An anti-assignment provision can be an effective tool for ERISA-governed health plans to fend off lawsuits from out-of network providers. ERISA has nothing within its statutory text that prohibits participants from assigning their rights under a health plan to a third party. Medical providers routinely require patients to assign their rights under a plan to the provider at the point of service, and courts have held that such assignments confer participant status on the provider. This allows the provider to avail itself of the plan’s claims and appeals procedures and gives the provider derivative standing to file suit under ERISA Section 502(a) if the provider’s claim is ultimately denied on appeal. Such suits are most often brought by out-of-network providers that believe the plan is underpaying the provider’s bills or wrongfully denying coverage.
However, many plans have been able to defend against provider suits by inserting anti-assignment language into the relevant plan documents. A properly drafted anti-assignment provision invalidates the assignment and strips the provider of its participant status. Courts have consistently ruled that providers that do not have valid assignments lack standing to bring a suit under ERISA Section 502(a) because it expressly limits standing to participants, beneficiaries, fiduciaries, and the US Department of Labor.
To protect the plan, the anti-assignment language should be drafted carefully to make clear that the plan does not recognize assignments to third parties for any reason (including potential fiduciary breaches). The provision should also disclose that, although the plan may make payments directly to providers, such payments do not make a provider an assignee or otherwise confer on the provider any rights under the plan or ERISA. Additionally, the plan should cite its anti-assignment provision at the outset of any dispute with a provider and avoid taking any action that could be construed as a waiver of the provision.
Careful drafting and active reliance on the anti-assignment provision are crucial because not all anti-assignment language is enforceable. For example, the US Court of Appeals for the Fifth Circuit has ruled that a plan was estopped from enforcing its anti-assignment provision because the plan had repeatedly failed to assert the provision as a basis to deny the provider’s claim. The court also found the plan’s anti-assignment provision to be ineffective because the language read like a spendthrift provision that prohibited the participant from making assignments to creditors but did not specifically prohibit assignments to medical providers.