The Ninth Circuit Court of Appeals, in Eden Surgical Center v. Cognizant Technology Solutions Corp., dismissed a healthcare provider’s lawsuit against a group health plan in which the provider sought benefits as the assignee of a plan participant.
Background. Many healthcare providers have recently increased efforts to collect for services rendered to participants in ERISA-covered group health plans when the plan refuses to pay some or all of the cost of the services provided. In this context, some providers have taken the view that when a participant assigns his or her rights to plan benefits to the provider, that assignment includes all of the participant’s rights under the plan, including the right to sue for benefits not paid.
To prevent healthcare providers from bringing lawsuits against group health plans, many plan sponsors include anti-assignment provisions in their plan documents. Such provisions either completely prohibit, or substantially limit, the participant’s ability to assign their rights under the plan.
Law. In general, courts have upheld anti-assignment provisions. Thus, even when a plan participant knowingly (or unknowingly) assigns all rights to a healthcare provider, that assignment will be void if the plan expressly prohibits such an assignment.
Facts. In 2014, the plaintiff provided surgical services to one of the plan’s participants. Before providing the services, the plaintiff verified the participant’s medical benefits under the plan through a recorded phone call. It was advised by a plan representative that the reimbursement would be in accordance with usual and customary rates (“UCR”). Later, it was revealed that the plan actually pays Medicare rates, not UCR.
After completing the procedures, and having the participant assign his benefits, the plaintiff submitted claims for reimbursement. The plan issued adverse benefits determinations on a portion of the claims and issued payment for the claims equal to the Medicare rate.
The plaintiff appealed to the plan for the full payment and issued a demand letter. The plan administrator did not respond to either the appeal or the demand letter.
In the interim, the plaintiff contacted the plan’s insurer and was told that the plan did not contain an anti-assignment provision. When the plaintiff sued, the plan administrator sent the plaintiff a letter stating that the plan contained an anti-assignment provision barring its claim.
The district court dismissed the plaintiff’s claim on the basis that the plan contained a valid anti-assignment provision that prevented the plaintiff from asserting the participant’s rights. The plaintiff appealed the district’ court’s determination to the Ninth Circuit on the basis that the doctrine of equitable estoppel renders the anti-assignment provision unenforceable.
Ninth Circuit. On reviewing the matter, the Ninth Circuit noted that reasonable reliance on a material representation is one of the requirements necessary to establish an equitable estoppel claim. In the instant case, the court observed that the plaintiff did not attempt to obtain the plan documents until after it had already filed the lawsuit. Therefore, the court concluded that any reliance the plaintiff placed on the insurer’s misrepresentation concerning the existence of an anti-assignment provision was “unreasonable.”
The court noted that “[w]hile it is true that a ‘plan administrator may not fail to give a reason for a benefits denial during the administrative process and then raise that reason for the first time when the denial is challenged in federal court,’… that is not what happened here.” Specifically, the court found that the plan had raised the anti-assignment provision as a defense after the suit commenced to contest the plaintiff’s standing to sue, not as a reason to deny benefits.
In addition, the Ninth Circuit concluded that although the plaintiff took issue with the plan’s pre-litigation conduct, (i.e., its silence in response to plaintiff’s administrative claims appeal), the plaintiff provided no authority for the proposition that the plan had an affirmative duty to make it aware of the anti-assignment provision. Accordingly, the Ninth Circuit affirmed the district court’s decision to dismiss the plaintiff’s claim.