Seyfarth Synopsis: A provider that is not seeking benefits based upon an assignment of a patient’s claims under ERISA but instead is pursuing state law claims based solely on agreements and representations made directly by the insurer to the provider may survive attempts to remove the case on grounds of ERISA complete preemption.
Can an out-of-network health care provider bring state law claims in state court against an ERISA plan insurer and avoid removal of those claims to federal court pursuant to ERISA’s complete preemption? This issue is often litigated, and sometimes, such as in California Spine and Neurosurgery Institute v. Boston Scientific Corp., Case No. 18-CV-07610 (N.D. Cal. May 3, 2019), the answer is yes.
In Boston Scientific, an out-of-network provider brought breach of oral contract and promissory estoppel claims in state court against the insurer of an ERISA plan after the insurer refused to pay the $77,000 the provider had billed for surgical services. The provider claimed it had phoned the insurer prior to the surgery, and the carrier had offered “promises and information” that the insurer would pay. The insurer promptly removed to federal court on the grounds that the provider’s state law claims were completely preempted by ERISA § 502(a). The provider moved to remand, claiming there could be no preemption given it had no standing to bring an ERISA claim.
The Court applied the two-prong test set forth in Aetna Health Inc. v. Davila, 542 U.S. 200, 210 (2004), wherein a state law cause of action is completed preempted if (1) the plaintiff at some point in time could have brought the claim under ERISA § 502(a)(1)(B), and (2) there is no other independent legal duty that is implicated by the defendant’s actions. While a claim for benefits under ERISA § 502(a)(1)(B) may only be brought “by a participant or beneficiary,” the Ninth Circuit permits assignees to bring ERISA claims.
The Court focused on the first prong of Davila. The provider argued that, since it was not a participant or beneficiary, it could not have brought a 502(a)(1)(B) claim. After examining whether there was an assignment-in-fact (which would permit the provider to bring an ERISA claim), and determining there was not, the Court agreed with the provider that it could not have brought an ERISA claim. Because Davila is a conjunctive test, the Court stated that it was declining to examine the second prong regarding an independent legal duty, and found complete preemption unavailable.
Notably, although the Court stated that it was not examining the second prong of Davila, it spent considerable time analyzing the provider’s allegations that it was “owed additional money based on an oral contract [which] is a different obligation than a payment to a medical provider required under a patient’s ERISA plan.” The Court relied on the Ninth Circuit’s decision in Marin Gen Hosp. v. Modesto & Empire Traction Co., 581 F.3d 941 (9th Cir. 2009), a similar case involving a phone conversation between a provider and payor, to find complete preemption inapplicable and allowing the state law causes of action to proceed.
Boston Scientific is an important lesson that, while claims brought by providers as assignees of a patient’s rights under an ERISA plan generally are preempted, providers that bring state law claims based solely on their direct dealing with an insurer often can defeat attempts at removal to federal court based on complete ERISA preemption, especially where the provider disclaims an assignment. ERISA plan administrators and insurers would be well-advised to take care that any statements made to providers redundantly clarify that any payments would be subject to plan terms. Moreover, this case did not address conflict preemption under ERISA § 514(a), which provides insurers and health care plans with another avenue to defeat out-of-network providers’ claims. Stay tuned to this blog as future case law addressing the intricacies of ERISA preemption unfolds.