GPA vs Baylor Health Care System

GPA HOLDING, INC. v. BAYLOR HEALTH CARE SYSTEM

“This case is a simple contract dispute prompted by GPA’s failure to timely process and pay claims under the agreements with Baylor, and does not require review by this Court.”

GPA vs Baylor Health Care System has been working it’s way though the legal system for several years. The impact of the case weighs heavily among TPA’s.( http://blog.riskmanagers.us/?p=7286)

GPA lost the case, but is in the process of appeal. Recent court filings includes a petition filed on November  2, 2011.    The Court requested full merits briefing on March  9, 2012.

The Court denied review of the petition on December 14, 2012.

Part of the filings includes a pleading from the Texas Hospital Association (THA) which provides the reader with some insight as to the nature of the case (from THA’s perspective)  and the role/impact of managed care contracts. The THA pleading follows:

__________________________

No. 11-0723

IN THE SUPREME COURT OF TEXAS

AUSTIN, TEXAS

________________________

GPA Holding, Inc.,

Petitioner,

v.

Baylor Health Care System,

Respondent.

_______________________

B

RIEF OF AMICUS CURIAE

T

EXAS HOSPITAL ASSOCIATION

I

N SUPPORT OF RESPONDENTS BRIEF ON THE MERITS

[

PETITION NOT GRANTED]

Charles W. Bailey

Attorney for

Texas Hospital Association

As

Amicus Curiae

1108 Lavaca, Suite 700

Austin, Texas 78701

(512) 465-1038

Facsimile (512) 692-2800

FILED

IN THE SUPREME COURT

OF TEXAS

12 August 30 P1:05

BLAKE. A. HAWTHORNE

CLERK

ii

No. 11-0723

IN THE SUPREME COURT OF TEXAS

AUSTIN, TEXAS

________________________

GPA Holding, Inc.,

Petitioner,

v.

Baylor Health Care System,

Respondent.

_______________________

MOTION TO ACCEPT AND CONSIDER

AMICUS CURIAE BRIEF IN SUPPORT

OF

RESPONDENT’S BRIEF ON THE MERITS

_______________________

TO THE HONORABLE SUPREME COURT OF TEXAS

Pursuant to Tex. R. App. P. 11, the Texas Hospital Association respectfully

requests that the Supreme Court of Texas, Austin, Texas, receive and consider this

Amicus Curiae

brief in the above styled and numbered case in support of the Brief of

Respondent, Baylor Health Care System.

iii

IDENTITY OF PARTIES AND COUNSEL

PLAINTIFF:

Baylor Health Care System

PLAINTIFF COUNSEL:

Jeff Cody

Ben Taylor

Fulbright & Jaworski L.L.P.

2200 Ross Avenue, Suite 2800

Dallas, Texas 75201-2784

DEFENDANT:

GPA Holding, Inc.

DEFENDANT COUNSEL

Thomas R. Phillips

Baker Botts L.L.P.

