United States District Court, District of Columbia
N. MCFADDEN, U.S.D.J.
Healthcare Solutions, Inc. (“BHM”), a medical
review service provider, seeks a preliminary injunction
against URAC, Inc.'s (“URAC”) revocation of
its accreditation as an independent review organization. Am.
Compl. 1, ECF No. 15. BHM argues that URAC applied its review
standards arbitrarily and capriciously, violated BHM's
common law due process rights and breached the implied
covenant of good faith and fair dealing, and that without an
injunction, its business will suffer significant loss.
Id. ¶¶ 169-93. URAC asserts, among other
defenses, that the parties' contract prohibits BHM from
bringing this action, and therefore seeks dismissal of the
case. Opp. to Pl.'s Mot. for Prelim. Inj. (“Opp. to
Mot. for Prelim. Inj.”) 16, ECF No. 14; Mot. to Dismiss
12-16, ECF No. 17. The Court finds that the exculpatory
clause in the parties' contract precludes this action and
that the clause is not unconscionable. BHM's Motion for a
Preliminary Injunction will be denied and URAC's Motion
to Dismiss will be granted.
BHM and Its Accreditations from URAC
for-profit corporation headquartered in Florida, provides
medical review services to health insurance plans, healthcare
systems, and related administrators and management
organizations. Am. Compl. ¶ 2. Most of its business,
which reached $6.3 million in revenues in 2017, is based on
services provided as an independent review organization
(“IRO”) assessing whether medical services are
medically necessary and eligible for coverage. Id.
BHM's IRO services are divided between
“internal” reviews where a BHM peer reviewer
determines in the first instance either to approve medical
treatment or deny or reduce coverage (an “adverse
benefit determination”), and “external”
reviews where a BHM peer reviewer reviews an adverse benefit
determination made by another IRO and either upholds or
overturns it. Id. ¶¶ 10, 12, 17-21. URAC
is a non-profit entity headquartered in the District of
Columbia; it evaluates and accredits organizations that
provide IRO services. Id. ¶ 3.
provided IRO services since 2002, but first became
URAC-accredited in August 2012 after increasing client demand
for this accreditation. Supp. Decl. of Brian Johnson
(“Supp. Johnson Decl.”) ¶¶ 9, 25, ECF
No. 15-1. During oral argument, BHM attributed much of this
sea change to the Patient Protection and Affordable Care Act
(“ACA”) and revisions to the Code of Federal
Regulations requiring third party reviews to be conducted by
“an IRO that is accredited by URAC or by [a] similar
nationally-recognized accrediting organization.” 45 CFR
§ 147.136(d)(2)(iii) (2016); TRO Hr'g Tr. 17, May
21, 2018. The initial accreditation lasted for a term of
three years. See Am. Compl. ¶ 39.
September 2014, BHM and URAC entered an Accreditation
Application Agreement (the “Contract”) for
another three-year accreditation. Id.; id.
Ex. 1 Attach. 3 (“2014 Contract”), ECF No. 15-4.
As part of its accreditation process, URAC conducted an
onsite validation review and evaluated BHM's policies,
procedures, and internal systems against URAC's standards
(the “Core Requirements”). Am. Compl. ¶ 35.
Having successfully met the Core Requirements, BHM received
another three-year accreditation from August 2015 to August
2018. Id. ¶¶ 35, 39. As this is the
revoked accreditation at issue, the provisions of this
2017, before the August 2015 accreditation expired, BHM
applied for re-accreditation. Id. ¶ 41.
BHM's desktop review was successful and URAC found BHM to
be in full compliance with all “Mandatory Standard
Elements.” Id. ¶ 42; Id. Ex. 1
Attach. 5, ECF No. 15-6. In late May 2018, after this action
began, URAC wrote to BHM that it “looks forward to
moving ahead with you into the next phase of the
accreditation process.” Id. Attach. 6, ECF No.
