Eleventh Circuit Applies Supreme Court’s Davila Test To Health Care Providers’ “Hybrid” Claims
January 6, 2010 • HealthPlanLaw.com
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.
Moreover, a number of other circuits have recognized Davila’s two-part test as the proper test for complete preemption under ERISA . . . In accordance with the Supreme Court’s directive, we too apply Davila.
Conn. State Dental Ass’n v. Anthem Health Plans, Inc., 2009 U.S. App. LEXIS 28773 (11th Cir. Fla. Dec. 30, 2009)
This recent 11th Circuit opinion applies the two-part analysis required under Aetna Health Inc. v. Davila, 542 U.S. 200 (2004) to health care providers’ allegations in a class action complaint. The now familiar Davila test 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.
On the facts before it in this case, the Court held that several of the providers’ claims were completely preempted under this test.
The Facts
Rutt and Egan were dentists who participated in Anthem’s network of dentists.
On April 15, 2002, Rutt and Egan filed a five-count class action complaint against Anthem in Connecticut state court, alleging claims for:
breach of contract, breach of the duty of good faith and fair dealing, violation of the Connecticut Unfair Trade Practices Act (”CUTPA”), negligent misrepresentation, and unjust enrichment. The crux of the allegations was that Anthem employed a number of practices, such as “improper downcoding” and “improper bundling,” as a means of underpaying participating dentists for services they performed.
Removal
Anthem removed the cases to the United States District Court for the District of Connecticut on the basis that Plaintiffs’ state law claims are completely preempted by ERISA. Plaintiffs filed motions to remand.
Before the motions were decided, the cases were transferred by the Joint Judicial Panel on Multi-District Litigation as “tag along” cases in the multi-district litigation titled In re: Managed Care, pending in the Southern District of Florida.
The Florida federal district court eventually denied Plaintiffs’ motions to remand in brief orders, citing only its previous decision on a motion to remand in another case as the basis for denying Plaintiffs’ motions.
The Court reviewed the district court’s decision under an abuse of discretion standard. The matter was more complex than a typical preemption case because of a failure to respond to one of Aetna’s set of motions which in turn required a Rule 60(b) analysis (see note below).
General Observations
The Court’s preemption analysis was preceded by a set of ”general observations regarding complete preemption of healthcare provider claims under ERISA.” Here is my interpretation of the three observations:
Observation # 1:
Healthcare provider claims are usually not subject to complete preemption because “[h]ealthcare providers . . . generally are not considered ‘beneficiaries’ or ‘participants’ under ERISA.”
6 Hobbs v. Blue Cross Blue Shield of Ala., 276 F. 3d 1236, 1241 (11th Cir. 2001) (citing Cagle v. Bruner, 112 F.3d 1510, 1514 (11th Cir. 1997)); see also Pascack Valley Hosp., 388 F.3d at 400 (”We conclude that the Hospital could not have brought its claims under § 502(a) because the Hospital does not have standing to sue under that statute.”); In re Managed Care Litig., 298 F. Supp. 2d 1259 (S.D. Fla. 2003) (noting that only two categories of individuals — participants and beneficiaries — are authorized to sue for benefits under § 502(a)(1)(B)).
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.” Davila, 542 U.S. at 209, 124 S. Ct. at 2495.
Example 1:
A healthcare provider’s claims of negligent misrepresentation and estoppel based on a plan’s oral misrepresentations are not ERISA claims because they do not arise from the plan or its terms. 7 Franciscan Skemp, 538 F.3d at 597.
Example 2:
In the context of defensive preemption, this Court has similarly concluded that healthcare provider claims for negligent misrepresentation are not preempted.
Lordmann Enters., Inc. v. Equicor, Inc., 32 F.3d 1529, 1533 (11th Cir. 1994); see also Transitional Hosps. Corp. v. Blue Cross & Blue Shield of Texas, Inc., 164 F.3d 952, 954 (5th Cir. 1999) (noting in the context of defensive preemption that “ERISA does not preempt state law when the state-law claim is brought by an independent, third-party health care provider (such as a hospital) against an insurer for its negligent misrepresentation regarding the existence of health care coverage”).
Observation # 2:
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. Hobbs, 276 F.3d at 1241 (citing Cagle, 112 F.3d at 1512-16). Claims for benefits by healthcare providers pursuant to an assignment are thus within the scope of § 502(a).
(Note here, however, a point made in a footnote (#8) – the Third Circuit did not reach the question of whether derivative standing can be obtained by assignment under ERISA in Pascack Valley Hosp., Inc., 388 F.3d at 401 n.7 and previously in dicta expressed doubt as to the validity of assignments under ERISA. See, Northeast Dep’t ILGWU Health & Welfare Fund v. Teamsters Local Union No. 229 Welfare Fund, 764 F.2d 147, 153-54 & n.6 (3d Cir. 1985)).
Observation # 3:
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.
See Franciscan Skemp, 538 F.3d at 598 (”Franciscan Skemp could bring ERISA claims in Romine’s shoes as a beneficiary for the denial of benefits under the plan; but it has not. . . . Franciscan Skemp is basing its claims on a conversation to which Romine was not even a party.”) (emphasis in original); Marin Gen. Hosp. v. Modesto & Empire Traction Co., 581 F.3d 941, 947 (9th Cir. 2009) (noting that the plaintiff-hospital’s instant claim was based on a telephone conversation in which the plan had agreed to pay 90% of the patient’s charges and that the hospital had already been paid part of the charges pursuant to an assignment from the patient).
