Sunday, January 3, 2010

ERISA Removal, Provider Claims, Assignment Of Benefits & Davila In The Eleventh Circuit

In Connecticut State Dental v. Anthem Health Plans, Inc., - F.3d -, No. 08-15268, 2009 WL 5126236 (11th Cir. Dec. 30, 2009), the Eleventh Circuit released a published decision and reviewed a decision denying a motion to remand.  The court went into great detail about the two types of preemption, assignment of benefits under ERISA, healthcare provider claims, and among other issues, the test mandated by Aetna Health Inc. v. Davila, 542 U.S. 200, 210, 124 S. Ct. 2488, 2496 (2004).  In its analysis, the court notes the analysis previously applied in the Eleventh Circuit was changed by Davila.  This is an exceptionally long post but it is also a very detailed opinion.  The citation links below are to the Google Scholar version of the respective opinions.  [Update: In addition to this post, Roy Harmon at the Health Plan Law Blog posted an entry on January 6, 2010 about this case which can be found HERE.]
On a motion to remand, the removing party bears the burden of showing the existence of federal subject matter jurisdiction....Because Plaintiffs’ complaints allege only state law claims, there is no jurisdiction under the well-pleaded complaint rule....Complete preemption is a narrow exception to the well-pleaded complaint rule and exists where the preemptive force of a federal statute is so extraordinary that it converts an ordinary state law claim into a statutory federal claim....
ERISA is one of only a few federal statutes under which two types of preemption may arise: conflict preemption and complete preemption....Complete preemption, also known as super preemption, is a judiciallyrecognized exception to the well-pleaded complaint rule. It differs from defensive preemption because it is jurisdictional in nature rather than an affirmative defense...Complete preemption under ERISA derives from ERISA’s civil enforcement provision, § 502(a), which has such “extraordinary” preemptive power that it “converts an ordinary state common law complaint into one stating a federal claim for purposes of the well-pleaded complaint rule.” Taylor, 481 U.S. at 65-66, 107 S. Ct. at 1547. Consequently, any “cause[] of action within the scope of the civil enforcement provisions of § 502(a) [is] removable to federal court.” [emphasis added].
For a number of years, this Court has applied the four-part test for ERISA complete preemption set forth in Butero v. Royal Maccabees Life Insurance Co., 174 F.3d 1207 (11th Cir. 1999)....A few years after Butero was decided, the Supreme Court [decided Aetna Health Inc. v. Davila, 542 U.S. 200, 210, 124 S. Ct. 2488, 2496 (2004).]  The Davila test thus requires two inquiries: (1) whether the plaintiff could have brought its claim under § 502(a); and (2) whether no other legal duty supports the plaintiff’s claim. While similar to the Butero test, Davila refines Butero by inquiring about the existence of a separate legal duty, which is not a consideration under Butero.
First, healthcare provider claims are usually not subject to complete preemption because “[h]ealthcare providers . . . generally are not considered ‘beneficiaries’ or ‘participants’ under ERISA.”...Moreover, such claims often are not the type of claims that could be brought under § 502(a) because they do not “duplicate[], supplement[], or supplant[] the ERISA civil enforcement remedy.”....Second, it is well-established in this and most other circuits that a healthcare provider may acquire derivative standing to sue under ERISA by obtaining a written assignment from a “participant” or “beneficiary” of his right to payment of medical benefits....Claims for benefits by healthcare providers pursuant to an assignment are thus within the scope of § 502(a).....Finally, a provider that has received an assignment of benefits and has a state law claim independent of the claim arising under the assignment holds two separate claims. In such a case, the provider may assert a claim for benefits under ERISA, the state law claim, or both....Thus, so long as the provider’s state law claim does not fall within § 502(a), the existence of the assignment is irrelevant to complete preemption if the provider asserts no claim under the assignment.
The Third, Fifth, and Ninth Circuits have applied these principals to determine the line of demarcation between ERISA and state law claims in actions brought by healthcare providers....
In Blue Cross of California v. Anesthesia Care Associates Medical Group, Inc., 187 F.3d 1045 (9th Cir. 1999), the Ninth Circuit held that healthcare providers’ claims for breach of their provider agreements with Blue Cross were not completely preempted, even though they had received assignments from patients who were beneficiaries of ERISA plans.  The providers’ agreements with Blue Cross required Blue Cross to identify providers in the information it distributed to members of the plan and to direct members to those providers. Id. at 1048. In return, the providers agreed to accept payment from Blue Cross for the services they rendered pursuant to specified fee schedules. Id. After Blue Cross changed the fee schedules, the providers filed a class action in state court alleging that Blue Cross breached the provider agreements by improperly amending the fee schedules and by violating its implied duty of good faith and fair dealing under California law.  On appeal [after the district court granted a motion to remand], the Ninth Circuit held that the providers’ breach of contract claims were not within the scope of § 502(a)(1)(B) because the providers’ breach of contract claims arose solely out of their provider agreements. In other words, the claims were not claims for benefits that could be asserted by the patients-assignors. The Ninth Circuit differentiated the breach of provider contract claims from assignment-based ERISA claims as follows:
[T]he Providers are asserting contractual breaches, and related violations of the implied duty of good faith and fair dealing, that their patient-assignors could not assert: the patients simply are not parties to the provider agreements between the Providers and Blue Cross. The dispute here is not over the right to payment, which might be said to depend on the patients’ assignments to the Providers, but the amount, or level, of payment, which depends on the terms of the provider agreements.
