:: Managed Care Contract Gives Rise to “Independent Legal Duty” Which Survives ERISA Preemption
As in Pascack Valley Hospital and Anesthesia Care Associates, the crux of the parties’ dispute in this case arises from the terms of a contract-the Hospital Agreement-that is independent of the ERISA patients’ plans; the ERISA patients are not parties to the Hospital Agreement; and parties dispute the level, rate, or amount of payment, not the right to payment. Northeast does not challenge Aetna’s benefits determinations under the patients’ ERISA plans. Nor does Northeast challenge the scope of the plans’ coverage. Northeast Hosp. Authority v. Aetna Health Inc., Slip Copy, 2007 WL 3036835 (S.D.Tex.) (October 17, 2007)
Framing the issue in this way, the United States District Court in Northeast Hosp. Authority v. Aetna Health Inc. ultimately added another decision to growing list of cases in which managed care contracts permit payment disputes between provider and health plan to survive ERISA preeemption. The contours of a successful argument for provider reimbursement are taken from the outline of critical factors set forth in AETNA Health, Inc. V. Davila 542 U.S. 200 (2004).
The Facts
On June 13, 2006, Northeast Hospital Authority (“Northeastâ€) sued Aetna Health, Inc. (“Aetnaâ€) in state court, asserting a claim for breach of contract based on the parties’ Hospital Agreement (the “Agreementâ€). Aetna removed the case on August 3, 2007 (note the date). Northeast filed a motion to have the case remanded to state court, arguing that:
- the notice of removal was untimely; and
- that its claims arose solely under state law and thus were not governed nor preempted by ERISA.
Preemption Analysis
The court found that the motion to remand was untimely, but for purposes of this post, I am reversing the order of the holdings. Even were the motion timely, the district court held that the provider’s claims were not preempted.
Under Davila, ERISA preempts a cause of action if “at some point in time†an individual “could have brought his claim under ERISA § 502(a)(1)(B)†and if “there is no other independent legal duty that is implicated by a defendant’s actions.†Stating the issue thusly, the district court held that the provider’s claims failed to meet the test for preemption.
Courts applying Davila have found that no there is no ERISA preemption when a health-care provider sues an insurance company to assert contract claims that exist independently of ERISA. The Third Circuit, for example, found no preemption in Pascack Valley Hospital, Inc. v. Local 464A UFCW Welfare Reimbursement Plan, 388 F.3d 393 (3d Cir.2004).
#1 The Standing Test
AS noted in a previous post, since healthcare providers are not considered “beneficiaries†or “participants†under ERISA, they lack standing to directly assert claims for benefits against ERISA plans under 29 U.S.C. § 1132(a). On the other hand, a proper assignment of benefits by a plan participant to a provider may constitute sufficient derivative standing to permit the provider to advance claims under ERISA.
In this case, it was unclear whether assignments were taken. The court stated:
The record is unclear as to whether Northeast received assignments that would give it standing to sue under ERISA. However, even if Northeast did receive such assignments from its ERISA patients, the assignment itself does not result in complete preemption of the hospital’s claim because complete preemption under § 502(a) requires both standing and the lack of an independent legal duty supporting a state-law claim. Davila, 542 U.S. at 210.
#2 The “Independent Legal Duty†Test
A legal duty is not independent of ERISA if it “derives entirely from the particular rights and obligations established by ERISA benefit plans.†This aspect of the Davila holding provided the fulcrum needed by the hospital to leverage past the ERISA preemption argument. The court observed:
Northeast does not argue that Aetna misrepresented the validity, existence, or scope of the ERISA patients’ coverage under their respective benefit plans. Nor does Northeast or Aetna dispute whether the terms of the ERISA patients’ plans covered cardiac catheterization. The substance of Northeast’s claim against Aetna is not “the improper processing or denial of assigned medical claims,†as Aetna argues. The substance of Northeast’s claims is that for certain patients, Aetna paid only 75% of billed charges for outpatient cardiac catheterizations, and 85% of a lower per diem rate for inpatient cardiac catheterizations.
As such, the hospital’s claims arose out of the terms of the parties’ Hospital Agreement, not the terms of the ERISA patients’ benefits plans.
Note: The issue of timely removal is a persistent and troublesome problem for defendants who seek to avail themselves of ERISA’s federal question jurisdiction to remove a state court case to federal court. In this instance, the defendant failed to timely remove the case in the view of the district court:
Aetna’s argument that Northeast’s motion for summary judgment “provided the first instance where it was ‘unequivocally clear and certain’ that some of [Northeast's] medical claims in this lawsuit were preempted by ERISA†is not supported by the record.
I will address this issue in more detail in a subsequent post.
The Davila Progeny - It is fascinating how AETNA Health, Inc. V. Davila 542 U.S. 200 (2004), as case in which the plaintiff’s claims were preempted, has provided an outline for pleading health care provider cases that avert preemption. The steady collection of cases pointing to this conclusion, however, is attaining a critical mass that warrants respect.
Previous Cases Distinguished - This is an important point – Davila is a watershed decision that allows health care providers to sidestep previous adverse case authority:
Aetna argues that the Fifth Circuit and the Southern District of Texas “have repeatedly held that ERISA preempts a health care provider’s state law claims when the substance of the claim is the improper processing or denial of assigned medical claims.†(Docket Entry No. 9 at 15). However, all but one of the cases on which Aetna relies were decided before Davila.
See also - Hospital State Law Claims Against Aetna HMO & PPO Plans Remanded To State Court : The Hazards Of Improper Removal of State Law Cases To Federal Court
