Opinion
No. X08 CV07-5005165S
July 18, 2008
Memorandum of Decision on Defendant's Motion to Compel Arbitration and Stay Litigation
Procedural and Factual Background
This is an action by six Connecticut licensed physicians against Health Net of Connecticut, Inc., a managed care/medical insurance organization that administers several types of health benefit plans in Connecticut (hereinafter "Health Net" or "defendant"). In this case, plaintiffs challenge a Health Net program known as "Partners for Quality" ("P4Q") which, the plaintiffs allege: "was marketed by defendant to promote quality medical care and to compensate physicians who achieve specified goals." (Third Amended Complaint ("Complaint") ¶ 2.) The Complaint references defendant's letter of December 2006 announcing the P4Q program, which letter allegedly states, in part:
The defendant was originally named as "Health Net of the Northeast, Inc., a subsidiary of Health Net, Inc." but the parties have agreed that the proper defendant is Health Net of Connecticut, Inc., and have agreed that the case caption should reflect that entity as the defendant.
Health Net of Connecticut, Inc. (Health Net) and Connecticut State Medical Society-IPA, Inc., (CSMS-IPA) are pleased to announce Phase III — Measurement Year 2007 of our voluntary performance incentive program, the Health Net and the CSMS-IPA Partners for Quality and Cost-Effective Care (P4Q) program. This program was developed in accordance with the agreement between Health Net and CSMS-IPA. The P4Q program is designed to provide financial recognition to eligible physicians who, based on available data exceed benchmark performance in a variety of measures within their specialty peer group. These measures and indicators are aimed at promoting long-term quality and cost-effective care for patients. To determine eligibility for the P4Q program, participating physicians must meet minimum eligibility criteria and be in good standing with both Health Net and the CSMS-IPA. Detailed information on eligibility requirements can be found in the enclosed Physician Eligibility document. The P4Q is different from other regional programs in that it offers eligible primary care physicians (PCPs) and specialists an opportunity for bonus compensation in addition to, but separate from, established fee-for-service reimbursement. Id.
Plaintiffs allege that they are participants in the P4Q program and that Health Net has failed to maintain and utilize a reliable and coherent methodology to measure the quality of care provided by plaintiffs (Complaint ¶ 5), and that "[w]hile defendant claims that compensation is based on quality of care, the determinative factor in the program is not quality of care, but cost, and specifically falsely evaluating physicians to give them lower rankings, and falsely deprecating care, to deprive physicians who do provide quality care, of compensation to which they are entitled." (Complaint, ¶ 6.) Under theories of fraud, violation of the Connecticut Unfair Trade Practices Act (CUTPA), violation of the Connecticut Unfair Insurance Practices Act (CUIPA) and breach of contract, the plaintiffs seek compensatory and treble and punitive damages and declaratory relief that the P4Q program is based on considerations of cost, not quality of care, in violation of CUTPA and CUIPA.
The Fourth Count of the Complaint sounds in breach of contract and alleges in ¶ 107 that "Defendants have breached the Agreements as set forth above" presumably referring to the allegation of ¶ 106 that plaintiff physicians have performed in full under the "Provider Agreements." In view of the undisputed fact the defendant is not a party to plaintiffs' "Provider Agreements" (which are made between each plaintiff and the CSMS-IPA), counsel for the plaintiffs has admitted that the breach of contract claim is not "so clearly worded" (Transcript, 3/7/08, p. 43 and has agreed to amend and clarify the breach of contract claim. (Tr. 44.)
