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BHM Healthcare Solutions, Inc. v. URAC, Inc.

United States District Court, District of Columbia

July 20, 2018

BHM HEALTHCARE SOLUTIONS, INC., Plaintiff,
v.
URAC, INC., Defendant.

          MEMORANDUM OPINION

          TREVOR N. MCFADDEN, U.S.D.J.

         BHM 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.[1] 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.

         I. BACKGROUND

         A. BHM and Its Accreditations from URAC

         BHM, a 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.

         BHM has 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.

         In 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 Contract control.

         In July 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.

         B. URAC's Revocation of BHM's Accreditation

         In 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. ¶¶ 58-59.

         The 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 reasons:[2]

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 development.
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 Injunction.

         As for 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.

         As for 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.

         For 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.

         Last, 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.

         URAC's 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.

         C. ...


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