Select Specialty Hospital - Sioux Falls, Inc. v. Brentwood Hutterian, Brethren, Inc., et al

UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
SOUTHERN DIVISION
SELECT SPECIALTY HOSPITAL -
SIOUX FALLS, INC., a Missouri
business corporation,
Plaintiff,
vs.
BRENTWOOD HUTTERIAN,
BRETHREN, INC., a South Dakota non-
profit corporation; and HUTTERIAN
BRETHREN GENERAL MEDICAL
FUND, a South Dakota non-profit
corporation;
Defendants.
4:19-CV-04171-KES
ORDER GRANTING DEFENDANTS’
MOTION FOR SUMMARY JUDGMENT
Plaintiff, Select Specialty Hospital – Sioux Falls, Inc., seeks declaratory
relief against defendants, Brentwood Hutterian Brethren, Inc. (Brentwood) and
the Hutterian Brethren General Medical Fund (the Fund).1 Docket 25.
Brentwood and the Fund move for summary judgment. Docket 73. Select
Specialty opposes the motion. Docket 81. For the following reasons, the court
grants the motion for summary judgment.
1 Select Specialty brought several other claims against these defendants and a
third defendant, South Dakota Medical Holding Company, Inc. (Dakotacare).
Docket 25. The court previously granted Dakotacare’s motion for summary
judgment on all claims against it, and it granted Brentwood and the Fund’s
motion for summary judgment on all claims except the claim for declaratory
relief. Docket 68.
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FACTUAL BACKGROUND
A full factual background is recounted in the court’s order on the
previous motions for summary judgment. Docket 68. The following is a
summary of the facts bearing on the claim for declaratory relief, viewed in the
light most favorable to Select Specialty as the non-moving party.
This dispute arises out of treatment Select Specialty provided to Mary, a
member of the Brentwood Hutterite Colony, between March and December
2018. Docket 56 ¶¶ 1, 31-32. The Fund is a consortium of Hutterite Colonies,
including Brentwood, that established a self-funded Hutterian Brethren
General Medical Plan to provide medical coverage to Hutterite Colony members.
Id. ¶¶ 1-2. At all times that Select Specialty provided care to Mary, she was
covered by the Plan. Id. ¶ 30.
Mary’s medical team determined that she would need to be transferred to
another facility for continued rehabilitation. Id. ¶ 38. One such facility was
located at Avera Prince of Peace, but that facility only served patients eligible
for South Dakota Medicaid. See Docket 63-4 at 2. Jared Wollman, Brentwood’s
Secretary/Treasurer and a director of the Fund, worked with Mary’s family to
apply for Medicaid. Docket 53 ¶ 10; see Docket 60 ¶ 29; Docket 56 ¶¶ 51-52.
Mary was approved for Supplemental Security Income (SSI) benefits effective
May 1, 2018. Docket 47-6 at 1. This made Mary automatically eligible for
Medicaid. Id. Mary was also eligible for retroactive Medicaid, meaning her
Medicaid coverage was effective March 1, 2018. Docket 56 ¶ 69. Wollman
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retroactively terminated Mary’s coverage under the Plan to coincide with the
effective date of her Medicaid coverage. Docket 48-6 at 1.
Select Specialty sought retroactive authorization from Medicaid for all of
Mary’s care, which Medicaid approved. Docket 37-25 at 1, 3. The total charges
incurred for Mary’s treatment were $1,979,378.40. Docket 56 ¶ 36. Select
Specialty accepted payment from Medicaid in an amount substantially less
than the total charges and less than the amount it claims it was entitled to
under the terms of the Plan. Id. ¶¶ 37, 109.
LEGAL STANDARD
Summary judgment is appropriate if the movant “shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment
as a matter of law.” Fed. R. Civ. P. 56(a). The moving party can meet its burden
by presenting evidence that there is no dispute of material fact or that the
nonmoving party has not presented evidence to support an element of its case
on which it bears the ultimate burden of proof. Celotex Corp. v. Catrett, 477
U.S. 317, 322-23 (1986). The moving party must inform the court of the basis
for its motion and identify the portions of the record that show there is no
genuine issue in dispute. Hartnagel v. Norman, 953 F.2d 394, 395 (8th Cir.
1992) (citation omitted).
