How Not to Sue an ERISA Governed Plan: Thoughts on the Ninth Circuit's Ruling in DB Healthcare

There may be nothing more fun than ERISA to a lawyer who likes to maneuver among innumerable rules, dodge endless traps, and work out the interaction of numerous potentially inconsistent statutory, regulatory and judge-made requirements. I stand guilty as charged. Indeed, if you were going to create a Myers-Briggs Inventory for the job heading “ERISA Lawyer,” the first question you would put in would ask if you liked civil procedure in law school, because if you don’t like substantive issues like standing, procedural issues like venue, or more run of the mill issues like the scope of discovery, you will never like being an ERISA litigator. Beyond that, if you don’t like a rules based environment, you almost certainly won’t like being a non-litigation ERISA lawyer, with its heavy engagement with express statutory requirements, a million or more regulations from multiple agencies, and constant engagement with the tax code.

I was reminded of this by the Ninth Circuit’s decision yesterday in DB Healthcare v. Blue Cross Blue Shield, which addressed whether health care providers had standing under ERISA to sue health plans for payment for services rendered to plan participants, given that the providers are not one of the categories of individuals – participants, beneficiaries and fiduciaries – expressly granted the power to assert benefit, breach of fiduciary duty or equitable relief claims under ERISA. The Ninth Circuit held that the providers could not assert ERISA claims for two reasons. First, they did not have express standing under the statute; in other words, they did not fall within any of the categories of individuals expressly granted the right to sue by ERISA. Second, they could not claim to have derivative standing – i.e., to stand in the shoes of the plan participants or beneficiaries to whom they had rendered services – because either the ERISA governed plan at issue contractually barred such assignments or, where they did not, the assignments themselves that were taken by the providers were not broad enough to assign the claims.

Are there any broader takeaways from the decision? There certainly are. First, the Court spends significant time explaining who qualifies as a “beneficiary” for purposes of ERISA. This is an issue that is often muddled in ERISA cases, and the decision provides a handy dandy cite for, and explanation of, the issue, usable in all types of ERISA cases, not just provider payment cases.

Second, the Court explained that, with regard to the benefit plans that did not bar assignments, the plan providers still lacked standing because the types of claims they sought to assert against the plans were not within the scope of the assignments they received from plan participants, which essentially only assigned the right to seek payment. Because of the nature of the claims at issue and the dispute, the providers’ claims against the plans sought other forms of relief, and were thus outside the scope of the assignments. There is an important lesson here, but one that can be difficult to put into practice: counsel for providers need to think carefully, in advance of any disputes with health plans, as to what types of claims they may eventually have to bring against such plans, and then draft a standard assignment clause for patients to execute that is broad enough to incorporate such claims.

And third, the Court noted that the providers could likely instead proceed with state law claims directly against the plans based on breaches of their provider agreements, asserting, with only minimal analysis, that such claims would not be preempted by ERISA. This is a subject for a much longer analysis than a blog post, but boy, that is: (1) probably a much better approach for the providers anyway, than proceeding under ERISA; (2) probably what the providers should have pursued in the first place; and (3) probably something that opens up much more expense and risk for the health plans than having kept the claims contained within ERISA. Time will tell, but I wonder if, in the long run, this will come to eventually seem to health plans – after facing endless, non-preempted state law claims over the same conduct – as a pyrrhic victory, similar to the one the British won at Bunker Hill in 1775, where they lost so many troops to take the hill that a commander supposedly commented (though it may be an apocryphal story) that they wouldn’t be able to afford many more such victories.
 

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