agreement. The Cabinet also admits that "ARH is neither a party nor a third-party beneficiary to the contract between Coventry and Cabinet." DE 57-1 at 1. At the outset of briefing this motion, ARH was also seeking a declaration that Coventry was required to comply with the "Continuation of Benefits Clause" in the LOA and to pay 100 percent of the Medicaid rate to ARH for emergency services provided to Coventry members. DE 53 at 1-2. In its response, Coventry agreed to comply with those provisions. DE 78 at 3, n. 1. Accordingly, judgment will be granted on those two rate issues. The only remaining rate question is what is the standard for the rate Coventry should pay ARH for non-emergency services provided to Coventry members.

Coventry's response focuses on the barriers to a challenge of Medicaid rates by private action. DE 53. The Cabinet also argues against summary judgment "[t]o the extent that Plaintiffs' Motion asks for a determination related to adequacy of the Cabinet's Medicaid rates or to any claim that the Cabinet is liable for any alleged non-payment by Defendant Coventry." DE 75 at 1. Plaintiffs are abundantly clear in their replies that the Cabinet's Medicaid rates are not the subject of the present motion, nor are they seeking damages against the Cabinet. DE 105 at 1; DE 107 at 1. To the contrary, ARH has administrative appeals of its Medicaid rates pending in state court and is pursuing those appeals. DE 107 at 7. Just as the LOA did not change the state's Medicaid rates, neither will a ruling on what Coventry must pay ARH for out-of-network, non-emergency services have any effect on the state's Medicaid rates. Id. at 4. The question here is whether ARH is bound by the contract between the Cabinet and Coventry and, if not, what must Coventry pay ARH as an out-of-network provider. This Court has diversity jurisdiction over the state law questions raised by ARH.*fn2 The alleged barriers claimed by Coventry and the Cabinet are not relevant to the question of law presented by ARH's motion.


A. Summary Judgment Standard

Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). In the present case, ARH raises only questions of law.

It acknowledges that a fact question may arise as a result of the Court's ruling, but there are no disputed facts relating to the motion for partial summary judgment.

B. ARH Is Not Bound By The Contract Between Coventry and the Cabinet.

The Medicaid Managed Care Contract ("MCO Agreement") that Coventry entered into with the Cabinet contains Section 29.2 titled "Payment to ...

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