Ninth Circuit Rules on ERISA Preemption in Healthcare Case

The Ninth Circuit Court of Appeals recently issued a significant ruling regarding the Employee Retirement Income Security Act (ERISA) in the case of Healthcare Ally Management of California, LLC v. WSP USA, Inc., No. 24-3479. The court's decision impacts how healthcare providers can pursue claims against insurance companies for underpayment of services provided to patients enrolled in ERISA plans. The ruling is particularly relevant for out-of-network healthcare providers who often face challenges when seeking reimbursement from insurance companies.

The case centers around a dispute involving the La Peer Surgery Center, where a patient underwent surgery while covered by an ERISA healthcare plan administered by Aetna Life Insurance Company and provided by the patient's employer, WSP USA, Inc. The surgery center sought confirmation from Aetna regarding the reimbursement rate before performing the procedure. Aetna assured La Peer that the patient's plan would cover a significant portion of the surgery at the usual, customary, and reasonable (UCR) rate. However, after the surgery, WSP paid La Peer at the Medicare rate, which was substantially lower than the UCR rate.

Healthcare Ally Management of California (HAMOC), the successor in interest to La Peer, filed a lawsuit against WSP and Aetna in federal court after the case was removed from state court. Initially, the district court dismissed HAMOC's claims, ruling that it lacked standing to assert an ERISA claim on La Peer’s behalf and that the state law claims were preempted by ERISA. This led HAMOC to appeal the decision to the Ninth Circuit.

The Dispute

The dispute arose after La Peer performed an out-of-network surgery for a patient whose employer provided health insurance through WSP, with Aetna administering the plan. Before the surgery, La Peer contacted Aetna to verify coverage and reimbursement rates. Aetna confirmed that the patient would be responsible for a portion of the costs, and that WSP would cover the remaining balance at the UCR rate, not based on the Medicare fee schedule.

After the surgery, however, WSP paid La Peer at the Medicare rate, which amounted to only five percent of the total bill. This discrepancy led HAMOC to file a lawsuit, claiming negligent misrepresentation against Aetna and WSP, as well as a state law claim of promissory estoppel. The district court dismissed the case, ruling that HAMOC could not assert an ERISA claim and that the state law claims were preempted by ERISA.

The Court's Ruling

The Ninth Circuit, in a combined opinion, affirmed in part and reversed in part the district court's dismissal. The court ruled that while the state law claim of promissory estoppel was preempted by ERISA, the negligent misrepresentation claim was not. The court stated, "ERISA did not preempt HAMOC’s negligent misrepresentation claim, which arose from coverage representations made to an out-of-network medical provider during a verification call in advance of medical services." This distinction is crucial as it allows healthcare providers to pursue claims based on misrepresentations made by insurance companies without being hindered by ERISA's preemption.

The ruling emphasized that the negligent misrepresentation claim did not focus on an ERISA-regulated relationship, thus falling outside the scope of ERISA preemption. The court explained that the claim was based on representations made to La Peer, an out-of-network provider, rather than on the relationship between the patient and the insurance plan. This interpretation aligns with previous rulings in similar cases, where courts have recognized that not all claims involving ERISA entities are preempted.

Impact of the Ruling

This ruling has significant implications for out-of-network healthcare providers who often face challenges when seeking reimbursement from ERISA plans. By allowing the negligent misrepresentation claim to proceed, the Ninth Circuit has opened a pathway for providers to hold insurance companies accountable for inaccurate representations regarding coverage and reimbursement rates. This decision may encourage more providers to pursue claims against insurers when they believe they have been misled about payment rates.

The court's decision also clarifies the boundaries of ERISA preemption, particularly in cases involving state law claims that do not directly challenge the administration of ERISA plans. This ruling may encourage other courts to adopt similar reasoning, potentially leading to a more favorable environment for healthcare providers seeking to recover costs associated with services rendered to patients covered by ERISA plans.

What's Next?

Following the Ninth Circuit's ruling, the case has been remanded to the district court for further proceedings regarding the negligent misrepresentation claim. It remains to be seen how the lower court will handle the case moving forward. Additionally, while the ruling allows for the negligent misrepresentation claim to proceed, the promissory estoppel claim remains dismissed due to ERISA preemption. There is no indication in the court filing that the case will be appealed further, but the outcome of the remanded proceedings may set further precedents in similar disputes involving ERISA and healthcare providers.