:: Assignment Of Benefits Does Not Preclude Provider From Suing On State Law Theories

No case has been brought to the attention of this Court holding that a health care provider loses its ability to sue for damages in state court when they also request medical bill payment under an employee benefit plan. In the case at bar, the fact that plaintiff submitted medical bills as an assignee does not govern or relate to the preemption analysis. Plaintiff’s submission of medical bills as an assignee was a necessary and routine process that would naturally be expected to occur when a health care provider seeks compensation for medical care rendered to a patient.

N. Utah Healthcare Corp. v. BC Life & Health Ins. Co., 448 F. Supp. 2d 1288 (D. Utah 2006)

N. Utah Healthcare v. BC Llife provides further support for the view that health care providers may sue in state court for reimbursement. In this case, the provider had taken an assignment of benefits – one of the indicia that may support ERISA preemption – but the court found this fact unimpressive in the overall evaluation of the preemption defense.

The Facts

In 2004, Jason McBride (”McBride”) was employed at Wal Mart and was eligible to receive benefits under the Wal-Mart Stores, Inc. Associates’ Health and Welfare Plan (the “Plan”). After becoming ill, McBride went to St. Mark’s Hospital for medical treatment.

The following attempts to verify eligibility led to the dispute between the parties:

  • On and after June 15, 2004, several St. Mark’s representatives called BC to inquire whether McBride was eligibile for benefits under the Plan.
  • In response, a BC customer service representative told the St. Marks representative that McBride was eligible for benefits under the Plan, but that the Plan provided a first year maximum coverage benefit of $ 25,000.
  • On June 25, 2004, Dr. J. Kent Thorne’s office called BC to request authorization to perform an elective surgery for McBride intended to treat an Aortic Valve disorder.
  • BC approved the surgery under their Plan, and surgery was then scheduled for August 6th-10th, 2004.
  • Subsequent phone calls were made by St. Mark’s representatives to BC to confirm that the surgery and related expenses would be covered by the Plan.
  • St. Mark’s final call to BC was made on August 5, 2004, at which time St. Mark’s alleges that it was again assured by BC that the Plan would cover all costs of treatment.

The elective surgery was received by McBride as scheduled, after which St. Mark’s submitted three claims for benefits to BC and BC paid:

  • $ 3,789.97 on the first claim
  • $ 10,232.45 on the second claim, but
  • a third claim of $ 43,369.49 was not paid

because McBride’s benefit cap had been exceeded at that point. After BC refused to pay the final $ 43,369.49, Northern dba St. Mark’s, brought suit in State Court.

Assurances Of Payment Versus Benefits Cap

St. Mark’s contended that the aforementioned phone calls led them to believe that all qualifying expenses would be paid because McBride’s out-of-pocket and deductible obligations were believed to have been met.

The conflict arose because, under McBride’s insurance coverage, he was only entitled to qualifying expenses up to 100% “of the Plan’s maximum benefit,” which was $ 25,000.

Theory Of The Case

Northern Utah Healthcare (”Northern”) filed a Complaint in the Third District Court for the State of Utah against BC Life and Health Insurance Company (”BC”) listing three causes of action:

  • breach of contract;
  • promissory estoppel; and
  • negligent misrepresentation.

Notice Of Removal

BC filed a timely Notice of Removal, removing the case from the State of Utah to the United States District Court for the District of Utah. BC initiated removal based on its contention that the federal courts had original jurisdiction of the enumerated claims under the Employee Retirement Income Security Act of 1974, as amended (”ERISA”). 29 U.S.C. §§ 1001 et. seq.

Motion To Remand

Northern filed a Motion for Remand, arguing that BC’s removal, based on federal question jurisdiction under ERISA, was defective because BC’s claims raised no issues of federal law and were not subject to ERISA preemption.

Holding For The Provider

The district court held for the provider, relying upon the Tenth Circuit decision in Hospice of Metro Denver, Inc. v. Group Health Ins. of Oklahoma, Inc., 944 F.2d 752, 756 (10th Cir. 1991). The court noted:

In Hospice, the infant son of an employee with Blue Cross group health care benefits was admitted to Hospice’s healthcare facility (”HC facility”) to receive around-the-clock care following a surgery. The HC facility contacted Blue Cross about insurance coverage, prior to admitting the infant, and was informed that coverage was available. The HC facility repeatedly contacted Blue Cross throughout the child’s care and was assured that care was covered. However, following the infant’s discharge, Blue Cross denied coverage. The HC facility sued in state court alleging promissory estoppel, quantum merit, and claims as a third-party beneficiary. Blue Cross removed the action to federal court, and the district court denied a motion for remand holding that the HC facility’s first two claims were preempted under ERISA. The court found Hospice’s reference in the complaint to the ERISA plan did not ‘relate to’ the plan, stating that Blue Cross’s denial of payment to Hospice was a consequence of its denial of coverage to the employee.

