ERISA ruling expands protection for employees, beneficiaries

The Employee Retirement Income Security Act of 1974 governs most employer-sponsored benefit plans. ERISA establishes protections for employees in the administration of their employer-sponsored benefits, requiring that the administrator adhere to certain requirements when determining a plan participant's eligibility for benefits. Typically the ERISA plan's terms govern, although that is not always the case.

All too familiar to patients are agreements that assign to health care providers the right under an ERISA plan to collect insurance benefits. However, most health insurance plans have anti- assignment provisions that prohibit insureds from assigning their right to collect insurance proceeds directly. Anti-assignment provisions in ERISA plans are valid and enforceable. Davidowitz v. Delta Dental Plan of Cal., Inc., 946 F.2d 1476, 1481 (9th Cir. 1991); Spinedex Physical Therapy USA Inc. v. United Healthcare of Arizona, Inc., 770 F.3d 1282, 1296 (9th Cir. 2014). Therefore, courts have prevented health care providers from suing insurers under ERISA where health insurance plans have anti-assignment provisions, thus frustrating the efforts of health care providers to collect insurance proceeds to satisfy unpaid claims.

In its landmark 2011 decision in CIGNA Corp. v. Amara, 131 S. Ct. 1866 (2011), the U.S. Supreme Court signaled a broad expansion of the availability of equitable remedies under ERISA. The doctrines of equitable estoppel and waiver have provided plan participants with methods of forcing an employer or insurance company to honor their representations and take responsibility for previous conduct. But what about applying these equitable doctrines for the benefit of health care providers? There has been some recent good news for them.

The recent case of Beverly Oaks Physicians Surgical Center, LLC v. Blue Cross and Blue Shield of Illinois, 2020 DJDAR 132372 (Dec. 18, 2020) further expands protection for employees and their beneficiaries by expanding the circumstances their medical providers can sue insurers directly based on an assignment, even where the plan at issue contained an anti-assignment provision. In Beverly Oaks, the 9th U.S. Circuit Court of Appeals allowed an out-of-network health care provider to assert equitable claims under ERISA seeking a direct recovery of unpaid claims from Blue Cross and Blue Shield of Illinois (BCBS).

Beverly Oaks Physicians Surgical Center, LLC performed out-of-network procedures on 14 patients who had employer-sponsored health insurance plans administered by BCBS. Each patient signed a form granting the center the right to collect benefits on their behalf. The center sought and obtained preapproval for each claim from BCBS, the latter stating it would typically pay between 50% to 100% of the claim.

After performing the procedures, Beverly Oaks submitted the claims to collect ERISA benefits. BCBS either denied every claim or paid a small reimbursement amount and paying only $140,000 of the total $1.4 million of benefits sought. At no time during the pre-surgery conversations or during the administrative claim process did BCBS advise Beverly Oaks that it intended to assert an anti-assignment provision as a basis for denying reimbursement sought under a patient assignment of benefits.

Beverly Oaks filed a lawsuit alleging that BCBS waived or was equitably estopped from asserting the anti-assignment provision in the plan since BCBS did not assert that provision in pre-surgery telephone conversations or the administrative claim process. BCBS argued that the anti-assignment provision was valid and enforceable, even though the first time BCBS asserted the provision as a defense to payment was in litigation. The district court agreed that the anti-assignment provision was valid and enforceable. Beverly Oaks appealed.

In reversing the trial court's order, the appeals court found that while anti-assignment clauses are valid and enforceable, plan administrators can waive the right to assert and enforce these provisions when their actions are inconsistent with the provision or they are aware that the claimant is acting as an assignee.

The court defined waiver as follows: "Waiver is 'the intentional relinquishment of a known right.' Gordon v. Deloitte & Touche LLP Grp. Long Term Disability Plan, 749 F.3d 746, 752 (9th Cir. 2014) (citing Intel Corp. v. Hartford Accident & Indem. Co., 952 F.2d 1551, 1559 (9th Cir. 1991) (Waiver occurs when 'a party intentionally relinquishes a right, or when that party's acts are so inconsistent with an intent to enforce the right as to induce a reasonable belief that such right has been relinquished.'))."

The court found that Beverly Oaks had plead adequate facts to support waiver, including Beverly Oaks indicated on the claim form submitted to BCBS that it was acting as its patient's assignee, BCBS processed each claim, denied in full or underpaid Beverly Oaks' billed charges, and at no time during pre-surgery telephone conversations or the administrative claim process did BCBS raise the anti-assignment provision as a basis to deny benefits. This was to enough to show that BCBS should have been aware that Beverly Oaks sought to collect plan benefits through a patient assignment. The court also commented on BCBS' silence and payment during the claims process, commenting that this behavior was "'so inconsistent with an intent to enforce' the anti-assignment clause as to 'induce a reasonable belief that [the right to enforce the clause] ha[d] been relinquished.'" The court held that "Blue Cross thus cannot raise the anti-assignment provision for the first time in litigation when Blue Cross held that provision in reserve as a reason to deny benefits."

In addition to waiver, the court found the alleged facts also plausibly showed that BCBS made actionable misrepresentations upon which Beverly Oaks reasonably relied and therefore, were equitably estopped from raising the anti-assignment provisions. "Equitable estoppel 'holds the fiduciary to what it had promised and operates to place the person entitled to its benefit in the same position he would have been in had the representations been true." Specifically, the court pointed to telephone conversations between BCBS representative and Beverly Oaks wherein the representative stated that Beverly Oaks was eligible to receive payment, thus inducing Beverly Oaks to move forward with the claims process. In addition to traditional requirements to establish equitable estoppel, under 9th Circuit authority, Beverly Oaks also had to allege (1) extraordinary circumstances; (2) that the provisions of the plan at issue were ambiguous such that reasonable persons could disagree as to their meaning or effect; and (3) that the representations made about the plan were an interpretation of the plan, not an amendment or modification of the plan. The court held that these requirements were properly alleged facts that show a BCBS made a promise that it reasonably should have expected to induce action or forbearance on Beverly Oaks' part, combined with a showing of repeated misrepresentations over time. Thus, the 9th Circuit reversed and remanded the case the case to the district court.

While federal courts consistently find anti-assignment clauses in ERISA matters enforceable, the decision in Beverly Oaks will have wide-reaching implications not only for medical providers, but also for plan participants and their beneficiaries. Plan and claim administrators must beware that making misrepresentations regarding plan terms, making representations about whether a procedure is covered or failing to raise certain defenses during the pre-claim and claim administrative review process could give rise to equitable claims that inure to the benefit of plan participants, their beneficiaries, and to their assignees. Because waiver and equitable estoppel serve as some of the legal systems' fundamental checks on the fairness of a party's actions and these doctrines serve to prevent employers and insurers from performing actions contradictory to what they have previously guaranteed or established via their words or conduct, decisions like Beverly Oaks are to be lauded. 