Third-Party Health Insurance Administrator Sues Over Breach of Contract, Alleges Double Billing

On Wednesday, Northwood, Inc., a third-party administrator of health insurance claims for medical equipment and supplies, filed a complaint for breach of contract against Clinical Wound Solutions, LLC (CWS), a provider of medical supplies to end-users that specializes in wound care products and supplies.  Specifically, Northwood argued CWS has violated and is still violating a provision between the parties which prohibits the seeking of reimbursement for medical supplies from health plan members.

The filing explained that on July 30, 2015, Northwood and CWS entered into an agreement.  Under the agreement, CWS is to provide products and services to health plan members as identified by the agreement.  CWS would then submit claims to Northwood for reimbursement of the products and services.  Routine audits were conducted to assure CWS was properly seeking reimbursement, the complaint explained.  After CWS failed a number of audits for failure to provide Northwood with proper claim information, Northwood terminated the agreement with CWS effective November 7, 2018, the complaint said. CWS filed a lawsuit against Northwood in the Northern District of Illinois, in which CWS claimed Northwood improperly retained reimbursement owed to CWS in violation of the agreement.  That litigation is still pending.

The part of the agreement at issue states:  “Participating Supplier shall look only to Northwood for Covered Services rendered to a Covered Person.  Participating Supplier agrees that in no event shall it bill, charge collect or attempt to collect a deposit from, seek compensation or renumeration from, surcharge or have any recourse against a Covered Person by Participating Supplier.”  Additionally, the section had a clause that would keep it intact even if a termination of the agreement resulted for the benefit of the covered persons.  Beginning in June 2020, Northwood customers began complaining about CWS invoices for amounts CWS claimed those covered persons owed them. 

Later on, in mid-September 2020, Northwood alleged they began receiving “a significant amount of complaints” concerning invoices received from CWS requesting remuneration for services allegedly rendered by CWS.  Northwood claimed several of the invoices sent to covered persons were for sums previously paid to CWS by Northwood (double billing), and another set of invoices were sent to covered persons who were deceased.  Northwood sent a cease and desist letter to CWS on October 6, 2020, and received no response.

Ultimately, Northwood alleges that CWS violated the quotes section of the parties’ agreement above (the only count in this suit).  Northwood did not state a specific amount of damages, but determined it will not be less than $75,000, so diversity jurisdiction can be satisfied.  Additionally, Northwood is seeking an injunction for CWS to cease these billing activities and attorneys’ fees.

Northwood is represented by Fasse Law.