ERISA Expressly Prohibits the Assignment of Retirement Benefits, but It Says Nothing About the Assignability of Welfare Plan Benefits
Total Page:16
File Type:pdf, Size:1020Kb
PARTICIPANT vs. HEALTHCARE PROVIDER: WHO HOLDS THE ERISA RIGHTS? By Gregory F. Jacob ERISA expressly prohibits the assignment of retirement benefits, but it says nothing about the assignability of welfare plan benefits. Courts have accordingly inferred that welfare plan benefits are assignable, subject to general common-law rules governing the assignability of contract rights. The practice is particularly prevalent in the healthcare industry, where plan participants, doctors, and health plans generally find it much more convenient for the plan to pay the provider directly for services rendered to the patient, rather than requiring the patient to pay the provider upfront and then to seek direct reimbursement from the plan. There are a number of different kinds of written agreements through which these mutually beneficial arrangements can be accomplished—and they may have significantly different implications under ERISA, both in terms of defining what the plan “benefits” are (the healthcare services provided, or the cash paid by the plan as reimbursement for those services?), and who holds the legal right to those benefits (the patient or the provider?). These questions are currently being hotly litigated in district courts around the country, with—it must be said—a fair amount of inconsistency and incoherence in the resulting pronouncements. But a trio of recent decisions from the Second, Third, and Seventh Circuits sheds some important light, while also casting some new mud into the waters. What’s the Benefit in That? We begin in the Second Circuit, with Rojas v. Cigna Health and Life Ins. Co., 793 F.3d 253 (2d Cir. 2015). Henry Rojas was an in-network provider with Cigna, meaning that the terms of his right to reimbursement for services provided were governed by a contract between him and Cigna, rather than negotiated between him and his patients. Cigna policy required providers to order skin tests, rather than blood tests, to measure allergies. However, a Cigna investigation determined that Rojas regularly submitted claims for blood tests for suspected patient allergies, including “repetitively for the same patient over a sustained period of time.” Id. at 255. And Cigna had paid those claims. Cigna opened a dialogue with Rojas about the blood test charges, and the dialogue did not go well. In the end, Cigna determined that it overpaid Rojas in the amount of $844,834.52 for improperly ordered blood allergy tests for about 150 patients, and demanded that Rojas refund the full amount to Cigna. Rojas, apparently, didn’t have that kind of pocket change stuffed into his piggy bank, and declined to make repayment. Cigna accordingly terminated Rojas from its network of healthcare providers. Enter ERISA, stage right. Rojas might not have thought much of the terms of Cigna’s network contract, but he definitely wanted to be part of Cigna’s network (network status typically brings significantly higher foot traffic for providers). So he sued Cigna for an injunction prohibiting Cigna from terminating him, alleging that the termination constituted retaliation in violation of Section 510 of ERISA. That section, of course, makes it unlawful for “any person … to discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan.” For that provision to apply to Rojas’s claim, Rojas needed to be a “participant or beneficiary,” and further needed to have been discriminated against for exercising some right he had under the provisions of an ERISA-governed plan. The district court dismissed Rojas’s claim, determining that as a healthcare provider, Rojas was not a participant in or beneficiary of an ERISA plan, and thus could not invoke the protections of ERISA Section 510. The Second Circuit accordingly embarked on the same inquiry, asking whether Rojas had “statutory standing” under ERISA… We Interrupt This Article For A Public Service Announcement “Statutory standing”? Did the Second Circuit say “statutory standing”? Yes, it did. Several times, in fact.1 And so did the Third Circuit, in the second case that we review here, North Jersey Brain and Spine Center v. Aetna, Inc., 801 F.3d 369, 372 (3d Cir. 2015). It is a very good thing the judges on those panels weren’t arguing before Judge Frank Easterbrook, who authored the third and final opinion covered herein, Pennsylvania Chiropractic Assn. v. Independence Hospital Indemnity Plan, Inc., 802 F.3d 926 (7th Cir. 2015). During oral argument, Easterbrook treated appellate counsel for Independence to this withering critique: Easterbrook: “What does standing have to do this case? The parties and the District Court talk a lot about standing, but the Supreme Court says that standing means injury in fact, causation, and