Courts poke holes in payers’ ERISA defense
Agencies win lawsuits over payment denials
By Elizabeth Hogue, JD
Health Care Attorney
Elizabeth Hogue Chartered
Burtonsville, MD
Payers like Prudential Insurance Co. that have retroactively denied payments to home health agencies by claiming pre-emption under the ERISA statute are finding courts unsympathetic with such a defense tactic.
Denied payments for home care have sparked a number of lawsuits against managed care organizations and other payers. The payers’ defense has been that providers and patients are not allowed to sue payers because their claims are pre-empted by ERISA, the Employee Retirement Income Security Act, a federal law that governs employee benefit plans. Payers argue that the federal ERISA statute controls the outcome of such claims and precludes providers and patients from suing payers.
But that argument is beginning to wear thin.
Consider the case of In Home Health Inc. v. Pru dential Insurance Co. (CA 8, No. 95-3974, Dec. 2, 1996). The home health agency claimed that Prudential, as a third-party administrator for a group health plan, negligently misrepresented a patient’s coverage. The plaintiff said it was falsely informed by Prudential, which administered the employee health plan, that the patient had not reached the plan’s $1 million lifetime maximum benefit limit. Based on this information, the agency provided services to the patient worth $40,000. Prudential later denied payment, however, saying the patient was ineligible, even though Prudential acknowledged verifying eligibility of the patient.
Home care agencies are quite familiar with this dilemma. When agencies try to verify coverage of patients under a benefit plan, they are often told by payers that the patient is eligible, only to later find out this was not the case. Payers may later deny payment, even if they had previously verified eligibility, saying they had insufficient information. Though apparently not a factor in this case, payers have defended retroactive payment denials by blaming employers for failing to inform them promptly when patients are no longer employed or when patients have been disenrolled for other reasons. Thus, the home care agency gets stuck holding a big tab.
In Home Health, faced with losing reimbursement for $40,000 in care, sued to collect payment. Prudential claimed that ERISA pre-empted the agency’s claim.
The trial court judge dismissed In Home Health’s complaint, reasoning that if the provider’s claim was granted, the money paid to the agency would have an economic impact on the health plan by requiring payment of benefits beyond coverage limits.
However, the appeals court reversed the decision of the trial court, noting that the majority of appeals courts that have ruled on this issue have decided that ERISA does not pre-empt such claims.
The court also based its decision to reject Prudential’s argument on the grounds that In Home Health’s suit was that of an independent entity seeking damages for alleged misrepresentation, not a health care plan on behalf of a plan beneficiary. As such, the court reasoned, any damages paid would come from Prudential as the third-party administrator, not the plan itself. The court further stated that just because an ERISA plan is involved in a case, that does not automatically mean the claims are pre-empted.
In addition, the court noted that the agency’s claim of negligent misrepresentation would not affect any provision of the ERISA plan involved, nor would it impose new administrative duties on Prudential. The court said the agency’s claim would not affect relationships between the primary parties to the ERISA plan or cause any adverse economic impact on the ERISA plan itself.
The court based its decision on the fact that the underlying purpose of ERISA is to protect the interests of employees and their beneficiaries. If the court adopted Prudential’s arguments, said the judge, providers may be reluctant to render services unless beneficiaries pay in advance. Such a result would clearly defeat congressional intent.
Courts are likely to continue rejecting claims of pre-emption by payers in the future, pointing the way for agencies to go should they decide to fight retroactive payment denials. The ERISA statute was enacted by Congress long before the role of payers changed so dramatically. The court’s analysis that the ERISA statute was never intended to address issues raised by In Home Health in this case is a very strong point.
Moreover, the ERISA statute is enforced by the U.S. Department of Labor, which has made it quite clear it will take action if payers persist in raising the defense of pre-emption in response to provider and patient lawsuits. The Labor Department will introduce legislation in Congress to clarify the statute’s intent.
Such a clarification would create another way for providers to challenge decisions by payers to deny payments.
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