98 San Jacinto Blvd., Suite 1500

Austin, Texas 78701

Robert M. Hoffman

Stacy R. Obenhaus

Gardere Wynne Sewell LLP

1601 Elm Street, Suite 3000

Dallas, Texas 75201

David M. Walsh IV

Chamblee Ryan Kershaw & Anderson PC

2777 N. Stemmons Frwy, Suite 1157

Dallas, Texas 75207

iv

TABLE OF CONTENTS

IDENTITY OF PARTIES AND COUNSEL ………………………………………………………….. iii

TABLE OF AUTHORITIES …………………………………………………………………………………..v

STATEMENT OF INTEREST AND CONCERN …………………………………………………… vi

STATEMENT OF JURISDICTION…………………………………………………………………….. viii

SUMMARY OF ARGUMENT …………………………………………………………………………….. ix

ARGUMENT ………………………………………………………………………………………………………..1

I. THE COURT OF APPEALS

DECISION DOES NOT CHANGE THE ROLE

OR LIABILITIES OF THIRD PARTY ADMINISTRATORS ……………………………1

II. THE AGREEMENTS IN THIS CASE DO NOT INCLUDE A LIQUIDATED

DAMAGES PROVISION ………………………………………………………………………………3

III. HOSPITALS AND OTHER HEALTH CARE PROVIDERS SHOULD BE

ALLOWED TO CONTRACT WITH PREFERRED PROVIDER

ORGANIZATIONS AND THIRD PARTY PAYORS, INCLUDING TPAs, ON

TERMS AND CONDITIONS AGREED TO BY THE PARTIES ……………………….5

CONCLUSION AND PRAYER ……………………………………………………………………………..7

CERTIFICATE OF SERVICE ………………………………………………………………………………..8

v

TABLE OF AUTHORITIES

CASES

CF & I Steel Corp. v. Pete Subl3ett & Co.,

623 S.W.2d 709, 713-715 (Tex. Civ. App.

Houston

[1

st Dist.] 1981, writ ref’d n.r.e.) ……………………………………………………………………4

Valence Operating Co. v. Dorsett,

164 S.W.3d 656, 664 (Tex. 2005) ………………………………………………………………….3

Watson v. Cargill, Inc., Nutrena Feed Div’n ,

573 S.W.2d 35, 39-40 (Tex. Civ. App.

– Waco 1978, writ ref’d n.r.e.) ……………..4

STATUTES

Tex. Ins. Code § 4151.001(1) (West Supp. 2012) ………………………………………………………1

Tex. Ins. Code § 4151.102 (West Supp. 2012) …………………………………………………………..1

Tex. Ins. Code, Chapter 843, Subchapter C, and Chapter 1301, Subchapter C-1(West

Supp. 2012)

………………………………………………………………………….…..4

OTHER AUTHORITY

Tex. R. App. P. 11………………………………………………………………………………………………… ii

vi

STATEMENT OF INTEREST AND CONCERN

The Texas Hospital Association (“THA”) is a nonprofit trade assoc

iation that

represents 444 hospitals across the state. As a representative of its member hospitals,

THA is vitally interested in and concerned about the matters before this Court, which will

affect the finances of Texas hospitals and their contractual relationships with preferred

provider organizations and third party payors.

This case involves the review and enforcement of certain contracts entered into by

Baylor Health Care System (“Baylor”) and GPA Holding, Inc. (“GPA”). While

Petitioner, GPA, and amicus curiae, Texas Association of Benefit Administrators and

Self Insurance Institute of America, argue that the court of appeals’ decision

fundamentally alters the role and liability exposure of all third party administrators

(“TPAs”),

1 THA respectfully suggests that the court of appeals’ opinion cannot not be

read to impact any TPA, with the exception of GPA. As correctly determined by the court

of appeals, GPA could be viewed as a payor only under the specific terms and obligations

contained in the Subscriber Services Agreement and Subscriber Acknowledgment.

Of greater concern is GPA’s and the amicus curiae’s attempt to have this Court

impose limits upon health care providers’ ability to contract with TPAs within the state.

Hospitals and other health care providers that have entered into agreements with

preferred provider organizations and third party payors, including TPAs, for the provision

of health care services to patients must be able to rely on payor compliance with these

agreements. Should the Court grant review in this case, THA urges the Court to uphold

the court of appeals’

decision. Otherwise, GPA will be allowed to gain the benefits of the

1

It is noteworthy that the amici, Texas Association of Benefit Administrators and Self Insurance Institute

of America

, suggest that the court of appeals’ decision threatens the financial integrity and future operation

of all TPAs; however, the cases cited by amici that have changed the role of TPAs, including

Baylor Health

Care System v. Epoch Group, L.C.,

340 F. Supp.749 (N.D. Tex. 2004) was published more than eight years

ago and the TPA industry has continued to operate.

vii

agreements without being required to fulfill its obligations under the agreements.

