Variety Children's Hospital, Inc. v. Century Medical Health Plan, Inc.

United States Court of Appeals,

Eleventh Circuit.

No. 94-4553.

VARIETY CHILDREN'S HOSPITAL, INC., a Non-profit Organization
d/b/a Miami Children's Hospital, Plaintiff-Appellant,

v.

CENTURY MEDICAL HEALTH PLAN, INC., a Domestic Health Maintenance
Organization, Defendant-Appellee,

Wigberto Rios, an Individual, Patrica Rios, an Individual, as
Parents and Natural Guardians of the Minor Child, Juan Carlos Rios,
Deceased, Defendants.

July 12, 1995.

Appeal from the United States District Court for the Southern
District of Florida. (No. 93-718-CIV, K. Michael Moore, Judge.

Before COX, Circuit Judge, HILL and GARZA*, Senior Circuit Judges.

HILL, Senior Circuit Judge:

Variety Children's Hospital, Inc. ("Variety") brought a four

count complaint against Century Medical Health Plan, Inc., a

Domestic Health Maintenance Organization ("Century") seeking

recovery of the cost of medical services provided to a patient.

Count I alleges a violation of the Employee Retirement Income

Security Act, 29 U.S.C. §§ 1001-1461 ("ERISA"); Counts II and III

allege fraud, misrepresentation, and unfair claim settlement

practices all in violation of Florida statutes regulating health

maintenance organizations; and Count IV alleges a claim of

promissory estoppel. Upon motion by Century, the district court

dismissed Count I without prejudice subject to Variety's exhaustion

of its administrative remedies. Counts II, III and IV were

*
Honorable Reynaldo G. Garza, Senior U.S. Circuit Judge for
the Fifth Circuit, sitting by designation.
dismissed with prejudice as preempted by ERISA. For the following

reasons, we agree.

I. BACKGROUND

Juan Carlos Rios, a minor, suffered from acute lymphoblastic

leukemia. Over a period of two and one half years, he was admitted

to Variety Children's Hospital 20 times, including his final

admission on December 3, 1992. Rios was a member/subscriber of a

health maintenance organization plan issued by Century. Each time

he was admitted to Variety, Century certified him for treatment.

With the exception of his last admission, Century paid Variety in

full for the child's treatment.

On his final admission, Century certified Juan Carlos for

treatment. Thereafter, doctors at Variety decided to treat Juan

Carlos by bone marrow transplant and initiated high dosages of

precursor chemotherapy. Century determined that this treatment was

"experimental" and not covered by the policy. Century informed

Variety of this determination and de-certified Juan Carlos for this

treatment. Nevertheless, Variety continued the treatment. Despite

the aggressive treatment, Juan Carlos died. After Century denied

coverage, Variety obtained an assignment of the claims of Mr. and

Mrs. Rios and sued Century in a four count complaint.

II. ANALYSIS

A. Count I

Count I is a straight-forward claim under ERISA for the

benefits under the plan. Variety, however, neither pleaded nor

recited facts showing that it had exhausted its administrative
remedies under the plan.1

We have repeatedly held that plaintiffs must exhaust their

administrative remedies under a covered benefits plan prior to

bringing an ERISA claim in federal court. Byrd v. MacPapers, Inc.,

961 F.2d 157, 160-61 (11th Cir.1992); Springer v. Wal-Mart

Associates' Group Health Plan, 908 F.2d 897, 899 (11th Cir.1990);

Mason v. Continental Group, Inc., 763 F.2d 1219, 1227 (11th

Cir.1985), cert. denied, 474 U.S. 1087, 106 S.Ct. 863, 88 L.Ed.2d

902 (1986).2 The district court's dismissal of Count I without

prejudice subject to Variety's exhaustion of its administrative

remedies was not error.

B. Counts II and III

Counts II and III allege fraud, misrepresentation and unfair

claim settlement practices in violation of Florida state laws

regulating health maintenance organizations. Century maintains

that these claims are preempted by the ERISA claim in Count I.

