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Who can sue under the Employment Retirement Income Security Act, otherwise known as “ERISA?” This continues to be a contested question under ERISA and cases are still grappling with this issue. Typically, only certain individuals and entities may bring an action to enforce ERISA protections. As frequently discussed on this blog, ERISA provides procedural and fiduciary protections that govern employer-sponsored health insurance, disability insurance, life insurance and retirement plans. However, if you want to sue under ERISA, you first must qualify for its protection as a plan “participant” or “beneficiary,” as defined in the relevant provisions of ERISA. See ERISA § 502(a), 29 U.S.C. § 1132. On March 22, 2017, the Ninth Circuit narrowed the term ERISA plan “beneficiaries” to exclude healthcare providers, eliminating their right to sue under ERISA in most situations. See DB Healthcare, LLC v. Blue Cross Blue Shield of Ariz., Inc., No. 14-16518 (9th Cir. March 22, 2017).
This article details the facts and holding of DB Healthcare, and the potential impact it may have on plan participants and beneficiaries, including individuals insured under ERISA-governed employment insurance plans. First, we provide a brief background on ERISA’s definition of an employment plan “participant” and “beneficiary” and why that is an important matter in ERISA litigation. Next, we briefly discuss the case before the Ninth Circuit, including the details of its decision, the factual history, the Ninth Circuit’s rationale and its ultimate ruling. Finally, we briefly discuss the potential impact that this case may have on healthcare providers, as well as other potential avenues for recovery under state law.
Who is an ERISA Plan “Participant” or “Beneficiary”?
As noted above, and in several of our other blog articles on this topic, ERISA provides foundational procedural and fiduciary protections for individuals insured under employer-sponsored health, disability and retirement plans. However, not all employer-sponsored insurance plans are subject to ERISA and not all individuals have the right to sue under ERISA. This is true even if the plan is considered an “ERISA” plan, i.e., the health insurance, disability insurance or retirement plan is sponsored by a nongovernment employer.
ERISA outlines who can sue to vindicate a claim under ERISA as “participants” and “beneficiaries” under section 502(a). ERISA defines “beneficiary” as “a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder.” 29 U.S.C. § 1002(8). However, as the Ninth Circuit noted in DB Healthcare, ERISA does little to define “benefit.” But, given the use of benefit in other contexts in ERISA, the courts have determined “benefit” to include only services received by plan participants and beneficiaries, and not the cost of those services provided by medical providers. The term “benefit” refers to the specific advantages provided to covered employees, as a consequence of their employment, for particular purposes connected to alleviating various life contingencies.
DB Healthcare, LLC v. Blue Cross Blue Shield of Ariz., Inc.
In DB Healthcare, the Ninth Circuit decided two similar cases together, as both addressed the same central issue: whether a healthcare provider (the doctor or hospital that provides healthcare) designated to receive direct payment from a health plan administrator for medical services is authorized to sue under ERISA. Ultimately, the Ninth Circuit answered “no” under two separate bases for such authority under ERISA: direct statutory authority and derivative statutory authority through assignment.
The Plaintiffs in DB Healthcare included twelve medical facilities in Arizona, ten nurse practitioner employees and a medical facility in Bakersfield, California (collectively “Healthcare Providers”). The defendants, the administrators for the relevant ERISA governed employee benefit plans, were Blue Cross Blue Shield of Arizona, Inc. and Anthem Blue Cross Life and Health Insurance Company (collectively “ERISA Plan Administrators”). The two parties were engaged in a reimbursement dispute from 2010 and 2011. The Healthcare Providers performed blood tests and other services for the individual patients subscribed to an employer-sponsored plan. Initially, the ERISA Plan Administrators reimbursed the Healthcare Providers, but later changed course and decided the Healthcare Providers were not actually entitled to reimbursement and demanded repayments totaling $270,00 and $295,912.87. The Healthcare Providers refused to return the money and the legal battle in DB Healthcare ensued. In general, the Healthcare Providers alleged that the ERISA Plan Administrators violated ERISA’s protections when they unilaterally determined that the blood tests and other services performed were not reimbursable. The Healthcare Providers then filed lawsuits against the ERISA Plan Administrators. The Healthcare Providers alleged two claims under ERISA in their complaint. First, they sought injunctive relief regarding Blue Cross’s refusal to credential nurse-practitioners and its threat to cancel provider agreements, alleging that Blue Cross violated ERISA’s prohibition against retaliation for the exercise of rights guaranteed by employee benefit plans. See 29 U.S.C. § 1140. Second, they sought a declaratory judgment that Blue Cross’s recoupment efforts violate the ERISA Claims Procedure, 29 U.S.C. § 1133, and the ERISA Claims Procedure regulation, 29 C.F.R. § 2560.503-1, which provide procedural protections for ERISA claimants.
