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Insurable Interests - Insights on Insurance Law

Out-of-network claims present ERISA challenges for providers and payers alike

medical billing statementReimbursement disputes pitting health care providers against those paying for their services (such as health insurers and self-funded health care plans), are increasingly common in our court system, especially as health care costs continue to rise nationwide. In particular, disputes between providers and payers involving out-of-network claims have increased sharply in recent years. These disputes involve both legal and practical considerations, and a full understanding of both is critical.

A fairly-straightforward example can help illustrate the issue. Suppose an employee of Acme Inc. is traveling through Illinois on vacation when he is involved in a serious car accident. The employee is a participant in Acme’s self-funded health plan. The employee is taken to the local ER for treatment of his life-threatening injuries.

The hospital group, however, is not part of the Acme plan’s preferred provider network. The physicians at the hospital do a fantastic job caring for the employee but he tragically passes away without ever regaining consciousness. The total charges for his treatment exceed $450,000, but due to his condition, the hospital never received an assignment from the employee of his health care coverage.

The hospital sends its invoices to the plan, seeking the full amount of its charges. The plan ultimately pays the hospital $139,000 as full payment, purporting to rely on the plan language for out-of-network claims. The hospital disputes that that language was applied correctly.

May the hospital sue the plan to recover the difference between its invoiced amount and the paid amount? It depends.

Start with the proposition that the hospital’s suit against the plan would be a claim under section 502(a)(1)(B) of ERISA, as it seeks benefits allegedly due under the terms of a health care plan. Yet only “participants” and “beneficiaries” are empowered to sue under that provision. Hospitals are certainly not participants, as they do not purchase health care coverage from health care plans. A growing consensus in the courts also holds that providers are not beneficiaries as defined by ERISA, as that term is understood to mean family members and other dependents for whom coverage is purchased by a participant. As a result, most courts that have considered the issue hold that providers have no statutory right to sue providers directly for unpaid health claims.

A hospital that has obtained a written assignment from the patient may pursue a claim (and litigation, if necessary) for payment, as the assignment permits the hospital to “stand in the shoes” of the participant in seeking coverage from his or her own plan. In the vast majority of cases, the claim is paid directly to the provider and no further dispute arises.

But what if the assignment is ambiguous? Or if the plan includes an anti-assignment provision? These issues add another layer of complexity to disputes involving out-of-network claims. Providers that seek to rely on assignments should ensure that they are clear and unambiguous, as courts have not hesitated to refuse to enforce assignments that are unclear about what rights the participant is assigning.

In addition, despite the fact that participants routinely purport to assign their rights to health care coverage when seeking care from a provider, courts have almost uniformly upheld anti-assignment clauses when the issue is litigated in the context of out-of-network claims. In these cases, the provider has no remedy against the plan – it cannot pursue a claim directly under ERISA nor may it proceed indirectly by relying on an assignment from the patient. In such cases, the hospital is left to pursue the patient directly.

Even in cases where a valid assignment is made, providers face challenges in recovering for their charges. As the assignment cannot give them any greater rights than those possessed by the participant him or herself, the provider must be sure to follow all plan provisions to exhaust administrative remedies. In addition, recent decisions upholding short limitations periods for bringing lawsuits, as well as restrictive forum-selection clauses, create additional challenges.

Turning back to our Acme employee example, the hospital in that case lacks standing to sue the employee’s plan directly, and it does not have an assignment either. In that situation, it will likely be left to pursue the employee’s estate or family, if it chooses to do that. Of course, if the hospital initiates litigation against the family, the family may implead the plan into the lawsuit, potentially opening an avenue for payment.

Out-of-network claims require careful consideration of these legal and practical considerations. If you are a provider, plan sponsor or third-party administrator and would like to discuss these issues further, please feel free to contact the author at tsmith@gklaw.com.

December 07, 2017

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