Plan Administration Litigation

By: Michael Stevens and Ronald Kramer

Seyfarth Synopsis:  The Sixth Circuit becomes the seventh circuit court to not require administrative exhaustion for statutory ERISA claims (as opposed to denial of benefit claims), while two circuit courts still do.

In a decision earlier this month, the Sixth Circuit joined six other circuit courts in holding that ERISA claims that seek vindication of statutory ERISA rights pertaining to the legality of a plan amendment, as opposed to an interpretation of the plan, are not subject to administrative exhaustion requirements.  The Sixth Circuit joined the Third, Fourth, Fifth, Ninth, Tenth, and D.C. Circuits in so holding, while the Seventh and Eleventh Circuits require administrative exhaustion even where plaintiffs assert statutory rights.

In Hitchcock v. Cumberland University 403(b) DC Plan, No. 16-5942, — F.3d —-, 2017 WL 971790 (6th Cir. Mar. 14, 2017), Plaintiffs, participants in the Defendant University’s defined contribution pension plan, challenged a retroactive amendment pertaining to matching contributions.  In 2009, the University added a five percent matching contribution, and amended the summary plan description to define the match.  However, in October 2014, the University amended the plan to replace the five percent match with a discretionary match, and retroactively made the match for the 2013-14 year zero percent.  In May 2014, the University had announced that the match for the 2014-15 year would also be zero percent.

In November 2015, Plaintiffs filed suit on a purported class basis bringing four counts:  wrongful denial of benefits under 29 U.S.C. § 1131(a)(1)(B), an anti-cutback violation under 29 U.S.C. § 1054(g), failure to provide notice under 29 U.S.C. § 1132(a)(3), and breach of fiduciary duty under 29 U.S.C. § 1104.

Defendants ultimately filed a motion to dismiss (which was converted to a motion for judgment on the pleadings), which in relevant part asserted that Plaintiffs had failed to administratively exhaust their anti-cutback and breach of fiduciary duty claims.  The district court granted the motion, finding that Plaintiffs had failed to exhaust their administrative remedies.  Plaintiffs appealed.

The Sixth Circuit reversed, holding that Plaintiffs’ claim challenged the “legality of the Plan amendment . . . [not] the calculation of their benefits.”  The district court improperly construed Plaintiffs’ claims, because the “resulting benefits are not the gravamen of Plaintiffs’ challenge. . . . It is a serious mischaracterization to simply say that because the denial of benefits claim and the statutory ERISA claims result in the same monetary sum, all must constitute denial of benefits claims.  Our precedent indicates that administrative exhaustion is a futile requirement for statutory ERISA claims that challenge the legality of a plan amendment.” (Emphasis added.)

The Court cautioned that “plan-based claims ‘artfully dressed in statutory clothing,’ such as where a plaintiff seeks to avoid the exhaustion requirement by recharacterizing a claim for benefits as a claim for breach of fiduciary duty” are still subject to administrative exhaustion.  The touchstone is what forms the basis for the right to relief:  “[T]he contractual terms of the pension plan or the provisions of ERISA and its regulations. . . The rights Plaintiffs assert—the right to receive accrued benefits which have not been decreased by an illegal amendment, and the right to have a fiduciary discharge his or her duties in accordance with the statute—are granted to them by ERISA, not by the Plan’s contractual terms.  Thus, Plaintiffs assert statutory claims, which are not subject to the exhaustion requirement.”

With the majority of circuits now firmly holding that exhaustion is not required for statutory claims, it is unclear whether Hitchcock is a likely vehicle for the Supreme Court to resolve the dispute.  In the meantime, plan defendants seeking to require administrative exhaustion must make their best efforts to characterize plaintiffs’ claims as challenges to plan terms or benefits determinations, rather than seeking vindication of statutory rights under ERISA.

By: Alexius O’Malley and Sam Schwartz-Fenwick

Seyfarth Synopsis: A Court ruled that under the Affordable Care Act, an ERISA governed plan exclusion cannot unequivocally bar emergency medical care related to injuries sustained in a fireworks explosion.

