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Benefits

Third Circuit: Out-of-Network Provider’s Suit Against Insurer Not Preempted by ERISA

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EBIA  

Plastic Surgery Ctr., P.A. v. Aetna Life Ins. Co., 2020 WL 4033125 (3d Cir. 2020)

Available at https://www2.ca3.uscourts.gov/opinarch/183381p.pdf

This lawsuit arose from an out-of-network plastic surgery provider’s ad hoc agreement to perform specialized procedures—not available in-network—for participants in different ERISA group health plans with the same insurer. The provider negotiated with the insurer in advance about payment for the procedures, and while there was no formal written agreement, contemporaneous notes indicated that the insurer agreed to pay a “reasonable amount” (for one procedure) and the “highest in-network level” (for the other). When the insurer paid significantly less than the amounts ultimately billed, the provider sued in state court for breach of contract, promissory estoppel (i.e., enforcement of a promise), and unjust enrichment (i.e., restitution for a benefit unfairly received). Based on the insurer’s argument that ERISA preempts state-law claims, the lawsuit was moved to federal court and dismissed. On appeal, the Third Circuit concluded that ERISA preempted only the unjust enrichment claim, allowing the others to proceed.

Citing the general rule that ERISA preempts state laws that have an impermissible “reference to” or “connection with” an ERISA plan, the Third Circuit concluded there was no impermissible “reference to” ERISA plans with regard to the state-law breach of contract and promissory estoppel claims because they did not seek benefits under a plan or require interpretation of plan terms—they arose precisely because there was no plan coverage. According to the court, payment rates could be determined using industry standard rates or the insurer’s network fee schedule, requiring at most a cursory review of plan terms. The court rejected the insurer’s argument that any reference to an ERISA plan triggers preemption, explaining that a mere “factual backdrop” is not necessarily an impermissible reference to the plan for preemption purposes. Nor did the court find an impermissible “connection with” an ERISA plan because the claims would not affect the relationship among traditional ERISA entities (the employer, plan and fiduciaries, and participants and beneficiaries), interfere with plan administration, or undercut ERISA’s stated purpose. On the other hand, the court held that ERISA preempted the unjust enrichment claim because demonstrating the alleged unfair benefit—that the provider fulfilled the insurer’s obligations to plan participants—necessarily invokes (and thus has an impermissible “reference to”) the ERISA plans.

EBIA Comment: As plan anti-assignment clauses increasingly block providers from pursuing recovery through benefit assignments (see, for example, our Checkpoint article), out-of-network providers may seek ad hoc arrangements regarding payment for services not covered by a plan. The insurer in this case conceded that the claims would not be preempted by ERISA if they were governed by a freestanding contract identifying the discrete services to be performed and the amount to be paid, with no mention of the plan. Even when ERISA preemption is a consideration, this case demonstrates that ERISA’s preemptive reach is not unlimited, and liability under state law is possible. For more information, see EBIA’s ERISA Compliance manual at Sections XI.E (“Assignment of Benefits”) and XXXIX.H.18 (“Claims Between Plans/Plan Sponsors and Service Providers (Including Insurers)”); see also EBIA’s Self-Insured Health Plans manual at Section V (“Governing Laws and ERISA Preemption”).

Contributing Editors: EBIA Staff.Surg

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