It is undisputed, and confirmed by the above quote from Health Net's December 2006 letter announcing the P4Q program, that P4Q has been developed and is administered by Health Net in conjunction with another entity, the Connecticut State Medical Society-Independent Practice Association, Inc., known as "CSMS-IPA." CSMS-IPA, a Connecticut corporation affiliated with the Connecticut State Medical Society, Inc., is referenced indirectly in ¶ 13 of the Complaint where plaintiffs allege that plaintiffs "individually or through their practice group" have entered into agreements with defendant to provide medical services to defendant's insureds as "in-network" or "participating" providers, and directly in ¶ 15 where it is alleged that Health Net administers the P4Q program in conjunction with CSMS-IPA which maintains information concerning the P4Q program on its website with the knowledge and approval of Health Net. CSMS-IPA is not presently a party to this lawsuit, although Health Net characterizes CSMS-IPA as "a necessary and indispensable party to this litigation" (Reply memorandum, p. 6) and intends to join in CSMS-IPA as a defendant, or — if arbitration is ordered — as a respondent.
The specific contractual relationships have been stipulated to by the parties and copies or excerpts of the agreements have been provided to the court in connection with this motion. Since about 1995 there has been a continuum of agreements between Health Net (or its corporate predecessor) and CSMS-IPA known as the "Medical and Administrative Services Agreement." The agreement in effect at the times relevant to this case is the "Amended and Restated Medical and Administrative Services Agreement Between Health Net of Connecticut, Inc. (As Successor to Physicians Health Services of Connecticut, Inc. f/k/a M.D. Health Plan, Inc.) and Connecticut State Medical Society — IPA, Inc." dated January 1, 2003 (the "HN-IPA Agreement"). Under the HN-IPA Agreement the IPA is retained by Health Net to arrange for covered services to Health Net members through a network of participating providers who have signed a "Professional Agreement" with the IPA. The IPA is responsible for recruiting the required number of physicians, and signing them up to a Professional Agreement on a form which must incorporate "the obligations applicable to Participating Providers as set forth in this Agreement . . ." (¶ 3.17), including certain mandatory requirements such as, without limitation, licensure and accreditation requirements (¶ 3.07); adherence to professionally recognized standards of care and the A.M.A. Code of Ethics (¶ 3.09); reporting of complaints, and providing of member medical records to government agencies and to Health Net (¶ 3.10); compliance with all laws and with Health Net rules and procedures as set forth in its Office Manual, and statistical reporting (¶ 3.14); and an agreement that participating providers understand and agree with a member's right to accept or refuse treatment and execute advance directives (¶ 3.21). With particular reference to programs such as P4Q the HN-IPA Agreement provides that the IPA ". . . shall require Participating Providers to agree to participate in, and cooperate and comply with all quality assurance, biennial credentialing procedures, performance measurements and reporting activities in clinical and non-clinical areas, utilization management, provider and member appeal, discharge planning and administrative programs or external audit as established by HN." (¶ 3.14.) The HN-IPA Agreement contains a provision for informal resolution of certain enumerated disputes and a mandatory requirement for binding arbitration of "any dispute that arises between the Parties" ("Parties "being defined as Health Net and CSMS-IPA) before a panel of the American Health Lawyers Association ("AHLA") Dispute Resolution Service according to its rules (¶ 11.02); and further provides that: "[t]he arbitration shall be binding not only on all Parties to the Agreement, but on any other entity controlled by, in control of or under common control with the Party to the extent that such affiliate joins in the arbitration . . ." Id. There is also a requirement in ¶ 3.17 that "IPA agrees that its Professional Agreements with Participating Providers will establish HN as a third party beneficiary of such contracts and HN will have standing to enforce any of the terms of such contracts . . ." Finally, ¶ 12.08 states that except as expressly stated in the Agreement, "[n]othing in this Agreement, express nor implied, is intended to or shall be construed to confer upon any person, firm, or corporation other than the Parties or their successors or assigns any remedy or claim under or by reason of this Agreement and any term, covenant and condition hereof, as third party beneficiaries . . ."
Most of these requirements are prefaced with the language "IPA shall include in its Professional Agreements, . . ." or words to that effect. See e.g. ¶¶ 3.09 and 3.14.