15-7. On July 13, 2018, BHM's application was approved,
and BHM will be “fully accredited by URAC effective
August 1, 2018.” Def.'s Supp. Mem. Regarding
Pl.'s Mot. for Prelim. Inj., ECF No. 20. Nonetheless, the
company still seeks relief because of the reputational harm
from the prior revocation's “lasting
effects.” See Am. Compl. ¶ 175.
URAC's Revocation of BHM's Accreditation
August 2017, URAC informed BHM that it received a grievance
reporting “[c]oncerns about the quality of services,
edits of clinical determinations on reviews completed by peer
reviewers.” Id. Attach. 7, ECF No. 15-8. URAC
requested documentation from BHM relating to Core
Requirements 17 (Performance Monitoring) and 18 (Summary
Reports). Id. URAC notified BHM that after reviewing
the information requested, it could conduct, among other
remedial measures, a “for cause” onsite review
“[s]hould further steps become necessary to complete
this investigation.” Id. URAC did perform an
onsite review in late November 2017, led by Dr. Karen Watts.
Am. Compl. ¶ 49. Dr. Watts and her team interviewed only
non- leadership BHM staff members, except for Dr. Jennifer
Jackson-Wohl, BHM's Medical Director for Behavioral
Health, who resigned from BHM shortly afterwards.
Id. ¶¶ 54, 149. BHM complains that URAC
did not conduct an entrance or exit conference contrary to
previous practices, nor permitted senior leadership to be
present during the interviews. Id. ¶¶
51-55. BHM also had no opportunity to review or discuss Dr.
Watts' findings while she was onsite or anytime later
until January 9, 2018, when URAC informed BHM that it was
revoking BHM's accreditation. Id. ¶¶
following day, URAC provided BHM with a “Scoring
Summary Report” listing each Mandatory Standard Element
and URAC's determination whether or not it was met.
Id. Ex. 1 Attachs. 10-11. Over the next few weeks,
BHM sought clarification and documentation from URAC about
its decision and rationale, id. ¶ 75, resulting
in Dr. Watts sending a three-page document to BHM briefly
explaining the findings of non-compliance. Id. Ex. 1
Attach. 12. The document explained that BHM was non-compliant
with the following Core Requirements for these
• Core Requirement 4(b) (“ensures
the organization's compliance with applicable laws and
regulations”) - BHM failed to file the annual report
necessary for incorporation in Florida. The report was due
between January 1 and May 1, 2017 and BHM's corporation
status was dissolved due to the failure to file the report.
BHM paid a penalty and was reinstated on September 26, 2017.
• Core Requirement 13(a)
(“provides for data integrity”) - BHM
“could not provide system demonstration or policy or
procedure that support Reviewer decisions were not being
changed.” Contrary to BHM's policy that stated that
“once the independent review is complete, a record can
only be changed or edited by the system administrator
(President/CEO) following a strict protocol, ”
reviewers found that several individuals demonstrated that
they had access to the drop-down menu that permits changes to
a Peer Reviewer's decisions; others stated that changes
could be made with the Peer Reviewer's approval; and
interviewees apparently stated that the “strict
protocol” referenced in the policy was under
• Core Requirement 17(a)(ii)
(“The organization conducts a quality check and if a
review does not meet the organization's quality
standards, then each issue and its outcome are
documented”) - 30 files were randomly selected from a
report provided by BHM listing any file with changes after
completion (in URAC's view, “completion”
means after a Peer Reviewer makes a final clinical decision)
and only 27% of the files had documented issues and outcomes.
See also Am. Compl. ¶ 131.
• Core Requirement 32(b) (“is
responsible for oversight of clinical decision-making aspects
of the program”) - During the interview of the
BHM's senior clinical staff person, Dr. Jackson-Wohl, she
claimed to be unaware of her IRO roles and responsibilities.
Id. Ex. 1 Attach. 12. BHM submitted a 26-page
written response to the findings outlined in the document.
