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Yep, Providers Can Sue Insurers, Collect Denied Patient Benefits

By Casey C. Sullivan, Esq. on September 17, 2015 | Last updated on March 21, 2019

The situation is routine: a patient with an ERISA-governed health care plan goes in for a procedure. She signs an assignment form, giving her provider the right to collect payment under her plan directly. The assignment allows the provider to deal directly with the insurer in negotiating payment, taking administrative actions and potentially suing in federal court, should the health care plan refuse to pay for the procedure.

That is, except in the District Court of New Jersey, where an unusual intra-district split left district courts divided over whether the assignment for payment also included the right to sue to collect those payments. That divide was solved by the Third Circuit last week when it ruled that, yes, assignments for payment also confer standing to enforce those payments.

An Unusual District Court Split

It's not every day that you hear about a split between district courts, or indeed between the same courts in the same district. Yet that's exactly the type of split the Third Circuit had to resolve. In 2007, the D.N.J. had allowed such assignments to confer standing, arguing that "it is illogical to recognize that a valid assignee has a right to receive the benefit ... but cannot enforce this right." Yet in 2013, the same court ruled that it is only the assignment of plan benefits, not of a right to payment, that creates derivative standing -- and tossed out a claim worth $39 million.

In this particular case, the D.N.J. had again decided that an assignment of payment alone did not allow a provider to sue to enforce payment. The North Jersey Brain and Spine Center had sued to obtain payment from Aetna, after the insurer had refused to pay benefit claims for three of NJBS's patients.

The Third Circuit Takes the Pragmatic Approach

ERISA allows "participants" and "beneficiaries" to bring civil actions to recover unpaid benefits. Participants are defined as employees, beneficiaries as those designated by participants to "become entitled to a benefit." Health care providers aren't included in either definition and nothing is said about assignment.

The court held that "as a matter of federal common law," an assignment for payment of benefits confers standing to sue for that payment. Standing is, the Third reasoned, a logical outgrowth of the assignment, since such an assignment is only valuable "if the provider can enforce it." After all, such assignments are useful only because they allow providers, "confident in their right to reimbursement," to treat patients without having to demand payment beforehand.

Though the ruling settled an internal disagreement in the Third Circuit, it didn't quite break ground. The First, Fifth, Sixth, and Ninth Circuits have all come to the same conclusion previously. Indeed, the uniformity of opinion was another strong reason to find standing, the claim said, as one of the benefits of ERISA is that its basic rules do not change when one crosses circuit lines.

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