Recently, a federal court in Minnesota addressed whether a participant in a self-funded ERISA-governed welfare plan, could recover $225,000 in medical care and expenses incurred for injuries participant sustained in an explosion while igniting mortar-style fireworks on Independence Day 2015.  In Henrikson v. Choice Products USA, LLC, 16-CV-1317 (MJD/LIB), 2016 WL 6143357 (D. Minn. Oct. 20, 2016), the plan had denied the benefit claim due to its illegal activities exclusion for medical care. In challenging the benefit denial, Plaintiff raised a mix of claims under ERISA, common-law and the Affordable Care Act (ACA).

The Court found that the illegal activities exclusion was unambiguous. It further found the exclusion was not void as a matter of public policy. In so finding the Court rejected Plaintiff’s novel theory that because “everyone” lights fireworks on Independence Day, applying the illegal activities exclusion would be improper

The Court found it could not determine on a motion to dismiss whether the illegal activities exclusion extended to firework use. It noted the plan was ambiguous as to which law governed the illegality of an activity. Plaintiff argued that the plan was ambiguous in that the applicable law could be Minnesota (Plaintiff’s residence, where igniting fireworks is illegal), Wisconsin (the employer’s home state, where the plan was given effect, where igniting fireworks is legal), or Federal (due to ERISA preemption, where no federal law exists that would render ignition of fireworks illegal). The appropriate governing law for criminal activity would typically be the state in which the act occurred, nonetheless, the Court declined to rule on that issue at the motion to dismiss stage and found Plaintiff’s ambiguity argument plausible.

The Court further found that because the plan at issue was a “group health plan” under the ACA and that Plaintiff sufficiently pled that the plan covers some services in an emergency department of the hospital, it was “facially plausible” that the ACA would require the plan to provide “emergency services” and could not deny such coverage. The ACA does not mandate that a “group health plan” cover emergency services, but it does mandate that if a plan does cover “emergency services” those services must be reimbursed at the same level in-network and out-of-network. A ruling that the ACA requires coverage for emergency services would be a very broad expansion of the law.

This decision highlights the importance of ensuring that plan language is clearly drafted so as to avoid preventable ambiguity. The decision further underscores plaintiffs’ utilization of the ACA to increase the theories and remedies available in ERISA benefits cases.

By: Amanda Sonneborn and Thomas Horan

Be careful what you ask for. The Plaintiff in a recent case from the Central District of California learned that lesson when the Plan’s re-evaluation of her claim for benefits revealed that she was apparently working as a stunt coordinator and stunt actress, despite having received disability pension payments for nearly ten years. In Hoffman v. Screen Actors Guild-Producers Pension Plan, the Plaintiff sought to convert her disability pension to an “occupational disability pension” to receive the additional benefit of health coverage. The Plan denied her request, finding a lack of evidence that her disability (severe depression) had resulted from her employment as a stunt actress. The Benefits Committee denied her appeal of that decision, and Plaintiff brought suit to challenge that determination. No. 2:16-cv-01530, 2016 WL 6537531 (C.D. Cal. Nov. 2, 2016).

The district court granted the Plan’s original motion for summary judgment on May 3, 2012. The Ninth Circuit reversed that decision, finding that the Plan had failed to provide Plaintiff a full and fair review, and directed that the case be remanded to the Plan to obtain a second medical opinion. The Plan submitted Plaintiff’s file for consideration by two panels, including six different specialists. Five specialists reached the conclusion that Plaintiff had never been “totally disabled” under the Plan. The sixth found that she could work in jobs that met certain criteria.

The review also revealed that Plaintiff had continued working as a stunt coordinator since 2004, despite receiving disability pension benefits because she was “unable to work.” Plaintiff’s personal website, LinkedIn profile, and IMDb page listed stunt and acting credits from 2004 through 2010. Plaintiff removed these posts after Defendants brought them to the court’s attention in supplemental pleading.

