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:: Fifth Circuit Finds State Assignment Statute Not Preempted

In Louisiana Health Service & Indem. Co. v. Rapides Healthcare System, 2006 WL 2361696 (5th Cir. 2006), the Fifth Circuit rejected preemption objections to a Louisiana statute requiring health plan payers to honor any assignments of benefits by a plan member to hospitals. Under the statute, if the plan had notice of the assignment, the plan will be liable for the services rendered if the plan pays the member instead of the hospital.

Section 40:210 of the Louisiana Revised Statutes, a part of the “State Department of Hospitals” laws, states that:

No insurance company, employee benefit trust, self-insurance plan, or other entity which is obligated to reimburse the individual or to pay for him or on his behalf the charges for the services rendered by the hospital shall pay those benefits to the individual when the itemized statement submitted to such entity clearly indicates that the individual’s rights to those benefits have been assigned to the hospital. When any insurance company, employee benefit trust, self-insurance plan, or other entity has notice of such assignment prior to such payment, any payment to the insured shall not release that entity from liability to the hospital to which the benefits have been assigned, nor shall such payment be a defense to any action by the hospital against the entity to collect the assigned benefits.

When Blue Cross and other hospitals allegedly failed to comply with the assignment statute after the hospitals terminated their participating provider agreements with Blue Cross, Blue Cross defended against the statute by seeking a declaratory judgment in federal court that the assignment statute was preempted by ERISA to the extent that it applies to ERISA employee welfare benefit plans. After concluding that the plan provisions themselves did not require compliance with the assignment statute, the Fifth Circuit turned to the preemption issue.

The Court rejected Blue Cross’ preemption argument, finding that “[T]he assignment statute merely passes the sole enforcement mechanism–ERISA § 502–from patient to hospital; it does not impose any additional obligation on the ERISA plan administrator, nor does it create additional or separate means of enforcement.” Therefore, the Fifth Circuit held that the Louisiana assignment statute was not in conflict with the exclusive enforcement mechanism provided by ERISA.

Further, the Court rejected Blue Cross’ contention that the statute was preempted as a law that “relate[s] to” employee benefit plans. Noting that ERISA is silent on the assignability of employee welfare benefits, the Court turned to precedent in prior cases involving assignments. The Court stated:

Here, the burden on plan administrators is minimal, especially given that Louisiana requires all insurance claims to be submitted on a uniform claim form that includes space for indicating whether benefits have been assigned. [T]he assignment statute will not create any additional paperwork for Blue Cross and, in fact, it may lesson Blue Cross’s administrative responsibilities. With or without assignment, Blue Cross will pay benefits only one time, and payment is triggered upon submission of a claim form. To Blue Cross, it should not matter whether that claim form comes from the plan participant, as provided in the plan documents, or from the hospital, as assignee of the participant’s benefits claim. Further, as pointed out by amicus curiae, most hospitals file claims with insurance companies electronically, which mitigates the administrative burden. The burden seems greater when many individuals plan participants must each individually file claims with Blue Cross, especially given the intricacies of coverages, deductibles, and retentions of most health care plans. By consolidating many different individual claims, hospitals can channel expertise in the benefits process. Tellingly, Blue Cross concedes that it must honor assignments made under non-ERISA plans, which suggests that it already has in place some administrative mechanism for complying with the statute. Taken together, the burden imposed by the assignment statute, especially given its consistency with ERISA § 3(8), is minimal, militating concerns over the statute’s effect on nationally uniform plan administration.

Since both the Eight and Tenth Circuits have held that ERISA preempts similar assignment statutes, the issue appears one for future U.S. Supreme Court review. See, Ar. Blue Cross & Blue Shield v. St. Mary’s Hosp., Inc., 947 F.2d 1341 (8th Cir.1991); St. Francis Reg’l Med. Ctr. v. Blue Cross & Blue Shield of Ks., Inc., 49 F.3d 1460 (10th Cir.1995).