The court determined that the HC provider’s claims did not relate to rights under the plan where there was no claim against the plan contract. Finally, the court determined that simply because damages would be based upon the amount of potential plan benefits, that did not implicate the administration of the plan, and was not consequential enough to connect the action with, or relate the action to, the plan.

Key Point

The key point, observed by the district cout, was that:

An action brought by a health care provider to recover promised payment from an insurance carrier is distinct from an action brought by a plan participant against the insurer seeking recovery of benefits due under the terms of the insurance plan.

Analogy Applied

As was the case in Hospice, observed the district court, the plaintiff health care provider did not claim any rights under the plan and instead requested independent damages as a third-party. The court rejected the defendant’s attempt at distinguishing Hospice, stating:

BC has attempted to distinguish Hospice based on the idea that the benefits in Hospice were never covered under the plan, whereas in this case, some benefits were actually paid to Northern. In support of this distinction, BC has cited to Via Christi Regional Medical Center v. Blue Cross and Blue Shield of Kansas, 361 F.Supp.2d 1280 (D. Kansas 2005).

That authority was inapplicable, opined the court.

The court distinguished Hospice from Via Christi by focusing on the “party’s eligibility status” under the plan, noting that the “essential factual difference” was that the insured in Via Christi was an eligible beneficiary under the plan and Blue Cross had in fact already paid part of Haskins claims under the plan.

Assignment Not A Material Issue

The court rejected as well the notion that accepting an assignment of benefits foreclosed resort to state court, stating:

Northern can still assert state law claims, independent of their assignment status, in Northern’s separate capacity as a third-party health care provider, which is exactly what they did in this case. BC has not cited to any Tenth Circuit case holding that assignment by a plan participant to a third-party health care provider preempts state claims by the third-party. The only case BC has cited to dealing with whether third-party health care providers have standing to sue in federal court for ERISA benefits based on their status as an assignee is Via Christi, 361 F.Supp at 1286.

Support for this conclusion was found in The Meadows v. Employers Health Insurance, 47 F.3d 1006, 1008 (Ninth Cir. 1995), where the court allowed a third-party health care provider, who was also an assignee, to bring state law claims independent of its rights as an assignee. See also, Lordmann Enterprises, Inc. v. Equicor, Inc., 32 F.3d 1529, 1533 (11th Cir. 1994).

In the case at bar, the fact that plaintiff submitted medical bills as an assignee, concluded the court, did not govern or relate to the preemption analysis. “Plaintiff’s submission of medical bills as an assignee was a necessary and routine process that would naturally be expected to occur when a health care provider seeks compensation for medical care rendered to a patient.”

Note: The court rejected the holding in Via Christi Regional Medical Center v. Blue Cross and Blue Shield of Kansas, 361 F.Supp.2d 1280 (D. Kansas 2005), stating:

Upon a careful reading of Hospice, it appears that Via Christi, as well as BC in this case have misread Hospice. The family in Hospice did initially have benefit coverage for their infant, and it was only later that they were told coverage had been denied based on a preexisting condition. Regardless, this factual distinction would not change the clear legal conclusion outlined in Hospice and we therefore decline to follow Via Christi on this point. Northern’s claims do not depend on, nor are they derived from McBride’s rights to recover under the plan, but instead devolve from BC’s alleged misrepresentations. Northern’s breach of contract claim does not implicate the ERISA contract, but is instead based on an alleged oral contract created between BC and Northern during telephone conversations where coverage was discussed. Furthermore, there has not been a Tenth Circuit case since Hospice that has altered the decision or analysis of the Hospice case. See Monarch Cement Co. v. Lone Star Industries, Inc., 982 F.2d 1448, 1454 (10th Cir.1992)(adopting Hospice analysis and determining that issue of interpreting Sale Agreement between two employers and apportioning pension liabilities between those companies not preempted by ERISA.).

See also – :: Removal Of State Law Claims To Federal Court – An ERISA Removal Primer wherein the general rule was stated thusly:

Removal jurisdiction is strictly construed because it “implicates important federalism concerns.” The burden of establishing federal jurisdiction is on the party seeking removal. Frank v. Bear Stearns & Co., 128 F.3d 919, 922 (5th Cir.1997). Any doubts concerning removal must be resolved against removal and in favor of remanding the case back to state court. Shamrock Oil & Gas Corporation v. Sheets, 313 U.S. 100 (1941).

The removing party must show:

1. The existence of a relevant ERISA plan
2. The plaintiff has standing to sue under that plan
3. The defendant must be an ERISA entity
4. The complaint must seek relief akin to that available under 29 U.S.C. § 1132

In a nutshell, complete preemption applies if:

  1. the provider could have brought its state-law claims under section 502(a) (i.e., as an assignee), and
  2. where there is no other independent legal duty that is implicated by the defendant’s actions.