In March 2016, the Benefits Committee both denied Plaintiff’s appeal as to her “occupational disability pension” and terminated her disability pension. Plaintiff again sued to challenge that determination. The parties agreed that the Plan gave discretion to the administrator, and the court applied an abuse of discretion standard. The court found that the decision to deny Plaintiff benefits was neither arbitrary nor capricious.

The court found that the Benefits Committee had given Plaintiff a clear, reasoned explanation of its decision, and that it was rationally based on two reports, from six different medical specialists, as well as on Plaintiff’s various internet profiles. As the Committee did not abuse its discretion, the court found that Plaintiff lacked standing to challenge the Plan’s failure to comply with disclosure requirements, as she lacked a colorable claim on her suit for benefits.

This case demonstrates the value of thoroughly investigating a claim for benefits, and documenting the investigation. What plaintiffs say in court filings or claims for benefits is not always consistent with what they say in other arenas. This decision shows that courts are willing to consider evidence that plaintiffs’ social media or internet presence can disprove their claims to be totally disabled or otherwise unable to work.

By: Amanda Sonneborn and Jules Levenson

Seyfarth Synopsis: Court excludes evidence of Social Security disability award issued after the final decision issued on plaintiff’s claim for plan disability benefits.  The decision accentuates the importance of fighting to limit the evidence before a Court on review of a plan administrator’s decision.

Just like football is a game of inches, a recent case from the Northern District of Ohio reminds us that the outcome of a denial-of-benefits appeal can sometimes turn on quirks of timing.  In Folds v. Liberty Life Assurance Co., the Plaintiff had successfully sought benefits for his Crohn’s disease under his own-occupation disability plan and had been receiving benefits for 10 months when Defendant questioned his continuing eligibility and ultimately determined that he was no longer eligible for benefits. No. 15-CV-00354, 2016 WL 5661615 (N.D. Ohio September 30, 2016).

Plaintiff unsuccessfully then appealed twice, with his second appeal being decided only four days before the Social Security Administration awarded him benefits. Id. at *6.  He then sued claiming that the denial of benefits was arbitrary and capricious, based in part on the failure to consider the SSA decision, as well as a host of other reasons, including failure to conduct an independent medical exam, reliance on Defendant’s own physicians’ file review, failure to consider a letter from Plaintiff’s primary care physician and failure to consider a vocational report.

In a significant victory for Defendant, the Court struck the SSA decision because it had been issued after the conclusion of the appeal process and was therefore not part of the administrative record. In light of this ruling, the Court refused to consider the SSA decision, which had been submitted by Plaintiff to “show how a neutral body would analyze the very same set of facts,” holding that that the decision was not properly before the Court. Id. 

This case serves as a victory for plan administrators who often engage in heated battles with plaintiffs who seek to ever expand the scope of administrative records.  The decision here can be used by administrators as strong support for the proposition that courts should only consider the evidence before the administrators at the time of decision when reviewing those administrator’s decisions.

By: Jules Levenson, Meg Troy and Ian H. Morrison

            Knowingly spending money that isn’t yours sounds like a no-no, but depending on how the Supreme Court rules in Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan (No. 14-723), certain ERISA plan participants may well have that perverse incentive, owing to obscure and arcane distinctions between legal and equitable relief.

On November 9, the Supreme Court held oral argument in Montanile, a case positioned to shake up accepted ERISA plan practices related to collection of third-party recoveries. The petitioner, (Robert Montanile) was injured in a car accident caused by a drunk driver and the respondent Plan (a multi-employer health and welfare plan) paid substantial amounts to cover related medical expenses. Montanile then sued the other driver involved in the accident and settled the case for $500,000.

