Texas court overturns $10.2M verdict for out-of-network doctors

A Texas appellate court ruling left open the question of what constitutes “usual and customary rates” for non-network doctors and reversed $4.7 million judgment and a $5.5 million attorney fees award.

Molina Healthcare of Texas Inc., a health maintenance organization, appealed a final judgment from Harris County’s 113th District Court that favored two physicians networks—ACS Primary Care Physicians Southwest PC and Emergency Services of Texas PA.

The physicians groups sued for services rendered to patients at health care facilities in Houston and El Paso during the period January 2016 to August 2019. Providers billed Molina for about $19.4 million on over 13,000 claims.

Molina paid the providers $2.1 million. The providers alleged they suffered damages equal to the difference between the amounts Molina allowed “as payable,” and the lesser of the providers charges and the “usual and customary rate” in their geographic areas.

During a June 2021 jury trial, expert testimony from the providers’ affiliated company TeamHealth asserted they used a national database to set billed charges.

TeamHealth’s representative testified they tried to negotiate a contract with Molina, proposing a reimbursement rate at 325% of Medicare rates, but Molina would not offer more than 130%. TeamHealth characterized the rate as “a fraction” of what similarly situated insurance companies agreed to pay and no contract was signed.

While this case was on appeal, the issue of out-of-network rates was percolating in various cases statewide. Federal district courts in Texas had reached conflicting decisions, and the Dallas Court of Appeals took on the issue in a separate case involving the Molina HMO.

The Dallas Court of Appeals concluded the Texas Insurance Code did not create a private right of action in favor of non-network physicians or providers.

“The Texas Supreme Court granted review of the Dallas Court’s decision and consolidated the appeal with the certified question from the U.S. Court of Appeals for the Fifth Circuit in ACS Primary Care Physicians Southwest, P.A. v. UnitedHealthcare Insurance Co.,” the First District Court of Appeals noted in its opinion.

The Texas Supreme Court affirmed the Dallas Court of Appeals, holding the Insurance Code does not clearly imply a private cause of action for damages. Therefore, doctors could not maintain their claim against Molina.

Justice April L. Farris, writing for the First District, said three of the jury’s findings on claims raised by the physicians were set aside by the Supreme Court’s ruling.

“Molina and the providers agree that the providers’ only cause of action that potentially survives … is the providers’ claim for breach of an implied-in-fact contract,” Farris said.

Molina is represented by Razvan Ungureanu of Smyser Kaplan & Veselka, and by David M. Gunn and Erin H. Huber of Beck Redden, both out of Houston.

The physicians are represented by Nina Cortell, Christopher R. Knight, Alicia Pitts and Mark Trachtenberg from the Dallas and Houston offices of Haynes and Boone.

“We are disappointed that the Texas courts require providers to pursue patients directly when their insurance companies underpay claims for emergency care,” Trachtenberg said. “Fortunately, due to action by the Texas legislature and Congress, today, we are able to obtain fair payment for emergency care directly from insurance companies through independent dispute resolution processes.”

Molina argued there is no implied contract where the reimbursement rates are disputed, and the jury saw no evidence of a meeting of the minds on a reimbursement rate or a breach of implied contract.

The physicians admitted a meeting of the minds is needed to form a binding contract, but claimed a specific dollar amount is not required for a contract to be enforceable.

The court of appeals disagreed with the physicians, emphasizing the reimbursement rate “is an essential term of a contract between an emergency care provider and a health insurance company.”

Read more: High claims push Voya 2025 medical stop-loss rates higher

The physicians also argued their implied agreement is enforceable because Molina’s payment is determined by the Insurance Code’s requirement that services by non-network physicians and providers be at the “usual and customary rate or at an agreed rate.”

Farris pushed back, arguing a statutory obligation does not transform the obligation into the basis for an implied contract claim.

“Holding otherwise—and concluding that the respective statutory obligations of the parties suffice to establish a ‘meeting of the minds’ that can support a cause of action for breach of an implied contract—would mean that every HMO operating in Texas has an implied contract with every out-of-network provider that renders emergency care to the insurance company’s insureds in Texas,” Farris said.