At this point the defendant has disclosed to the plaintiff and filed with the court only a partial copy of the HN-IPA Agreement. Approximately half of the agreement has been withheld as containing proprietary or confidential information which Health Net will not disclose until the parties can agree on the terms of a Protective Order to be entered by the court. As of this date, to the court's knowledge, there has not been any agreement on the terms of a protective order, and no motion for protective order has been filed.
The other relevant Agreement is the "Participating Provider Agreement" between each participating physician and CSMS-IPA. (This is the agreement defined as the "Professional Agreement" in the HN-IPA Agreement.) These agreements are all written on a standardized printed form on the letterhead on CSMS-IPA, Inc. By way of example a copy of the plaintiff Karen Laugel's Participating Provider Agreement with CSMS-IPA signed on July 6, 2004 has been submitted to the court for review. It obligates each Participating Provider to provide covered medical services on a non-exclusive basis to a "Health Plan" with which the IPA has contracted, and entitles her to be paid by the Health Plan for medical services rendered to members in accordance with an agreed schedule of fees and a procedure for submitting claims for payment to the Health Plan. (This particular version of the form agreement is limited to Health Plans offered by Health Net.) Just as the HN-IPA Agreement requires the IPA to include Health Net's mandatory provisions in each Professional Agreement, so also does the IPA Participating Provider Agreement require the IPA to include certain mandatory provisions in each contract with a Health Plan. For instance ¶ 2.03 requires the IPA to require the Health Plan (Health Net) ". . . to make prompt payment to Participating Provider in accordance with article IV of this Agreement . . ." Other IPA mandatory requirements include, e.g., publication of the Participating Provider's name in the Health Plan's directory or other marketing literature (¶ 2.01), Health Plan identification cards to each member to be presented to the Participating Provider prior to the delivery of services (¶ 2.04), and providing by the Health Plan of all necessary information to assist appropriate Participating Providers in complying with Medicaid requirements for children's issues and early periodic screening, diagnosis and treatment (¶ 2.03). The Participating Provider Agreement also contemplates a quality assurance program such P4Q: "IPA shall require Health Plan and Payor to operate programs to promote the delivery of cost effective, quality health care services by Participating Providers, including but not limited to, quality assurance, utilization management, Prior Authorization, and Member and Participating Provider grievance programs . . . IPA shall require Payor to provide Participating Provider, upon Participating Provider's request, with a current copy of all standards, policies, and procedures relevant to such programs . . ." (¶ 2.02). The Participating Provider Agreement also has mediation/arbitration requirements which obligate "[t]he parties . . . to meet informally to resolve disputes arising under this Agreement, prior to submitting such disputes to formal arbitration." (¶ 10.01.) Any such dispute not resolved informally within 90 days goes to binding arbitration before a panel of three arbitrators under the AHLA Alternative Resolution Dispute Service Rules of Procedure. (¶ 10.02.) There is no provision in the Participating Provider Agreement regarding third-party beneficiaries, and specifically no agreement that Health Net is intended to be a third-party beneficiary of the Participating Provider Agreements. Nor is there a provision — as there is in the HN-IPA Agreement — disclaiming any intent to confer third-party beneficiary status on any party.
There is also a special procedure in ¶ 10.03 for resolution of disputes regarding fees for medical services provided to Members, but that issue is not implicated in this case.
The defendant's motion now under consideration by the court asks the court to order that the plaintiff's claims made in this lawsuit must be arbitrated before the AHLA Dispute Resolution Service under the arbitration clause of the Participating Provider Agreement signed by each plaintiff, and further asks the court to stay these proceedings pending the outcome of such litigation. The plaintiffs oppose that motion.
Discussion
Defendant's motion is made pursuant to Conn. Gen. Stat. § 52-409 which provides:
If any action for legal or equitable relief or other proceeding is brought by any party to a written agreement to arbitrate, the court in which the action or proceeding is pending, upon being satisfied that any issue involved in the action or proceeding is referable to arbitration under the agreement, shall, on motion of any party to the arbitration agreement, stay the action or proceeding until an arbitration has been had in compliance with the agreement, provided the person making application for the stay shall be ready and willing to proceed with the arbitration.