Following the settlement (and a $200,000 payment to Montanile’s lawyer), the plan entered into negotiations to recover the $121,000 it had paid for Montanile’s medical expenses, based on its subrogation rights under the plan documents. In the ensuing ERISA action, filed after negotiations broke down, the district court found the settlement proceeds to be an identifiable fund and upon which it could impose an equitable lien in favor of the Plan Trustees. Bd. of Trustees of Nat. Elevator Indus. Health Ben. Plan v. Montanile, 593 F. App’x 903 (11th Cir. 2014)

But there was a catch. It turned out that Montanile had already deposited the money into his general bank accounts and spent it, so any recovery would have been out of his assets, not from the monies specifically obtained in the settlement. So what? Well, ERISA allows only equitable remedies in a case like this, and if the money was not an identifiable fund, there might not be an equitable way to get it.

This nicety of equity jurisprudence set the stage for an oral argument that traveled back in time to the days of the divided courts and the treatises of Justice Story. The key question confounding the Court was what relief was equitable – and when, in the development of equity, did that relief have to originate?

Montanile’s attorney, raising the specter of funds clawed back from innocent beneficiaries, argued for a strict tracing rule, under which the plan could only recover if it could trace settlement money to specific monies, using equity presumptions as to which funds were from the settlement and which were just general assets. This position would permit participants like Montanile to have a windfall from getting their benefits and keeping third-party recoveries for the underlying injuries. That position, also supported by the Solicitor General, seems an about-face from the (losing) position taken by the Solicitor General in Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002), where the government argued for a broad construction of what relief was equitable. Conversely, the plan’s attorney argued for a broad theory of recovery, but was repeatedly pressed on his apparent insistence that the plan could recover the funds under equitable remedies that may have developed too late to be among the remedies “traditionally available in equity” that are available under ERISA.

Administrators and fiduciaries of ERISA health and welfare plans are waiting with baited breath for the decision, which could take several months. In the interim, ERISA plans should keep a close eye on payouts made to beneficiaries who might recover in a subsequent tort suit – and particularly to any settlements received. It may be possible to recover payments even under Petitioner’s tracing theory, but it will require vigilance and quick action. And so we wait to see: what gems are buried in the history of equity?

 

By Ward Kallstrom and Andrew Scroggins

Claims by providers seeking to assert the rights of ERISA plan participants have been percolating in courts throughout the country.[1] The Seventh Circuit has now weighed in, rejecting the notion that providers who have payment disputes with ERISA plans are entitled to utilize a plan’s ERISA-mandated claims appeal procedures simply by virtue of being part of the plan’s network.[2]

The litigation began in 2009, when the Pennsylvania Chiropractic Association and several chiropractors filed suit against Blue Cross and Blue Shield Association and a number of Blue Cross and Blue Shield entities to challenge the insurers’ recoupment policies. The insurers had paid for health care services the providers had provided to patients, but subsequently unilaterally determined those payments were calculated on the wrong basis (e.g., fee for service rather than a capitated fee). The Insurers demanded repayment or withheld future payments in order to recoup the overpayments.

Although they had provider contracts with the insurers that specified the basis for calculation of their fees, the plaintiffs characterized the recoupments as retroactive denials of benefits due under the underlying ERISA plans of the insurers’ customers and argued that they were entitled to the same protections afforded to plan participants under ERISA Section 503’s claims procedure, 29 U.S.C. 1133, which requires that every employee benefit plan:

  1. provide adequate notice in writing to any participant or beneficiary whose claim for benefits under the plan has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by the participant, and
  2. afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim.

Following a trial in December 2013, Judge Kennelly of the Northern District of Illinois accepted the plaintiffs’ theory. The judge entered a permanent injunction against one of the insurers, Independence Blue Cross (“IBC”) requiring that its claims notices and appeal procedures meet the ERISA procedural requirements. This injunction would have required recoupment notices to include an explanation of IBC’s reasoning; identify plan provisions to support IBC’s position; describe information the provider could submit to avoid repayment; and provide notice of appeal rights. In the event of an appeal, the injunction would have required IBC to accept any comments or documents submitted by the provider and to disclose any records relevant to its final decision.

