Eighth Circuit Affirms Medicare Reimbursement Claim Is Not “Based on Professional Services”

The United States Court of Appeals for the Eighth Circuit, applying Iowa law, has held that a professional liability insurer had no duty to defend and indemnify a medical clinic and its director for claims by the clinic operator to recoup Medicare repayments because the claims were not “based on professional services.” Dewall v. Medical Protective Co., 59 F.4th 364 (8th Cir. Feb. 7, 2023).

In the underlying arbitration, a clinic operator sought to recoup from the clinic and its medical director amounts the clinic operator had to repay to the Centers for Medicare and Medicaid Services for non-complying reimbursements. The clinic’s professional liability insurer acknowledged coverage under the relevant policies’ Medicare Endorsements, which provided coverage up to sublimits for claims “alleg[ing] improper submission of claims for reimbursement under the Medicare or Medicaid program,” but denied coverage under the policies’ professional liability insuring agreement, which covered claims “based on professional services.” The policies defined “professional services” to mean “the rendering of medical . . . services to a patient and the provision of medical examinations, opinions, or consultations regarding a person’s medical condition within the Insured’s practice as a licensed health care provider.” 

Once the sublimits under the Medicare Endorsements were exhausted, the insurer withdrew from the defense, and the clinic filed suit seeking a declaratory judgment that the insurer had a duty to defend and indemnify it under the professional liability insuring agreement, including on a theory of promissory estoppel, and asserting claims for breach of contract and bad faith.  The trial court granted summary judgment in favor of the insurer, and the clinic appealed.

The Eighth Circuit affirmed on appeal, agreeing with the trial court that the underlying arbitration “was not about ‘the quality of care provided or clinical expertise’ but was solely ‘about billing documentation’” and therefore was not “based on professional services.” The Eighth Circuit also rejected the clinic’s argument that the insurer owed coverage under a theory of promissory estoppel based on the insurer’s internal emails because such communications not conveyed to the insured promisee cannot support a prima facie case of promissory estoppel. Finally, the Eighth Circuit affirmed summary judgment in the insurer’s favor on the clinic’s bad faith claim because the insurer’s interpretation of the policies was objectively reasonable.