Health Law Daily Wrap Up, MEDICAID—D. Md.: Negligence, fiduciary duty, and Section 1983 claims fail again in Medicaid reimbursement dispute, (Mar 18, 2026)

By Justin Marcus Smith, J.D.

Health insurance claims administrators generally do not owe a duty of care in processing provider claims for reimbursement, the parties did not have a close relationship, and federal claims payment requirements did not create an individual right for vindication.

A Maryland pain management and rehabilitation services provider failed to state negligence claims, a breach of fiduciary duty claim, and a 42 U.S.C. § 1983 claim against the exclusive Medicaid claims processor for Maryland’s Public Behavioral Health System, held the chief magistrate judge of the federal district court in Greenbelt, Maryland. The court applied the economic loss rule to the negligence claims and found the provider failed to allege a duty of care or an intimate nexus between the provider and the claims processor. Conclusory allegations of reliance were insufficient to proceed with the breach of fiduciary duty claim. Last, multiple courts have already ruled that providers cannot use 42 U.S.C. § 1983 to enforce the procedural claims payment requirements under 42 U.S.C. § 1396a(a)(37)(A) because the latter statute does not create an individual right for vindication. The court dismissed all claims with prejudice for futility of amendment (Choice Pain & Rehabilitation Center, LLC v. United Behavioral Health, Inc., No. 8:25-cv-01449-TJS (D. Md. Mar. 13, 2026)).

Background. A Maryland-based, African American-owned pain management and rehabilitation services provider sought reimbursement from the State of Maryland for services provided to Medicaid beneficiaries. The provider obtained an initial national provider identification (NPI) number in 2019 and later obtained a new NPI for its toxicology lab in 2021. The provider performed drug testing in its toxicology lab for patients receiving chronic pain management services.

The administrative services organization (ASO) that Maryland designated as the exclusive processor of Maryland behavioral health Medicaid claims routinely and promptly reimbursed the provider for its toxicology claims until January 2022. At that juncture, it began denying or rejecting all claims under certain billing codes. The provider alleged that the ASO, when pressed for an explanation of the denials, would respond only that it was “following MDH [Maryland Department of Health] guidance.”

The provider adapted by sending nearly 5,000 toxicology samples to an external lab, but that came at a cost of about $600,000 in lost revenue from June 2022 through November 2022.

In November 2022, the provider filed an administrative complaint with MDH. MDH responded the claim denials were a result of the provider’s file “not being set up correctly” to bill the ASO “due to an issue with your NPI.” MDH said the provider corrected the NPI problem in November 2021, retroactive to February 2021, and that MDH provided re-billing instructions. In April 2023, the ASO began paying some previously denied claims.

The provider brought a judicial complaint asserting four claims against the ASO: (1) negligence; (2) negligent misrepresentation; (3) breach of fiduciary duty; and (4) deprivation of rights under 42 U.S.C. §§ 1983 and 1396a(a)(37(A). The ASO moved to dismiss for failure to state a claim under Fed. R. Civ. P. 12(b)(6).

In March 2025, the court, under a different judge assigned to the case, dismissed the provider’s initial complaint. The court concluded now that the amended complaint, which it referred to as the provider’s third attempt to amend, also failed to state a claim for relief.

Negligence claims. The court granted the ASO motion to dismiss the negligence and negligent misrepresentation claims because they failed as a matter of law. More specifically, the provider failed to plead an intimate nexus that would give rise to a tort duty under Maryland law for purely economic losses.

The court found the instant amended complaint did not allege any personal injury. The economic loss rule applied, but the amended complaint did not plead an intimate nexus between the parties, nor did the provider cite legal precedent holding that health insurance claims administrators owe a duty of care in processing provider claims for reimbursement. The court said it was especially reluctant to extend tort liability to a party exercising a government function.

The court also noted the provider failed to allege it was anything but a member of an indeterminate class of about 2,100 behavioral health providers in the MDH Medicaid program. Nor did the provider allege special interactions that might form the basis of a dependence or special reliance relationship. The provider only made conclusory assertions about reliance, and there did not appear to be any foreseeability that would perfect a duty of care.

The provider argued that state and federal statutes evinced a tort duty, but the latest amended complaint did not mention such statutes, and courts have found that the laws do not create individual rights to payment or a private right of action.

Inasmuch as this was the provider’s “third attempt” to recover against the ASO for negligence and negligent misrepresentation, the court deemed the claims “truly incurable” and dismissed them with prejudice for futility of amendment.

Fiduciary duty. The court ruled that the provider’s “conclusory allegations of reliance were insufficient to plead a fiduciary relationship.” The provider did not allege the existence of a fiduciary duty based on common law, statute, or contract. The provider relied instead on Maryland’s exclusive designation of the ASO for Maryland’s Public Behavioral Health System. The court analyzed and rejected the provider’s cited cases as inapplicable. The court dismissed the breach of fiduciary claim with prejudice for futility of amendment.

§ 1983. The court held it must dismiss the provider’s § 1983 claim because the provider did not tie it to a right secured under other federal law. The provider alleged that the ASO acted under color of state law at all relevant times and violated 42 U.S.C. 1396a(a)(37)(A) by denying the provider’s “clean claims without a legal basis” by failing to process the claims timely under federal law, by failing to provide adequate explanations for claim denials, and by failing to maintain systems that allowed for timely and accurate processing of claims.

The court reminded here that § 1983 does not create a substantive right in and of itself. It only creates a method for vindicating federal rights conferred by other federal laws. For the same reasons expressed in various other court opinions, the court found that § 1396a(a)(37)(A) does not create an individual right for vindication through § 1983. As with the provider’s other claims, the court dismissed the § 1983 claim with prejudice for futility of amendment.

The case is No. 8:25-cv-01449-TJS.

Judge: Sullivan, T., M.J.

Attorneys: Jordan David Howlette (JD Howlette Law) for Choice Pain & Rehabilitation Center, LLC. Christopher Flynn (Crowell and Moring LLP) for United Behavioral Health, Inc.

Companies: Choice Pain & Rehabilitation Center, LLC; United Behavioral Health, Inc.

Cases: CaseDecisions CMSNews GCNNews MedicaidNews MedicaidPaymentNews MarylandNews