IBC appealed the decision to the Seventh Circuit, where a skeptical Judge Easterbrook dispatched the plaintiffs’ claims as exceeding ERISA’s requirements, reversing the district court decision.

First, the court observed that ERISA’s claims procedures are available only to “participants” and “beneficiaries.” The plaintiffs conceded they are not participants, and the court rejected plaintiffs’ arguments that they are beneficiaries. ERISA defines a “beneficiary” as a person designated “by a participant” or “by the terms of an employee benefit plan.” The providers did not have assignments of claims from their patients and could not point to any plan term that would make them beneficiaries. The court rejected the providers’ argument that they became beneficiaries simply by virtue of their contracts with IBC.

Second, the court rejected the providers’ strange argument that “every insurer (perhaps every policy)” should ipso facto be deemed to be a “plan,” thus making every provider-insurer agreement subject to ERISA rules. Here again, the court relied mainly on ERISA’s definitions. A “plan” is “any plan, fund, or program. . . established or maintained by an employer or by an employee organization, or by both, to the extent such plan, fund or program was established or is maintained for the purpose of” providing medical or other employee benefits. Independence, which was created decades before ERISA, is not established or maintained by an employer, and serves millions of people (more, the court noted, than any ERISA plan), does not fit the bill. The court pointed out that the providers had contracted with the insurers as insurers (the court characterized these as “wholesale-level” contracts), not with employers or plan sponsors (which the court described as “retail-level” contracts). Not “any document related to a plan is itself a plan” (court’s emphasis).

Finally, the court was unmoved by the providers’ concern that ERISA’s preemption clause might prevent them from bringing state law claims to enforce their contract claims. In the court’s view, “[w]e need not distort the word ‘beneficiary’ in order to enable medical providers to contract for and enforce procedural rules about how insurers pay for medical care.”

In reaching this result, the Seventh Circuit joined the Second Circuit[3] in holding that in-network status is not enough to entitle a provider to the ERISA rights afforded to participants. The dismissive tone of the Seventh Circuit’s decision, which relied on little more than the text of the statute, also suggests that the court did not view the decision as a close one. Perhaps the decisions by these two influential courts will begin to stem the tide of ERISA claims brought by providers.

[1] See links to prior blog posts on this topic:

http://www.erisa-employeebenefitslitigationblog.com/2015/07/01/chasing-payments-district-court-holds-that-providers-lack-standing-to-sue-erisa-plans-for-benefits-if-the-patients-remain-liable-to-the-provider-in-the-event-of-non-payment/

http://www.erisa-employeebenefitslitigationblog.com/2015/04/24/fifth-circuit-finds-out-of-network-medical-provider-has-standing-to-sue-health-plan/

http://www.erisa-employeebenefitslitigationblog.com/2013/11/12/out-of-network-provider-may-get-in-network-erisa-plan-reimbursement/

http://www.erisa-employeebenefitslitigationblog.com/2011/10/25/northern-district-of-california-ruling-of-first-impression-on-right-of-medical-plan-trustees-to-claw-back-overpayments-from-health-care-providers/

 

[2] Pennsylvania Chiropractic Ass’n v. Independence Hosp. Indem. Plan, Inc., No. 14-2322, — F.3d –, 2015 WL 5853690 (7th Cir. Oct. 1, 2015)

[3] Rojas v. CIGNA Health & Life Insurance Co., 793 F.3d 253 (2d Cir. 2015).

By: Amanda Sonneborn and Christopher Busey 

In Mirza v. Insurance Administrator of America, Inc., No. 13-3535 (3d Cir. August 26, 2015), the Third Circuit became the latest Court to require benefit denial letters to include a notification of the plan’s limitations period for bringing suit. In reaching this conclusion, it joined the First and Sixth Circuits. See Moyer v. Metro. Life Ins. Co., 762 F.3d 503 (6th Cir. 2014); Ortega Candelaria v. Orthobiologics LLC, 661 F.3d 675 (1st Cir. 2011).

