MEDICAL PROVIDERS AWAIT AN IMPORTANT ERISA DECISION

An important decision regarding the interplay between state insurance laws and ERISA is expected to be handed down soon by the United States Fifth Circuit Court of Appeals in Aetna Life Ins. Co. v. Methodist Hospitals of Dallas, et al (“Aetna”). Argument was heard on December 1, 2015 so a decision could be issued soon.

Factual Background

In Aetna, Aetna Life Insurance Company (“ALIC”) brought a declaratory judgment action against Methodist Hospital and Texas Health Resources (the “Providers”) in U.S. District Court, Northern District of Texas. ALIC provides claims administration services for self-funded employee benefit plans. ALIC is an affiliate of Aetna Health, Inc. (“AHI”), an HMO, which contracted with the Providers. The Providers agreed to provide benefits to the plan beneficiaries of AHI and its affiliates. In return, AHI, on behalf of itself and its affiliates, was obligated to reimburse the Providers for covered claims.

ALIC asked the court to declare that the Employee Retirement Income Security Act of 1974 (“ERISA”) preempts the Texas Prompt Pay Act (“TPPA”).

The TPPA set the maximum time for an “insurer” to pay certain claims at thirty to forty-five days, depending on the claim format. The TPPA states that “not later than the 45th day after the date an insurer receives a clean claim from a preferred provider in a nonelectric format or 30th day after the date an insurer receives a clean claim from a preferred provider that is electronically submitted, the insurer shall make a determination of whether the claim is payable and….pay the total amount of the claim in accordance with the contract between the preferred provider and the insurer…” Tex. Ins. Code Ann. §1301.103.

28 TAC § 21.2815 governs the penalties in the event an insurance carrier violates prompt pay laws and misses the deadline. The penalties are:
• 1-45 days late: Half of the difference between the billed charges and the applicable contracted rate OR $100,000, whichever is less;
• 46-90 days late: All of the difference between the billed charges and the applicable contracted rate OR $200,000, whichever is less;
• 91 or more days late: All of the difference between the billed charges and the applicable contracted rate OR $200,000, whichever is less. In addition, the carrier must pay you 18 percent annual interest on the penalty amount, accruing from the date payment was originally due and through the date of actual payment.

In September of 2013, the Providers each sent AHI a demand letter alleging that AHI owed more than ten million dollars in late-payment penalties. The letter alleged that AHI was obligated to abide by the TPPA. The letter also warned of arbitration proceedings if AHI failed to pay the penalties under the TPPA. ALIC subsequently filed the declaratory judgment asking for a ruling that ERISA preempts the TPPA.

In pertinent parts, the ERISA states that “the provisions of this subchapter…shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” 29 U.S.C. § 1144(a) (emphasis added).

Parties’ Contentions

ALIC argued that the Providers may not seek prompt payment penalties under the TPPA because the TPPA “relates to” ERISA plans, and thus is expressly preempted by 29 U.S.C. § 1144(a). Specifically, ALIC claimed that the TPPA imposes penalties specific to the state of Texas, which undermines ERISA’s goal of achieving uniform regulation of ERISA plans, and thus, the TPPA touches upon an area of exclusive federal concern.

The Providers argued that the regulation of the timing of payment between two entities on the fringe of an ERISA plan (i.e., a third-party administrator and a Provider), does not affect the relationship between traditional ERISA entities—the plan and the beneficiary—and thus preemption does not apply.

District Court’s Ruling

Contrary to ALIC’s assertions, the district court held that the Providers’ demand for penalties from the third-party administrator left ERISA plans untouched. The court explained that the only impact on ERISA was “the increased cost…for administering ERISA plans as a result of the imposition of prompt payment penalties, which [was] speculative at best.” Aetna Life Ins. Co. v. Methodist Hosps. of Dallas, 95 F. Supp. 3d 950, 963 (N.D. Tex. 2015). The court found that, despite the importance of uniformity to ERISA, it “does not preclude all regulation of related entities, especially when those entities have contracted between themselves.” Id. (emphasis added).

Turning to the question of whether the TPPA directly affects the relationship among traditional ERISA entities, the court emphasized that “the parties in this case are not all traditional ERISA entities, nor do the Providers ‘stand in the shoes’ of ERISA plan beneficiaries.” Id. The demands for penalties made here, the court explained, arose by virtue of privity of contract under the Provider Agreements, and not because ERISA beneficiaries have assigned their rights to the Providers. Citing Baylor Univ. Med. Ctr. v. Arkansas Blue Cross Blue Shield, 331 F. Supp. 2d 502 (N.D. Tex. 2004), the court held that absent status as an assignee, health care providers are not traditional ERISA entities, and therefore, this prong of ERISA preemption does not apply.

Moreover, the court clarified that “the Providers are not making demands for payment of benefits under ERISA plans. No coverage determination is implicated.” Id. The only question, the court added, was “when ALIC was obligated to pay the Providers.” Id. at 963-64. The prompt payment deadlines “simply do not intrude into federal matters respecting the duties and standards of conduct of an ERISA plan administrator.” Id. at 964.

Lastly, the court held that “ERISA does not go so far as to eliminate the ability of parties on the periphery of ERISA plans to contract with one another, nor the right of state legislatures to pass laws that impact those contract.” Tuning to Baylor once again, the court stated that ERISA’s preemption was not intended by Congress to “insulate an insurer from liability against a third-party health care provider seeking to enforce its rights under a contract.” Id. For these reasons stated, the court held that ALIC’s ERISA preemption defense to the Providers’ payment penalty claims under the TPPA failed.

The Appellate Court’s Ruling Could Come Soon

ALIC appealed the district court’s decision to the United States Fifth Circuit Court of Appeals. Argument was heard on December 1, 2015 so a decision could be issued soon. Hopefully. the appellate court will agree with the district court’s analysis and rule that the TPPA does not “relate to” ERISA plans and affirm that ruling.  Such a ruling would benefit medical providers and help ensure prompt payment for care already provided.

*Special thanks to Luke Zhu, JD/MBA Candidate, for his research and assistance in drafting this article.