In a decision sharply at odds with a recent Illinois ruling, a federal district court in Arizona held that health care providers cannot be characterized as plan beneficiaries who can sue to compel payment of ERISA benefits. The court rejected the view that a direct payment for services is an ERISA benefit that give providers the right to sue under ERISA — such a right only comes from an assignment of benefits from a plan participant, it held. Characterizing beneficiaries as more than just a covered spouse or dependent would undermine ERISA, the court decided in DB Healthcare v. BCBS Arizona, 2014 WL 3349920 (D.C. Ariz., July 9, 2014).
Furthermore, plans’ non-assignment language effectively blocked participants from assigning to providers their right to sue to enforce ERISA rules, the court decided.
These were the court’s main conclusions in dismissing a case under which the providers alleged they were owed ERISA claims and appeals rights as ERISA beneficiaries.
The Facts
BCBS insured and administered the claims of several ERISA plans.
A group of health service providers including 10 nurse practitioners, had been billing allergy tests (ALCAT cytotoxic lab tests and attendant care) and getting paid for them since May 2011.
Sometime soon thereafter, the payer reversed its coverage policy on the tests, defining them as “investigational.” The payer posted the change on the Internet, but the providers said the policy was not properly communicated to them. The providers also said that the fact Blue Cross paid hundreds of the claims was an acknowledgement that the tests were medically necessary and amounts billed and paid were proper.
In its provider agreements, BCBS reserved the right to adjust an adjudicated claim for up to a year after the date of payment if the claim was incorrectly paid or denied. (It also posted its policy of non-payment for investigational or experimental services.)
In April 2012, the payer sent the NPs demand letters saying that the claims had been paid in error and they needed to return $237,000. The providers alleged this reversal was an ERISA benefits determination, while the payer contended that it was an overpayment recoupment from future claims.
The providers refused to refund the money. In reply, Blue Cross alleged breach of contract, threatened to toss in-network NPs out of its network, and reject the credentialing applications of NPs who had pending applications to become in-network.
The providers sued to reverse the retroactive denial, saying the payer’s demand letter violated ERISA and health care reform claim rules requiring adequate notice in writing within 30 days and the opportunity for full and fair review. Provider contracts that provided for unilateral offsets should be preempted by ERISA, they said.
Even under ERISA, they argued, their recoveries would not be equitable because they would rely on tracing that cannot be done.
They argued that the cancellation of the NPs’ in-network status violated ERISA’s prohibition on retaliation, and sought an order forcing Blue Cross to restore the provider agreements and the provider-network applications it had cancelled.
Blue Cross moved to dismiss the claims, saying the providers were trying to manufacture federal ERISA questions in order to avoid their contractual obligations.
Providers Said They Were Beneficiaries
The providers said they had standing under ERISA because they are ERISA beneficiaries, and the fact that they collected payments directly from the payer conveyed an ability to enforce ERISA.
They argued thatproviders become beneficiaries much in the same way that ERISA allows workers to designate beneficiary rights to spouses and dependents. But the court said that argument was “unpersuasive” and “contrary to the weight of authority.”
The court rejected the idea that the providers should gain legal status as ERISA beneficiaries without an assignment of benefits. Other benefits, like vacation pay and fringe benefits, are unassignable, the court remarked.
And the mere fact of being directly paid by the plan does not make a provider into a plan beneficiary for ERISA standing purposes.
Note: The federal district court in DB Healthcare v. BCBS Arizona rebutted the federal court in Illinois’ expansive definition of beneficiary in Penn. Chiro. Assn. v. Blue Cross Blue Shield Assn., 2014 WL 1276585 (N.D. Ill., March 29, 2014), which decided that providers were “beneficiaries” under ERISA by virtue of being paid directly by plans. As beneficiaries, the providers had to be afforded ERISA claims-processing and appeal protections. The court also barred the health plans from unilaterally recovering overpayments from the providers.
The court said the ruling in Penn. Chiro. Assn. v. Blue Cross Blue Shield Assn.: had no foundation in precedent; applied pension plan provisions to the health context; and was the “only case ever” to reach such a conclusion.
An ERISA plan may expand the definition of beneficiary, but the plans DB Healthcare was involved with limited the definition of beneficiary to the participant plus family members or dependents.
The plaintiffs cited cases where courts gave providers ERISA standing, but the providers in those cases had assignments. In contrast, DB Healthcare was trying to assert its rights as a beneficiary in the absence of any assignment. The court rejected that reading.
[Health care providers] are not beneficiaries. They may sue to enforce ERISA only with valid assignments.
The providers submitted no valid assignments of benefit forms to the court. They did submit four blank forms and one filled-out form that did not assign benefits to any of the NPs by name.
Non-assignment Clauses
Further, some, if not all of the plans, had valid non-assignment clauses, leaving no basis for providers to expect ERISA claims rules to be in effect. BCBS Arizona contended, and the court found nothing to contradict, that every ERISA plan contained this non-assignment language.
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. You shall not sell, assign, pledge, transfer or grant any interest in or to, these benefits or any right of reimbursement or payment arising out of these benefits, to any person or entity. Any such purported sale, assignment, pledge, transfer, or grant is not enforceable against [Blue Cross] and imposes no duty or obligation on [Blue Cross]. [Blue Cross] will not honor any such purported sale, assignment, pledge, transfer or grant.
A non-assignment clause prohibiting participants from signing away their rights to pursue ERISA benefits in court is not inconsistent with an arrangement under which the plan pays the provider directly — for the convenience of the provider and participant, the court said.
As a result, the court barred the providers from suing as assignees. Further, the court denied the providers the opportunity of amending their complaint.
ERISA Exists to Defend Participants, Beneficiaries
The providers had promoted their case saying this was a classic “right to pay” as opposed to “amount of pay” situation (the former — right to pay — being an important hallmark of an ERISA case versus state-law case). But without an assignee, the court said that was moot.
The court ruled for BCBS Arizona, and dismissed DB Healthcare’s complaint.