The case stems from the denial of Dr. Neville Mirza’s claim for benefits under an ERISA-governed welfare plan. Dr. Mirza was assigned the right to pursue benefits by a patient he performed back surgery on, who was a participant in the plan sponsored by her employer. Dr. Mirza submitted a claim to the claims administrator, Insurance Administrator of America, which denied the claim because the surgery was medically investigational. Dr. Mirza appealed the decision, but the claims administrator upheld its decision by letter dated August 12, 2010. The letter notified Dr. Mirza of his right to bring a civil action under ERISA § 502(a)(1)(B), but did not inform him of the plan’s one-year limitation period for bringing suit. Around that time, the participant visited another medical provided and again assigned her rights to pursue a benefit claim to the provided. Dr. Mirza and the other provider both retained the same law firm to pursue their respective claims. In pursuing the claim from the other healthcare provider, the law firm obtained a copy of the plan on April 11, 2011, which contained the plan provision limiting the initiation of a lawsuit to one year from receipt of the final denial letter. Dr. Mirza brought suit on March 8, 2012 — almost 19 months after receiving the final denial letter.

Eventually the claims made their way to court and the defendant moved for summary judgment on Dr. Mizra’s claim on statute of limitations grounds.  The District Court for the District of New Jersey granted that motion. It reasoned that the plan’s one-year deadline for seeking judicial enforcement was reasonable, that Dr. Mirza’s suit was brought after that period had expired, and that he was not entitled to equitable tolling because he had notice (through his attorney) of the deadline.

On appeal, writing for a three-judge panel, Judge Julio Fuentes vacated the lower court’s opinion based on ERISA’s regulatory requirements for benefit denial letters. The court stated that the equitable tolling issue was irrelevant and focused only on the defendants’ regulatory obligations. The court held that plan administrators must inform claimants of plan-imposed deadlines for judicial review in their benefit denial letters. The ERISA regulation regarding benefit denial letters requires them to set forth “a description of the plan’s review procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action under section 502(a) of the Act following an adverse determination.” 29 C.F.R. 2650.503-1(g)(1)(iv). The court interpreted the word “including” to require that denial letters inform claimants of any plan limitation period for bringing a civil action. Judge Fuentes noted that this approach was also recently adopted by the First and Sixth Circuits. See Moyer v. Metro. Life Ins. Co., 762 F.3d 503 (6th Cir. 2014); Ortega Candelaria v. Orthobiologics LLC, 661 F.3d 675 (1st Cir. 2011). It also rejected defendants’ argument that the denial letter to Dr. Mirza substantially complied with the regulations. The court opined that the failure to include the judicial review time limits in the adverse determination letter rendered it not in substantial compliance. The court then concluded that the proper remedy for the defendants’ failure to comply with the regulation was to abrogate the plan’s limitations period and apply the most analogous state law statutory limitations period. In this case, that was New Jersey’s six-year breach of contract limitation period. Dr. Mirza’s complaint fell within that period and the court thus remanded the case to the district court.

The Third Circuit’s opinion represents a further negative development for ERISA plan administrators. It follows in the wake of the Sixth Circuit’s decision in Moyer, which we wrote about here. As we noted, that decision broke with several district court opinions that had found that adverse determination letters need not contain a notification of the plan’s judicial review limitations period. As a possible silver lining, the Third Circuit stopped short of requiring the inclusion of the limitations period for the most analogous state law claim. It noted that, while the issue was not before the court, such a requirement would require legal research into various state law for each claim and would potentially result in the administrator providing legal advice to claimants. Nonetheless, the decision should at least warrant a review by plan administrators of their procedures for notifying claimants of adverse benefit decisions.

 

By: Jon Braunstein and Nabeel Ahmad

In a recent decision, the Ninth Circuit Court of Appeals rejected a Plan participant’s attempt to extend California insurance law’s notice-prejudice rule to self-insured ERISA plans. Zagon v. Am. Airlines, Inc., 2015 BL 160778, 9th Cir., No. 13-55866 (5/21/15) (unpublished).

