Sanus/New York Life Health Plan, Inc. v. Dube-Seybold-Sutherland Management, Inc.

837 S.W.2d 191, 1992 Tex. App. LEXIS 1956, 1992 WL 173619
CourtCourt of Appeals of Texas
DecidedJuly 23, 1992
Docket01-91-00282-CV
StatusPublished
Cited by15 cases

This text of 837 S.W.2d 191 (Sanus/New York Life Health Plan, Inc. v. Dube-Seybold-Sutherland Management, Inc.) is published on Counsel Stack Legal Research, covering Court of Appeals of Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Sanus/New York Life Health Plan, Inc. v. Dube-Seybold-Sutherland Management, Inc., 837 S.W.2d 191, 1992 Tex. App. LEXIS 1956, 1992 WL 173619 (Tex. Ct. App. 1992).

Opinion

*193 OPINION

DUGGAN, Justice.

This is a suit involving a health maintenance organization’s failure to pay fees claimed by a dental care provider under a contract. 1 .

The Parties.

Maxicare, Texas (“Maxicare”) was an HMO offering group health care plans to Texas employers. Appellant, Sanus/New York Life Health, Inc. (“Sanus”), purchased Maxicare November 1, 1988. Dube-Seybold-Sutherland Management, Inc. (“DSS Management” or “DSS”) is a professional dental corporation through which Doctors Kayron Dube, Susan Sey-bold, and Charles Sutherland practiced dentistry from 1985 through 1989. DSS Management and Dube-Seybold-Sutherland Leasing (“DSS Leasing”), a Texas general partnership, are appellees and cross-appellants. Dube-Seybold-Sutherland Service (“DSS Service”), a related corporation, received an assignment of one of DSS Management’s contract claims against Maxi-care. That claim was resolved by separate suit, and DSS Service is not a party here. The Contract.

On June 10, 1985, DSS entered into a contract with Maxicare denominated “Dental Provider Agreement for Private Programs.” Under the terms of the contract, which was prepared by Maxicare, DDS Management agreed to provide dental services to eligible HMO “members.” 2 (Dental coverage was not automatic for all Max-icare HMO members, but was available for an additional premium.) Maxicare contracted to (1) maintain eligibility lists that would enable DSS to identify members eligible for dental care, 3 (2) timely provide DSS with the names of all eligible members, and (3) pay DSS for its dental care services on a monthly basis. The monthly payment or “capitation fee” to be paid to DSS was to be calculated on an adjusted head count of HMO members assigned to DSS’s care. 4 DSS Management’s lawsuit was based on its contention that Maxicare did not pay it the capitation required by the contract for its participation in the HMO system.

Because they are virtually the only source of payment for services rendered, capitation payments are crucial to an HMO provider’s profitability. Typically, only approximately 10 percent of eligible members actually seek dental care and these patients pay either nothing or a small co-payment for treatment. 5 Therefore, to pay its fixed costs, that is, salaries and overhead, and make any profit, the provider must rely on the capitation payments, not only for the one of ten who seeks care but also for the *194 other nine who do not. In order to determine who was eligible for dental services and what amount of capitation was to be paid, DSS required accurate eligibility and capitation reports.

How the Maxicare system worked or failed to work.

An employee who enrolled in the Maxi-care plan first filled out an enrollment card, and, if eligible for dental care, selected a primary dental care provider. The employer then transmitted the membership information and premiums to Maxicare. Employees selecting DSS would be placed on DSS’s eligibility and capitation lists as eligible members. Changes in membership, such as the addition or termination of members, were also transmitted to Maxi-care by the employer.

Under the contract, a prospective patient would request a dental appointment with DSS. A DSS employee would check the patient’s eligibility by consulting a computerized database maintained by Kelsey-Seybold Clinic. 6 Kelsey-Seybold, in turn, obtained its information regarding eligibility from computer-generated data provided by Maxicare Health Systems, Inc. of California (“Maxicare California”). Maxicare California compiled the data from enrollment cards sent to it from Houston and forwarded the information to Kelsey-Sey-bold via computer tapes each week.

Because DSS had no independent means of verifying the information thus provided, it had to rely completely on Maxicare to determine eligible members and capitation payments. Without accurate information from Maxicare, DSS could not determine who to treat or how much capitation it was owed. More importantly, without accurate eligibility data, DSS would not even realize if it were being underpaid. This forced reliance on information exclusively in Maxi-care’s control, an imbalance of bargaining power, and the implicit trust in which that reliance was based, were the bases for DSS’s claim and the trial court’s finding that a special relationship existed between the entities. Based on the existence of this special relationship, the trial court found that Maxicare had a duty to provide DSS with accurate and timely eligibility and capitation data and owed DSS a duty of good faith and fair dealing.

At trial, Maxicare did not claim to have provided DSS with accurate or timely information. Instead, Maxicare took the position that the limitations of the system it used for maintaining the eligibility and capitation data necessarily resulted in inevitable time lags, of 30 days to six months, between effective dates of coverage, employers’ reporting of new applications and terminations, and Maxicare’s processing of the data. As a result of these “unavoidable time lags,” individuals would present themselves for treatment before their names appeared on the eligibility list and others would obtain treatment after their coverage had been terminated but before their names were removed from the list. Maxicare contended that DSS knew that the information was “very dynamic” and effectively accepted these limitations through the parties’ course of dealing.

DSS attributed the chaotic state of Maxi-care’s information systems to its extremely rapid national growth during the period 1982 to 1988, when it added 40 different providers nationwide. To manage the information, Maxicare turned to a subsidiary, HCS Computer, Inc., which devised a series of at least 18 data processing program “evolutions.” Although it was required by contract to provide DSS with accurate monthly eligibility lists, as a result of continual, haphazard changes in the computer programs, Maxicare never provided DSS with up-to-date eligibility information.

In an effort to deal with the confusion created by the time lags, Maxicare began a practice of “retro-additions” and “retro-deletions.” Under this system, when an unlisted person claiming eligibility presented for treatment, Maxicare issued that person a temporary eligibility number. Once the temporary number was assigned, DSS was authorized and obligated to treat the individual. Maxicare was supposed to pay cap- *195 titation for that individual retroactive to the date of his or her original enrollment.

According to DSS, Maxicare represented that it was keeping track of these “unlisted members” for payment of the capitation. However, Maxicare took the position that the temporary numbers were only necessary to give assurance to DSS that the person involved was eligible for treatment. Maxicare did not use the temporary numbers to see that new members got on the eligibility list.

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Bluebook (online)
837 S.W.2d 191, 1992 Tex. App. LEXIS 1956, 1992 WL 173619, Counsel Stack Legal Research, https://law.counselstack.com/opinion/sanusnew-york-life-health-plan-inc-v-dube-seybold-sutherland-texapp-1992.