Further, it is important for the Court to uphold the right of parties to enter into and

enforce contracts based on terms and conditions agreed to by the parties.

THA has paid all fees associated with the submission of this amicus brief.

viii

STATEMENT OF JURISDICTION

THA believes that the Court has discretionary jurisdiction of this case pursuant to Tex.

Gov’t Code Ann. § 22.201 (

a). This is an appeal from the decision of the Fifth Court of

Appeals.

ix

SUMMARY OF ARGUMENT

In the case, the court of appeals concluded that GPA was bound by the

agreements in question and that GPA was required to pay Baylor in accordance with the

agreements. While the court of appeals decision determined that GPA was a payor under

the terms of the agreements and obligated to pay for health care services provided by

Baylor, the court’s decision did not change the role or liability of third party

administrators. The court of appeals was merely upholding the trial court’s determination

that GPA had breached the agreement and was obligated to pay Baylor based on a twotier

pricing structure that would be followed if GPA did not pay claims within the

specified time frame. The two-tier pricing structure included in the agreement was not a

liquidated damages provision and does not constitute a penalty.

This case is a simple contract dispute prompted by GPA’s failure to timely

process and pay claims under the agreements with Baylor, and does not require review by

this Court. Should the Court grant review in this case, THA urges the Court to uphold

the court of

appeals’ decision. Otherwise, GPA will be allowed to realize the benefits of

the agreements with without meeting its obligation to process and pay claims by in a

timely manner. Further, it is important for the Court to uphold the right of parties to enter

into and enforce contracts based on terms and conditions agreed to by the parties.

1

ARGUMENT

I. The court of appeals

decision does not change the role or liabilities of third

party administrators.

Petitioner, GPA, and amici curiae, Texas Association of Benefit Administrators

and Self Insurance Institute of America, argue that the court of appeals’ decision

fundamentally alters the role and financial exposure of TPAs and, if upheld, will

increase dramatically the administrative costs charged to self-funded benefit plans for

claim processing provided by TPAs or will force TPAs from the market entirely.

While intended to gain this Court’s attention, these arguments

greatly overstate the

impact of the court of appeals’ decision.

Under Texas law, TPAs are regulated by Chapter 4151, Texas Insurance Code.

Under state law, a TPA is a legal entity that collects premiums or contributions and

adjusts or settles claims under an agreement with an insurer or plan sponsor that

offers health or other benefits to residents of this state.

2 The agreement must include

a statement of the duties of the administrator, including the claim processing to be

performed.

3 While an agreement between a TPA and an insurer or plan sponsor

must comply with the requirements of Chapter 4151, TPAs have the flexibility to

provide a range of services to meet the needs of their client insurers or plan sponsors.

TPAs also can and do enter into arrangements with preferred provider organizations

in order to provide their clients with access to services provided by hospitals and

other health care providers that participate in a preferred provider organization

network, like the one provided by Private Health Care Systems.

2

Section 4151.001(1), Texas Insurance Code.

3

Section 4151.102, Texas Insurance Code.

2

GPA and amici curiae, Texas Association of Benefit Administrators and Self

Insurance Institute of America, suggest that

a TPA’s legal responsibility should be

limited to clerical or administrative duties, such as the processing and adjudication of

claims. Otherwise, the cost of medical care will be shifted from health benefit plan

sponsors to the TPAs, and TPAs will become the insurers of the care provided to the

plan participants. But these legal arguments are not supported in fact.

The facts of this case clearly show that GPA agreed to provide additional, nonministerial

services to its clients, such as the establishment and maintenance of

discounted fee arrangements with health care providers, whereby the employees and

dependents of the self-funded employers could receive services from Baylor at a

discounted payment amount. It is undisputed that GPA signed a series of agreements

to benefit from the discounted fees offered by Baylor and that obligated GPA to pay

Baylor in accordance with the Hospital Services Agreement, including the

requirement to pay claims within 45 days. The record is clear also that only GPA, and

none of its clients, signed the agreements. GPA could have signed the agreements as

an agent or designee of its clients and inserted a provision into the agreements to

clarify that the self-funded benefit plans, and not GPA, would be responsible for

payment of Baylor’s normal billed charges if Baylor’s claims were not timely paid.

