The U.S. Court of Appeals for the Fifth Circuit recently granted en banc review of its decision in Access Mediquip LLC v. UnitedHealthcare Ins. Co. to address a frequently recurring issue arising in health care litigation: whether ERISA Section 514 preempts a third-party provider’s state law claims premised on allegations that it was misled by an insurer’s statements regarding patient coverage.
The Fifth Circuit’s decision to rehear the Access Mediquip case provides an occasion to take a deeper look at provider reimbursement claims and the state of the law governing these disputes. We also take the opportunity to analyze the Fifth Circuit’s ERISA pre-emption jurisprudence leading up to Access Mediquip, the three-member panel’s decision, and the issues likely to be addressed en banc. Finally, we offer our thoughts on the legal and policy considerations that will likely influence the en banc panel in its adjudication of Access Mediquip.
Lawsuits filed by health care providers against insurers seeking to recover payment for medical services typically involve the same fact pattern. Before providing medical treatment, the health care provider attempts to verify benefits by calling the patient’s insurer. After verifying coverage, the provider treats the patient with the expectation of being paid for its services. After the provider treats the patient, the insurer denies benefits and refuses to pay the provider’s bill. Left “holding the bag,” the provider then seeks to compel payment by suing the insurer based on the misrepresentations regarding coverage.
It is against this backdrop that ERISA pre-emption comes into play. But for ERISA’s broad pre-emption provisions, the health care provider would be able to assert a variety of state law claims against the insurer, such as negligent misrepresentation, promissory estoppel, and breach of contract. If ERISA preempts these state law claims, however, the health care providers have to bring derivative claims under ERISA as assignees of the participants. Whether ERISA governs the dispute is important because of the statute’s limited remedies. While some state law claims provide for punitive damages and statutory penalties such as treble damages, ERISA precludes the recovery of any such relief and could preclude relief altogether.
In relevant part, Section 514(a) of ERISA provides that the statute shall “supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” The U.S. Supreme Court has broadly interpreted this provision of ERISA, determining that “[a] law ‘relates to’ to an employee benefit plan…if it has a connection with or reference to such a plan.” Notwithstanding this expansive interpretation, the court has consistently recognized that the scope of ERISA’s “relate to” language must be subject to some limitations or “ pre-emption would never run its course.” Thus, reviewing courts “must go beyond the unhelpful text and the frustrating difficulty of defining its key term, and look instead to the objectives of the ERISA statute as a guide to the scope of the state law that Congress understood would survive.”
ERISA Pre-emption and Provider Reimbursement Claims
Although a clear majority of courts have determined that ERISA does not preempt a health care provider’s state law claims based on insurer misrepresentations, at least one appellate court has reached the opposite conclusion.
The Majority View
The Fifth Circuit is the principal architect of the legal framework adopted by those courts that have concluded that ERISA does not preempt health care provider misrepresentation claims. In Memorial Hosp. Sys. v. Northbrook Life Ins. Co., the hospital brought, among others, a statutory state law claim based on allegations that the insurer refused to pay for a patient’s medical treatment despite previously verifying coverage. The Fifth Circuit synthesized its prior pre-emption case law and set forth a two-pronged test to determine whether a plaintiff’s state law claims “relate to” an ERISA plan. The court found that such claims can be preempted if they have at least two unifying characteristics:
- 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
- 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, the court held that the hospital’s statutory misrepresentation cause of action was not preempted by ERISA.
In reaching this conclusion, the court first observed that the “commercial realities” facing health care providers require that providers be able to rely on insurers’ representations of coverage when providing medical care to patients. Second, the court determined that the hospital’s claim implicated a “classically important state interest,” i.e., enforcing the allocation of risks between commercial entities for which state law normally provides a remedy. Third, the court found that allowing pre-emption would discourage health care providers from providing health care to patients and thereby defeat ERISA’s goal of “enhancing employees’ health and welfare benefit coverage.” In addition to these policy-based arguments, the court determined that the hospital’s claim did not directly affect relations between traditional ERISA entities and therefore was beyond the reach of the statute. Put another way, the hospital was not an ERISA entity and therefore not a party to the “bargain” struck by Congress when enacting the statute; accordingly, it should not be deprived of a remedy.
The majority of circuit courts have followed the rationale articulated in Memorial Hospital and likewise concluded that ERISA does not preempt health care provider claims premised upon insurer misrepresentations. These decisions are grounded upon the same policy reasons articulated by the Fifth Circuit in Memorial Hospital and emphasize that health care providers will be reluctant to provide treatment to patients without prepayment if deprived of a remedy because of ERISA pre-emption.
The Minority View
In contrast, the Sixth Circuit has concluded that provider misrepresentation claims are preempted by ERISA. In Cromwell, a third-party provider asserted various state law claims based on the plan administrator’s alleged “oral assurances of coverage” provided in response to inquiries on whether the health care services would be covered. Over a vigorous dissent, a divided panel of the Sixth Circuit held that the application of ERISA should not depend on whether there is recourse available to the provider, concluding that this concern was not relevant to the analysis. The concurring opinion articulated several policy reasons as to why ERISA should preempt the state-law claim: (1) a judgment against the plan would leave fewer resources to pay claims; (2) payment of any award would require actuarial adjustments, since it would not have been included in the plan’s initial projections; and (3) subjecting the plan to a patchwork of differing state laws concerning the damages recoverable in tort would increase the costs of plan administration.