To avoid summary judgment, “[t]he nonmoving party may not ‘rest on
mere allegations or denials, but must demonstrate on the record the existence
of specific facts which create a genuine issue for trial.’ ” Mosley v. City of
Northwoods, 415 F.3d 908, 910 (8th Cir. 2005) (quoting Krenik v. Cnty. of Le
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Sueur, 47 F.3d 953, 957 (8th Cir. 1995)). Summary judgment is precluded if
there is a genuine dispute of fact that could affect the outcome of the case.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). When considering
a summary judgment motion, the court views the facts and the inferences
drawn from such facts “in the light most favorable to the party opposing the
motion.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587-
88 (1986) (quoting United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)).
“It is . . . well-settled that in a suit based on diversity of citizenship
jurisdiction the federal courts apply federal law as to matters of procedure but
the substantive law of the relevant state.” Hiatt v. Mazda Motor Corp., 75 F.3d
1252, 1255 (8th Cir. 1996). Here, South Dakota law governs substantive
issues.
DISCUSSION
I. 	Select Specialty’s Claim for Declaratory Relief
Select Specialty claims that Brentwood and the Fund “wrongfully
purported to terminate [Mary]’s insurance coverage” under the Plan, rendering
the termination “ineffective and invalid as a matter of law[.]” Docket 25 ¶¶ 91-
92. It also alleges that both Brentwood and the Fund owed Mary a fiduciary
duty and that they breached this duty “in placing the avoidance of paying for
care that the Plan legitimately owed and had preauthorized over and above
[Mary]’s best interests” when they terminated Mary’s coverage, and that the
defendants “knew [Mary] would receive higher quality care if she remained
covered under the Plan than” under Medicaid. Id. ¶¶ 88-90. Select Specialty
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asserts that, because Mary assigned her rights under the Plan to Select
Specialty, it has standing to contest her termination and recover benefits due
under the Plan and to have the Plan compensate it for the treatment it provided
to Mary. Id. ¶¶ 86-87, 93. It thus seeks a declaratory judgment that (1) it has
standing to assert Mary’s rights under the Plan; (2) Mary’s termination from the
Plan was unlawful and thus ineffective; and (3) Select Specialty “is entitled to
require the Plan [to] pay out benefits in accordance with its terms for services
that were preauthorized.” Id. at 13.
A. Application of 42 C.F.R. § 447.15
Defendants argue that this claim, like Select Specialty’s breach of
contract, unjust enrichment, and quantum meruit claims, is barred by a
federal Medicaid regulation, 42 C.F.R. § 447.15. Docket 77 at 11. This
regulation requires that participating “providers . . . accept, as payment in full,
the amounts paid by [Medicaid] plus any deductible, coinsurance or copayment
required by [Medicaid] to be paid by the individual.” This means that a provider
cannot accept payment from Medicaid for services it provides to a Medicaid
patient, and then seek additional payment for those same services from either
the patient or a third party. See Robinett v. Shelby Cnty. Healthcare Corp., 895
F.3d 582, 587 (8th Cir. 2018) (“Unless and until a medical services
provider . . . accept[s] payment from Medicaid, the provider is free to attempt to
recover from the patient or a liable third party.”).
The court previously held that some of Select Specialty’s other claims
were barred because each sought “payment for the services it provided to Mary
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and for which it accepted Medicaid payment.” Docket 68 at 14. According to
defendants, the claim for declaratory relief is similarly barred because the only
damages Select Specialty seeks in its claim for declaratory relief is “payment
from the Plan for the Covered Services” that were provided to Mary, which it
cannot seek from a third party after accepting Medicaid. Docket 25 ¶ 94;
Docket 77 at 9-10.
If the court granted a declaratory judgment that Select Specialty has
standing to assert Mary’s rights under the plan, however, then Select Specialty
would be stepping into the shoes of Mary, and the court would analyze Select
Specialty’s claim as if Mary were making that claim herself. And 42 C.F.R.
§ 447.15’s prohibition on seeking additional payment applies only to providers.
Nothing in this regulation bars the patient from seeking payment from a third-
party. It may be that payment at the contracted rate for the services Select
Specialty provided to Mary is not available or the correct measure of damages
Mary could seek from defendants, but that does not mean that 42 C.F.R.
§ 447.15 bars the claim for declaratory relief at its outset.