Id. at 1051 (emphasis in original). Because the providers’ state law claims arose out of separate agreements with Blue Cross that governed their provision of goods and services to plan members, the assignments were irrelevant to preemption.
The Third Circuit, in Pascack Valley Hospital, Inc. v. Local 464A UFCW Welfare Reimbursement Plan, 388 F.3d 393 (3d Cir. 2004), a post-Davila case, found no preemption under facts similar to those in Anesthesia Care.......
In a recent decision, Lone Star OB/GYN Associates v. Aetna Health Inc., 579 F.3d 525 (5th Cir. 2009), the Fifth Circuit adopted the Ninth Circuit’s “rate of payment” versus “right of payment” test for distinguishing a provider’s state law contract-based claims from a claim for benefits under ERISA......
We agree with these courts that the “rate of payment” and “right of payment” distinction is a useful means for assessing preemption of healthcare provider claims based upon a breach of an agreement separate from an ERISA plan and thus apply it in considering Rutt and Egan’s claims. [emphasis added].
The first inquiry is whether Rutt and Egan, “at some point in time, could have brought [their] claim under ERISA § 502(b)(1)(B).”  Davila, 542 U.S. at 210, 124 S. Ct. at 2496. This part of the test is satisfied if two requirements are met: (1) the plaintiff’s claim must fall within the scope of ERISA; and (2) the plaintiff must have standing to sue under ERISA....
Rutt and Egan argue that their claims are not cognizable under § 502(a) because the relief they seek is unavailable under ERISA. They stress that they are not seeking benefits under an ERISA plan, but instead seek to collect unpaid amounts they are owed under their Provider Agreements as a result of Anthem’s use of improper payment methods, such as downcoding and bundling, under the guise of utilization review.  Moreover, they assert, their state law claims are the types of claims federal courts have consistently held are not even defensively preempted under ERISA § 514. The Court emphasized in Davila, however, that merely referring to labels affixed to claims to distinguish between preempted and non-preempted claims is not helpful because doing so “would ‘elevate form over substance and allow parties to evade’ the pre-emptive scope of ERISA.” Davila, 542 U.S. at 214, 124 S. Ct. at 2498 (quoting Allis-Chalmers Corp. v. Lueck, 471 U.S. 202, 211, 105 S. Ct. 1904, 1911 (1985)). [emphasis added]......Yet, a closer look [at the Plaintiffs' complaint] discloses more. Plaintiffs’ allegations implicate not only the “rate of payment” under their Provider Agreements, but also the “right of payment.”
What we have, then, is really a hybrid claim, part of which is within § 502(a) and part of which is beyond the scope of ERISA. Because Rutt and Egan complain, at least in part, about denials of benefits and other ERISA violations, their breach of contract claim implicates ERISA. [emphasis added].
Rutt and Egan must have had standing to assert ERISA claims, and because they are providers, they could only have derivative standing through assignments. Thus, unlike Anesthesia Care, supra, the existence of assignments does matter in this case. In the district court, Anthem presented claim forms that Rutt and Egan submitted to Anthem for reimbursement for dental services. Lynn Appicelli, a Project Manager in Anthem’s Government Programs division, confirmed in an affidavit that the attached forms were typical of claim forms that Anthem receives from Connecticut dentists. The claim forms contain the following language: “I hereby authorize payment of the dental benefits otherwise payable to me directly to the below named dental entity.” Anthem contends that these claim forms suffice to show an assignment of benefits by Rutt’s and Egan’s patients. We agree.
The second inquiry is whether Rutt’s and Egan’s claims are predicated on a legal duty that is independent of ERISA....Consequently, portions of their claims arise solely under ERISA or ERISA plans and not from any independent legal duty. As for the remaining claims, where removal jurisdiction exists over a completely preempted claim, the district court has jurisdiction over any claims joined with the preempted claim....Therefore, the district court may exercise jurisdiction over Rutt’s and Egan’s nonpreempted state law claims, including those claims for payment in connection with non-ERISA patients.
Although this Court has not considered the issue, other courts have concluded that a trade group may obtain statutory standing under ERISA through associational standing....A trade association has standing to sue on behalf of its members when three requirements are met: (a) its members would otherwise have standing to sue in their own right; (b) the interests it seeks to protect are germane to the organization’s purpose; and (c) neither the claim asserted nor the relief requested requires the participation of individual members in the lawsuit. Hunt v. Wash. State Apple Adver. Comm’n, 432 U.S. 333, 343, 97 S. Ct. 2434, 2441 (1977). Even if CSDA met the first two requirements for associational standing, it cannot meet the last one. Generally, an association seeking damages on behalf of its members cannot claim associational standing. See United Food & Commercial Workers Union Local 751 v. Brown Group, Inc., 517 U.S. 544, 554, 116 S. Ct. 1529, 1535 (1996). Damage claims are incompatible with associational standing because such claims usually require “individualized proof.” Warth v. Seldin, 422 U.S. 490, 515-16, 95 S. Ct. 2197, 2214 (1975). Although CSDA seeks both declaratory and injunctive relief, which are normally appropriate relief for associational standing, it also seeks compensatory and punitive damages on behalf of its members, which will require individualized proof of harm. Thus, CSDA could not establish all the requirements for associational standing. Consequently, CSDA’s claim is not completely preempted because it lacks standing to sue under ERISA.
Finally, the court reversed an order of the district court that refused to set aside a judgment. The district court entered a judgment after the plaintiff did not respond to a motion to dismiss.  Because the district court did not apply the test outlined in Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P’ship, 507 U.S. 380, 395, 113 S. Ct. 1489, 1495 (1993), the judgment was reversed.


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