United States: Trio of Recent Cases Find Health Care Provider Claims for Underpayment of Benefits Preempted by ERISA

Originally published January 27, 2010

Keywords: health insurance, insurance benefits, underpayment, health care provider, managed care organizations, MCO, ERISA preemption 

Health insurance providers and managed care organizations (MCOs) faced with provider claims for underpayment of benefits (due to downcoding, bundling, or non-payment of claims) benefitted from a trio of cases decided in the last quarter of 2009. Those three cases — Lone Star OB/GYN Assocs. v. Aetna Health, Inc., 579 F.3d 525 (5th Cir. 2009), Montefiore Med. Ctr. v. Teamsters Local 272, 2009 U.S. Dist. LEXIS 105832 (S.D.N.Y. Nov. 11, 2009), and Connecticut State Dental Assn. v. Anthem Health Plans, Inc., 2009 U.S. App. LEXIS 28773 (11th Cir. Dec. 30, 2009) — found that such provider claims are preempted by ERISA where the provider received an assignment by the participant and where any aspect of the claim can be construed as a coverage determination under the relevant ERISA plan.

ERISA preemption offers significant advantages to health insurance providers and MCOs. These advantages include litigation in a federal district court (rather than a state court), remedies limited to those specifically provided under ERISA, and a review of benefits determinations under ERISA's deferential standard for most plan administrator determinations. In the past, leading decisions, particularly those in the Third and Ninth Circuits, refused to find that providers' claims under provider agreements were preempted by ERISA. Those courts focused on two key factors: (1) whether the provider had standing to sue under ERISA § 502(a)(1), and (2) whether the claims focused on the amount paid for each claim (which is not preempted), or on a coverage determination (which is preempted).

In these three recent decisions, although the courts applied the same line of demarcation as the earlier cases — e.g., whether the dispute challenged the amount paid or the coverage determination, and whether the provider had standing to sue under § 502(a) — the courts reached conclusions opposite from those earlier decisions. These recent courts found that the disputed claims may be preempted by ERISA where the claims sufficiently related to coverage determinations. Given that disputes with providers often involve both coverage determinations and coverage amounts, these recent decisions provide health insurance providers and MCOs with helpful guidance — and precedent — for future disputes.

Past Decisions Limited ERISA Preemption

ERISA is one of only a few federal statutes that preempts state-law claims in two distinct ways: conflict preemption and complete preemption.1 While conflict preemption is an affirmative defense that preempts state laws that "relate to" an ERISA plan, it does not serve as a basis for removal. Complete preemption, however, is an "extraordinary" preemptive power that applies in ERISA cases to "convert an ordinary state common law complaint into one stating a federal claim for purposes of the well-pleaded complaint rule."2 Under the complete preemption doctrine, any "cause[] of action within the scope of the civil enforcement provisions of § 502(a) [is] removable to federal court."3

In Aetna Health Inc. v. Davila, 542 U.S. 200 (2004), the Supreme Court laid out a two-part test to determine if a suit is subject to complete preemption. The Supreme Court explained that "if an individual, at some point in time, could have brought his claim under ERISA § 502(a)(1)(B), and where there is no other independent legal duty that is implicated by a defendant's actions, then the individual's cause of action is completely preempted by ERISA § 502(a)(1)(B)."4 Thus, complete preemption requires a two-part determination: whether the plaintiff could have brought its claim under § 502(a), and whether no other legal duty supports the plaintiff's claim.

Courts evaluating preemption arguments concerning provider claims for benefit payments have historically declined to find complete preemption, based on one of those two elements. In Pascack Valley Hospital, Inc. v. Local 464A UFCW Welfare Reimbursement Plan, 388 F.3d 393, 401-403 (3d Cir. 2004), for example, the Third Circuit concluded that a hospital's claims under a Network Hospital Agreement and Subscriber Agreement were not preempted by ERISA. The court first determined that there was insufficient evidence that the hospital had obtained an assignment from the patient, a necessary pre-requisite for the hospital to have derivative standing under § 502(a). The court then concluded that, even if the hospital had derivative standing through an assignment, its claims would not be preempted because they were based on a separate legal duty independent of ERISA. The court determined that the dispute did not require a determination of coverage and eligibility under the Plan, but instead turned on the application of discounted rates under the subscriber agreement.

