Third Circuit Declares Plans May Restrict Providers' ERISA-Assignee Rights

These provisions are designed to prohibit plan participants and beneficiaries from assigning to third parties—including health care providers—the participants’ rights to payment and to bring claims arising under their ERISA plans. Anti-assignment provisions contained in ERISA plan documents present a barrier for medical providers seeking to recover from health care plans and insurers payment for treatments rendered to patients covered by those plans. The Third Circuit joins all other circuits to have expressly considered the issue—the First, Second, Fifth, Ninth, Tenth, and Eleventh Circuits—in doing so.

In American Orthopedic & Sports Medicine v. Independence Blue Cross Blue Shield et al., No. 17-1663, 2018 WL 2224394 (3d Cir. May 16, 2018), the Third Circuit found that anti-assignment provisions in ERISA plan documents, in general, preclude medical providers from enforcing their patients’ right to sue to recover benefits under ERISA, even where the patients have assigned their rights to their medical providers.

The case arose out of treatments American Orthopedic & Sports Medicine provided to “Joshua,” a patient enrolled in a health plan insured by Independence Blue Cross Blue Shield and Horizon Blue Cross Blue Shield of New Jersey (the “insurers”). American Orthopedic was “out-of-network” with the insurers, meaning that it did not have an independent contractual relationship setting forth the terms of payment for treatments rendered to the insurers’ enrollees. Relying on a plan provision that purportedly caps payment for out-of-network providers, the insurers paid American Orthopedic just a small fraction of the amount the provider billed for Joshua’s treatments. So American Orthopedic obtained an “assignment of benefits” from Joshua, allowing the provider to stand in Joshua’s shoes and assert legal claims on his behalf to recover the payment. It also had Joshua execute a limited power of attorney document designed for the same purpose.

Standing in Joshua’s shoes as his assignee, American Orthopedic asserted an ERISA claim (among others) in state court claiming that the insurers failed to pay appropriately under the terms of Joshua’s plan. The insurers removed the case to federal court, where the District of New Jersey granted the insurers’ motion to dismiss for lack of standing. American Orthopedic, the court concluded, could not assert claims under ERISA as Joshua’s assignee because of the anti-assignment provision.

Assignments of benefits like the one Joshua executed in this case are common in the health care industry, and they are vital for medical providers seeking to collect underpayments from health care plans covered by ERISA. Section 502(a)(1)(b) of ERISA provides a remedy for only certain categories of persons to sue health care plans and their fiduciaries to recover alleged underpayments. Medical providers are not included among these categories; but their patients—health plan “participants” or “beneficiaries”—are. Medical providers can thus assert rights and claims under ERISA only when they can stand in the shoes of their patients, having obtained a valid assignment. Without these assignments, medical providers are limited in their options to pursue payments for their services – often having to seek recovery from their patients, who are far less equipped than their health plans to pay the full cost of their treatment. In turn, this may leave patients not only with the financial burden of having to pay claims that their health plans should have paid, but also with the burden of having to fight with their plans to get reimbursed after the fact.

Plan sponsors, administrators, and insurers are increasingly including anti-assignment provisions in health plan documents.  Some provisions are more generalized, preventing enrollees from assigning benefits to any third-party.  But others, like the one at issue in American Orthopedic & Sports Medicine, state explicitly that they apply to treating medical providers.

On appeal, the Third Circuit found nothing in ERISA’s text or legislative history precluding enforcement of anti-assignment provisions in health care plans.  Relying on case law from its sister circuits, it applied the general rule that “the terms of an unambiguous private contract [like a health care plan document] must be enforced.”  Id. at *6.  It held:  “[A]nti-assignment clauses in ERISA-governed health insurance plans as a general matter are enforceable.” Id.

This case represents another blow for out-of-network medical providers seeking to recover payment from their patients’ health plans.  But the Third Circuit’s opinion contains two areas of opportunity for medical providers to avail themselves of ERISA’s protections:

• First, the Third Circuit had no occasion to consider whether an anti-assignment provision of general applicability—i.e., one that does state expressly that it is intended to apply to treating medical providers—is enforceable against treating medical providers.  In fact, the Third Circuit distinguished on its facts a Fifth Circuit case finding that an anti-assignment provision of general applicability is not explicit enough to apply to medical providers.  See id. at *5 (citing Hermann Hospital v. MEBA Medical & Benefits Plan, 959 F.3d 569 (5th Cir. 1992)).  The provision under consideration here did include medical providers by name.  It is at least an open question whether the Third Circuit would enforce an anti-assignment provision against treating medical providers if the provision fails to state that it applies specifically to medical providers.

• Second, the court rejected the insurers’ argument that anti-assignment provisions preclude medical providers holding valid limited powers of attorney for their patients from suing health plans under ERISA.  Unlike assignments, which allow medical providers to sue in their patients’ shoes, powers of attorney place medical providers in the role of the patients’ agent.  And nothing in the anti-assignment clause at issue in American Orthopedic & Sports Medicine precluded an agent from suing the plan.  In fact, ERISA requires plans to allow properly appointed “authorized representatives” to pursue benefit claims and appeals on behalf of a plan member.  The concept that one holding a limited power of attorney can act on a plan member’s behalf is similar to the idea that a personal representative can submit claims and appeals on behalf of plan members embodied in ERISA’s regulations.  Medical providers could potentially sidestep anti-assignment clauses by executing limited powers of attorney allowing them to enforce their patients’ ERISA rights in court.  

Providers must adhere to state-specific laws governing powers of attorney, however: in American Orthopedic & Sports Medicine, the provider failed to require the patient to execute the power of attorney document in front of a witness, a fact that rendered the document void under applicable state law.Providers should also be aware of—and follow—any procedures included in the plans themselves that govern how personal representatives can be appointed.ERISA specifically allows plans to establish “reasonable procedures” for determining whether an individual has been authorized to act on the member’s behalf.

The bottom line takeaway from the Third Circuit’s decision is that providers will be hard-pressed, most anywhere in the country, to fight the enforceability of an anti-assignment clause against them, unless something in the precise wording of the provision lends itself to an exception.  But more importantly, this case also underscores that providers might still be able to avail themselves of ERISA rights and remedies through a power of attorney or personal representative appointment.  Ensuring that assignment of benefits forms are broadly drafted to allow for this appointment, in addition to an assignment, is thus critical.  Ensuring that the language and implementation of the appointment satisfies state law requirements is equally critical.