THIRD CIRCUIT JOINS OTHER CIRCUITS IN CONFERRING ERISA STANDING ON HEALTH PROVIDERS WHO RECEIVE PAYMENT ASSIGNMENTS FROM PATIENTS

In New Jersey Brain & Spine Center v. Aetna, Inc., No. 14-2101, 2015 WL 5295125 (3d Cir. Sept. 11, 2015), a case that the court designated as precedential, the Third Circuit recently cured a split in its own district courts, and in the process joined every other circuit court that has spoken on the issue, and determined that a general payment assignment to a medical provider by a patient confers standing to sue under ERISA for non-payment.

Plaintiff was a medical practice that had treated three patients who were members of ERISA-governed health plans administered by Aetna. Each of the patients had executed an assignment that read: “I authorize [NJBSC] to appeal to my insurance company on my behalf  . . . . I hereby assign to [NJBSC] all payments for medical services rendered to myself or my dependents.” Aetna allegedly refused to pay and/or underpaid certain claims and NJBSC sued in New Jersey state court for non-payment of benefits under section 502(a) of ERISA. Aetna removed the case to the U.S. District Court, which dismissed the complaint for lack of standing, holding that an assignment to a right of payment did not confer standing to sue under ERISA.

On appeal, NJBSC argued that the assignment of the right of payment was sufficient to confer standing while Aetna argued that an assignment “must explicitly include not just the right to payment but also the patient’s legal claim to that payment if a provider is to file suit.” The appeals court determined as a matter of federal common law that “when a patient assigns payment of insurance benefits to a healthcare provider, that provider gains standing to sue for that payment under ERISA § 502(a).” It further opined that an assignment of the right to payment logically entails the right to sue for non-payment and noted that every other circuit court that has considered the question has determined that such an assignment for payment also confers standing to sue for non-payment.

NINTH CIRCUIT UPHOLDS DENIAL OF PLAN’S ATTEMPT TO RECOVER MEDICAL PAYMENTS

The Ninth Circuit recently upheld a grant of summary judgment for an employer where an ERISA plan attempted to recover health care benefits for two ineligible employees based on both breach of contract and restitution/specific performance claims because it determined 1) that the plan’s breach of contract claims were preempted by ERISA; and 2) that its restitution and specific performance claims were not cognizable under ERISA because they sought legal – not equitable – relief.

In Oregon Teamster Employers Trust v. Hillsboro Garbage Disposal, Inc., No. 13-35555, 2015 WL 5202383 (9th Cir. Sept. 8, 2015), Hillsboro Garbage Disposal, Inc. (“Hillsboro”) and Oregon Teamster Employers Trust (“OTET”) entered into an agreement whereby OTET would provide health and welfare benefits for employees of the company’s non-bargaining unit but in order to be covered, a person had to be in a bona fide employment relationship with Hillsboro. In 2003, OTET began receiving health care benefit contributions for two persons, Henderson and Jackson, who, it turns out, were not employees of Hillsboro but were actually employees of a separate company under common ownership with Hillsboro, a fact discovered in a 2006 audit. OTET notified Hillsboro in 2006 that there were $70,000 in unauthorized contributions regarding Henderson and Jackson and that Hillsboro had six months to request a refund.

Despite the audit’s findings, OTET continued to accept contributions from Hillsboro on behalf of Henderson and Jackson and paid medical claims on their behalf until 2011 when it removed them after another audit and then filed a lawsuit seeking to recover the medical payments under common law breach of contract claims pursuant to a reimbursement provision in the plan, restitution and specific performance. OTET moved for partial summary judgment but the magistrate judge instead determined that the breach of contract claims were preempted by ERISA and that the restitution and specific performance claims were not cognizable under ERISA because they were legal in nature, not equitable and recommended that Hillsboro be granted summary judgment. The district judge adopted the recommendation and granted summary judgment to Hillsboro and OTET appealed.

At the Ninth Circuit, OTET argued that the breach of contract claims were not preempted because they did not turn on plan interpretation since neither Henderson nor Jackson were plan participants. The court disagreed, holding that even though those two individuals were not plan participants, the breach of contract claims still required interpretation of the plan’s terms since those were the very terms OTET alleged that Hillsboro had breached.

As to the specific performance and restitution claims, the court analyzed the claims under Great-West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204 (2002) (wherein the Supreme Court did not allow a reimbursement claim against a plan beneficiary under an ERISA plan because imposing personal liability for a contractual obligation was a legal remedy not “typically available in equity”) and Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356 (2006) (wherein the Supreme Court determined that the relief sought – reimbursement to the medical plan – was equitable in nature because the funds were specifically identifiable and in the Sereboff’s possession). Here, the appeals court upheld the district court’s decision as to the specific performance claim because it determined that the general rule was that such a claim was a legal claim unless it sought to prevent certain future losses and that the Sereboff exception only applied to restitution, not specific performance, claims regarding specifically identifiable funds. The court then determined that the reimbursement provision of the plan did not identify specific funds and, probably more importantly, the funds it was seeking to recover had been paid to medical providers, not Hillsboro.

While OTET was left with no remedy, the real lesson here seems to be pay attention to the audit findings. Had OTET removed Henderson and Jackson from the plan’s rolls when it first discovered the discrepancy in 2006, it would have never paid the medical expenses it was seeking to recover.