ERISA Does Not Bar Medical Providers from Enforcing Health Plans’ Payment Promises Under State Law

So held the Third Circuit this summer in Plastic Surgery Center, P.A. v. Aetna Life Insurance Company, No. 18-3381 (3d Cir. July 17, 2020), reversing the trial court’s dismissal of a provider’s state law claims for breach of contract and promissory estoppel. This case serves as a reminder that the breadth of ERISA’s expansively-drafted preemption provision is not unfettered, and medical providers with claims arising from insurers’ broken promises to pay set rates for specific treatments need not shy away from pleading these claims under applicable state law.

In Plastic Surgery Center, the Third Circuit set out to resolve an issue “of great importance to the health care industry: What remedies are available to an out-of-network health care provider when an insurer agrees to pay for the provision of services that are not otherwise available in-network and then reneges on that promise?” The plaintiff, a plastic surgery provider, was out-of-network with Aetna, the administrator of two patients’ ERISA health plans. The applicable plans did not offer benefits delivered by out-of-network providers on a non-emergent basis. But the patients required specialty, non-emergency, plastic surgery procedures from the plaintiff that no in-network provider could deliver. 

Concerned that Aetna would deny coverage if services were provided, and in an effort to avoid balance-billing the patients, the plaintiff negotiated with Aetna in a series of telephone calls in which Aetna agreed to pay for the patients’ treatments in exchange for payment at the “highest in-network level” allowed by the ERISA plans. Aetna refused to enter into a single-case, written agreement memorializing these terms for either patient. And after the plaintiff rendered the services to the patients, Aetna reneged on its promises to compensate the plaintiff at the agreed-upon rates, paying instead a small fraction of what was owed. 

The plaintiff sued Aetna, asserting breach of oral contract, promissory estoppel, and unjust enrichment claims. But the lower court dismissed these claims, holding that they impermissibly “referenced” the patients’ ERISA plans, especially given that Aetna promised to pay in-network rates for the treatments at issue, and those rates were calculated according to the plan terms.

The Third Circuit largely reversed. It recognized that in the face of plan provisions limiting coverage for out-of-network treatment, as well as those that prohibit patients from assigning medical providers’ their right to sue for ERISA benefits to enforce plan terms, out-of-network providers are increasingly seeking to negotiate payment with plans and administrators upfront to ensure they are paid without billing patients for costly procedures. Claims that arise out of these promises are not ERISA claims: they “could not be brought under [ERISA], even by [the patients], because [the plan’s] alleged liability would not flow from the plans, but from an independent agreement reached between [the provider] and the [plan] to which [the patients are not] part[ies].”

The plaintiff’s claims for promissory estoppel and breach of contract were therefore not preempted because they sought to enforce obligations outside of the plan documents (Aetna’s promise to pay at specified rates). These claims did not contain impermissible “reference to” or “connection with” the ERISA plans, as they did not seek to enforce rights that stemmed from the plan terms or to force ERISA plans to adopt substantive coverage schemes. This was so even though the oral contracts set rates of payment as defined in the plan documents: determination of the rate agreed upon required only a “cursory examination” of the plan’s payment provisions, which was insufficient to bring the claims within ERISA’s preemptive scope.

At the bottom, the Third Circuit recognized the untenable position that too broad a reading of ERISA preemption would impose on providers and their patients. Providers left with no recourse under ERISA or state law against plans that broke their payment promises would be forced to sue their patients for the shortfall. Allowing insurers to “bargain[] away” out-of-network providers’ rights to recourse through ERISA Plans—to which providers are not even a party—would serve not only to allow insurers to “illegitimately supplement their provider networks” through their unenforceable promises of payment but also undermine ERISA’s statutory mandate to protect the rights of plan participants and beneficiaries—here, the patients.

The Third Circuit did, however, affirm the dismissal of the plaintiff’s unjust enrichment claim, which, the court reasoned, could not exist without a demonstration of that there was a duty to pay, which could be evinced only by the existence of the ERISA plan. Unlike the promissory estoppel and breach of contract claims, this claim would not have arisen at all but for the fact that the patients were members of Aetna-administered plans (Aetna’s duty to pay for the patients’ medical treatments arose out of the promises contained in the ERISA plan). 

This case serves to further bolster the ability of medical providers to hold ERISA plans and their administrators to express promises to pay for treatments. Insurers cannot make payment promises to providers, break them, and then cry “ERISA preemption!” when a medical provider tries to enforce the promises. These promises arise under state law, and not from the statutorily-protected relationship between plan participants and beneficiaries and their ERISA plan. Medical providers need not shy away from asserting state law rights to hold insurers to pay agreed-upon rates for services rendered.