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. (citing, Sheridan Healthcorp., Inc. v. Neighborhood Health P’ship, Inc., 459 F. Supp. 2d 1269, 1274 (S.D. Fla. 2006)).
Preemption Analysis
In the main part of the opinion, the Court review decisions from the Third, Fifth and Ninth Circuits which distinguish rate of payment and right of payment issues. This caselaw is provided in an addendum to the note below.
In a nutshell, the Court agreed that the “rate of payment” and “right of payment” distinction was “a useful means for assessing preemption of healthcare provider claims based upon a breach of an agreement separate from an ERISA plan.”
Through the lens of this distinction, the Court proceeded to the Davila tests.
Davila Explained
The Court noted a refinement of its previous complete preemption analysis 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 set forth the following inquiry for complete preemption:
[I]f an individual brings suit complaining of a denial of coverage for medical care, where the individual is entitled to such coverage only because of the terms of an ERISA-regulated employee benefit plan, and where no legal duty (state or federal) independent of ERISA or the plan terms is violated, then the suit falls within the scope of ERISA § 502(a)(1)(B).
In other words, 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 pre-empted by ERISA § 502(a)(1)(B). Aetna Health Inc. v. Davila, 542 U.S. 200, 210, 124 S. Ct. 2488, 2496, 159 L. Ed. 2d 312 (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.
Davila Applied
1. First Davila Inquiry – ERISA § 502(b)(1)(B) Analysis
Could Rutt and Egan, “at some point in time” have asserted claims under ERISA § 502(b)(1)(B)?
This part of the test is satisfied if two requirements are met:
(a) “Scope” Test – the plaintiff’s claim must fall within the scope of ERISA; and
(b) “Standing” Test – the plaintiff must have standing to sue under ERISA.
1.(a) Scope Test
The Court first considered whether the claims are within the scope of § 502(a)(1)(B), “because if they are not, standing to assert them is irrelevant.”
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.
And the Court found that “the factual allegations of the complaint do support Rutt and Egan’s argument that their claims involve the “rate of payment” under their Provider Agreements.”
But the inquiry did not end there:
Yet, a closer look discloses more. Plaintiffs’ allegations implicate not only the “rate of payment” under their Provider Agreements, but also the “right of payment.”
The Court thus concluded that the case involved hybrid claims (see Observation #3 above).
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.
1.(b) Standing Test
The Court found the answer to this inquiry rather obvious.
Rutt and Egan must have had standing to assert ERISA claims, and because they are providers, they could only have derivative standing through assignments.
We conclude that Anthem has carried its burden of showing that Rutt and Egan received valid assignments from their ERISA patients.
2. Second Davila Inquiry – Independent Legal Duty Analysis
The second inquiry was whether Rutt’s and Egan’s claims were predicated on a legal duty that is independent of ERISA.
The Court’s conclusion that the providers’ claims were of a hybrid nature answered this question. To the extent their claims implicated only the amount they were owed under their Provider Agreements, the claims were independent.
But, as noted, their claims stray from the boundaries of their Provider Agreements into ERISA territory by asserting improper denials of medically necessary claims and violations of ERISA procedural requirements. 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.
Thus, the Court held that the district court may exercise jurisdiction over thenon-preempted state law claims, including those claims for payment in connection with non-ERISA patients.
Note: The argument concerning the validty of assignments involved several facets. For example:
Rutt and Egan also contend that the assignments are not valid under Connecticut law. Because they raised this argument for the first time in their reply brief, we treat this argument as waived. United States v. Evans, 473 F.3d 1115, 1120 (11th Cir. 2006) (arguments first raised in reply brief are deemed not properly preserved).
In any event, even though the claim forms do not contain the names and signatures of the patients, Rutt and Egan represented that the signatures are on file in their offices and there is sufficient information onthe forms to match the patient with the particular employer plan under which the right to payment has been assigned.
Right To Receive Payment – The argument, successful in some venues, that the right to receive payment fell short of a right to litigate, was unavailing here:
Rutt and Egan also contend that the claim forms are ineffective to create standing because they convey only the right to receive payment of benefits and not the patient’s right to file an action under § 502(a).
[A]s the Seventh Circuit observed . . . all one needs for standing under ERISA is a colorable claim for benefits, and “[t]he possibility of direct payment is enough to establish subject matter jurisdiction.” Rutt’s and Egan’s rights to direct payment of benefits are thus sufficient to confer standing.
Association Case – I omitted the discussion of a suit by a professional trade group. That claim could have succeeded if declaratory and injunctive relief were the primarly claims, but the Court found that the claims were predominantly for damages.
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.
Additional Discussion – Jeffrey T. Kuntz, Esq. has a good discussion of this case with many helpful hyperlinks on The Florida Legal Blog. Rob Hoskins was first to comment on this case on ERISAboard.com back on 12/31/09.
Caselaw Addendum – Important case authorities discussed in the opinion include the following:
NINTH
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.
THIRD
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.
FIFTH
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.
Comments