:: Ninth Circuit Reaffirms Holding That Health Care Provider’s Non-Derivative State Law Claims Are Not ERISA Preempted
We decline PBP Health’s invitation to adopt St. Mary’s Hospital’s reasoning as law of this circuit. St. Mary’s Hospital is contrary to our holding in The Meadows, 47 F.3d at 1009-11 (holding that third-party claims that do not involve assigned rights to benefits do not “relate to†ERISA and, consequently, are not preempted by ERISA), and does not recognize that FEHBA’s implementing regulations state that preemption applies to only “covered individuals†and those “acting on behalf of a covered individual and … have the covered individual’s specific written consent to pursue payment of the disputed claim,†5 C.F.R. §§ 890.101, 890.105.
Cedars-Sinai Medical Center v. National League of Postmasters of U .S. — F.3d —-, 2007 WL 2284349 (C.A.9 (Cal.)) (August 10, 2007)
Cedars-Sinai involved a preemption argument based upon the Federal Employee Health Benefits Act or “FEHBA”. Since FEHBA and ERISA have similar preemption provisions, however, the case has value for ERISA practitioners. The Court observed that:
Because there is no Ninth Circuit authority discussing FEHBA pre-emption issues involving the claims of a third-party health care provider, we may look to analogous cases involving the application of ERISA’s pre-emption provision. See Botsford, 314 F.3d at 393-94 (recognizing that FEHBA’s preemption provision “closely resembles ERISA’s express pre-emption provision, and precedent interpreting the ERISA provision thus provides authority for cases involving the FEHBA provisionâ€).
The Facts
Cedars-Sinai, a non-profit California hospital submitted claims totaling $742,217.93 to PBP Health, an administrator of is a federal health benefit plan (“the Planâ€). (The Plan was created pursuant to FEHBA, which authorizes the U.S. Office of Personnel Management (“OPMâ€) to contract with insurance carriers to provide health benefits for federal employees.)
The Plan paid only $168,947.44.
When Cedars-Sinai sued the Plan in state court on various state law theories, the plan removed the case to federal district court. There, the Plan prevailed on its argument that ERISA preempted the provider’s claims. The carrier appealed.
A Review of Precedent
The Ninth Circuit took pains to review the case law originating with Memorial Hospital System v. Northbrook Life Insurance Co., 904 F.2d 236 (5th Cir.1990). In that case, the Fifth Circuit held that a health care provider’s “non-derivative claims”, i.e., claims not asserted as an assignee of plan benefits, were not preempted.
Preempted clams, observed the Fifth Circuit, typically fell in the following categories:
(1) the state law claims address areas of exclusive federal concern, such as the right to receive benefits under the terms of an ERISA plan; and (2) the claims directly affect the relationship among the traditional ERISA entities-the employer, the plan and its fiduciaries, and the participants and beneficiaries.
Applying this test, Firth Circuit held that the provider’s non-derivative claims were not preempted because those claims did not fit into either category.
The Memorial Health Factors Applied In The Ninth Circuit
The Ninth Circuit noted its prior approval of Memorial Health in The Meadows v. Employers Health Insurance Corp., 47 F.3d 1006 (9th Cir.1995). In The Meadows, noted the court,
We recognized that ERISA preempts the state claims of a provider suing as an assignee of the beneficiary’s rights to benefits under an ERISA plan. See The Meadows, 47 F.3d at 1008 (citing Misic v. Bldg. Servs. Employees Health & Welfare Trust, 789 F.2d 1374, 1378 (9th Cir.1986)). However, we held that ERISA does not preempt “claims by a third-party who sues an ERISA plan not as an assignee of a purported ERISA beneficiary, but as an independent entity claiming damages,†id., because such claims do not “relate†to ERISA preemption, id. at 1009.
The Ninth Circuit expressly rejected the reasoning in St. Mary’s Hospital v. Carefirst of Maryland, Inc., 192 F.Supp.2d 384 (D.Md.2002), relied on by the district court in holding for the defendant.
PBP Health contends that we should adopt the reasoning in St. Mary’s Hospital v. Carefirst of Maryland, Inc., 192 F.Supp.2d 384 (D.Md.2002), a case relied on by district court in the decision below. In St. Mary’s Hospital, the plaintiff hospital brought suit against a health insurer for several claims, including breach of contract based on the insurer’s refusal to reimburse the plaintiff for services provided to plan enrollees. The plaintiff argued that preemption was inappropriate because the plaintiff was a health care provider; it was not a plan enrollee, nor did it have an assignment of rights from the enrollee. . . . The court recognized that this was a novel situation in the Fourth Circuit but disagreed with the plaintiff. Instead, the court found that the plaintiff’s claims were preempted because the “nature†of its claims “implicated the terms and provisions†of the FEHBA plan. Id. at 389. The court also noted that “[t]o allow state contract law to decide the matter would disrupt the national uniformity of coverage for federal employees intended by Congress in enacting [the] FEHBA.†Id.
In reversing the district court, the Ninth Circuit stated that it declined the defendant’s invitation to adopt St. Mary’s Hospital’s reasoning as law of this circuit as it is contrary to the Ninth Circuit holding in The Meadows.
Note: The Ninth Circuit opinion clarifies its position on provider claims. Third-party claims that do not involve assigned rights to benefits do not “relate to†ERISA and, consequently, are not preempted by ERISA.
Additional Authority - The Court also noted favorably another district court opinion on the issue, stating:
Finally, Cedars-Sinai cites to Hoag Memorial Hospital v. Managed Care Administrators, 820 F.Supp. 1232 (C.D. Cal 1993). In Hoag, the plaintiff hospital brought an action against the defendant employer and the employer’s benefit plan, seeking recovery of fees for treatment for one of the defendant’s employees. See id. at 1233. The defendants had made representations to the plaintiff that the employee was covered, but later stated that an exclusion applied to deny coverage. . . . The plaintiff sued because the plan refused to reimburse it for any treatment. . . . It is this Court’s opinion that ERISA’s preemption provision was intended to preclude the latter, not the former.â€). The district court’s holding in Hoag that third-party claims that do not involve assigned rights to benefits are not preempted by FEHBA is persuasive and bolsters Cedars-Sinai’s position that its claims for reimbursement are not preempted.
