The ERISA Litigation Newsletter - September 2012

EDITORS' OVERVIEW

In our September issue, we examine the application of ERISA pre-emption to state-law misrepresentation claims by medical providers against ERISA plans or their insurers. The Fifth Circuit, which has issued several of the leading appellate decisions on ERISA pre-emption of provider claims, recently granted en banc review of such a claim in the Access Mediquip case. Oral argument is set for September 19, and the en banc ruling will likely have wide-ranging implications regarding the scope of ERISA pre-emption in the context of medical-provider claims. Our lead article reviews the underlying panel decision in Access Mediquip, and evaluates the competing approaches taken to pre-emption of medical-provider claims. Our author concludes by examining the policy considerations at issue and potential implications of the Access Mediquip decision for ERISA practitioners.

As always, be sure to review the section on Rulings, Filings, and Settlements of Interest. This month's offering includes a trilogy of cases in the ever-changing field of retiree rights, as well as an issue of first impression in withdrawal-liability litigation.

ERISA PRE-EMPTION IN PROVIDER MISREPRESENTATION CLAIMS: AN OVERVIEW OF THE JURISPRUDENCE LEADING UP TO THE FIFTH CIRCUIT'S EN BANC REVIEW OF ACCESS MEDIQUIP AND WHAT LIES AHEAD*

Contributed by Christopher L. Williams

The U.S. Court of Appeals for the Fifth Circuit recently granted en banc review of its decision in Access Mediquip LLC v. UnitedHealthcare Ins. Co.1 to address a frequently recurring issue arising in health care litigation: whether ERISA Section 514 preempts a third-party provider's state law claims premised on allegations that it was misled by an insurer's statements regarding patient coverage.

The Fifth Circuit's decision to rehear the Access Mediquip case provides an occasion to take a deeper look at provider reimbursement claims and the state of the law governing these disputes. We also take the opportunity to analyze the Fifth Circuit's ERISA pre-emption jurisprudence leading up to Access Mediquip, the three-member panel's decision, and the issues likely to be addressed en banc. Finally, we offer our thoughts on the legal and policy considerations that will likely influence the en banc panel in its adjudication of Access Mediquip.

Background

Lawsuits filed by health care providers against insurers seeking to recover payment for medical services typically involve the same fact pattern. Before providing medical treatment, the health care provider attempts to verify benefits by calling the patient's insurer. After verifying coverage, the provider treats the patient with the expectation of being paid for its services. After the provider treats the patient, the insurer denies benefits and refuses to pay the provider's bill. Left "holding the bag," the provider then seeks to compel payment by suing the insurer based on the misrepresentations regarding coverage.

It is against this backdrop that ERISA pre-emption comes into play. But for ERISA's broad pre-emption provisions, the health care provider would be able to assert a variety of state law claims against the insurer, such as negligent misrepresentation, promissory estoppel, and breach of contract. If ERISA preempts these state law claims, however, the health care providers have to bring derivative claims under ERISA as assignees of the participants. Whether ERISA governs the dispute is important because of the statute's limited remedies. While some state law claims provide for punitive damages and statutory penalties such as treble damages, ERISA precludes the recovery of any such relief and could preclude relief altogether.

ERISA Pre-emption

In relevant part, Section 514(a) of ERISA provides that the statute shall "supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan."2 The U.S. Supreme Court has broadly interpreted this provision of ERISA, determining that "[a] law 'relates to' to an employee benefit plan...if it has a connection with or reference to such a plan."3 Notwithstanding this expansive interpretation, the court has consistently recognized that the scope of ERISA's "relate to" language must be subject to some limitations or " pre-emption would never run its course."4 Thus, reviewing courts "must go beyond the unhelpful text and the frustrating difficulty of defining its key term, and look instead to the objectives of the ERISA statute as a guide to the scope of the state law that Congress understood would survive."5

ERISA Pre-emption and Provider Reimbursement Claims

Although a clear majority of courts have determined that ERISA does not preempt a health care provider's state law claims based on insurer misrepresentations, at least one appellate court has reached the opposite conclusion.

The Majority View

The Fifth Circuit is the principal architect of the legal framework adopted by those courts that have concluded that ERISA does not preempt health care provider misrepresentation claims. In Memorial Hosp. Sys. v. Northbrook Life Ins. Co.,6 the hospital brought, among others, a statutory state law claim based on allegations that the insurer refused to pay for a patient's medical treatment despite previously verifying coverage. The Fifth Circuit synthesized its prior pre-emption case law and set forth a two-pronged test to determine whether a plaintiff's state law claims "relate to" an ERISA plan. The court found that such claims can be preempted if they have at least two unifying characteristics:

the state law claims address areas of exclusive federal concern, such as the right to receive benefits under the terms of an ERISA plan; and the claims directly affect the relationship among the traditional ERISA entities—the employer, the plan and its fiduciaries, and the participants and beneficiaries.7 Applying this test, the court held that the hospital's statutory misrepresentation cause of action was not preempted by ERISA.8

In reaching this conclusion, the court first observed that the "commercial realities" facing health care providers require that providers be able to rely on insurers' representations of coverage when providing medical care to patients.9 Second, the court determined that the hospital's claim implicated a "classically important state interest," i.e., enforcing the allocation of risks between commercial entities for which state law normally provides a remedy.10 Third, the court found that allowing pre-emption would discourage health care providers from providing health care to patients and thereby defeat ERISA's goal of "enhancing employees' health and welfare benefit coverage."11 In addition to these policy-based arguments, the court determined that the hospital's claim did not directly affect relations between traditional ERISA entities and therefore was beyond the reach of the statute.12 Put another way, the hospital was not an ERISA entity and therefore not a party to the "bargain" struck by Congress when enacting the statute; accordingly, it should not be deprived of a remedy.13

The majority of circuit courts have followed the rationale articulated in Memorial Hospital and likewise concluded that ERISA does not preempt health care provider claims premised upon insurer misrepresentations.14 These decisions are grounded upon the same policy reasons articulated by the Fifth Circuit in Memorial Hospital and emphasize that health care providers will be reluctant to provide treatment to patients without prepayment if deprived of a remedy because of ERISA pre-emption.

The Minority View

In contrast, the Sixth Circuit has concluded that provider misrepresentation claims are preempted by ERISA.15 In Cromwell, a third-party provider asserted various state law claims based on the plan administrator's alleged "oral assurances of coverage" provided in response to inquiries on whether the health care services would be covered.16 Over a vigorous dissent, a divided panel of the Sixth Circuit held that the application of ERISA should not depend on whether there is recourse available to the provider, concluding that this concern was not relevant to the analysis.17 The concurring opinion articulated several policy reasons as to why ERISA should preempt the state-law claim: (1) a judgment against the plan would leave fewer resources to pay claims; (2) payment of any award would require actuarial adjustments, since it would not have been included in the plan's initial projections; and (3) subjecting the plan to a patchwork of differing state laws concerning the damages recoverable in tort would increase the costs of plan administration.18

Related Fifth Circuit Jurisprudence

As noted above, the Fifth Circuit's decision in Memorial Hospital is the landmark case determining that ERISA does not preempt...