A federal appeals court in California has shielded a health insurer against a state-law breach-of-contract claims and other state-law claims.
A three judge panel at the 9th U.S. Circuit Court of Appeals recently found that the state-law claims had a “connection with” a benefit plan governed by the Employee Retirement Income Security Act.
Congress passed ERISA in an effort to make big, multistate benefit plans easier to run, by promoting benefit rule uniformity. Under ERISA, federal benefits rules preempt state rules.
The plaintiffs in the 9th Circuit case, Bristol SL Holdings v. Cigna Health et al., argued that their state-law claims against Cigna had to do with a contractual relationship, not employee benefits laws and ERISA.
The 9th Circuit panel rejected that logic.
“A claim has an impermissible connection with an ERISA plan if it governs a central matter of plan administration or interferes with nationally uniform plan administration, or if it bears on an ERISA-regulated relationship,” Circuit Judge Daniel Bress wrote in an opinion for the three-judge panel. “If allowed to proceed, Bristol’s state law claims would do at least two of the three.”
The care
The patients involved in the case were enrollees in employer-sponsored health plans administered by Cigna. They sought care at Sure Haven, a behavioral health treatment center outside Cigna’s networks.
Cigna reimbursed Sure Haven for care, anyway, in spite of the lack of a network agreement, but it later suggested that the center was inflating billing by failing to collect deductibles and other cost-sharing payments from the patients.
“This practice, known as ‘fee-forgiving,’ inflates insurance costs at an insurer’s expense by eliminating the financial incentive for patients to seek cheaper in-network care,” according to the opinion.
Cigna’s health plans state that the company will deny coverage when a provider engages in fee-forgiving.
Cigna eventually ended up denying coverage for 106 patients with $8.6 million in claims.
Sure Haven filed for bankruptcy, and Bristol acquired Sure Haven’s insurance claims from the bankruptcy estate.
The litigation
Bristol sued Cigna and asserted that Cigna’s prior authorization process created enforceable agreements to reimburse Sure Haven for care.
A federal district court ruled against Sure Haven, based on the view that ERISA preempted any claims related to state-law contract rules.
When Bristol appealed to the 9th Circuit, the panel that took up the case reviewed the district court’s preemption ruling from scratch.
“The question in this case is whether ERISA preempts state law contract claims based on an out-of-network provider’s calls to a plan administrator seeking to verify plan coverage and obtain preauthorization for medical services, where there is no dispute that the patients and their treatment were covered under the plans but where payment was later rejected based on fee-forgiving, which the plans prohibited,” Bress wrote in the opinion.
ERISA preempts Bristol’s state-law claims because the claims “have both a ‘reference to and an ‘impermissible connection with’ the ERISA plans that Cigna administers,” Bress concluded.