The pertinent case facts are these: Zagon, a former American Airlines flight attendant, filed suit in U.S. District Court for the Central District of California asserting a claim for long-term disability benefits against American Airlines, Inc. Long Term Disability Plan (the “Plan”). The Plan documents explicitly warned beneficiaries that the Plan would not, without exception, consider a claim filed beyond a one-year submission window. Ms. Zagon filed her claim several months late. The Plan moved for summary judgment, citing the untimely claim submission. In opposing the motion, Ms. Zagon argued that her claim was timely under California’s notice-prejudice rule. Under this rule, an insurer may not deny a claim solely due to an insured’s delayed notice of the claim, unless the delay caused the insurer substantial prejudice. The district court granted the Plan’s motion for summary judgment.

The Court of Appeals affirmed. The Court of Appeals explained ERISA’s primary interests in protecting contractually defined benefits and enforcing ERISA plans as written. The Court of Appeals determined that the Plan’s one-year claim submission deadline was reasonable and did not conflict with ERISA. While recognizing a general federal judicial duty to formulate federal common law to supplement the provisions and purposes of ERISA, the Court of Appeals found that no such judicial legislation was required.

The Court of Appeals reasoned that applying California’s notice-prejudice rule to Zagon’s claim would undermine, rather than effect, the statutory pattern Congress enacted. ERISA preempts all state laws that would otherwise govern employee-benefit plans except for those laws that govern insurance-based plans. California’s notice-prejudice rule is exclusively a creature of state insurance law. The Court of Appeals concluded that extending an insurance-based rule to uninsured plans, such as the Plan at issue, would defeat the distinction Congress made between insured and uninsured plans.

This case serves as a reminder that Congress explicitly made a distinction between insured plans and self-funded ERISA plans. With respect to the latter, ERISA generally trumps state insurance laws and courts may find claims by participants against ERISA plans rooted in state insurance laws to be preempted. Healthcare benefit litigation is on the rise. We expect to see more creative claims and lawsuits in the near future.

By: Sam Schwartz-Fenwick and Amanda Sonneborn

In last week’s oral argument on the constitutionality of same-sex marriage bans, Chief Justice Roberts asked the following question:

Counsel, I’m ­­ I’m not sure it’s necessary to get into sexual orientation to resolve the case. I mean, if Sue loves Joe and Tom loves Joe, Sue can marry him and Tom can’t. And the difference is based upon their different sex. Why isn’t that a straightforward question of sexual discrimination?

Whether the Court addresses this rationale in its decision is an open question that will not be known until the Court issues its decision.  Nevertheless, it is worth considering the impact that a sex-discrimination rationale would have on employers and plan-sponsors.

Under Federal law, claims of sex discrimination against employers and plan sponsors arise under Title VII, not the Fourteenth Amendment of the Constitution. Title VII was passed pursuant to the Commerce Clause of Article 1, Section 8, Clause 3 of the U.S. Constitution.

Nonetheless, a ruling by the Court that in certain instances sexual orientation discrimination constitutes sex discrimination under the Constitution would likely lead many courts to employ this reasoning in analyzing claims under Title VII.  Indeed, this rationale is already the official position of the EEOC and the Obama administration. The EEOC believes that LGBT employment discrimination is sex discrimination, because it sees both sexual orientation and transgender discrimination as impermissible forms of sex-stereotyping. Similarly, the EEOC argues that ERISA governed health plans that only provide spousal coverage to opposite sex spouses to be engaging in sex-discrimination. While ERISA does not require benefit plans to provide benefits to opposite sex spouses to provide equivalent coverage to same-sex spouses, the EEOC believes that failure to provide such benefits is sex discrimination under Title VII.  The EEOC’s theorizes that entitlement to coverage turns on the sex of the employee’s spouse. Likewise, the EEOC appears willing to take an aggressive stance on transgender related benefits coverage (i.e. arguing that it is sex discrimination to refuse to consider transgender related medical procedures and treatments as medically necessary, and thus, they are covered under a plan unless specifically excluded).

