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Sep 18, 2015

ERISA and Provider-Payor Prompt Pay Act Litigation Update

By: Derek Davis

Provider-Payor and out-of-network provider billing litigation requires careful and detailed consideration of litigation strategy.  Payors often must determine fair and reasonable pricing to compensate out-of-network providers and to avoid unecessary litigation.  Providers often develop strategies to maximize payment without unecessary litigation.  Once litigation becomes imminent, the parties must choose causes of action and defenses, both of which can impact administrative and judicial venue and jurisdiction.  Suing on assignment under ERISA means exhaustion of administrative remedies and federal court.  Quasi-contractual remedies may limit the ability to recover damages beyond the value of the services.

Earlier this year, the Federal Fifth Circuit Court of Appeals undertook an analysis of these issues in North Cypress Medical Center v. Cigna, 781 F.3d 182 (5th Cir. 2015).  North Cypress Medical Center ("North Cypress") was an out-of-network  provider that attempted to draw out-of-network covered patients into its system by offering a "prompt pay" discount  for the coninsurance to the patient for using the medical center.  This allegedly resulted in patients having an incentive to use an out-of-network provider rather than in-network providers, leaving the plan to pay higher rates with no discount program.  Cigna responded by implementing a "fee forgiveness" program wherein the payor would reimburse out-of-network providers the covered amounts based not on billed charges to the payor, but rather based on billed charges to the patient.  For example, if the plan covered 50 percent of out-of-network medical expenses, and the patient were charged only $100, Cigna would reimburse $100, even if the billed charges exceeded $200 to the plan. 

North Cypress filed suit against Cigna to recover approximately $40,000,0000, asserting causes of action under ERISA and state law prompt pay act violations under the insurance code.  Cigna moved to dismiss the claims, and the district court dismissed them on the basis that the hospital did not have standing to bring suit under ERISA since it was not the member, and the state law prompt pay act claims were preempted by ERISA and therefore not viable.

The Fifth Circuit Court of Appeals reversed the dismissal of the ERISA claim finding that North Cypress in fact did have standing to assert the claims.  Reasoning that the plan members may properly assign their claims to the provider and allow the provider to pursue their ERISA rights against the plan, the Fifth Circuit held that the claims may proceed in the district court.  In doing so, however, the court then turned to the prompt pay act allegations to consider the preemptive effect of ERISA.  The opinion contains a detailed review of whether the prompt pay act is saved from ERISA preemption pursuant to the "regulation of insurance" exception.  The Fifth Circuit held that the law does not affect the "risk pooling arrangements" of the insurer since it is a remedial provision rather than the risk of occurrence of injury or loss for which the insurer contractually agrees to compensate the insured, and upheld the dismissal of the prompt pay act claims as ERISA preempted.  The effect of this ruling eliminates the monetary penalties available to a provider asserting claims under an ERISA assignment for alleged prompt pay act violations.

The lengthy opinion provides significant guidance to both sides about how federal courts will analyze provider-payor litigation and how providers and payors have attempted to adapt their pre-litigation billing and payment practices to address the legal claims and defenses in advance of litigation.