GPA did not do that. Yet, GPA now wants to hide behind the legal argument that it is

not a payor under the Hospital Services Agreement and should not have to pay the

claims under the terms of the agreement. Further, it is not factually correct to assert

that a TPA will become a fiduciary or insurer and financially responsible for payment

of the claims because the agreement between a TPA and a health benefit plan provide

that the insurer or employer sponsoring the plan is ultimately responsible for funding

3

and paying for the health benefits provided. In this case, the plan sponsors are still

responsible for funding the payment of the health care services provided by Baylor.

But there may be a question between GPA and the plan sponsors as to whether GPA

or the plan sponsors are responsible for late payment of Baylor claims and the

resulting loss of discount. It appears that GPA seeks to have Baylor bear this risk

rather than GPA or the plan sponsors.

In sum, this case is a simple contract dispute prompted by GPA’s failure to

process and pay claims timely under the agreements with Baylor, and the court of

appeals

decision does not change the role or liability exposure of TPAs generally.

Nor will it increase the administrative costs charged to self-funded benefit plans by

TPAs or force TPAs from the market. However, it may prompt GPA to change its

claim processing and other business practices so that it will meet its contractual

obligations in the future.

II. The agreements in this case do not include a liquidated damages provision.

As discussed in length in the Baylor brief, there is a three-part test to determine

whether a contract includes an unenforceable liquidated damages provision and the

initial inquiry is whether a contract term is a liquidated damages provision. As this

Court stated in

Valence Operating Co. v. Dorsett, “[l]iquidated damages clauses fix in

advance the compensation to party accruing from the failure to perform specified

contractual obligations…”

4

In this case, the provision in question provided that if a clean claim submitted by

Baylor was not paid within 45 calendar days of receipt that the payor would no longer

4

Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 664 (Tex. 2005).

4

be eligible for the discounted rates and would be obligated to pay Baylor its normal

billed charges. This provision was clearly designed as a financial incentive for the

payor, in this case GPA, to pay claims in a timely manner and may be included in

contracts between health care providers and payors. The provision does not establish

a damage or penalty amount in advance, but rather established a two-tiered pricing

structure that offers a substantial discount if claims are paid within 45 days. It is a

recognized business practice for companies to offer discounted pricing for goods or

services based upon the timing or form of payment, and the use of this two-tiered

pricing structure by Baylor is consistent with that business practice.

5

The use of this type of two-tiered pricing structure also is consistent with the

public policy established by the Texas Legislature with passage of the House Bill

610

6 in 1999, which required health maintenance organizations (HMOs) and

preferred provider organizations (

PPOs) to pay health care providers the full billed

charge amount if a provider claim was not paid within 45 days of receipt of the claim

by the HMO or PPO. Prior to this time, HMOs and PPOs were not required to pay

health care providers within a specified period of time and many health care providers

were facing very significant delays in payment of their claims. In enacting House

Bill 610 the Legislature recognized the importance of prompt payments to health care

providers and determined that requiring HMOs and PPOs to pay a provider its normal

billed charge amount if the claim was not paid timely would provide an appropriate

incentive for the HMO or PPO to pay claims within the statutory timeframe. In

5

CF& I Steel Corp. v. Pete Sublett & Co., 623 S.W. 2d 709, 713-715 (Tex. Civ. App. Houston [1st Dist.],

1981

writ ref’d n.r.e.); Watson v. Cargill, Inc., Nutrena Feed Div’n, 573 S.W. 2d 35, 39-40 (Tex. Civ. App.

Waco 1978, writ ref’d n.r.e.).