The preemption provision of ERISA provides that it "shall

supersede any and all state laws insofar as they may now or

hereafter relate to any employment plan" covered by ERISA. 29

U.S.C. § 1144(a) (1988). A state law "relates to" a covered

1
The procedure for grievances and arbitration of grievances
is set out on page 33 of the health plan which is attached to
Variety's Amended Complaint as Exhibit A.
2
We agree with the district court that Variety's attempt to
circumvent this requirement by alleging in its Corrected Amended
Complaint that it had complied with "all conditions precedent" or
in the alternative that "such conditions have been waived or
excused" does not address the exhaustion requirement.
Furthermore, Variety also failed to plead that exhaustion is
waived because it would be futile. See Curry v. Contract
Fabricators, Inc. Profit Sharing Plan, 891 F.2d 842, 846 (11th
Cir.1990).
employee benefit plan "if it has a connection with or reference to

such a plan." District of Columbia v. Greater Washington Bd. of

Trade, --- U.S. ----, ----, 113 S.Ct. 580, 583, 121 L.Ed.2d 513

(1992).

All of the claims alleged in Counts II and III center on the

issue of coverage under the plan. If the treatment given the child

is determined to be "experimental," the plan specifically excludes

coverage. If the treatment was not experimental, the plan will

cover it. The issue of coverage under the policy remains to be

resolved in this case.

We agree with the Fifth Circuit's analysis in Hermann Hosp.

v. MEBA Medical and Benefits Plan, 959 F.2d 569, 578 (5th

Cir.1992), that where state law claims of fraud and

misrepresentation are based upon the failure of a covered plan to

pay benefits, the state law claims have a nexus with the ERISA plan

and its benefits system. Therefore, Counts II and III were

correctly dismissed as preempted.3

C. Count IV

Variety's promissory estoppel claim is based upon the initial

certification of the child for treatment and the subsequent

de-certification once the high-dosage chemotherapy protocol was

begun. Variety alleges that it relied upon Century's initial

promise to pay for the child's treatment and suffered detriment

3
We reject the argument that these claims are saved from
preemption because ERISA does not preempt state insurance
statutes. See 29 U.S.C. § 1144(b)(2)(A). We have held that this
exception to preemption does not apply to the statutes regulating
health maintenance organizations which are not considered to be
insurance companies under Florida law. O'Reilly v. Ceuleers, 912
F.2d 1383, 1389 (11th Cir.1990).
from Century's subsequent failure to pay.

The problem with this claim, however, is that Variety cannot

have reasonably relied on the initial certification because Century

subsequently de-certified the child for the allegedly experimental

treatment. Variety proceeded with the treatment not in reliance

upon a promise to pay, but in the face of actual knowledge that

there was no promise to pay.

Variety could have relied on the promise to pay embodied in

the initial certification only if Century somehow either explicitly

or implicitly promised to waive the "experimental" exclusion, or if

Century never withdrew its initial certification. As to the issue

of waiver, there was no allegation that Century had in any way

explicitly promised that it would waive that exclusion for this

patient. Furthermore, the patient in this case was admitted to

Variety 20 times. In his last admission, Variety determined that

he was a candidate for autologous bone marrow transplantation and

started him on the regimen of precursor chemotherapy. During his

previous 19 admissions, he had never been selected as such a

candidate, nor provided the specific treatment which Century seeks

to exclude. Therefore, the previous course of dealings between

these parties carried no implicit promise of waiver.

Finally, it is uncontested that Century notified Variety in a

timely and responsible manner that it had determined that the

protocol was experimental and the treatment was de-certified for

payment.4 It certainly cannot be the case that every initial

4
Century notified Variety subsequent to the initiation of
the treatment, but prior to its conclusion.
certification for treatment obligates the plan to pay for any

treatment that may subsequently be proposed or provided. That is

the whole reason for the "experimental" exclusion. Every initial

certification is subject to this exclusion. Variety chose to

continue the treatment with full knowledge that it might not be

covered.

Variety cannot have reasonably relied on the initial

certification then. In fact, however, this is the promise upon

which Variety seeks to rely. Variety's complaint alleges that it

was entitled to rely on the initial certification because the

treatment was "both medically necessary and in accordance with the

accepted standards of medical practice for the treatment and care

of relapsed, acute lymphoblastic leukemia," i.e., not experimental.

This claim, therefore, is not really that Variety relied upon

Century's promise, but that the treatment was not experimental, and

the plan covered the treatment. As such, it is related to the

benefits under the plan and preempted by ERISA.5

For the foregoing reasons, the judgment of the district court

is

AFFIRMED.

5
This is not the case where an insurer represents to the
health care provider that a specific treatment is fully covered
under the policy and only after lengthy and expensive treatment
informs the provider that the policy contains a significant
limitation on that coverage. In such a case, the claim for
promissory estoppel would be unrelated to the benefits under the
plan and would survive the defense of preemption. See Lordmann
Enterprises, Inc. v. Equicor, Inc., 32 F.3d 1529 (11th Cir.1994).