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Roche v. Travelers Property Casualty Insurance Co.

July 24, 2008


The opinion of the court was delivered by: J. Phil Gilbert District Judge


This matter comes before the Court on Defendant The Travelers Indemnity Company's Motion to Dismiss (Doc. 38). Plaintiff Kathleen Roche has responded (Doc. 45) and Defendant has replied (Doc. 50). Defendant has filed a Motion for a Hearing on the Motion to Dismiss (Doc. 47). The Court, having been fully informed by the parties's briefs, DENIES the Motion for Hearing. For the following reasons, the Court GRANTS the Motion to Dismiss.


I. PPOs and Silent PPOs*fn1

Health insurance plans can be broadly divided into two large categories: indemnity plans (also referred to as "reimbursement" plans), and managed care plans. Indemnity plans reimburse the patient for his medical expenses regardless of who provides the service. Managed care plans, on the other hand, involve an arrangement between the insurer and a selected network of health care providers. Managed care plans offer patients significant financial incentives to use the providers in that network.

A Preferred Provider Organization (PPO) is a managed care technique that has risen in popularity in recent years. Parties to a typical PPO include a health care provider, a PPO network administrator, and various kinds of payors, that is, those companies or entities that are obligated to provide medical benefits to the provider's patients. Payors may be insurance carriers, health care service plans, employers, trusts, nonprofit health service plans, governmental units and the like.

Generally, health care providers sign a contract with PPO network administrators in which they agree to accept from PPO payors a rate discounted from their usual and customary rates as payment in full for services provided to the payor's beneficiaries. In exchange, the network administrators promise providers that the payors who join the PPO will pay the provider promptly and/or provide "steerage," that is, financial incentives to their beneficiaries to encourage the beneficiaries to choose PPO providers. The contract between the provider and the PPO network administrator is the "provider agreement." The contract between the PPO network administrator and the payor is the "payor agreement." The provider agreement may or may not delineate who can contract to be a PPO payor.

A silent PPO is a term of art for a kind of PPO abuse. Essentially, a silent PPO occurs when a payor receives a PPO discount to which he is not entitled. For example, suppose a patient with an indemnity insurance plan goes to a provider who is part of a PPO. By definition, the patient with an indemnity insurance plan is not steered toward a provider, but is free to choose any provider he wishes. The patient typically pays a percentage of the total bill and his insurance pays the rest. In a silent PPO, after the patient pays his share of the bill and the provider submits the outstanding balance to the payor for payment, the payor notices that the provider is a member of a PPO. The payor then proceeds to pay the provider at the PPO discounted rate, instead of the usual and customary rate. If the payor and provider are both members of the PPO, this discount payment may constitute a breach of the PPO contract. If the payor is not a member of the PPO, but pays only the PPO rate, this discount payment may constitute fraud. The conduct at issue in this purported class action falls within the first silent PPO scenario.

II. Facts

Plaintiff Kathleen Roche is a licenced healthcare provider who signed a provider agreement with First Health Group Corp. (First Health), thereby becoming a provider with the First Health PPO network. Defendant The Travelers Indemnity Company (TIC) signed a payor agreement with First Health, thereby becoming a payor with the First Health PPO network. Roche contends that the provider agreement and the payor agreement together constitute a contract between herself and TIC. One term of the payor contract is that TIC will "to the extent permitted under [Illinois] law, direct Claimants to Contract Providers." Another term of the payor agreement states, "TIC acknowledges that the status of Contract Providers may change for time to time, with or without notice, and the provider's status must be confirmed with the provider before medical services are obtained."

In 2003, Roche treated a patient, who was a covered claimant under a TIC worker's compensation insurance policy, at her offices in St. Clair County, Illinois. The claimant sustained injuries in a covered occurrence, and was entitled to have TIC pay for his medical services. However, TIC had never established a Preferred Provider or Exclusive Provider program for its claimants or beneficiaries. Accordingly, neither TIC nor First Health referred the patient to use Roche's services. They did nothing to steer or direct the patient in any way to Roche, nor did TIC make any attempt to verify Roche's status as a PPO provider before Roche provided her services to the patient.

Roche submitted a bill for her usual and customary charges to TIC. TIC then submitted the bill to First Health for review. Upon determining that Roche was a First Health PPO provider, TIC tendered payment to Roche at the PPO discounted rate for the services provided, along with an explanation of reimbursement form (EOR). The EOR represented that the claim had been reimbursed pursuant to the First Health Network. Roche contends that TIC was not entitled to take the PPO discount and is liable to her for the difference between her usual and customary rate and the PPO rate TIC paid. Roche advances the alternate theories of breach of contract, unjust enrichment, and violation of the Illinois Consumer Fraud Act on behalf of herself and others similarly situated.

TIC contends that the Court should dismiss the complaint in its entirety because Roche's claims are barred by the exclusive remedy provision of the Illinois Worker's Compensation Act. TIC also asks the Court to dismiss the contract claims because no valid enforceable contract exists between it and Roche. TIC contends that Roche's fraud and unjust enrichment claims are improperly based on contractual obligations, and that Roche's claim under the Illinois Consumer Fraud Act is time barred and deficient. The Court examines each of these arguments in turn.


For purposes of a motion to dismiss, the court must accept all factual allegations in the complaint as true and draw all reasonable inferences from those facts in favor of the plaintiff. Erickson v. Pardus, 127 S.Ct. 2197, 2200 (2007) (per curiam ) (quoting Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1965 (2007)); Tricontinental Indus., Ltd. v. PricewaterhouseCoopers, LLP, 475 F.3d 824, 833 (7th Cir.2007). The federal system of notice pleading requires only that the plaintiff provide "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). In order to provide fair notice of the grounds for his claim, the plaintiff must allege sufficient facts "to raise a right to relief above the speculative level." Pisciotta v. Old Nat'l Bancorp, 499 F.3d 629, 633 (7th Cir.2007)(quoting Twombly, 127 S.Ct. at 1965 (2007)) (internal quotations omitted).

The complaint must offer "more than labels and conclusions, and a formulaic recitation of a cause of action's elements will not do." Twombly, 127 S.Ct. at 1965. Moreover, the Court is "not obliged to ignore any facts set ...

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