6

Act of May 29, 1999, 76th Leg., R.S., ch. 1343, 1999 Tex. Gen. Laws, 4556-4559 (codified as amended in

Chapter 843, Subchapter C, and Chapter 1301, Subchapter C-1, Insurance Code).

5

adopting the billed charge amount as the required payment amount if HMOs or PPOs

did not pay health care providers in a timely manner, the Legislature also determined

that requiring HMOs or PPOs to pay this amount was not an unreasonable penalty.

While the Texas Legislature does not have statutory authority to regulate self-funded

health care plans that are subject only to federal regulation under the Employee

Retirement Income Security Act of 1974 (“ERISA”), the Legislature by adopting the

prompt payment requirements on state-regulated health plans has clearly suggested

that recovery of full billed charges by health care providers if not timely paid by a

TPA processing claims for self-funded health care plans is not an unlawful penalty.

III. Hospitals and other health care providers should be allowed to contract with

preferred provider organizations and third party payors, including TPAs, on

terms and conditions agreed to by the parties.

The delivery and financing of private health care in this country is based on a

competitive model, and hospitals and other health care providers are expected to

compete based on the cost and quality of health care services they provide. Within

this competitive system, hospitals and other health care providers negotiate with

various types of private third party payors on payment amounts and other conditions

or requirements associated with the delivery of services to patients. The payment

amount, which is typically a discount from a provider’s normal or standard charge, is

a key issue to be negotiated and will be influenced by a number of factors, including

the types and volume of services that are anticipated to be provided to individuals

covered by a particular health benefit plan. However, other terms and requirements

of these contracts, such as the timing of payment, are important and will influence the

willingness of the parties to enter into these arrangements. A two-tiered pricing

6

structure, similar to what is in dispute in this case, may be proposed by a hospital or

other health care provider as a part of the negotiation process and is intended to be an

incentive for prompt payment of claims. Whether a particular payor is willing to

accept two-tiered pricing also may influence the level of payment discount the

hospital or health care provider is willing to accept. If, as argued by GPA, two-tiered

pricing should be prohibited as a penalty provision, future negotiation of these types

of contracts will be impacted and hospitals and other health care providers may be

less willing to accept greater discounted payment rates. If that occurs third party

payors may be asked to pay more for health care services, thus, increasing the cost of

health care coverage generally.

THA respectfully suggests that this Court should maintain the ability of hospitals

and other health care providers to negotiate and enter into contracts with preferred

provider organizations and third party payors, including TPAs, based on the terms

and conditions that meet the needs and requirements of the parties. To prohibit

certain types of payment arrangements will reduce competitive options available to

the parties and may increase health care costs.

7

CONCLUSION AND PRAYER

Based on the legal and policy arguments presented in this brief,

amici curiae

respectfully requests

that this Court deny GPA’s petition for review or affirm the

judgment of the Fifth Court of Appeals.

Respectfully submitted,

___________________________________

Charles W. Bailey

State Bar No. 01517100

Attorney for Texas Hospital Association,

Amicus Curiae

8

CERTIFICATE OF SERVICE

I hereby certify that on this 30th day of August, 2012, a true and correct copy of the

foregoing instrument was mailed by United States mail to:

Jeff Cody

Ben Taylor

Fulbright & Jaworski LLP

2200 Ross Avenue, Suite 2800

Dallas, Texas 75201-2784

Thomas R. Phillips

Baker Botts L.L.P.

98 San Jacinto Blvd., Suite 1500

Austin, Texas 78701

Robert M. Hoffman

Stacy R. Obenhaus

Gardere Wynne Sewell LLP

1601 Elm Street, Suite 3000

Dallas, Texas 75201

David M. Walsh IV

Chamblee Ryan Kershaw

& Anderson PC

2777 N. Stemmons Frwy, Suite 1157

Dallas, Texas 75207

___________________________

Charles W. Bailey

Editor’s Note: This is an important case with tremendous implications. We hope GPA prevails.

 

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