Id. ¶ 89; see also Id. Ex. 1 Attach. 8
(“BHM Appeal”), ECF No. 15-9. The arguments in
its internal appeal to URAC are largely the same as those in
its Amended Complaint and Motion for a Preliminary
Core Requirement 4(b), BHM explained that it relied on a
third-party agent to track deadlines and make the appropriate
filings and that, when the agent changed names and updated
its record in Florida, it inadvertently excluded the email
address for BHM's point of contact, leading to a missed
deadline for the annual filing. Id. at 7. Once BHM
discovered the issue, it corrected the error and received
reinstatement within hours. Id. BHM also argued that
URAC's own Accreditation Guide states that it “is
evaluating that the organization has a mechanism in place to
comply with regulatory requirements; URAC is not verifying
that the organization is in compliance with those
regulations.” Id. at 6. BHM now also argues
that Florida law treats corrected dissolutions as retroactive
to the effective date of the dissolution, as “if the
administrative dissolution had never occurred.” Mem. in
Support of Mot. for Prelim. Inj. (“Mot. for Prelim.
Inj.”) 11, ECF No. 13-1 (quoting Fla. Stat. §
607.1422(3)); see also Am. Compl. ¶¶
97-103. To BHM, it is irrational for URAC to hold it
accountable for this error when Florida itself does not.
See Mot. for Prelim. Inj. 11.
Core Requirement 13(a), BHM argued that URAC erred by not
speaking with its Chief Information Officer
(“CIO”), opting instead to speak with the
Compliance Officer and clinical specialists who are not
subject matter experts on data integrity and security. BHM
Appeal 9-10. BHM claimed that URAC's findings all derived
from a misunderstanding of BHM's systems and terminology,
which would have been avoided had URAC interviewed the CIO or
conducted an exit conference. Id. at 10-11. BHM now
also contends that its electronic record tracks any changes
made, and that the arbitrariness of URAC's decision is
underscored by the fact that URAC has identified no instance
in which a BHM employee made an improper change. Mot. for
Prelim. Inj. 14-15; see also Am. Compl. ¶ 118.
Core Requirement 17(a)(ii), BHM quarreled with URAC's
definition of “completion” as “when the
Peer Reviewer makes the final clinical decision and submits
the file to the Applicant” rather than “after a
quality check has been completed” and submitted to the
ultimate client. BHM Appeal 16; Mot. for Prelim. Inj. 11-12.
The difference matters, BHM says, because it means that the
case files URAC selected for review are not within the scope
of this Core Requirement. Id. at 11; Am. Compl.
¶¶ 129-30. Substantively, BHM argues that, for the
cases sampled where a quality check occurred, most of the
cases identified no issues and so required no follow-up. Mot.
for Prelim. Inj. at 12-13; see also BHM Appeal 17.
For the remaining cases sampled where a quality check was not
conducted, BHM explains that the cases were older and
completed under a then-existing protocol that did not require
documentation at all if no issue arose during the quality
check. Id. BHM points to URAC's guidance, which
accepts “‘documentation by exception'”
as standard industry practice. Id.; Mot. for Prelim.
Inj. 12; Am. Compl. ¶ 136.
for Core Requirement 32(b), BHM appealed because the Medical
Director interviewed left the company soon afterward,
suggesting that her answers were, at best, unreliable or, at
worst, intentionally false. BHM Appeal 12. BHM presented
evidence showing that the Medical Director was aware of her
oversight role of the clinical program, including timesheets,
copies of emails, a signed job description, and a transcript
of a training video. Id.; Mot. for Prelim. Inj. 15;
Am. Compl. ¶ 150. In its Amended Complaint and motion
for a preliminary injunction, BHM argues that another
individual, Dr. Daniel Harrop, also served as a behavioral
health clinical staff person and was also capable of
overseeing behavioral health, meeting the requirement that
“URAC will verify that there is a senior clinical staff
person, other clinicians, or a combination of the two
available to cover the clinical areas”). Id.
¶ 152; Mot. for Prelim. Inj. 16.
Executive Committee reviewed BHM's appeal and upheld the
findings of non-compliance with these four Core Requirements.
Am. Compl. ¶¶ 156, 159. The Executive Committee
overturned three other findings of non-compliance, but it
found that the upheld findings were enough to sustain the
revocation of BHM's accreditation. Id.
¶¶ 156, 158.