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Of course the difficulty arises in drawing the line between what is completely preempted and what escapes the cast of the federal net. The Supreme Court in Davila used a two-part analysis for determining when a claim has been completely preempted by ERISA . . .

Franciscan Skemp Health care v. Central States, No. 07-3456 (7th Cir.) (July 31, 2008)

In this recent provider reimbursement case, the Seventh Circuit has given ERISA preemption a narrow footprint which signals the continuance of a trend favoring state law remedies for providers based upon the Davila analysis. The case points up a stark contrast between provider claims and those of employees where promised benefits are disappointed.

In Skemp, the provider evidently sought to precertify coverage before providing treatment to Sherry Romine. Apparently satisfied with the response from the plan, the health care facility provided coverage. Romine did not pay the COBRA premiums, however, and her coverage was terminated under the plan.

Thus, it appears that Romine had coverage when the provider posed the inquiry to the plan, but lost it retroactively when the COBRA premium was not paid.

Despite having obtained an assignment of benefits from Romine Sherry and submitting a claim form, the provider, in the view of the Seventh Circuit, was not precluded by ERISA preemption from asserting state law claims when the benefits were denied by the plan.

The rationale:

Franciscan Skemp is bringing these claims of negligent misrepresentation and estoppel, not as Romine’s assignee, but entirely in its own right. These claims arise not from the plan or its terms, but from the alleged oral representations made by Central States to Franciscan Skemp. Franciscan Skemp could bring ERISA claims in Romine’s shoes as a beneficiary for the denial of benefits under the plan; but it has not. In fact, Franciscan Skemp does not at all dispute Central States’s decision to deny Romine coverage. Franciscan Skemp acknowledges that Romine is not entitled to benefits, because she failed to make her COBRA premium payments.

The allowance of state law claims in this context provides an interesting contract to the results in another Seventh Circuit case, this time involving an employee. See, McDonald v. Household Intern., Inc. , 425 F.3d 424 (7th Cir. 2005).

Compare these facts with those in Franciscan Skemp:

James McDonald began working for HSBC Financial Corporation (“HSBC”) on November 19, 2001. He received a letter stating that “[y]our health and life insurance will be effective 30 days from your start date.”

McDonald had a prescription for a blood pressure medication which he had been taking before coming to work for HSBC. After the 30-day waiting period, he repeatedly tried to get the prescription filled, but each time, he was told that “his paperwork had not come through”.

Despite several subsequent appeals to his employer and Defendant United Healthcare Corporation (“United”), the insurer under the HSBC health benefits plan, McDonald’s benefits were not approved and, on January 15, 2002, he suffered a catastrophic hypertensive stroke. McDonald filed suit, asserting “six counts against HSBC and United, including breach of contract, negligence, loss of consortium and other state law theories of recovery.”

In that case, the Seventh Circuit held that McDonald’s claims were preempted – even though he had never been covered under the plan. In Franciscan Skemp, the provider took an assignment, advanced claims initially on a claim form, and the assignor did, in fact, have coverage (retroactively terminated, of course, based on COBRA rules.)

Note: One of the first incursions into ERISA preemption in provider reimbursement cases developed along the lines of independent legal duties (the Davila analysis) based upon managed care contracts. See, e.g., the Third Circuit rational discussed in :: Managed Care Contract Gives Rise to “Independent Legal Duty” Which Survives ERISA Preemption and :: Third Circuit Remands Health Care Provider’s Reimbursement Litigation To State Court

See also – The Ninth Circuit approach to the issue is reviewed in:: Ninth Circuit Reaffirms Holding That Health Care Provider’s Non-Derivative State Law Claims Are Not ERISA Preempted. And see, :: Hospital State Law Claims Against Aetna HMO & PPO Plans Remanded To State Court; and see a different take on this issue in :: Worthless Payment Commitments – The ERISA Preemption Escape
Thanks to Rob Hoskins for calling attention to this case on erisaboard.com