The Ninth Circuit affirmed the district court judgments dismissing the actions.
First, consistent with several other circuits, the Ninth Circuit found that the Healthcare Providers were not “beneficiaries” within the meaning of ERISA’s enforcement provisions and could not bring claims directly under ERISA. The Court’s rationale was that reimbursement for healthcare services is not a “benefit” within the meaning of the ERISA. Given that ERISA’s definition of “beneficiary” is based on whether the person is entitled to receive benefits, Healthcare Providers cannot be deemed a beneficiary under ERISA because they are only entitled to reimbursement and not the actual medical, surgical or other “benefits” provided.
Second, the Ninth Circuit held that the Healthcare Providers could not bring their claims under derivative authority, through assignment by individual employee beneficiaries. In determining that the Healthcare Providers were not entitled to reimbursement, the Ninth Circuit reviewed the several contracts that governed the relationships between the parties. The Court took specific note of the non-assignment clauses in the governing employee benefit plans.
As a general matter, such “non-assignment” clauses prohibit the insured individuals from assigning any of their rights under the plan to third parties. For example, the non-assignment clause from DB Healthcare read as follows: “The benefits contained in this plan, and any right to reimbursement or payment arising out of such benefits, are not assignable or transferable, in whole or in part, in any manner or to any extent, to any person or entity. . . .” What this means is that the “benefits” of the insurance policy protections extend only to the individual employee and he cannot transfer that right to someone else. Thus, although the patients signed forms to the Healthcare Provider that stated “I Hereby Authorize My Insurance Benefits to Be Paid Directly to the Physician,” the court held that those forms did not actually give the Healthcare Providers the right to reimbursement because the assignment language referred only to direct payment of insurance benefits to the Healthcare Providers, with no reference to broader rights. The rights to declaratory and injunctive relief or to sue for breach of fiduciary duty were not within the scope of the assignment.
What does this mean moving forward?
While this case limits the possibilities for reimbursement for some healthcare providers, it does not entirely foreclose recovery. There is no reason that the Healthcare Providers in DB Healthcare could not have brought their claims in state court as ERISA would not have preempted them. See Blue Cross of Cal. v. Anesthesia Care Ass’n,, 187 F.3d 1045, 1050–52 (9th Cir. 1999). Moreover, if medical providers cannot sue under ERISA because of an existing anti-assignment clause in the ERISA plan document, it is possible that they may still be able to bring an action against a claims or plan administrator for breach of oral contract, equitable or promissory estoppel and other theories for recovery under state law if the claims or plan administrator pre-authorized coverage of the claim directly with the medical provider. See Morris B. Silver M.D., Inc., v. Int’l Longshore & Warehouse Union Pac. Maritime Ass’n Welfare Plan, 2 Cal.App.5th 793 (2016) (holding that ERISA did not preempt provider’s claims for breach of oral contract, quantum meruit and promissory estoppel).
Having an experienced disability, health and life insurance attorney matters to the success of your insurance matter, particularly when complicated issues like the above apply to your claim. If your claim for health, life, short-term disability or long-term disability insurance has been denied, you can call (949)387-9595 for a free consultation with the attorneys of the McKennon Law Group PC, several of whom previously represented insurance companies and are exceptionally experienced in handling ERISA and Non-ERISA insurance claims.