In Beverly Oaks Physicians Surgical Center, LLC v. Blue Cross and Blue Shield of Illinois, 983 F.3d 435 (9th Cir. Dec. 17, 2020), the Ninth Circuit reversed the dismissal of an ambulatory surgical center (ASC)’s ERISA benefits claim, holding that the healthcare provider had successfully pled both waiver and estoppel as to the plan’s anti-assignment clause. It is the third Circuit decision in three years to touch these issues, but the first to be published – and the first to rule decisively in favor of the healthcare provider.
The Problem: Anti-Assignment Clauses
Approximately half of American healthcare is provided by employers, and is thus governed by the Employee Retirement Income Security Act (ERISA). Unfortunately, the technicalities of ERISA have made it unnecessarily difficult for out-of-network healthcare providers to get paid for services rendered.
ERISA health plan benefits belong to the patient. Thus, providers seeking payment for their services routinely obtain an assignment of benefits. An assignment permits a provider to sue for ERISA benefits by “standing in the shoes” of a plan beneficiary or participant.
Unfortunately, ERISA-governed plans often include what is known as an “anti-assignment clause” that prohibits benefits from being assigned to providers. In recent decades, courts in every circuit have enforced anti-assignment clauses. Out-of-network providers’ suits for payment are routinely dismissed at the pleading stage.
This scheme has emboldened plans to adopt a “take it or leave it” approach: routinely underpaying out-of-network providers, dealing directly with those providers on benefit verification, authorizations, and appeals – and then asserting anti-assignment clauses as a complete defense to suit.
Waiver and Estoppel Defenses: An Area Sorely in Need of Guidance
Recognizing the inherent unfairness of the situation, courts regularly entertain the related but distinct common law theories of waiver and equitable estoppel as defenses to anti-assignment clauses. Waiver is the intentional relinquishment of a known right. It provides a strong incentive for insurers to investigate a claim diligently and to specify all reasons for denial of the claim. Estoppel, in contrast, centers on a course of dealing by an insurer or plan that would make it unjust for an anti-assignment clause to be enforced.
Until now, nearly all the Ninth Circuit caselaw examining waiver and estoppel has been unpublished. For instance, Care First Surgical Center v. ILWU-PMA Welfare Plan (C.D. Cal., July 28, 2014, No. CV 14-01480 MMM AGRX) 2014 WL 6603761 explored both waiver and estoppel in-depth, and synthesized caselaw from jurisdictions across the country – only to hold that the provider had not successfully pled either. More recently, the Ninth Circuit summarily rejected waiver and estoppel arguments in a pair of unpublished decisions. See Brand Tarzana Surgical Inst. v. Int’l Longshore & Warehouse Union-Pacific Mar. Ass’n Welfare Plan, 706 Fed. Appx. 442 (9th Cir. Dec. 18, 2017); Eden Surgical Ctr. v. Cognizant Tech. Sols. Corp., 720 Fed. Appx. 862 (9th Cir. Apr. 26, 2018).
The New Beverly Oaks Decision
All this makes the new Beverly Oaks decision such a remarkable departure from prior cases. The facts pled in Beverly Oaks are fairly routine. An ASC sued Blue Cross, who had paid only $130,000 on total charges of $1.4 million for medical services rendered to 14 patients. Blue Cross waited until litigation to assert the plan’s anti-assignment clause. It got the case dismissed.
What changed? Here, the court of appeal seized upon several key facts pled by the provider:
On phone calls with the ASC to verify plan benefits, Blue Cross represented that out-of-network providers were eligible to be paid benefits directly.
The ASC checked the “assignment of benefits” box on the claim forms that were submitted to Blue Cross for reimbursement, explicitly indicating that the provider was proceeding in its capacity as an assignee of the patient.
The ASC was permitted to proceed through the administrative claim process, and Blue Cross never raised the anti-assignment clause until litigation.
None of these facts are remarkable or unique. Standard health insurance verification and billing processes were involved, just as they probably were in the previous decisions. It may very well be that those previous courts did not fully understand the ways in which providers regularly proceed as assignees of ERISA beneficiaries and participants. Regardless, Beverly Oaks represents a new approach – one that is more critical of insurers’ and plan administrators’ motives, and more inclined to allow discovery on the topics of what they knew and how they acted.
It is also notable that the Ninth Circuit took the opportunity to forcefully repudiate its unpublished decisions in Brand Tarzana and Eden Surgical. The Beverly Oaks court underscored the need for a waiver doctrine because insurers and plan administrators cannot remain “unaccountable for prior conduct contrary to [their] litigation position.” 983 F.3d at 442. The court also held that the provider had pled the “extraordinary circumstances” element of estoppel. Blue Cross’s representations and course of action induced reliance by the ASC, and “[t]hese misrepresentations continued over time throughout the administrative review process.” Id. at 443.
Consequences
The biggest impact of Beverly Oaks will be a shift in the fight over anti-assignment from the pleading stage to summary judgment. Even this is a tremendous improvement. Providers will now routinely get the opportunity to conduct discovery on what the insurer or health plan knew, as well as other facts that will support estoppel and waiver.
Just to give one example how this seemingly simple procedural change will have significant impact, Athene Law recently obtained affirmance at the Ninth Circuit of an ERISA benefits judgment against Anthem Blue Cross. Martin Luther King, Jr. Community Hospital v. Anthem, Inc. et al., 829 Fed. Appx. 156 (9th Cir. Oct. 2, 2020). Anthem moved to dismiss based on an anti-assignment clause at the outset of that litigation, but the motion was denied due to issues of fact specific to the plan language at issue. Following discovery, MLK prevailed on summary judgment and ultimately before the Ninth Circuit, which held that the clause permitted assignment and thus direct payments to the provider.
Taking the Patient Out of the Middle
Beverly Oaks is part of a larger trend towards taking the patient out of payment disputes. If the benefits belong to the patient and cannot be assigned to the provider, that leaves no choice but to go after the patient when the plan fails to pay. This is almost always undesirable. It is the plan who should be responsible.
One significant but little-noticed feature of the new No Surprises Act, the “surprise billing” law passed by Congress at the end of December 2020, is that insurers and ERISA plans must now make direct payment for emergency services to the provider. (No Surprises Act, Section 2799A-1(a)(1)(C)(iv) (requiring that “the group health plan or health insurance issuer, respectively, pay[] directly to such provider or facility, respectively”).) It appears that Congress has made a judgment – at least with respect to emergency claims – that it will simply override anti-assignment clauses in those instances, and by law, assign payment to the provider. (Congress has, of course, also determined that such disputes should regularly be resolved by negotiation and through Independent Dispute Resolution – but more on that in future posts.)
Anti-assignment clauses serve no valid policy purpose and effectively immunize ERISA-governed health plans from suit. Their impact is being steadily narrowed as Congress and the courts begin to recognize that patients should simply not be placed in the middle of payment disputes where at all possible. In the meantime, Beverly Oaks reaffirms that the doctrines of waiver and estoppel are available to fill the gap.
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