Third Circuit: Out-of-Network Provider’s Common Law Claims Not Preempted by § 514 of ERISA

In a landmark decision for out-of-network healthcare providers, the Third Circuit recently held in a published opinion that an out-of-network provider’s direct claims against Aetna for breach of contract and promissory estoppel are not preempted by § 514 of ERISA when rooted in representations and/or promises made during the benefit verification process.

In Plastic Surgery Ctr., P.A. v. Aetna Life Ins. Co., the Third Circuit considered what remedies are available to an out-of-network provider when an insurer initially agrees to pay for the provision of out-of-network services, and then breaches that agreement. In doing so, the panel noted that the issue was one of “first impression,” and of “great importance to the health care industry.”

The case arose from a reimbursement dispute between Plastic Surgery Center, P.A. (“PSC”), an out-of-network surgical practice, and Aetna, relative to services provided to two Aetna insureds, J.L. and D.W. J.L. and D.W. were referred to PSC, which specializes in plastic and reconstructive surgery: J.L. for bilateral breast reconstruction surgery following a double mastectomy; and D.W. for “facial reanimation surgery,” “a niche procedure performed by only a handful of surgeons in the United States.”

Apparently, neither J.L. nor DW had out-of-network coverage for these procedures. D.W.’s health benefit plan also contained an “anti-assignment” clause, which prevented D.W. from assigning his or her rights under the plan to PSC. Nevertheless, because J.L. and D.W. So, before agreeing to schedule and perform the surgical procedures in question, PSC engaged Aetna to confirm that Aetna would cover the procedures, and to also verify what Aetna would pay for the procedures.

In both cases, Aetna purportedly made affirmative representations with respect to the level of reimbursement it would provide to PSC if it performed the procedures in question, as documented in contemporaneous records maintained by PSC of its benefit verification calls with Aetna. For J.L., Aetna agreed to pay “a reasonable amount for those services according to the terms of the Plan.” And for D.W., Aetna agreed “to provide payment at the ‘highest in-network level.’”

PSC performed the procedures in question and submitted timely bills to Aetna. Aetna, in turn, paid only a fraction of the billed charges. PSC thereafter filed suit asserting claims for (1) breach of contract, (2) unjust enrichment, and (3) promissory estoppel.

The District of New Jersey granted Aetna’s motion to dismiss, holding that § 514 of ERISA preempted all of PSC’s common law claims because those claims “relate to” ERISA plans. PSC appealed.

On appeal, Aetna conceded that a “single stand-alone agreement” between an insurer and out-of-network provider would not “relate to” an ERISA plan, and therefore would not fall within the ambit of § 514, but nevertheless argued that the representations made by Aetna relative to both D.W. and J.L. referenced payment terms contained in Aetna’s plans. PSC, represented by Maggs McDermott & DiCicco, LLC, argued that the terms of the underlying plans were not “essential” to its claims against Aetna; the Third Circuit agreed.

The court reasoned that “absent a separate agreement between Aetna and the Center, there was no obligation for the Center to provide services to the plan participants, no obligation for Aetna to pay the Center for its services, and no agreement that compensation would be limited to benefits covered under the plan.” Thus, the panel revived PSC’s breach of contract and promissory estoppel claims because they are not “related” or “connected” to the underlying ERISA plans. The Third Circuit declined to revive PSC’s promissory estoppel claim, however, concluding that the supporting allegations depended on the existence of an ERISA plan.

The Third Circuit’s decision gives some clarity to out-of-network providers. In the past, the insured would simply assign his or her benefits to the provider, thus binding the insurer to reimburse the provider pursuant to the terms of the underlying plan, and also providing a cause of action under ERISA to providers wishing to challenge an adverse benefit determination as defined under ERISA. As these kinds of cases became more common, insurers began to insert “anti-assignment” clauses into the plans they administer, often leaving an out-of-network provider with no clear path to challenge benefit denials or underpayments.

Now, insurance benefit verification calls can create implied-in-fact contracts that bind the insurer to pre-service representations with respect to coverage and reimbursement. ERISA does not pre-empt such claims, and most significantly, anti-assignment clauses are no longer an insurmountable bar to an out-of-network provider challenging benefit denials or underpayments. The impact of this decision on the out-of-network provider community cannot be overstated.

The roadmap to bringing such claims begins with maintaining detailed, contemporaneous records of all pre-service interactions with a patient’s benefit plan or insurer. For example, if an insurer represents during a pre-service verification call that a service will be reimbursed at a percentage of FAIR Health, but then pays the claims based on a percentage of Medicare post-service, an aggrieved out-of-network provider will need documentation of the initial representation, as well as it reliance on that representation, in order to sustain an implied contractual claim.

So, much like pristine documentation is needed to defend allegations of malpractice, professional misconduct, or billing improprieties, clear documentation is critical to successfully challenging claim denials and underpayments. And with the Third Circuit’s recent decision in PSC v. Aetna, the prospect of successfully doing so has become a lot less burdensome.

Our Firm regularly represents out-of-network providers in reimbursement disputes with insurers and claim administrators. Indeed, a core component of our Firm’s mission statement is to facilitate fair reimbursement to our provider clients. If you have a benefit claim you feel was wrongfully denied or underpaid, please feel free to contact John W. Leardi at jwleardi@buttacilaw.com or 609-799-5150. Mr. Leardi leads the Firm’s Provider Reimbursement practice group.

Posted in: ERISA, Healthcare Litigation, Reimbursement