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…

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“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?

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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. The court noted that Rojas had not produced any evidence that his patients actually signed the assignments in question, and that it therefore need not address the argument.9 But it went ahead and addressed the argument anyway, quickly rejecting it. First, the court noted that “[n]ot all ERISA assignments convey the same rights.”10 Rojas’s assignments at most conveyed “the right to pursue the participants’ claims for payment,” not the right to bring a claim for fiduciary breach or a claim for retaliation under Section 510.11 The court further held that Rojas’s arguments failed in any event under the common law of assignments, which allows an assignee to acquire only those rights the assignor possessed in the

4 792 F.3d at 257. 5 Id. 6 Id. (citation and quotations omitted). 7 Id. 8 Id. at n.7. 9 Id. at 258 n.8. 10 Id. at 258. 11 Id.

first place. Because there was no allegation that Cigna ever retaliated against the patients, there was no ERISA retaliation claim for the patients to assign, and Rojas’s purportedly assigned claim failed for that reason alone.

We think the Second Circuit was correct in concluding that Rojas was not an ERISA beneficiary, but that the court’s reasoning may not apply in all contexts. When a patient goes to an out-of-network provider that does not have contractually determined reimbursement rates, the patient is typically entitled under plan terms only to a cash payment of some kind toward the provider’s charges, not “medical, surgical, or hospital care” writ large. Indeed, the patient may be required to pay the provider up front, and seek cash reimbursement from the plan thereafter. Under those circumstances, for purposes of any attempt by the patient (who will indisputably be a plan participant or beneficiary) to invoke ERISA rights vis-à-vis the plan, the ERISA “benefit” that would be subject to a claim for benefits under Section 502(a)(1)(b) must be the cash payment, not the services themselves. Rojas should not be understood to hold to the contrary, with respect to patient claims.

Correctly understood, one of two possible rules concerning the ability of healthcare providers to bring ERISA claims emerges from Rojas. The first rule would flatly hold that a provider can never be a “beneficiary” within the meaning of ERISA. That rule would make some policy sense, since ERISA was not enacted to protect healthcare providers, and the courts should be very reluctant to extend ERISA’s sometimes labyrinthine protections, and concomitant panoply of rights, to those who provide services to ERISA plans and their participants. On the other hand, courts (including the Second Circuit) have nearly unanimously allowed providers that obtain valid patient assignments to bring claims for the benefits assigned under Section 502(a)(1)(b)—but Section 502(a)(1)(b) restricts such claims, in relevant part, to plan participants and beneficiaries. If a provider can never be an ERISA beneficiary, those cases would have to be understood as creating a narrow judicial exception to those limitations on Section 502(a)(1)(b)’s availability to allow properly authorized providers to stand in their patients’ shoes, as a purely derivative matter, for purposes of filing claims for benefits.

The other possible rule that emerges from Rojas is that providers can become ERISA beneficiaries, but only if they validly acquire their patients’ legal rights under the plan to the benefits in question. This rule would rest on a literal reading of ERISA’s definition of beneficiary, which provides that a beneficiary is “a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder.”12 This suggests a two-part test for ERISA beneficiary status: (1) designation by a participant or by a plan to receive a plan benefit, and (2) legal entitlement vis-à-vis the plan to the benefit in question.

12 29 US.C. § 1002(8) (emphasis added).

Rojas argued that he did in fact have a legal entitlement to payment, because his patients’ ERISA plans stated that he could be paid directly, and his network contract also promised that he would be paid. But as the court pointed out, “[t]he Benefit Plan issues no guarantee of direct payment… . It simply offers direct payment as a convenience for its insureds, itself, and its providers.” 13 In other words, there were no terms in the ERISA plans themselves that vested Rojas with any legal entitlement to payment vis-à-vis the plans. And while the Cigna network contract presumably did give Rojas the legal entitlement to payment under its terms, that contract was not an ERISA plan. As the Second Circuit put it, “Rojas has sued under the wrong agreement.”14

In other words, to qualify as an ERISA beneficiary, it is not enough that a provider have a legal right to payment under a network contract, or under a contract between the patient and the provider. Rather, the provider’s right to payment must arise under the plan itself, and the right in question must be directly contractually enforceable against the plan. A patient assignment that wholly conveys the patient’s contractual rights under the plan to a particular benefit payment may be enough (under this second reading of Rojas) to satisfy that requirement. But that can only be true if the assignment is valid under the common law of assignments. Moreover, the language of each assignment must be closely scrutinized (as the law of assignments requires), and a provider-assignee can have no greater rights as an ERISA beneficiary than the assigning patient had in the first place.

A No-Brainer

Let us turn then to the simpler world of the Third Circuit and North Jersey Brain. Plaintiff North Jersey Brain and Spine Center (NJBSC) was an out-of-network provider with defendant Aetna. NJBSC provided neurological services to patients, and obtained assignments form them stating “I hereby assign to [NJBSC] all payments for medical services rendered to myself or my dependents.”15 NJBSC submitted assigned claims to its patients’ plans for payment, and reserved the right to bill the patients for any balance not paid by the plan. It sued Aetna for refusing to pay certain assigned claims.

