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Lacy Baird, An Individual v. Blue Cross Blue Shield of Texas

September 14, 2011


The opinion of the court was delivered by: Marvin E. Aspen, District Court Judge:


Plaintiff Lacy Baird has filed a four-count putative class action against Defendant Blue Cross Blue Shield of Texas, a division of Health Care Service Corporation. Because the Northern District of Texas, Dallas Division, is the more appropriate venue for this litigation, this case is transferred there on a motion by the Court.


A. Allegations in Plaintiff's Amended Complaint

Plaintiff Lacy Baird ("Plaintiff") is a resident of Houston, Texas. (Am. Compl. ¶ 2.) She is suing Defendant Blue Cross Blue Shield of Texas ("BCBSTX"), a division of Health Care Service Corporation, on behalf of herself "and all similarly situated Texas consumers who purchased certain private health insurance policies from [BCBSTX][.]" (Id. ¶ 1.)

As the amended complaint sets out in detail, BCBSTX is a doing business designation for Health Care Service Corporation's Texas division. (Id. ¶ 3.) Health Care Service Corporation is an Illinois company headquartered in Chicago. (Id.) No separate entity with the name BCBSTX exists in Texas or Illinois. (Id.) Instead, BCBSTX is merely an internal operating division of Health Care Service Corporation. (Id.) But because Health Care Service Corporation registers itself to do business in Texas as BCBSTX and because the "events giving rise to this claim concern [BCBSTX]'s activities in the Texas insurance market, Plaintiff has sued the defendant under the name registered with the Texas Department of Insurance." (Id.)

Plaintiff has at times had what is known as a Preferred Provider Organization ("PPO") insurance plan with BCBSTX. (Id. ¶ 6.) According to Plaintiff, BCBSTX is "by far the largest provider of these types of plans" in Texas. (Id.) Under a PPO plan, a policyholder's coinsurance rates, deductibles, co-pay amounts, and annual out-of-pocket maximum costs depend on whether the policyholder seeks care from a "preferred provider." (Id. ¶ 7.) A "preferred provider," also called an "in-network provider," is a health care provider with whom the health insurance company has contracted to set reimbursement rates at discounted levels. (Id. ¶ 8.) The preferred provider also often agrees not to seek payment from the policyholder for any amount over the agreed-upon reimbursement rate. (Id.) At the same time, PPO plans include incentives for the policyholder, such as lower coinsurance rates, deductibles, and co-pays, to seek care from preferred providers. (Id.) Although a PPO policyholder may seek care from a non-preferred provider, also called an "out-of-network provider," the policyholder may be required to pay a higher percentage of that provider's fee. (Id.) Nevertheless, Plaintiff stresses that, under the Texas Insurance Code, a PPO policyholder retains "the valuable right to choose 'basic level' care outside of the network[.]" (Id. ¶ 14.)

With respect to her PPO plan and others like it, Plaintiff contends that BCBSTX has "render[ed] the consumer's statutory and contractual right to seek care from a doctor or hospital of the insured's choice meaningless and illusory." (Id. ¶ 16.) The crux of Plaintiff's concern with her PPO plan is the way BCBSTX determines the benchmark fees for services from out-of-network providers. Plaintiff contends that BCBSTX "unilaterally sets an arbitrary amount that is unreasonably low and well below the usual and customary amount as a reimbursement benchmark for a covered service, and then applies the higher coinsurance rates and deductibles [applicable to out-of-network providers] to determine how much [BCBSTX] will pay." (Id. (emphasis original).) In other words, Plaintiff accuses BCBSTX of using heavily deflated fees for out-of-network services in calculating its payment obligations under PPO plans like hers. This alleged practice reduces BCBSTX's payments to out-of-network providers, but leaves policyholders on the hook to those providers for the balance of the providers' claimed fees. As Plaintiff summarizes, "by manipulating the rates [BCBSTX] unilaterally assigns out-of-network benefits to far below not only the usual and customary rates, but even below the already discounted rates it pays in-network providers, [BCBSTX] deprives consumers [of] any meaningful option to seek basic level care outside of [BCBSTX's] designated preferred network." (Id.)

In her case, Plaintiff alleges that BCBSTX has failed to adequately reimburse her plastic surgeon for several procedures she underwent following a double mastectomy. (Id. ¶ 22.) After Plaintiff's in-network surgical oncologist conducted her double mastectomy, the oncologist referred Plaintiff to a reconstructive plastic surgeon who was not a BCBSTX network provider. (Id.) As the amended complaint elaborates:

Ms. Baird followed the advice of her surgeon and agreed to seek reconstructive surgical treatment from the nonpreferred plastic surgeon, for which a higher coinsurance rate and deductible applied. Ms. Baird was unaware, however, that Blue Cross would not base its portion of the covered procedures on the usual and customary amount billed by the plastic surgeon, which was, from an objective perspective, her reasonable expectation, but instead on Blue Cross's own hidden and insufficient amounts. (Id.) Thus, Plaintiff underwent multiple surgeries conducted over the course of several months by the out-of-network plastic surgeon. (Id. ¶ 23.)

When it came time to pay, however, Plaintiff charges that "[BCBSTX] severely discounted its reimbursements to her nonpreferred plastic surgeon, resulting in financially crippling 'balance bills,' which Ms. Baird now owes, and which should have been paid by Blue Cross." (Id.) Specifically, Plaintiff asserts that, of the $73,022.00 billed and submitted by her out-of-network plastic surgeon, BCBSTX has paid $1,177.69. (Id.)

Based on these allegations, the amended complaint enumerates four causes of action, all of which arise under Texas law. The first cause of action is for breach of Plaintiff's PPO contract with BCBSTX. Plaintiff cites to specific portions of her PPO contract in which the "Allowable Amount" is set for out-of-network services. The "Allowable Amount" is generally defined in the contract as the "maximum amount determined by [BCBSTX] to be eligible for consideration of payment for a particular service, supply or procedure." (Id. ¶ 36.) Specifically with respect to procedures, services, or supplies provided in Texas by out-of-network physicians, Plaintiff's initial contract set the Allowable Amount as follows:

The Allowable Amount shall be the lesser of the billed charge or the amount [BCBSTX] would have considered for payment for the same covered procedure, service or supply if performed or provided by a Physician . . . with similar experience and/or skill.

(Id.) This provision was in effect until December 2008, when BCBSTX amended Plaintiff's contract. (Id.) The comparable provision regarding out-of-network hospitals, physicians, and other providers in the amended contract states that:

The Allowable Amount will be the lesser of the Provider's billed charges or the BCBSTX non-contracting Allowable Amount. The non-contracting Allowable Amount is developed using BCBSTX Allowable Amount data for similar Network Providers at a service level identified by standard contracting identification methods. (Id.) The amended contract goes on to provide the following with respect to differences between the Allowable Amount and the out-of-network provider's billed charges:

The non-contracting [out-of-network] Allowable Amount does not equate to the Provider's billed charges and Participants receiving services from a non-contracting Provider will be responsible for the difference between the non-contracting Allowable Amount and the non-contracting Provider's billed charge, and this difference may be considerable. (Id.) Based on these and similar contractual provisions, Plaintiff accuses BCBSTX of "routinely reimburs[ing] out-of-network providers ...

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