The Ninth Circuit reached a similar conclusion in Blue Cross of California v. Anesthesia Care Associates Medical Group, Inc., 187 F.3d 1045, 1051 (9th Cir. 1999). In that case, the healthcare-provider plaintiffs received assignments from plan participants, and thus had derivative standing under § 502(a). Nonetheless, the Ninth Circuit found the providers' breach of contract claims were not within the scope of § 502(a), but rather arose solely out of their provider agreements. The court found that the dispute did not center on the right to payment (which might turn on the ERISA benefit determination), but related only to the amount, or level, of payment, which depends on the terms of the provider agreements.

Trio of Recent Decisions Find Possible Preemption

In contrast to these earlier decisions, three recent decisions (from the Fifth and Eleventh Circuit Courts and the federal district court from the Southern District of New York), though applying the same legal standard, found that preemption might nonetheless apply given the facts of their cases. In these newer cases, the defendants built strong records of assignment (thus demonstrating that the plaintiffs could have brought their claims under § 502(a)). And the defendants demonstrated that the plaintiffs' claims depended, in some part, on a benefit determination, and not just on the level of compensation due to the plaintiffs.

Lone Star

The first of these cases was Lone Star OB/GYN Assocs. v. Aetna Health, Inc., 579 F.3d 525 (5th Cir. 2009). In that case, Lone Star, a health care provider, sued Aetna under the Texas Prompt Pay Act (TPPA), arguing that Aetna had not paid Lone Star at the rates set out in the Provider Agreement within the time period required by TPPA. Aetna demonstrated that Lone Star's patients had assigned their rights to Lone Star, and that Lone Star thus could have brought its claim under § 502.5 Aetna also demonstrated that some of the claims on which Lone Star sought recovery were claims that had been denied, reflecting a benefit determination governed under ERISA.

Trying to avoid preemption, Lone Star amended its complaint to remove the claims that had been denied. Lone Star then argued that because it had received a partial payment from Aetna on each of its remaining claims, the dispute did not concern a benefit determination, but only the appropriate payment for those benefits. Aetna responded that the partial payment for many of the remaining claims had been due to a partial denial of benefits based on a determination that a given service was not medically necessary.6

Finding that the factual record was not sufficiently developed, the court remanded to the district court. But importantly, the court noted that if "any individual payment claim potentially encapsulates multiple procedures only some of which were covered, and partial payment thus resulted from a denial of benefits under the plan, the claim may be preempted."7

Montefiore Med. Ctr.

The second case is Montefiore Med. Ctr. v. Teamsters Local 272, 2009 U.S. Dist. LEXIS 105832 (S.D.N.Y. Nov. 11, 2009). In that case, Montefiore Medical Center sued the Teamsters Local and its Welfare Fund (Fund) pursuant to the terms of the Hospital's Network Hospital Agreement, seeking payment for medical services provided to the Union's members. The defendants demonstrated that for each claim, the union member had assigned his claim to Montefiore.8 Further, the defendants argued that the claims were rejected for reasons arising under the terms of the Plan — either because they were not covered services, the patient was not eligible under the Plan, or Montefiore had failed to comply with claim procedures under the Plan. Applying the Davila test, the district court found that the hospital's claims were preempted by ERISA.

Nonetheless, the court certified to the Second Circuit the issue whether Montefiore actually had standing to bring its claims under § 502(a). Montefiore had argued that it was an in-network provider, and that plan participants need not pay for benefits out of pocket when they are treated by in-network providers. Thus, participants, by receiving free services from Montefiore, had received all the benefits to which they were entitled, and Montefiore could not bring a claim on their behalf under ERISA. The district court found that the services were rendered pursuant to the ERISA Plan, and that there would be no right to payment without the existence of the Plan. But because of dicta in a prior Second Circuit decision that supported Montefiore's position, the court certified the ERISA standing issue to the Second Circuit.