Related Fifth Circuit Jurisprudence
As noted above, the Fifth Circuit’s decision in Memorial Hospital is the landmark case determining that ERISA does not preempt health care provider claims for misrepresentation of coverage and its reasoning has served as the touchstone for other courts addressing the issue. Nonetheless, the Fifth Circuit and lower courts alike have had difficulty reconciling the holding in Memorial Hospital with its other precedent, namely the companion decisions in the Hermann Hospital cases.
In Hermann I, a hospital provided medical services to a patient after being informed by the plan administrator that the patient was covered by an ERISA plan. While treating the patient, the hospital made unsuccessful efforts to obtain payment from the plan, which asserted that the claim had neither been approved nor denied, but was being “investigated.” Ultimately, the plan refused to pay the claim. The Fifth Circuit concluded that ERISA preempted the hospital’s state law misrepresentation claims for two reasons: (1) the causes of action were seemingly inconsistent with the hospital’s assertion that it was an assignee of the patient-beneficiary, and (2) permitting the claims would allow nonenumerated parties who lacked standing to sue under ERISA to circumvent its provisions by asserting claims under state law, thereby obtaining advantages denied to parties enumerated under the statute.
In a footnote in the Fifth Circuit’s decision in Memorial Hospital, decided two years later, the court rejected the insurer’s argument that Hermann I controlled and required pre-emption by stating that the Hermann I analysis considered the provider’s claims “to be dependent on, and derived from, the rights of the plan beneficiaries to recover benefits under the terms of the plan.” In Memorial Hospital, the court further noted that an intervening Supreme Court decision, “place[d] a different light on state law actions brought by non-ERISA entities against an ERISA plan or fiduciary.”
Shortly after Memorial Hospital, the Fifth Circuit issued its opinion in Hermann II. The hospital urged the court to revisit its earlier pre-emption analysis in Hermann I, arguing that the Mackey and Memorial Hospital decisions amounted to intervening “controlling authority” supporting its contention that ERISA did not preempt its state law misrepresentation claims. The Hermann II court, however, gave short shrift to the hospital’s argument, concluding that the state law claims were “based upon the failure of [the plan] to pay benefits to which [the hospital] was entitled,” and therefore, “ha[d] a nexus with the ERISA plan and its benefit system.” Notably, the Hermann II court attempted to limit the reach of its holding by stating that its decision was governed by “the law of the case” doctrine:
As the tort dicta in Mackey has no effect on our holding in Hermann I that ERISA preempted [the hospital’s] state law claims, the dicta in Memorial Hospital discussing Hermann I in light of Mackey likewise does not change the law of the case.
Based on the foregoing, Hermann II concluded that ERISA preempted the hospital’s state law misrepresentation claims.
Five years later, the Fifth Circuit addressed another third-party provider reimbursement claim in Cypress Fairbanks Medical Ctr. v. Pan-American Life Ins. Co. Notably, Cypress Fairbanks characterized the Hermann II decision as doing “nothing more than hold[ing] that our pre-emption determination in Hermann I was the law of the case” and therefore “add[ing] nothing to our understanding of ERISA pre-emption.” In concluding that ERISA did not preempt the provider’s state law claim for misrepresentation, Cypress Fairbanks attempted to reconcile the Memorial Hospital and Hermann I decision in the following manner: “the proper [ pre-emption] inquiry is whether the beneficiary under the ERISA plan was covered at all by the terms of the health care policy, because if the beneficiary was not, the provider of health services acts as an independent, third party subject to our holding in Memorial.” Because the patient had no coverage at all under the health care policy in question, there was no ERISA pre-emption.
Two years later, in Transitional Hosps. Corp. v. Blue Cross & Blue Shield Inc. another Fifth Circuit panel established a two-step framework for evaluating this issue in light of the previous decisions in Memorial, Hermann, and Cypress Fairbanks. According to the court in Transitional, the first question is whether the patient was covered under an ERISA plan. If not, the provider’s claim is not preempted and no further analysis is necessary. If there is coverage, the court must then “take the next analytical step and determine whether the claim in question is dependent on, and derived from the rights of the plan beneficiaries to recover benefits under the terms of the plan.”
The Access Mediquip Panel Decision and Petition for En Banc Review
The circumstances surrounding the dispute between the provider and insurer in Access Mediquip are substantially similar to those arising in the other cases described above. In short, Access sued UnitedHealthcare and claimed that it refused to pay some or all of Access’s claims for services provided in connection with patients insured under ERISA plans after UnitedHealthcare provided assurances that the claims were eligible for reimbursement. After limited written discovery, UnitedHealthcare argued that summary judgment should be granted in its favor because Access’s claims were preempted by ERISA and the district court agreed.
