On November 5, 2014, the Ninth Circuit Court of Appeals issued a ruling in Spinedex Physical Therapy USA Incorporated v. United Healthcare of Arizona, Inc., 2014 WL 5651325 (Nov. 5, 2014). The decision clarifies a number of important issues relating to payor-provider disputes over health benefit plans governed by the Employee Retirement Income Security Act of 1974 (ERISA).
Plaintiff Spinedex provided physical therapy services to members of a number of United-administered plans, including both self-funded and fully insured plans. The patients signed several documents in connection with their treatment, including an assignment of benefits form that assigned the patients' "rights and benefits" under the plans, and an "Enrollment Form" that included a statement in which patients acknowledged that they were liable for all costs of the services rendered. The patients also signed a "Financial Policy" providing, among other things, that patients would be responsible for any treatment costs not covered by their health plan.
Spindex sued United and United-administered plans (Defendants) for failure to pay ERISA plan benefits. Defendants' primary excuse for nonpayment was Spinedex's failure to bill and collect copayment and coinsurance amounts from the patients.
Providers Do Not Have To Bill Patients To Have Standing
The court first considered whether Spinedex had suffered "injury-in-fact" sufficient to have standing to sue under Article III of the United States Constitution.
Defendants argued that because Spinedex had not sought payment from its assigning patients, the patients had suffered no monetary injury. Under ERISA, providers who obtain assignments of benefits "stand in the shoes" of the patients who assigned the benefits. Defendants therefore argued that Spinedex, as the assignee, could have no greater injury than the patients, and therefore suffered no injury-in-fact. The Ninth Circuit rejected this argument, finding that Spindex did not have to bill patients anything in order for Spinedex to sue for payment of amounts due under the patients' ERISA plans. The court reasoned: "The fact that Spinedex has chosen not to seek payment from its assignors, despite its contractual right to do so, does not mean that Spinedex had no right to recover benefits under the Plans from Defendants. It only means that Spinedex has decided not to pursue its legal rights against the assignors." Therefore, the court confirmed that providers who have been underpaid by ERISA plans do not need to bill patients as a prerequisite to filing suit for recovery of amounts owed.
Procedural Defenses, Including Anti-Assignment Clauses, Can Be Waived
The opinion also confirms that a plan administrator cannot raise an anti-assignment clause for the first time in litigation when a provider previously "requested payment pursuant to a clear and unambiguous assignment." The Ninth Circuit did not address whether the standardized billing forms (such as the assignment of benefits certification in field 53 of the UB-04) may provide the requisite notice of assignment. But other federal courts have suggested that this form is sufficient notice.
Also, crucially, the Spinedex opinion expressly affirms that the principle set forth in Harlick v. Blue Shield of California, 686 F.3d 699 (9th Cir. 2012) that "an administrator may not hold in reserve a known or reasonably knowable reason for denying a claim," and applied that principle to an anti-assignment defense. Health plans have argued that only substantive coverage limitations can be waived by the plan -- i.e., a medical necessity defense -- but that procedural defenses supposedly could not be waived. The Ninth Circuit has come out squarely on the side of providers and rejected the plan argument on this issue.
Third Party Claims Administrators Are Proper ERISA Defendants
In Spinedex, the Ninth Circuit also confirmed that providers may sue any entity that causes improper denial of benefits, rather than just the formally designated "plan administrator." The court explained that "proper defendants under § 1132(a)(1)(B) for improper denial of benefits at least include ERISA plans, formally designated plan administrators, insurers or other entities responsible for payment of benefits, and de facto plan administrators that improperly deny or cause improper denial of benefits." Thus, administrators such as United cannot avoid liability for improper benefit denials on the basis that they are merely "claims" administrators, rather than formally designated "plan" administrators, in plan documents.
Plans Generally Must Strictly Follow Claims Handling Regulations
ERISA requires plans to provide a "full and fair review" of claims, pursuant to Section 503 of ERISA, 29 U.S.C. Section 1133. The Department of Labor (DOL) has promulgated detailed claims handling regulations that define the minimum requirements of a "full and fair review" process, including, among other things, notice of the specific reason for denial, the plan provision upon which the decision was based, and a description of the plan's review procedure and the time limits applicable to such procedure.
Some courts have found that "substantial compliance" with these requirements is sufficient. In Spinedex, the Ninth Circuit rejected this standard, instead siding with the DOL's view that strict compliance is necessary, and that only de minimis errors will be excused. Thus, plans must strictly comply with the DOL regulations, or the administrative process will be "deemed exhausted," and provider plaintiffs can proceed directly to court without going through an administrative appeal.
Importantly, this ruling has implications beyond just ERISA plans, because the DOL's claims handling regulations were adopted by the federal government as requirements that health plans governed by the Affordable Care Act ("ACA") also must follow. As a result, while ERISA itself does not apply to non-ERISA plans, the payers often will be required to follow ERISA claims handling regulations even for non-ERISA plans. This includes, without limitation, non-grandfathered plans issued both on and off federal and state public health exchanges, and other health plans now subject to ACA.
Hooper, Lundy and Bookman is representing many providers who are challenging underpayments and recoupments by health plans, plan administrators, and claims administrators that are governed by the ERISA claims handling regulations, in which these and other issues are being litigated, arbitrated and mediated. If you have any questions about these issues, please contact Peter Brachman, Michael Houske, or Daron Tooch in Los Angeles at 310.551.8111; or Jennifer Hansen or Joseph LaMagna in San Diego at 619.744.7300.