B. The Nature of Relief Sought by Select Specialty
Select Specialty claims it is seeking declaratory relief, but the court
“must look beyond the facial allegations of the complaint to determine the true
nature of this suit.” Sellers v. Brown, 633 F.2d 106, 108 (8th Cir. 1980)
(affirming dismissal because the fact “[t]hat the complaint [was] cast in terms of
declaratory judgment cannot alter the fact that what in substance is sought is
a money judgment . . . .” (citation omitted)); Weinreb v. Hosp. for Joint Diseases
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Orthopaedic Inst., 285 F. Supp. 2d 382, 388 (S.D.N.Y. 2003) (“Although Count
3 purports merely to request an injunction directing the Hospital to enroll [the
plaintiff] nunc pro tunc in the Plan, . . . this is a thinly disguised attempt to
recover the money that [plaintiff’s] estate . . . would have been paid had he
completed the Enrollment Form.”).
In its Amended Complaint, Select Specialty repeatedly claims that under
the purported assignment, it is entitled to payment from the Plan for the
services it provided to Mary. Docket 25 ¶ 93 (“Pursuant to the terms of the
assignment, [Select Specialty] is entitled . . . to have the Plan compensate it for
the Covered Services that were preauthorized under the Plan.”); id. ¶ 94 (“[A]s
[Mary’s] assignee, [Select Specialty] is entitled to payment from the Plan for the
Covered Services that were preauthorized.”); id. at 13 (“Select [Specialty], as
assignee, is entitled to require the Plan pay out benefits in accordance with its
terms for services that were preauthorized.”). It repeats this claim in its brief,
stating that, “as Mary’s assignee, [it] is entitled to recover damages based on
what it would have and should have received, but for” Mary’s allegedly wrongful
termination from the Plan. Docket 81 at 2 (emphasis added).
But these claims for payment for the services it provided to Mary are
inconsistent with Select Specialty’s request for a declaratory judgment that it
has standing to assert Mary’s rights under the Plan. Assuming Mary validly
assigned her rights under the Plan to Select Specialty, then, as Select Specialty
notes, it “stands in the same shoes” as Mary. Docket 81 at 16 (quoting In re
Estate of Wurster, 409 N.W.2d 363, 366 (S.D. 1987) (Wuest, C.J., dissenting)).
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This means that Select Specialty can seek only those rights and benefits that
Mary had under the Plan. See Kobberman v. Oleson, 574 N.W.2d 633, 636 (S.D.
1998) (“By assigning a thing in action, of course, assignors grant no greater
rights than they possess.” (citing Gilbert v. United Nat’l Bank, 436 N.W.2d 23,
25 (S.D. 1989)). The amount of money Select Specialty would have received but
for the termination then is irrelevant. Select Specialty can only recover the
difference between the contracted rate and the Medicaid rate for the services it
provided if Mary had a right to recover that difference. Select Specialty does not
even attempt to locate a provision of the Plan that gives Mary this right, and
the court finds none. See generally Dockets 37-2, 49-1.
Select Specialty does allege that defendants “breached [their] fiduciary
duty” in wrongfully terminating Mary from the Plan and “in placing the
avoidance of paying for care that the Plan legitimately owed and had
preauthorized over and above [Mary]’s best interests.” Docket 25 ¶ 89. It also
alleges that defendants “knew that [Mary] would receive higher quality care if
she remained covered under the Plan than . . . under Medicaid [but]
nonetheless . . . relegated [Mary] to the lower-quality benefits in order to avoid
legitimate expenses for preauthorized procedures.” Id. ¶ 90.
On its face, a breach of fiduciary claim is of the kind that Select Specialty
could assert on Mary’s behalf, assuming she validly assigned her rights under
the Plan. “In order to recover on a claim for a breach of fiduciary duty, a
plaintiff must prove . . . that the defendant’s breach of [that] duty was a cause
of the plaintiff’s damages.” Grand State Prop., Inc. v. Woods, Fuller, Schultz, &
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Smith, P.C., 556 N.W.2d 84, 88 (S.D. 1996) (citing Graphic Directions, Inc. v.