A ruling that same-sex marriage bans constitute sex-discrimination could buoy these arguments.  Courts might be more willing to view claims of Title VII discrimination by  LGBT individuals, not as a new type of discrimination (i.e. sexual orientation or gender identity discrimination), but rather as sex discrimination.

While a sex-discrimination rationale could encourage certain courts to extend Title VII to LGBT individuals, a dispute would surely remain between jurists as to whether such a broad reading of Title VII is appropriate. After all, courts are much less willing to interpret the terms of a statute in the same broad manner in which they interpret the Constitution. Indeed, Title VII on its face does not reference LGBT discrimination, and it is clear that when this Act was passed in 1964, Congress did not intend to extend its protection to LGBT individuals.  In addition, since the early 1990s every Congress has considered passing an LGBT non-discrimination law (ENDA). Each and every Congress has failed to pass ENDA. For Courts to extend protections to LGBT individuals when Congress has refused to do so would for many jurists constitute a grave overstep in the limited role of courts to interpret (not make) the law.

As is clear, the Supreme Court’s ruling in the upcoming gay-marriage decision may have a significant impact on employers and plan sponsors. Stay tuned for our update on this analysis once the opinion is issued, which will likely come near the end of June.

By: Amanda Sonneborn and Meg Troy

The Fifth Circuit recently addressed an out-of-network provider’s right to sue and whether coverage may be conditioned on collections of patient’s out of pocket costs. North Cypress Medical Ctr. Operating Co., et al. v. Cigna Healthcare, et al., No. 12-20695.

North Cypress owns and operates a hospital in Houston. It was unable to agree to a network agreement with Cigna and therefore provided services to Cigna’s member as a non-participating provider. At the time that it opened, North Cypress notified Cigna of a “prompt pay discount” policy. Cigna alleged that, under this policy, North Cypress would only bill its patients a reduced charge in exchange for prompt payment at the time the patient was discharged. Specifically, Cigna alleged that North Cypress charged its patients a discounted coinsurance based on the Medicare fee schedule, whereas the charges it submitted to Cigna for the patient’s care were several times that amount.

Because of the prompt pay discount policy, Cigna routed the claims to its special investigations unit, which delayed payment by several months. It also frequently discounted payments to North Cypress to minimal levels. Alleging that Cigna had underpaid thousands of its claims, North Cypress sued Cigna under ERISA as its patients’ assignee under each patient’s particular health benefit plan. The district court granted summary judgment in Cigna’s favor, agreeing with Cigna that North Cypress did not have standing to seek payment from Cigna under the patient’s health benefit plan because the patient was not at risk of owing North Cypress any additional payment, even if Cigna denied the claim.

The Fifth Circuit reversed. Relying heavily on the Ninth Circuit’s 2014 decision in Spinedex Physical Therapy U.S. Inc. v. United Healthcare of Ariz., Inc., 770 F.3d 1282, the Fifth Circuit explained that courts “look to the rights of the patient at the time of assignment.” It reasoned that participants have the right to be reimbursed by CIGNA for medical costs incurred at an out-of-network provider, and the fact that participants assigned that right to the hospital “does not cause [the right] to disappear.” As an express assignee of the patients’ rights, the hospital had standing to sue for underpayment of benefits. According to the Court, any argument that the hospital’s billing and discounting practices reduces or eliminates CIGNA’s payment obligations under the terms of the plans is a merits-based contention that does not affect the hospital’s standing to sue. The Fifth Circuit instructed the district court to consider that issue on remand.

This decision illustrates one of the compelling issues facing plans, insurers, administrators, out-of-network patients and providers. It remains to be seen whether this decision has cleared the way for these claims to make their way through the federal court system.