Reference-Based Pricing Litigation: Brick By Brick

By Scott Bennett –

Whether you believe modern Reference-Based Pricing models are presently being built, remodeled, or dismantled “brick by brick” truly depends on your perspective. Either way, this is an interesting time to review the recent challenges, results, and future risk created by this important approach to health care reimbursement, which has saved employers millions of dollars and sparked fierce conversations about reasonable value across the nation.

This article is a short follow-up to my recent article about pending cases involving Reference-Based Pricing (RBP). Generally these cases seek additional payment on medical services where the plan has used RBP to cap the benefit payment and the hospital has balance billed the patient and/or challenged the RBP methodology and process as flawed. The timing is appropriate because many of the cases mentioned in the previous article have settled or moved on to the next critical step. This article will discuss 1) the settled cases and associated rulings, 2) the cases that appear to be setbacks (or learning events) for RBP defense, and 3) issues from settled and ongoing cases that will require further discussion, and potentially resurface in the future.


Settlements are closed cases, and sometimes a win for all involved. A vendor’s ability to reach settlement on behalf of a plan often reveals some sort of middle ground among the parties, and possibly a conversation and resolution that could not have been achieved without litigation.

The Salinas Valley Memorial case docket has a notice of settlement, which indicates that the case will soon be closed. In the Salinas case the hospital uniquely argued that the RBP process violated the maximum out of pocket limitations under the ACA. The terms of the settlement are confidential, however the settlement may have been influenced by a recent ruling by the court that dismissed the RBP vendor from the case, but did not dismiss the employer from liability. The case included a number of novel issues that will remain without precedent given the settlement occurred prior to any ruling on employer liability.

A Minnesota RBP case which was not mentioned in the previous article has also recently surfaced, and it quickly settled when the allegations expanded beyond the patient. This case originally involved the Mayo Clinic and a suit naming only the patient. Mayo recently moved to add the RBP vendor to the claim with an amended complaint, then the case promptly reached settlement. This case is interesting, and the docket is worthy of review, because the proposed amended complaint is comprehensive and includes some new issues that other providers have not alleged. While this case has settled, other providers could pursue similar issues in future challenges to RBP models – most notable is the theory that an RBP model with claim processing and patient indemnity is the unlicensed practice of insurance.


Often the quickest way to cut off litigation is with a successful motion to dismiss. This early action in any lawsuit is often utilized, and it has been successful in past RBP lawsuits. Three cases have moved past a motion to dismiss and may require additional litigation. This is an early setback for the RBP vendor because litigation continues into discovery and costly motion work.

Motion to Dismiss Vacated and Case Remanded to State Court: The San Antonio Regional Hospital case represents a setback for the often cited RBP ERISA “preemption” defense, or the notion that the plan design combined with an appeal process cuts off the provider’s ability to seek money outside of that process. This is a case where the hospital did not sue as a beneficiary or for benefits under ERISA (which would trigger preemption), but instead relied on state law causes of action; namely, quantum meruit (reasonable value owed for services rendered out of fairness) and breach of statutory duties. This favorable ruling (remanding the case to state court) for the hospital, and the motion and pleading work involved may be one way to avoid the ERISA issues and move a collection case forward in state court. Most importantly, a state law challenge like the one above may dig into RBP company methodology and reasonable value issues.

Motion to Dismiss Denied Regarding Breach of Oral Contract and Negligent Misrepresentation: The Lodi Memorial case focused on misrepresentation about payment responsibility, and specifically identified the representations by the defendants’ agents and the date when the representations were made. These facts in the complaint allowed the court to deny a motion to dismiss, leaving those claims open for discovery and further litigation. It is worth noting that the claims for breach of implied contract were dismissed.

Prolonged Patient/Beneficiary Involvement: In the Centura Health Corporation (Littleton Adventist) case, the hospital includes a collection action against the patient (as an individual) in the lawsuit. The hospital refused to remove the patient from the case despite the defense’s efforts to pay all debts and fees on behalf of that patient. It appears from the filed documents (a proposed scheduling order) that the payments offered to the court were at full billed charges, including fees.

Issues to Watch

Four key issues identified in these cases are 1) misrepresentations in the coverage verification process, 2) quantum meruit when the plan pays below market rates for services the hospital asserts it was tricked into providing, 3) state trade practice laws when misrepresentations are alleged, and 4) alleged unlicensed insurance practice when it appears an RBP vendor (and broker) sold patient indemnity without the proper licensure. Hospitals will likely make future challenges under these theories and others; however, these same risks and resulting fierce conversations provide the leverage and savings historically only available to the elite carriers (Blue Cross, etc.).