Section 52-409 applies to "any party to the arbitration agreement" who has been sued in court. There is a parallel provision, Conn. Gen. Stat. § 52-410, which permits "a party to a written agreement for arbitration" who has not been sued, to bring an action to compel arbitration of a dispute under the agreement. Sections 52-409 and 52-410 are reflective of Connecticut's strong judicial policy favoring resolution of disputes by arbitration. OG O'Connell Joint Ventures v. Chase Family Limited Partnership No. 3, 203 Conn. 133, 145 (1987) ("This court has for many years wholeheartedly endorsed arbitration as an effective alternative method of settling disputes . . ."). Legislative policy favoring arbitration is equally strong: "An agreement in any written contract . . . to settle by arbitration any controversy thereafter arising out of such contract, or out of the failure or refusal to perform the whole or any part thereof . . . shall be valid, irrevocable, and enforceable, except when there exists sufficient cause at law or in equity for the avoidance of written contracts generally." Conn. Gen. Stat. § 52-408. Arbitration, however, is purely a creature of contract. "[A] person can be compelled to arbitrate a dispute only if, to the extent that, and in the manner which, he has agreed to do so . . . No one can be forced to arbitrate a contract dispute who has not previously agreed to do so." (Internal quotation marks omitted.) Nusbaum v. Kimberly Timbers, Ltd., 271 Conn. 65, 72 (2004).
Health Net does not claim arbitrability of the issue of the administration of the P4Q program under the mediation/arbitration clause of its agreement with CSMS-IPA (the HN-IPA Agreement). The plaintiffs are not parties to that agreement and are presumably not bound by the mediation/arbitration provisions contained in that agreement. Health Net does claim arbitrability under the mediation/arbitration clause of the Participating Provider Agreements between each plaintiff and CSMS-IPA. Recognizing that it is not a party to those agreements, and that § 52-409, upon which it premises its motion, provides the remedy of compelled arbitration to "any party to a written agreement to arbitrate," Health Net argues that it is nonetheless entitled to enforce the mediation/arbitration clauses of the Participating Provider Agreements as a third-party beneficiary of those agreements.
The issue whether or not a third-party beneficiary of an agreement may enforce an arbitration clause of that agreement against a reluctant signatory has been described in scholarly comment as "unsettled." Hodgson and Parley, Alternative Dispute Resolution in Connecticut's Courts, § 2.8.4. It has been noted in a Superior Court decision that "[t]he trend seems to be to treat the application and enforcement procedural rights under a contract, relating to remedies and dispute resolution, in the same way as substantive rights are treated." Coldwell Banker Manning v. Computer Sciences Corporation, Docket No. CV03-0825180, Superior Court, Judicial District of Hartford at Hartford (June 9, 2005, Booth, J.) ( CT Page 12890 2005 Ct.Sup. 9849, 39 Conn. L. Rptr. 465) ("There is accordingly [reference to current judicial policy favoring arbitration] little reason to distinguish between a third party beneficiary's right to enforce an arbitration clause of a contract, and a third-party beneficiary's right to enforce any other clause of a contract"). Judge Booth, in noting that "trend" has cited Duchess of Dixwell Avenue, Inc. v. Neri, Corp. Docket No. CV98-0421694, Superior Court, Judicial District of New Haven, August 5, 1999, Pittman, J. (25 Conn. L. Rptr. 220)where Judge Pittman traced the full history of the issue in Connecticut courts and — even though the party opposing arbitration, the defendant Neri Corp., had conceded the proposition that a third-party beneficiary of a contract is entitled to enforce the contract provisions, including the arbitration clause — declined to adopt the concession of the defendant because "that characterization of the state of the law has yet to be pronounced in Connecticut" and ". . . before a court so holds, the principle deserves a more thorough analysis than it has yet been afforded." Appellate authority cited by Health Net on this claim is not determinative. Gaudet v. Safeco Insurance Co., 219 Conn. 391 (1991) involved the issue whether or not a passenger in the automobile of a Safeco insured owner could enforce the arbitration clause of the uninsured motorist clause of the owner's auto policy. The court did hold that the use of the word "party" in Conn. Gen. Stat. § 52-410 [which would apply equally to § 52-409 at issue in this case] "would encompass all persons to whom the uninsured motorist statute gave enforcement powers." 