Connecticut State Dental Association

The third case, decided on December 30, 2009, is Connecticut State Dental Assn. v. Anthem Health Plans, Inc., 2009 U.S. App. LEXIS 28773 (11th Cir. Dec. 30, 2009). In that case, two dentists and a state dental association brought a claim against Anthem. The plaintiffs sought to collect unpaid amounts that were owed under their provider agreements as a result of Anthem's allegedly improper use of payment methods (such as downcoding and bundling) under the guise of utilization review.9 Anthem removed the claims to federal district court, and the district court denied plaintiffs' motion to remand. On appeal of the remand order, Anthem argued that the plaintiffs' state law claims were completely preempted by ERISA because they met both elements of the Davila test.

First, the plaintiff dentists had received assignments from the plan participants. Although the plaintiffs disputed that those assignments included the right to bring a legal claim under ERISA (as opposed to just the right to submit a claim to the plan), the Eleventh Circuit found the assignment was sufficient to give plaintiffs a colorable claim for benefits, which was all that was required.

Second, Anthem argued on appeal that at least some of the allegations in plaintiffs' complaint related to rights under the plan, including "systematically denying and/or reducing Dentists' reimbursements," the denial of "medically necessary claims through the use of so-called 'guidelines,'" and "failing to provide an adequate explanation for the denial of claims for reimbursement."10 The court found that plaintiffs' action was a hybrid claim, part of which was within § 502(a) and part of which was beyond the scope of ERISA. Because at least part of the claim related to ERISA violations, the court held that plaintiffs' breach of contract claim implicated ERISA and was preempted.


These three decisions are not the first to find complete preemption by application of the Davila factors. See, e.g., Weisenthal v. United Health Care Ins. Co. of N.Y., 2007 U.S. Dist. LEXIS 91447 (S.D.N.Y. Nov. 29, 2007) (preemption found where "at bottom, each claim seeks damages for Defendants' decision not to cover certain ... procedures performed by Plaintiffs"); Ambulatory Infusion Therapy Specialists, Inc. v. Aetna Life Ins. Co., 2006 U.S. Dist. LEXIS 39268 (S.D. Tex. June 13, 2006) ("Because the dispute is not the applicable rate of payment, which the plaintiff maintains is set forth in the managed-care contract, but rather whether the services themselves were usual, customary, reasonable, medically necessary, or otherwise 'covered' under the ERISA Plan, the claim is dependent on the Plan and completely preempted by ERISA.").

Nonetheless, these new cases address more nuanced factual scenarios and illustrate the arguments that defendants have used to show how provider claims are dependent on the plan benefit determinations.

Moreover, taken together, they reflect the increasing recognition by the courts that actions by providers for underpayment of claims are inextricably linked with plan benefit determinations, and provide compelling (and in some circuits, binding) precedent that health insurance providers can rely on in future cases.

These cases can also serve to guide the litigation strategy for defendants responding to such provider claims. In addition to providing evidence of a participant's assignment of benefits, defendants must demonstrate that at least some portion of the providers' claim implicates (at least in part) a benefits determination under the relevant plan. As these cases have shown, the test is one the health insurance providers and MCOs can meet in many cases.


1. Connecticut State Dental Assn. v. Anthem Health Plans, Inc., 2009 U.S. App. LEXIS 28773, *7 (11th Cir. Dec. 30, 2009).

2. Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63-64 (1987).

3. Id. at 66.

4. 542 U.S. at 210.

5. 579 F.3d at 529.

6. Id. at 533.

7. Id.

8. 2009 U.S. Dist. LEXIS 105832 at *16.

9. 2009 U.S. App. LEXIS 28773 at *3-4.

10. Id. at *28-29.

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