In Brown v. Blue Cross Blue Shield of Tennessee, Inc., a healthcare provider brought suit against Blue Cross Blue Shield based on ERISA and assignments of benefits that the provider obtained from participants in the relevant plans. Although the district court dismissed the action for lack of subject matter jurisdiction because the provider lacked standing under ERISA, the Sixth Circuit found standing but nevertheless affirmed the result because the claims at issue fell outside the scope of the assignments of benefits.

The case involves a fairly routine billing dispute between payor and provider, and after an audit Blue Cross Blue Shield began recouping overpayments that were uncovered in its audit findings. The provider responded by bringing suit under ERISA to stop the recoupment. The Sixth Circuit made short work of the provider’s claim for direct standing under ERISA, finding such a theory at odds with not only Sixth Circuit precedent but also the precedent of virtually every other circuit. The more nuanced question became whether the provider had derivative standing under ERISA by virtue of the assignments of benefits. Blue Cross insisted that the assignment of benefit forms provided only for direct payment and therefore did not grant an assignment of rights sufficient to confer derivative standing. The Sixth Circuit disagreed on this point, noting a “broad consensus” that when a patient assigns payment of insurance benefits to a provider, the provider gains standing to sue for that payment under ERISA. In fact, the decision that the district court had relied upon to the contrary had been recently reversed by the Third Circuit. Therefore, the Court reversed the district court’s decision that the provider lacked standing.

But that victory proved to be short-lived, however, because the Court found that the recoupment suit fell outside the scope of the assignments of benefit, and thus the provider was not entitled to any relief. This provider had a contract with Blue Cross and the Court found that its claims were more properly contractual, rather than arising from ERISA. In other words, the patients could not have brought a suit of the nature being pursued by the provider, and since they cannot assign greater rights to the provider than they have, the claim fails.

This case illustrates some of the pitfalls for the unwary when litigating ERISA disputes. The parties devoted substantial time and resources to a suit that should have never been brought as an ERISA action. Nevertheless, certain creative theories such as these are often presented in an effort to try to achieve certain benefits that may be available under ERISA but not under traditional state law, and therefore defendants in these actions should certainly insist on a rigorous evaluation of whatever ERISA rights are claimed by the plaintiff.