219 Conn. at 397. The court noted that the terms of the contract [the arbitration clause of the uninsured motorist coverage provision of the insurance policy] had been "legislatively dictated", and that "[i]n enacting § 38-175c, the legislature thus impliedly assumed that the word `party' in § 52-410 would encompass all persons to whom the uninsured motorist statute gave enforcement powers." Id. The limited scope of the holding is clearly stated: " In the context of uninsured motorist coverage, therefore, we conclude that § 52-410 does not exclude enforcement of its terms by third part beneficiaries." (Emphasis added.) Id. Stevens v. Hartford Accident Indemnity Co., 39 Conn.App. 429, 435-36 (1995) holds that the right of an uninsured motorist coverage claimant to take advantage of the arbitration clause of the underlying policy, as established in Gaudet, is a waivable right. It is noteworthy that in Wesleyan University v. Rissil Construction Associates, Inc., 1 Conn.App. 351 (1983) the Appellate Court held that "Wesleyan never contracted with Rissil. Because of this one salient fact, Rissil may not arbitrate its dispute, if any, with Wesleyan." Id. at 355, but expressly declined to consider Rissil's argument that it was entitled to arbitrate its dispute with Wesleyan because it was a third party beneficiary of the agreement between Wesleyan and its construction supervisor, because the trial court had not addressed that claim.
Judge Pittman then went on to deny the motion to compel arbitration, having found that the moving party was not an intended third-party beneficiary of the contract.
Conn. Gen. Stat. § 38a-336 (formerly § 38-175c) makes uninsured motorist coverage mandatory in all automobile liability policies and authorizes binding arbitration of claims under the uninsured motorist coverage which, if offered, must include a provision for final determination of insurance coverage issues.
Just as Judge Pittman felt nine years ago in Duchess, this court feels today that this very "unsettled" issue has not been "pronounced in Connecticut" and "deserves a more thorough analysis than it has yet been afforded . . ." For instance, neither party has cited authority from other jurisdictions, nor from any of the leading treatises on contract law or the Restatement of Contracts. Since, as will be explained below, the court is going to deny this motion without prejudice to renewal at a later stage because of the absence from the case of an admitted necessary party to the issue of the third-party beneficiary status claimed by Health Net, it is not necessary to decide this legal point on the meager analysis presented, and the court will likewise defer decision on this legal issue whether or not a third-party beneficiary to a contract may enforce the arbitration clause of that contract.
The other prong of Health Net's argument is that it is a third-party beneficiary of the plaintiffs' Participating Provider Agreements with CSMS-IPA.
[T]he ultimate test to be applied in determining whether a person has a right of action as a third party beneficiary is whether the intent of the parties to the contract was that the promisor should assume a direct obligation to the third party [beneficiary] and . . . that intent is to be determined from the terms of the contract read in light of the circumstances attending its making, including the motives and purposes of the parties . . . Although [the Supreme Court] has explained that it is not in all instances necessary that there be express language in the contract creating a direct obligation to the claimed third party beneficiary . . . [it has] emphasized that the only way a contract could create a direct obligation between a promisor and a third party beneficiary would have to be . . . because the parties to the contract so intended. (Citation omitted; emphasis in original; internal quotation mark omitted.) Grigerik v. Sharpe, 247 Conn. 293, 311-12 (1998).