Moving Forward

This article is not intended to disparage any vendor, process, or individual. Do not blame the gladiators for the Colosseum. I have a significant amount of respect for the parties involved in these cases and their efforts to navigate an often unfair and unforgiving system. Many brokers would argue successfully (and with concrete data) that the savings and ancillary benefits of RBP are worth the risk, especially given that some early rulings have favored RBP vendors and some cases are settling. However, the above case updates and related documents may help set expectations for a broker or employer considering utilizing Reference-Based Pricing and enable the creation of a short list of questions about risk and compliance any RBP vendor could answer.

Case List With Updated Activity:

Oregon: Filed 03-17-2017 (Ongoing in State Court)

Providence Health & Services-Oregon vs, S.P.M. Personal Representative of the Estate of R.K.P, in official and personal capacities, and ELAP Services LLC.

Claims: Breach of Contract, Breach of Fiduciary Duty, Breach of Oregon Unlawful Trade Practices Act.

AS OF JUNE 2018: Discovery is moving forward in the state court, and a case management hearing is set for June 29th.

Nebraska: Filed 10-31-2017 (Ongoing) (Third Amended Complaint)

Central Valley AG Cooperative and Central Valley AG Cooperative Health Care Plan vs. Advanced Medical Pricing Solutions, et al.

Claims: Breach of Fiduciary Duty, Injunctive Relief to Halt Further Services.

AS OF JUNE 2018: The third amended complaint was allowed in a lengthy judicial order, it has been filed, and answers have been filed in the case.

Utah: Filed 12-01-2017 (Ongoing)

IHC Health Services, INC. vs. ELAP Services LLC.

Claims: Intentional Interference with Existing and Potential Economic Relations, Injurious Falsehood, Fraud, Negligent Misrepresentation, Declaratory Judgment, Preliminary and Permanent Injunction.

AS OF JUNE 2018: Most Recent Filing – Reply to Opposition to Motion to Dismiss – filed 5/30/2018

Colorado: Filed 01-31-2018 (Ongoing)

Centura Health Corporation (Littleton Adventist) vs. D. A., MYR Group, ELAP Services, Professional Benefit Administrators, Inc.

Claims: Declaratory Judgment (validity of contract for all patients), Breach of Contract (against patient), Account Stated (against patient).

AS OF JUNE 2018: Provider proposed facts and scheduling order – filed 5-22-2018. Court is considering a motion to remand.

California: Filed 4-28-2017 (Amended Complaint) (Ongoing)

Lodi Memorial Hospital Association vs. Group & Pension Administrators Inc.

Claims: Breach of Oral Contract, Negligent Misrepresentation.

AS OF JUNE 2018: Moving forward on the recently amended complaint.

California: Filed 12-08-2017 (Notice of Settlement)

Salinas Valley Memorial vs. Envirotech Molded Products Inc. and ELAP Services.

Claims: ERISA violations, Intentional Misrepresentation, Negligent Misrepresentation.

AS OF JUNE 2018: Notice of Settlement filed on 5-22-2018.

California: Filed 03-08-2018 (Ongoing in State Court)

San Antonio Regional Hospital vs. ELAP Services and Group and Pension Administrators, Inc.

Claims: Quantum Meruit, Monetary Damages and/or Permanent Injunction, State Unfair Business Practices.

AS OF JUNE 2018: Remanded to State Court on 5-21-2018.

Florida: Filed 04-24-2018 (Ongoing)

Homestead Hospital, Baptist Hospital of Miami, et al. vs Group & Pension Administrators Inc.

Claims: Breach of Implied-in-Fact Contract, Unjust Enrichment/Breach of Implied-In-Law Contract, Promissory Estoppel.

AS OF JUNE 2018: Motion to Dismiss, Response, and Reply filed.

Minnesota: Filed 9-07-2017 (Notice of Settlement)

Mayo Clinic v. Zack et al. Original complaint is against the patient. The proposed amended complaint included the following allegations against additional parties: Breach of Contract, Unjust Enrichment, Intentional Interference With Contract, Uniform Deceptive Trade Practices Act, Fraudulent Misrepresentation, Negligent Misrepresentation, Unlicensed Practice of Insurance (Indemnity), Unlicensed Practice of Insurance (claims administration),

AS OF JUNE 2018: Notice of settlement filed prior to the court ruling on the amended complaint.

** This document contains general, condensed summaries of actual legal matters, statutes and opinions for information purposes. It is not meant to be and should not be construed as legal advice. Readers with particular needs on specific issues should retain the services of competent counsel. Released under the Creative Commons License Attribution.