The district court held that NJBSC could not bring suit under ERISA because although NJBSC’s patients had validly assigned it their right to payment, they had not assigned their right to bring suit under ERISA. Several other district courts in the Third Circuit had similarly held that for a provider to sue under ERISA, the right to sue must be expressly assigned.16

The Third Circuit reversed, in an opinion written by Judge Michael Chagares and joined by Judges Thomas Hardiman and Patty Schwartz. It noted that it had previously held that

13 793 F.3d at 258. 14 Id. at 257. 15 801 F.3d at 370-71. 16 Id.at 371.

“[h]ealthcare providers that are neither participants nor beneficiaries in their own right may obtain derivative standing by assignment from a plan participant or beneficiary.”17 It then further held that “as a matter of federal common law, when a patient assigns payment of insurance benefits to a healthcare provider, that provider [can sue for] that payment under ERISA § 502(a). An assignment of the right to payment logically entails the right to sue for non- payment.”18

It seems to us that conclusion must be right. As the court noted, “it does not seem that the interests of patients or the intentions of Congress would be furthered by drawing a distinction between a patient’s assignment of her right to receive payment and the medical provider’s ability to sue to enforce that right.”19 Under the common law of assignments, when a patient validly assigns a provider the contractual right to her benefit payment, she retains no right of her own to the payment, and thus could not sue for non-payment herself.20 There is thus no one other than the provider who can sue, and no significant policy reason why the provider should not be permitted to do so.21

It should also be noted that a provider-assignee can be accorded the capacity to sue under ERISA under either of the competing readings of Rojas. The provider could be deemed the

17 Id. at 372, citing CardioNet, Inc. v. Cigna Health Corp., 751 F.3d 165, 176 n.10 (3d Cir. 2014). 18 Id. at 373. 19 Id. 20 Hahnemann Univ. Hosp. v. All Shore, Inc., 514 F.3d 300 (3d Cir. 2008) (“[I]f there is a valid assignment, the hospital becomes the only claimant because the original claimant gives up her claim by the assignment”) (describing Principal Mut. Life Ins. Co. v. Charter Barclay Hosp., Inc., 81 F.3d 53 (7th Cir. 1996)). 21 There is one potential drawback to allowing patients to fully transfer their ERISA rights to providers. If a patient gives up her right to sue under Section 502(a)(1)(b) by assigning her contractual rights to a provider, and also contractually agrees to pay the provider all amounts owed for services rendered, the provider could in theory sue the patient for the full balance owed, without ever submitting the claim to the plan. If the provider did so, the patient—having assigned away her ERISA rights—would have no remaining recourse against the plan to obtain reimbursement for the payment to the provider through a claim for benefits of her own. The Third Circuit noted this problem in a footnote, stating that “[s]uch a case would require a court to determine whether an implied term of the assignment is that a provider must make a reasonable effort to collect from the insurer before attempting to collect from the patient.”21 That may be right. The obvious intent of the assignment is to empower the provider to seek payment directly from the insurer for the convenience of all concerned, and the provider’s failure to do so, in combination with balance billing the patient, should either void the assignment and restore the patient’s ERISA rights, or estop the provider from balance billing the patient until such time as the plan refuses to pay.

ERISA beneficiary of the assigned claim for benefits, and thus permitted to sue in its own right under Section 502(a)(1)(b). Or the provider could be permitted to sue derivatively as an assignee on the patient’s claim for benefits, as a judicially recognized exception to Section 502(a)(1)(b)’s authorized plaintiff limitations. We think the former rationale does less violence to the text of Section 502(a)(1)(b), but the latter framework has the virtue of avoiding the sticky questions that would inevitably arise if provider-assignees were regarded as all-purpose ERISA beneficiaries (for example, à la Rojas, can they bring retaliation claims in their own right under Section 510?).

Dude, Where’s My Plan?

Speaking of sticky questions, let’s close out by getting back to the Seventh Circuit and Frank Easterbrook. In Pennsylvania Chiropractic, following a complex procedural history that included a denial of class certification and a significant shuffling of defendants, two in-network providers of chiropractic services and an association of chiropractors asserted claims under ERISA against Independence Hospital Indemnity Plan, Inc. (“Independence”). Like Rojas, the providers claimed to be ERISA beneficiaries, both because their patients’ plans stated that in- network providers such as them would be paid directly, and because they had obtained assignments of benefits from their patients. They contended that as ERISA beneficiaries they were entitled to adverse benefit determination notices and appeal rights under ERISA Section 503 and its implementing regulations, which Independence failed to provide them.