Here, there is no language in the Participating Provider Agreements expressly designating Health Net or even the generic "Health Plan" as an intended third-party beneficiary. There is no doubt that CSMS-IPA had that intent at least at one point in time because it had expressly obligated itself in ¶ 3.17 of the HN-IPA Agreement to "establish HN as a third party beneficiary of such contracts and HN will have standing to enforce any of the terms of such contracts." The unresolved issue is whether or not the plaintiff physicians shared that intent. The absence of a third-party beneficiary clause in favor of Health Net in the Participating Provider Agreements would tend to indicate that they did not, but the intent does not have to be expressly stated. It can be gleaned from the terms of the contract read in light of the circumstances attending its making, including the motives and purposes of the parties. Defendant argues persuasively that the intent to create direct obligations of the physicians to Health Net can be inferred from the contractual relationships established by the two contracts read together — that the purpose of CSMS-IPA in entering into the Participating Provider Agreements was to implement its obligation to create and maintain a network of physicians to provide covered services to Health Net members, and that the plaintiffs assumed in their Participating Provider Agreements a direct obligation to Health Net to provide those services to Health Net members in exchange for access to Health Net members as patients, for payment by Health Net for those services in accordance with the agreed fee for service schedule, and for participation in incentive programs such as P4Q. What is troubling to the court, however, is the total absence of any input from CSMS-IPA in reviewing the "circumstances attending the making" and the "motives and purposes" of the Participating Provider Agreements. CSMS-IPA was contractually bound to "establish" Health Net as a third-party beneficiary of those agreements by a specific provision. It failed to do so. Why or how did that happen? Was it just inadvertence, or was it specifically discussed with the plaintiffs who refused it? If the latter, that would be strongly indicative of a lack of intent by the plaintiffs to recognize Health Net as a third-party beneficiary, and might nullify other inferences to be drawn circumstantially from the relationships established. Virtually all of HN's required provisions for the Participating Provider Agreement are grouped together in Article III of that agreement, but there is no third-party beneficiary provision, which would militate against an inadvertent omission. Even with CSMS-IPA as a non-party, a responsible representative could have been deposed, or could have submitted an affidavit. Without any input at all from the IPA the court is unable to conduct a proper review of the attending circumstances. The defendant has assured the court that it intends to join CSMS-IPA as a party to this case if it is not stayed, but invites the court to decide this motion now, without the presence of the IPA in the case, as a matter of judicial economy. The court declines that invitation.
Another somewhat troubling factor is the partial disclosure of the current HN-IPA Agreement. For instance, it came out that an earlier (pre-2003) version of the agreement contained a specific recognition in ¶ 28(C)(7), immediately after the requirement that CSMS-IPA recognize Health Net as a third party beneficiary of the Participating Provider agreements, that: "Health Net acknowledges CSMS-IPA may not have included this provision in existing IPA Participating Provider Agreements." There is no such language in the portions of the January 1, 2003 version of HN-IPA agreement that have been disclosed. Pages 8, 9, 10, and 11, which would have included a ¶ 2.8(C)(7), if there is one, are missing. The requirement for a third-party recognition clause in the Participating Provider agreements appears at ¶ 3.17 of the 2003 agreement, but it is not followed by the statement of acknowledgment that the required language "may not have been included" in existing Participating Provider Agreements. That language may appear in one or more of the missing pages, but the court has no way of knowing that. If the language was omitted, why was it omitted and what does that mean in terms of the intent of the contracting parties? The record before the court is incomplete, and inadequate for making a finding of the intent of the parties to the Participating Provider agreements.
Order
For the reasons stated the defendant's Motion to Compel Arbitration and Stay Litigation is denied without prejudice to being renewed at a subsequent stage of the litigation with a full and complete record, to include the position of the essential party CSMS-IPA on the crucial issues of intent and attending circumstances, and the disclosure under a proper protective order of a complete copy of the version of the HN-IPA agreement in effect at the times alleged in the complaint. The court will retain all memoranda and exhibits submitted in conjunction with this motion, which may be referenced without resubmission upon any renewal of this motion.