Many lawsuits against employer group health plans hinge on the enforceability of the plan’s anti-assignment provision. ERISA does not give providers the right to sue for plan benefits. A provider’s lawsuit must be derived from the participant’s right to plan benefits. In other words, the participant must assign his or her right to the provider. Even with such an assignment, a provider will lack standing to bring a lawsuit if the ERISA plan has a valid and enforceable anti-assignment clause. (ERISA itself generally prohibits assignment of retirement plan benefits, but the ERISA prohibition on assignment does not apply to health and welfare plans.)
While courts have generally held that anti-assignment provisions are enforceable, states have begun weighing in on the side of providers in an attempt to keep these lawsuits alive. But can a state law invalidate anti-assignment clauses in plans subject to ERISA and mandate that benefits be assignable to a healthcare provider? The Fifth Circuit, in Dialysis Newco, Inc. v. Community Health Systems Group Health Plan, 938 F.3d 246 (5th Cir. 2019), recently invalidated a Tennessee law that sought to do just that.
Like many health plan claims, the substance of the claim at issue in this case related to the plan’s limitation of out-of-network benefits based on the “Usual and Customary Charges.” However, the Fifth Circuit’s decision did not address the substance of the claim. Instead, the Fifth Circuit examined whether the healthcare provider had a right to seek recovery from the plan directly by standing in the participant’s shoes.
Here, the patient had assigned to the provider his benefits and his right to pursue legal claims arising out of the medical services provided by the provider. However, the plan contained an anti-assignment provision that prohibited such assignments.
The provider first argued that the plan’s anti-assignment provision was ambiguous and should therefore be construed against the plan. The Fifth Circuit disagreed and held that the provision unambiguously prohibited assignment. The court also emphasized the distinction between direct payment authorizations, which were permitted by the plan, and assignments, which were not permitted by the plan.
The provider next argued that a Tennessee law made the plan’s anti-assignment provision unenforceable. (The plan had a Tennessee governing law provision.) The Tennessee law at issue stated, in relevant part: “Notwithstanding any law, rule, or regulation to the contrary, whenever any policy of insurance issued in this state provides for coverage of health care rendered by a provider covered under title 63 [a title of the Tennessee Code that regulates various medical professions], the insured or other persons entitled to benefits under the policy shall be entitled to assign these benefits to the healthcare provider and such rights must be stated clearly in the policy.”
The court held that the Tennessee law was preempted by ERISA because it impacted a central matter of plan administration and interfered with nationally uniform plan administration. A footnote in the court’s opinion stated that none of the parties to the case offered an argument on appeal addressing whether the Tennessee law might be exempt from preemption under the rule in ERISA § 514(b)(2)(A) that exempts state laws regulating insurance from preemption, sometimes called a savings clause. This leaves open the possibility that the Fifth Circuit or another court might find that a state law requiring plans to permit assignments is not preempted with respect to insured plans.
Notably, the district court had found that the plan’s anti-assignment clause was ambiguous and that the participant’s assignment to the provider was valid irrespective of the Tennessee law. While the Fifth Circuit overruled the district court, the validity of anti-assignment clauses is central to determining whether providers can sue group health plans. Sponsors of group health plans should work with legal counsel to evaluate the clarity and scope of plan provisions relating to direct payment authorization and assignment of benefits to make sure the health plan is well-positioned to defend against lawsuits brought by providers.