The district court ruled in the plaintiffs’ favor, determining (primarily on the basis of plaintiffs’ “plan designation” theory) that the providers qualified as ERISA beneficiaries, and accordingly were entitled to receive ERISA-compliant adverse benefit determination notices and appeal rights. The court entered an injunction requiring Independence to act accordingly. As the Seventh Circuit described it, “the District Court required the insurer to use procedures that are designed for retail level disputes between a plan’s participants and their employer (or plan administrator) rather than procedures designed for wholesale level disputes between an insurer and providers under network contract.”22

In an opinion authored by Judge Easterbrook, and joined by Judges Michael Kanne and Ann Williams, the Seventh Circuit disagreed. Judge Easterbrook was the logical author of the opinion because of his earlier opinion in Kennedy v. Connecticut General Life Insurance Co., 924 F.2d 698 (7th Cir. 1991), in which the Seventh Circuit held that a provider can become an ERISA beneficiary through a valid patient assignment (there, for purposes of filing a claim for benefits). Pennsylvania Chiropractic, however, was not (in the panel’s view) such a case.

22 802 F.3d at 928. Lest it be thought that the Seventh Circuit's ultimate decision rested primarily on a policy objection to the district court’s injunction, the court noted that “[i]f that is what ERISA requires, then a mismatch between the procedures and the kind of dispute involved is no concern of the judiciary's.”

The Seventh Circuit found that “[p]laintiffs do not rely on a valid assignment from any patient.”23 In fact, both provider plaintiffs had entered assignments into the record, and had argued that they were sufficient to render them ERISA beneficiaries. But Independence pointed out that both assignments were actually barred by “anti-assignment clauses” in the applicable plans, which courts routinely enforce.24 These courts have explained that anti-assignment clauses are an important tool that ERISA plan sponsors use to reduce uncertainty and minimize plan expenses by limiting the scope of their ERISA obligations to the plan participants and dependents that the plan was established to serve. Although the Seventh Circuit provided precious little analysis on the point, its pronouncement that the plaintiffs did not rely on a “valid” assignment can only be understood as an enforcement of the anti-assignment clauses to deem the assignments invalid.

But what about plaintiffs’ argument that they qualified as ERISA beneficiaries because they were designated to receive the benefits under the terms of the plans? The Seventh Circuit concluded that it was really the providers’ network contract that was the source of their contractual reimbursement right. And the court agreed with the Second Circuit’s decision in Rojas that the distinction between assignment of particular claims and status as an in-network provider is supported by the case law. And, more to the point, it is supported by ERISA.”25

Plaintiffs had argued, however, that the plans themselves also designated the providers as entitled to receive benefits for services rendered. But this argument fell flat with the Seventh Circuit, which said that it saw no evidence of any ERISA “plans” in the record. Plaintiffs pointed to the patients’ certificates of insurance coverage as the applicable “ERISA plans,” arguing that the certificates set forth the schedule of benefits to which plan participants and their beneficiaries were entitled, and that Independence had failed to produce any other documents that could constitute the applicable “plans.” But the court was unmoved. “An employer (defined in § 1002(5)) establishes a plan; the plan’s administrator (another defined term, see § 1002(16)(A) may contract for insurance to implement that plan; indeed, an employer may offer a particular policy of insurance as the plan. … That some employers’ plans provide benefits through an insurer does not make the policy ‘the plan.’”26

We suspect that many plan sponsors will be surprised to learn that the certificates of coverage they purchased do not qualify as ERISA plans. Indeed, if that holding is correct, it may

23 Id. 24 DB Healthcare, LLC v. Blue Cross Blue Shield of Ariz. Inc., No. 13-01558-PHX-NVW, 2014 WL 3349920, at *8 (D. Ariz. July 9, 2014); Davidowitz v. Delta Dental Plan of Cal., Inc., 946 F.2d 1476, 1481 (9th Cir. 1991) (“ERISA welfare plan payments are not assignable in the face of an express non-assignment clause in the plan.”); City of Hope Nat’l Med. Ctr., 156 F.3d at 228- 29 (holding that a provider without an enforceable assignment (because assignments were barred by the applicable plan’s anti-assignment provision) lacked standing to bring ERISA claims). 25 802 F.3d at 929. 26 Id.

spell real trouble for any plan sponsor that is relying on a certificate of coverage to fulfill its ERISA obligation to supply a written plan document. There are hints in the Seventh Circuit’s opinion that its real concern may have been less about what qualifies as a written plan document than whether the insurer was a proper defendant on the plaintiffs’ purely procedural claims: “The insurer is the sole defendant; no participant, employer, plan sponsor, or plan administrator is a litigant. The district court’s injunctions regulate the dealings between medical providers and a particular insurer, not between plaintiffs and plan sponsors.”27 Whatever the court’s motivating concern, however, the opinion strikes us as rather sloppy on this point—we saw no language in the certificates of coverage that would have vested the providers with a legal right to the benefits anyway, so the court could easily have avoided addressing the “plan document” question. It will likely fall to some future Seventh Circuit panel to clean the mess up.

27 Id.