ERISA preemption of state law claims is today’s topic…

This issue comes up more frequently now with managed care organizations creating networks of doctors or preferred providers, and the issue that arises is: at what rate should the insurer pay for services provided by out-of-network health care providers.

And what happens when the insurer expressly agrees to pay the out-of-network provider, before services are rendered?

Does ERISA preempt the breach of contract claim brought by the out-of-network provider? NO

The Third Circuit just addressed this issue of first impression this way:

“What remedies are available to an out-of-network healthcare provider when an insurer agrees to pay for the provision of services that are not otherwise available in-network and then reneges on that promise?”

Plastic Surgery Center v. Aetna Life Insurance Company, __ F.3d __, 2020 WL 4033125 (3rd Circuit July 17, 2020)(Out-of-network health care provider’s breach of contract and promissory estoppel claims not preempted by ERISA, but unjust enrichment claim was preempted by ERISA.)

FACTS: Aetna was the insurer of an ERISA-governed health plan for various employers. JL needed breast reconstruction and DW needed “facial reanimation”—both medical procedures were not available “in-network.” Both patients were referred to Plastic Surgery Center of New Jersey (PSC), an out-of-network provider. During phone calls between Aetna and PSC, Aetna agreed to pay “a reasonable amount” for breast reconstruction services, and the “highest in-network” level pay for facial reanimation.

After PSC performed these services, Aetna refused to pay. Instead of paying $292,742 for the breast reconstruction, Aetna paid $95,534. Instead of paying $420,750 for facial reanimation, Aetna paid $40,230. PSC then brought suit alleging breach of contract, unjust enrichment and promissory estoppel. Aetna argued those claims were preempted by ERISA.

ISSUE (as phrased by the Court): “What remedies are available to an out-of-network healthcare provider when an insurer agrees to pay for the provision of services that are not otherwise available in-network and then reneges on that promise?”

3rd CIRCUIT HELD: Breach of contract and promissory estoppel claims not preempted by ERISA; unjust enrichment claim preempted by ERISA

  1. Many insurers have inserted anti-assignment provisions in ERISA plans. Anti-assignment provisions place out-of-network providers in the unenviable position of having to “bill[] the beneficiary directly” and, should payment not be forthcoming, of having either to “rely on the beneficiary to maintain an ERISA suit or to sue the beneficiary directly.” Op. at 16.
  2. Anti-assignment provisions are enforceable. Op. at 16.
  3. “In response [to anti-assignment provisions], out-of-network medical providers like [PSC] have attempted to secure a new foothold—a promise of payment from the insurer in advance of any services. And that, in turn has given rise to a different class of claims for non-payment—common law claims…including breach of contract, unjust enrichment, and promissory estoppel.” Op. at 16.
  4. Common law claims like breach of contract “could not be brought under section 502(a) [by JL or DW] because Aetna’s alleged liability would flow not from the plans, but from an independent agreement reached between [PSC] and Aetna….” Op. at 17.
  5. PSC’s common law claims for breach of contract and promissory estoppel are not preempted by ERISA because PSC “has plausibly pleaded breach of contract and promissory estoppel claims that do not ‘relate to’ ERISA plans….” Op. at 18.
  6. PSC’s common law claims for breach of contract and promissory estoppel plausibly seek to enforce obligations independent of the ERISA plan. Op. at 20.
  7. PSC’s common law claims for breach of contract and promissory estoppel “do not require interpretation or construction of ERISA plans.” Op. at 26.
  8. PSC’s common law claims for breach of contract and promissory estoppel “do not have a ‘connection’ with ERISA plans.” Op. at 31.
  9. “As pleaded, [PSC’s common law breach of contract and promissory estoppel] claims do not interfere with the administration of either plan.” Op. at 35.
  10. “Holding [PSC’s common law claims preempted by ERISA] would undercut ERISA’s purposes.” Op. at 37.
  11. However, PSC’s unjust enrichment claim IS preempted by ERISA because the benefit conferred “is not the provision of the healthcare service per se, but rather the discharge of the obligation the insurer owes to its insured.” The benefit conferred is premised on the ERISA plan. Op. at 41-42.