D.S.C.: Veteran may enforce no-billing rights under TRICARE

South Carolina's federal district court permitted a veteran's estate to sue a nursing facility for billing him for care not covered by the veterans' civilian health plan.

This practices is prohibited by a federal regulation under the TRICARE health program. The court held that although a federal regulation did not create a private right of action, and the facility's contract with TRICARE did not create third-party rights, the estate could nevertheless sue for violation of the the implied covenant of good faith in the facility's contract wit the resident. The court expressly distinguished a case in which contract claims against a Medicare provider were held preempted. Greene v. Life Care Ctrs. of Amer., 2008 WL 5378259 (D.S.C. Dec. 23, 2008) (No. 2:07-cv-1648).

TRICARE, similar to Medicare and Medicaid, is a federally funded health program that covers veterans. This case appears to stand for the proposition that state law claims may be used to enforce federal regulations against providers under a federal health program, at least where (a) the beneficiary had a contract with the provider, and (b) the provider made misrepresentations or was otherwise dishonest toward the beneficiary.

Mr. Greene received care at Life Care's skilled nursing facility. When his Medicare coverage ran out, Life Care submitted claims to TRICARE program, which covered Greene based on his veteran status. TRICARE excluded the claim on the basis that the services were not medically necessary. Life Care then billed Greene, discharged him for failure to pay, and ultimately made a claim on his estate.

A TRICARE regulation forbids participating providers from billing recipients for care excluded on this basis. 32 C.F.R. § 199.15(b)(2)k. The estate claimed that billing in violation of this regulation violated the implied covenant of good faith and fair dealing in Life Care's contract with Greene. Seeking summary judgment, Life Care argued that because it had a provider agreement but not a full participation agreement with TRICARE, it was not covered by the regulation. The court rejected this argument, holding that any provider submitting claims to TRICARE was covered by the regulation.

The court agreed with Life Care that the regulation did not create a private right of action, pursuant to Alexander v. Sandoval, 532 U.S. 275 (2001). Additionally, the court said that state law claims would be preempted if they were a "mere pretext" for enforcing federal regulations that created no private right of action.

Critically, however, the court said that state law claims are permissible so long as they contain "an extra element" that makes them "materially distinct" from an attempt to enforce federal regulations. The court held that an "extra element" was present here, because the basis of the claim was Greene's contract with Life Care (which under state law contained an implied covenant of good faith) and Life Care's knowing and dishonest improper billing.

The court expressly distinguished Wogan v. Kunze, 623 S.E.2d 107 (S.C.App.2005), which rejected third-party beneficiaries claims against medical providers based on their Medicare provider agreements. The Wogan court held that the Medicare provider agreement did not create third-party beneficiary rights. The district court agreed that the TRICARE provider agreement here, like the Medicare agreement in Wogan, did not create third-party beneficiary rights. However, in this case plaintiff also asserted a claim based on Greene's own contract with Life Care. Moreover, Wogan involved a physician's good-faith decision not to submit Medicare claims; by contrast, Greene'e estate claimed that Life Care knowingly and dishonestly billed Greene in violation of federal law.

For similar reasons, the court denied Life's Care summary judgment motion with regard to the fraud and negligent misrepresentation claims. The court held that Life Care's bill constituted a false representation that Greene was legally obligated to pay the stated sum. The court pointedly rejected Life Care's argument that Greene did not reasonably rely on the bill, saying that if patients were not entitled to rely on such statements by medical providers, "[t]he trust between doctors and patients would be completely eroded."