redressability. Plaintiffs plead injury in fact, causation, and redressability, so this case can’t have anything to do with standing. It might have to do with whether the plaintiffs are beneficiaries as ERISA uses that term, but that’s a distinct term from standing. Is there anything here other than the question whether they are beneficiaries under ERISA? Counsel: You’re right your honor. There’s a difference between constitutional standing and what is deemed to be ERISA standing, but I would agree with you that the real… Easterbrook: The Supreme Court has said there’s no such thing as your “statutory standing.” Right? That’s one of the holdings of Lexmark v. Static Control Components.2 A year and a half ago. I 1 Id. at 256. 2 134 S.Ct. 1377 (2014). don’t know why lawyers are paying no attention to the Supreme Court, but you can count on us to pay attention to the Supreme Court. So my question again: is there anything here other than the question whether they are beneficiaries as ERISA uses that term? Counsel: That’s the main question. Whether they are ERISA beneficiaries. Easterbrook: :::Audible sigh::: Counsel: I would also say that if they were, the scope of the injunction is too broad… Easterbrook: Right. That I understand. But I’m trying to figure out whether you are using standing in anything like the way the Supreme Court wants that term used. Or whether this is again just a little bit of jargon that is unrelated to how the Supreme Court uses the word “standing.” Counsel: It is unrelated to the way the Supreme Court used it Lexmark... Easterbrook: All right. So, let’s use the right terminology. Counsel: Let’s do that…3 Well, you may not be able to count on litigants, or district courts, or even the Second or Third Circuits to pay proper attention to the Supreme Court. But you can count on Frank Easterbrook. So to keep themselves out of trouble, your editors will refrain from using the terms “statutory standing” or “ERISA standing” in this piece. Practitioners should be aware, however, that the pages of the federal reporters from the last 20 years are literally littered with those terms. Moreover, the prevalence of the terms presents certain practical challenges when litigating cases involving the ability of providers to assert ERISA rights, because the “money” quotes from your key precedents will almost certainly use the now-verboten terminology. So it goes when the Supreme Court outlaws terms that, frankly, do a pretty good job as a matter of ordinary English of capturing the core inquiry in such suits: Does the provider have a leg to stand on in attempting to invoke ERISA rights? Back To Our Regularly Scheduled Programming... 3 https://www.courtlistener.com/audio/13398/pennsylvania-chiropractic-asso-v-independence- hosp/, at 1:40 to 3:32. The Second Circuit, in a two-judge opinion authored by Judge Richard Wesley and joined by Judge Raymond Lohier, determined that Rojas was not an ERISA “beneficiary,” and thus could not sue under Section 510 of ERISA. The court first addressed whether the terms of Rojas’s patients’ ERISA plans rendered Rojas an ERISA beneficiary. It then examined whether assignments Rojas obtained from his patients transformed him into an ERISA beneficiary. The court began by noting that the term “beneficiary,” as used in ERISA, “does not without more encompass healthcare providers.”4 The court went on to hold that even if a provision of a plan or a network contract states that a provider may (or will) be paid by the plan directly, such statements are not enough to render the provider an ERISA beneficiary. “A beneficiary is best understood as an individual who enjoys rights equal to the participants to receive coverage from the health care plan. A participant’s spouse or child is the most likely candidate for this term.”5 Doubling down on this dividing line, the court held that the “benefits” promised by a health plan are “medical, surgical, or hospital care, rather than a right to payment for medical services rendered.”6 Rojas argued that the relevant “benefit” under the plan was the plan’s cash payment for services rendered, and that since Rojas was entitled to that benefit, he qualified as an ERISA beneficiary. The court acknowledged that there was some superficial appeal to this argument, and that Rojas “may indeed be entitled to a benefit qua benefit through operation of the plan— i.e., payment for its medical services… .”7 But the court stated: “While correct from the dictionary’s perspective, use of ‘benefit’ to include payment in this context does not fit with ERISA’s greater statutory scheme.”8 Since any “benefit” to which Rojas may have been entitled was not the core ERISA benefit, Rojas could not qualify as an ERISA beneficiary. Rojas argued that he was also an ERISA beneficiary by virtue of “assignments of benefits” that he obtained from his patients.