Bush, 862 P.2d 1020, 1022 (Colo. App. 1993)). But Select Specialty does not
allege any harm or damages that Mary experienced because of her allegedly
wrongful termination or any other breach of fiduciary duty. In fact, Select
Specialty agrees with defendants that Mary has not been harmed by her
termination from the Plan. See Docket 83 ¶¶ 2, 8-9 (not disputing that Mary “is
doing well,” that she “has not been denied any necessary treatment since her
coverage under the Plan was terminated,” and that “[a]ll of Mary’s medical bills
since March 1, 2018, have been covered by Medicaid.”); see Docket 81 at 3
(“Select Specialty is not seeking a declaratory judgment stating that Mary has
been harmed based on the quality or scope of medical care provided to her
under Medicaid coverage.”). In fact, Select Specialty says that any harm to
Mary after leaving Select Specialty is irrelevant. See Docket 81 at 16 (“[A]ll of
the evidence submitted as to the course of care provided to Mary after she left
Select Specialty’s facilities is irrelevant to the analysis.”); id. at 4 (“Select
Specialty is not . . . contending that it stands in Mary’s shoes in arguing
collateral damages that resulted months or years after her wrongful
termination.”). Its argument that Mary has not suffered damages and that any
damages are irrelevant is inconsistent with its claim for a declaratory judgment
that it has standing to assert Mary’s rights under the Plan.
Because Select Specialty has not attempted to show that Mary is entitled
to payment from the Plan for services that Select Specialty provided or to show
that she has experienced any damages from being terminated from the Plan,
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the court finds that Select Specialty’s claim for declaratory relief is merely “a
thinly disguised attempt” to recover money damages from defendants. See
Weinreb, 285 F. Supp. 2d at 388. These damages—the difference between the
contracted rate for the services that Select Specialty provided to Mary and the
amount it was paid by Medicaid—are the same damages it sought in the claims
that this court held were barred by 42 C.F.R. § 447.15. See Docket 68 at 14
(denying Select Specialty’s breach of contract, unjust enrichment, and
quantum meruit claims because although the theories of recovery differed, “at
the heart of each is that Select Specialty is seeking payment for the services it
provided to Mary and for which it has accepted Medicaid payment.”). Though
styled as a claim for declaratory relief, the substance of this claim and Select
Specialty’s arguments in support of it demonstrate that it is no different from
the claims on which the court has already granted summary judgment.2 Thus,
2 In addition to requesting payment for the services it provided to Mary, Select
Specialty’s claim for declaratory relief includes a request for declaratory
judgment that it “has standing to assert [Mary’s] rights under the Plan and to
contest the purported termination of her coverage under the Plan[,]” and that
“the purported termination of [Mary’s] coverage is contrary to law and
otherwise void and ineffective[.]” Docket 25 at 13. Although a claim for
declaratory relief contemplates that an injury may not yet have occurred, for a
claim to be justiciable there must still be “a dispute or controversy as to legal
rights . . . which, in the court’s opinion, requires judicial determination—that
is, in which the court is convinced that by adjudication a useful purpose will be
served.” See Danforth v. City of Yankton, 25 N.W.2d 50, 53 (S.D. 1946).
Select Specialty claims that “[a]n award of declaratory relief finding that her
termination was wrongful . . . would insulate [Mary] from any allegation that
she defrauded Medicaid by failing to correct the objectively false information
that she lacked any source of private insurance in the SSI application.” Docket
81 at 17. But Select Specialty fails to explain how. It is possible that the
termination was wrongful and that Mary or someone acting on her behalf
provided false information on her benefits application. Select Specialty also
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the court grants defendants’ motion for summary judgment on Select
Specialty’s claim for declaratory relief.
CONCLUSION
Because the court finds that Mary did not have a right to the money
damages Select Specialty is seeking and because Select Specialty has failed to
show that Mary was harmed by her termination from the Plan, it is
ORDERED that defendants’ motion for summary judgment (Docket 73) is
granted.
Dated September 14, 2022.
BY THE COURT:
/s/ Karen E. Schreier
KAREN E. SCHREIER
UNITED STATES DISTRICT JUDGE
implies that a ruling that the termination was wrongful would allow Mary’s
coverage under the Plan to be reinstated. See id. at 18; Docket 25 ¶ 92. But
Select Specialty has not put forward any evidence that Mary wants her Plan
coverage to be reinstated. See Docket 83 ¶¶ 2, 8-9. And it does not allege that
Mary assigned Select Specialty the right to make such decisions on her behalf.
Thus, the court concludes that a ruling on these requests for a declaratory
judgment would not serve a useful purpose, and the court will not rule on
these specific requests. See Danforth, 25 N.W.2d at 53.
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