A surgeon at California Spine performed three surgical procedures on J.R., and then “billed Defendants for these services . . . using his standard rates for such services.” California Spine’s “charges for the surgery totaled $37, 000, ” which, the complaint alleges, “reflected the reasonable and customary value of the services at issue.” Neither Cigna nor NALC Health “challenged the medical necessity of any of the services provided to J.R., or otherwise reversed the earlier approval of coverage.” But NALC Health “contended that the ‘allowed amount’ for all the services provided . . . was only $6, 907.00, of which $2, 072.10 was owed by J.R. as coinsurance.”
California Spine and Neurosurgey Institute v. National Association of Letter Carriers Health Benefit Plan (N.D. Cal. 2021)

Payments for benefits provided under the Federal Employees Health Benefits Act (FEHBA) ultimately come from the federal government. So while the government will use a commercial entity such as CIGNA in this case, the payments are drawn on a letter of credit held by the OPM.

“As authorized by FEHBA, the Office of Personnel Management (“OPM”) contracts with private entities called “carriers” to manage the day-to-day administration of FEHBA plans. See 5 U.S.C. § 8902(a).” The National Association of Letter Carriers Health Benefit Plan (NALC Health) is one of the carriers OPM contracts with to assist in administering health benefits to federal employees.

The patient in this case worked for the Postal Service so that was the source of his coverage. So how did CIGNA end up in this picture? The answer lies in the outsourcing of services by the NALC Health intermediary.

“As authorized by its contract with OPM, NALC Health in turn contracts with a private entity-Cigna Health & Life Insurance Company-to help administer the FEHBA benefits plan. Cigna gives NALC Health access to Cigna’s network of health care providers. Cigna also performs administrative services such as repricing claims according to Cigna’s agreements with these providers, and determining whether treatments are medically necessary.”

Caution To Health Care Providers

The provider obtained oral and confirming written assurances of reimbursement at the prevailing usual and customary rates. The payments were only a fraction of those rates. While those assurances from CIGNA must have seemed quite reliable, in this case CIGNA was under contract with the federal government. Therefore, the provider’s remedies could not be under state law claims of promissory estoppel and quantum meruit in a state court.

Finding a colorable claim of sovereign immunity, the district court denied the health care provider’s motion to remand.

Note – The takeaway on an outcome such as this can only be that providers who are not in network must deal with caution with patients covered under the FEHBA. This is likely a bad policy on a larger level but the matter is beyond the control of the health care provider and definitely unfair in view of assurances of a fair payment for services rendered.