Federal Appeals Court Sides with Out-of-Network Providers and Patients

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Federal Appeals Court Sides with Out-of-Network Providers and Patients

On Nov. 5, 2014, federal Court of Appeals ruled for out-of-network provider’s ERISA right to sue UnitedHealth on behalf of patients for out-of-network deductible waiver claim denials. In a much anticipated case, the 9th Circuit sided with Spinedex Physical Therapy USA Inc., saying the clinic had standing to sue because the plan beneficiaries had assigned them their rights.

This case represents the first shot over the bow at insurer’s attempts to limit payments to providers and discourage patient out-of-network utilization based on patient deductibles and co-pays.

The court rejected defendant UnitedHealth’s argument, and explained that an out-of-network provider has ERISA rights for payment and to sue–and whether a provider balance bills a patient, after the assignment when seeking payment from the health plan, is irrelevant. This is a clear court victory for all out-of-network patients and providers.

The federal Court of Appeals for the Ninth Circuit in California ruled for the plaintiff out-of-network provider’s ERISA right to sue UnitedHealth on behalf of patients for out-of-network deductible waiver claim denials, because

Defendants point out that Spinedex has not sought payment from its patients for claims, or portions thereof, that United and the Plans have refused to pay.

All out-of-network providers must understand this court decision as it affects both patients and providers, with an increasing number of out-of-network deductible waiver claim denials.
Case Info: Spinedex Physical Therapy USA, et al v. United Healthcare of Arizona et al, Case No. 12-17604, in the United States Court of Appeals for the Ninth Circuit, filed on Nov. 5, 2014.

Regardless of upfront deductible or co-pay collection after the assignment, an out-of-network provider has ERISA rights to sue for payment from an ERISA health plan, as long as the provider has a valid patient ERISA assignment and establishes the patient’s legal obligation to pay. Deductible and Co-Pay waiver claim denial has been the No. 1 out-of-network claim denial reason, with an increasing number of out-of-network patient bankruptcies as a result of the national epidemic and disastrous three-invoice patient collections practice. Approximately 76% of Americans insured through their employer-sponsored health plans have paid for out-of-network coverage, according to the December 2013 National Composition Summary from DOL Bureau of Labor Statistics.

This historical out-of-network case is a classic example of the most pressing issue facing out-of-network patient and providers across the nation.  The scenario plays out every day: the health plan will usually deny all out-of-network claims for alleged out-of-network deductible and coinsurance waivers by a provider, and allegedly the patient “has not suffered injury in fact”, then the health plan is not liable for any payment to the provider. This is usually followed by alleged overpayment requests and unauthorized offsets.

In Spinedex, United Healthcare denied all out-of-network claims:

Defendants point out that Spinedex has not sought payment from its patients for claims, or portions thereof, that United and the Plans have refused to pay. Defendants argue that because Spinedex has not sought payment from its assigning patients for any shortfall, those patients do not have the “injury in fact” necessary for Article III standing. Defendants argue that since Spinedex stands in the shoes of, and can have no greater injury than, its assignors, Spinedex has not suffered injury in fact.”

The court rejected defendant Unitedhealthcare’s argument, and explained that an out-of-network provider has ERISA rights for payment and to sue and whether a provider balance bills a patient, after the assignment when seeking payment from the health plan, is irrelevant. The court explained why:

We are aware of no circuit court that has accepted defendants’ argument. …… The flaw in Defendants’ argument is that they would treat as determinative Spinedex’s patients’ injury in fact as it existed after they assigned their rights to Spinedex. We agree with Defendants that Spinedex has not sought to recover from its patients any shortfall in Spinedex’s recovery from the Plans, and that the patients have not suffered injury in fact after assigning their claims. But the patients’ injury in fact after the assignment is irrelevant. As assignee, Spinedex took from its assignors what they had at the time of the assignment. At the time of the assignment, Plan beneficiaries had the legal right to seek payment directly from the Plans for charges by non-network health care providers. If the beneficiaries had sought payment directly from their Plans for treatment provided by Spinedex, and if payment had been refused, they would have had an unquestioned right to bring suit for benefits.

While Defendant United Healthcare prevailed in certain other claims, the Ninth Circuit concluded:

We hold that Spinedex had Article III standing to bring benefit claims against Defendants as assignee of its patients. Its injury in fact is the same injury its assignees had at the time of the assignment.

The best explanation for out-of-network ERISA patient protections is from DOL, Obama administration’s Amicus brief and oral arguments in this case:

Thousands of healthcare claims are made in this country every day, and some are litigated, and yet no circuit court has ruled that providers must first bill their patients before they may enforce legitimately assigned benefits claims. …. Limiting physicians’ first recourse to their patients will have chilling effects both on providers and plan participants. Participants may forgo or delay vital healthcare because they cannot finance or they cannot pay for their care, and providers may limit their care to those participants whose health plans have previously paid properly assigned healthcare claims or participants who are able to first to pay for the care, or the provider can recognize as creditworthy.