Background
MCOs routinely face state-law claims by OON providers seeking to recover additional reimbursement based on statements made during preservice verification of benefit (VOB) and authorization calls. Historically, courts have ruled that these types of claims are not preempted by ERISA as they involve “independent” obligations unrelated to an ERISA plan. However, the Ninth Circuit’s Bristol decision on May 31, 2024 changed this landscape.
The Ninth Circuit’s opinion limited, if not foreclosed, OON providers’ ability to seek reimbursement beyond plan terms based on VOB and authorization communications. In the published opinion, the Ninth Circuit held that ERISA preempts a medical provider’s state-law claims based on the failure to pay the amount that the insurer said would be paid during VOB and authorization calls.
The holding in Bristol
Bristol, the successor-in-interest of a defunct OON drug rehabilitation and mental health treatment center, brought derivative state-law breach of contract and promissory estoppel claims against Cigna. Bristol aimed to recover reimbursements Cigna withheld after discovering the provider had been engaging in fee-forgiving, i.e., waiving member copayments and deductibles – a practice prohibited under the terms of the ERISA plans it administered. Bristol argued that a contract was created when Cigna indicated that it would reimburse the provider at a percentage of the usual and customary (UCR) rate during VOB and authorization calls. Bristol claimed Cigna breached the alleged contract by refusing to pay because of the provider’s alleged fee-forgiving. After a lengthy procedural history, the district court granted summary judgment to Cigna, holding that ERISA preempted Bristol’s state-law breach-of-contract claims.
Bristol appealed, arguing that the VOB and authorization calls to Cigna established independent contractual obligations between Cigna and the provider, unrelated to the ERISA plans at issue. The Ninth Circuit rejected this argument and affirmed the lower court’s opinion. It held that Bristol’s state-law claims were preempted, as they had a “reference to” and an “impermissible connection” with the ERISA plans Cigna administered.
The appeals court found that the state-law claims had a “reference to” an ERISA plan because Bristol’s calls to Cigna were meant to determine whether reimbursement is available under the ERISA plans that Cigna administered. It noted that by attempting to secure payment for plan-covered services through state contract law, Bristol sought a remedy it could not obtain under ERISA.
The court found that Bristol’s claims interfered with a central matter of plan administration. Specifically, allowing providers to create binding contracts through pre-treatment calls would risk undermining plan terms, which are not typically applied before treatment. The court explained that if providers could use state contract law to enforce insurers’ representations during these calls, benefits could be governed by numerous calls and varying state laws, rather than by ERISA and plan terms – a scenario ERISA preemption is meant to prevent.
The court also distinguished its prior ruling in The Meadows v. Employers Health Ins., 47 F. 3d 1006 (9th Cir. 1995), where the provider’s state-law claims were based on misrepresentations that coverage existed when no ERISA plan was in effect. In Bristol, it was undisputed that the patients were eligible for coverage for the services at issue.
Post-Bristol decisions
Several district court have followed the Bristol precedent, dismissing a variety of state-law claims by OON providers based on ERISA preemption:
- Keith Feder, M.D., Inc. v. Aetna Life Ins. Co. (C.D. Cal. June 25, 2024): The court ruled that ERISA preempted a provider’s state-law claims for promissory estoppel and negligent misrepresentation, which were based on Aetna’s VOB call assurance that it would pay UCR rates. The court held that preauthorization communications could not create obligations conflicting with ERISA plan reimbursement rules and dismissed the claims with prejudice.
- Healthcare Ally Mgmt. of Cal., LLC v. United Healthcare Servs., Inc. (C.D. Cal. July 15, 2024): Interpreting Bristol broadly, the court held that state-law claims for reimbursement for medical services would be preempted unless they stem from a complete lack of ERISA plan coverage (on appeal).
- Dedicato Treatment Ctr., Inc. v. Aetna Life Ins. Co. (C.D. Cal. July 8, 2024): Following Bristol, the court found ERISA preemption for an OON substance abuse provider’s claims for breach of contract, promissory estoppel, quantum meruit and unfair competition (on appeal).
- Healthcare Ally Management of California, LLC v. Arup USA, Inc. (C.D. Cal. Aug. 26, 2024): Another district court dismissed similar claims, granting a motion for judgment on the pleadings (on appeal).
- Coast Surgery Center v. United Healthcare Insurance Co. (C.D. Cal. Oct. 25, 2024): The court dismissed OON provider claims based on ERISA preemption, further solidifying the Bristol precedent.
Other courts have applied Bristol to dismiss state-law claims in different contexts. For instance, in Cal. Brain Inst. v. United Healthcare Servs. (C.D. Cal. Sep. 30, 2024), ERISA preempted state-law claims related to withholding payments from an OON provider as an offset for overpayments on a separate plan. The court ruled that these claims were preempted because they involved ERISA plan administration issues, including cross-plan offsetting.
In THC-Orange Cty., LLC v. Regence Blue Shield of Idaho, Inc. (D. Idaho Aug. 30, 2024), the court cited Bristol to find that ERISA preempted an in-network provider’s state-law claims. The claims, based on alleged underpayment under a provider agreement, were preempted because, without the ERISA plan, the insurer would have no payment obligation.
Potential impact on state court cases
While the issue is not settled under state law, Bristol could have a significant impact on future state-law proceedings. Currently, there is conflicting California state appellate precedent that ERISA does not preempt a provider’s contract claims based on VOB calls. In Morris B. Silver M.D., Inc. v. Int’l Longshore & Warehouse etc., 2 Cal. App. 5th 793, 805 (2016), the California Court of Appeal ruled that a provider’s claims based on VOB calls were independent of the patient’s ERISA plan and thus not preempted. However, Silver relied on the same Ninth Circuit cases that the Bristol court expressly distinguished, such as The Meadows, which the Ninth Circuit limited to situations where no coverage existed despite representations otherwise. This could place Silver’s holding in doubt following Bristol, leaving state law unsettled.
Key recommendations
MCOs should ensure reimbursement methodologies for out-of-network claims are memorialized and in compliance with ERISA plan benefits. All member- and provider-facing communications should also refer to plan benefits, instead of attempting to shorthand or characterize them in any way. By doing so, when faced with out-of-network claims seeking additional reimbursement based on VOB calls, MCOs will be better positioned to assert ERISA preemption under Bristol. Further, for cases brought in California state court, special attention should be paid to whether the case can be removed to federal court given the potential split in authority. Whether in state or federal court, MCOs would do well to assert this defense and draw supportive reasoning from Bristol.