Because the patient claims at issue in Access Mediquip were covered by an ERISA plan, both the district court and the appellate panel agreed that the dispositive inquiry was whether Access’s causes of action were “dependent on, and derived from the rights of the plan beneficiaries to recover benefits under the terms of the plan.” Citing the Transitional decision, the district court interpreted this language to mean that:
to the extent a state law cause of action is based on a misrepresentation that the patient is covered under an ERISA plan, the cause of action is not preempted. To the extent, however, that a state law cause of action is based on misrepresentations regarding the extent of coverage under an ERISA plan…the cause of action is preempted.
Applying this test, the district court held that Access’s state law causes of action were preempted because they did not involve allegations that United misrepresented the existence of coverage.
On appeal, the Fifth Circuit rejected the district court’s “existence of patient coverage analysis versus extent of patient coverage analysis” under which claims based on “extent” misrepresentations are preempted. Noting that the claims in Transitional were premised on alleged misrepresentations regarding the extent of coverage and were not preempted, the court observed that “[i]t is difficult to see why pre-emption should depend on whether a provider alleges that it was misled by explicit promises of future payment or by statements about coverage that conveyed a false impression of future payment.”
Having rejected the “existence of coverage” versus “extent of coverage” analysis employed by the district court, the panel next determined that the substance of Access’s state law claims was not “dependent on, and derived from the rights of the [patients] to recover benefits under the terms of the plan.” In reaching this conclusion, the appellate panel observed that the “state law underlying Access’s misrepresentation claims does not purport to regulate what benefits United provides to the beneficiaries of its ERISA plans, but rather what representations it makes to third parties about the extent to which it will pay for their services.” Because state law claims of this kind “concern the relationship between the plan and third-party, non-ERISA entities who contact the plan administrator to inquire whether they can expect payment for services,” the panel concluded that “[t]he administrator’s handling of those inquiries is not a domain of behavior that Congress intended to regulate with the passage of ERISA.” In conclusion, the court noted that:
ERISA pre-emption protects plans from unexpected financial consequences that could result from routine exposure to state-law claims. State-law claims premised on misrepresentations to a third party provider do not greatly implicate this concern, because an ERISA plan can avoid liability under such claims by taking care that it does not mislead providers regarding what they can expect to be paid if they render services for the plan’s insureds.
UnitedHealthcare’s petition for panel rehearing raises two central arguments germane to the issues discussed in this article. First, UnitedHealthcare argues that the panel erred by failing to mention, let alone substantively discuss, either of the two Hermann decisions and their impact on the ERISA pre-emption analysis. Thus, UnitedHealthcare contends that the panel’s omission caused it to overlook the holdings in the Hermann decisions, which support ERISA pre-emption of a third-party provider’s state law misrepresentation claims based upon allegations that it was misled by statements regarding the extent of coverage under an ERISA plan. Second, UnitedHealthcare argues that the panel ignored the Hermann decisions’ expressed policy concerns that nonenumerated parties like health care providers should not be allowed remedies unavailable to plan participants.
In its review of the Access Mediquip decision, the en banc panel will likely address two principal issues. First, the court will have to reconcile any inconsistencies between the Hermann decisions and its subsequent holdings in Memorial Hospital, Cypress Fairbanks, and Transitional. Second, the en banc panel is likely to address the competing policy considerations between a third-party provider’s right to obtain payment for services rendered based upon an insurer’s coverage statements and the concerns associated with expanding insurer liability and increased costs of plan administration.
As for the first issue, the overall weight of authority among the circuits points in favor of the en banc panel following the reasoning expressed in Memorial Hospital. As noted, the rationale underlying the Memorial Hospital court’s decision to permit health care provider claims premised on independent representations by the insurer has been endorsed by the majority of appellate courts and by subsequent panels of the Fifth Circuit. The panel may thus expressly overrule the Hermann decisions to the extent they support the “existence/extent” approach rejected in Access Mediquip.
Alternatively, the panel could distinguish the Hermann rulings. Notably, the Hermann decisions never formally adopted any “existence/extent” approach test, and thus those cases could conceivably be limited to their particular facts, i.e., the substance of the provider’s claims were premised on its rights as an assignee of the patient. If, conversely, the en banc panel disclaims the reasoning of Memorial Hospital and its progeny, however, the decision will have far-reaching effects not only in the Fifth Circuit, but also in courts across the country.
In advocating their positions, the parties likely will raise the “parade of horribles” they believe will result from an adverse decision. From the health care provider’s viewpoint, circumstances often require that they rely on insurer representations when treating patients and thus it makes sense to place the risk of loss on the entity making the inaccurate representation. If not, health care providers may well demand upfront payments before providing treatment or impose other requirements on patients to ensure they are paid for their services.
At the same time, however, insurers and plan administrators understandably desire predictable and consistent results so that they can make accurate projections as to the cost and coverage of plan participants. Subjecting plan administrators to conflicting standards of liability and damage awards would seem to make this task even more difficult. Both sides would probably agree that it would be helpful to have greater clarity on these important issues.