Hey, What About Me? Non-Participating Healthcare Providers' Ability to Sue Health Insurance Companies Regarding Payment of Claims
New Jersey Lawyer Magazine
David M. Hyman is a member of Wolff & Samson PC. His health law practice includes regulatory, corporate, and fraud and abuse law, as well as mergers and acquisitions. Daniel A. Schwartz is a member of the firm. His health law practice includes corporate law, financing and mergers and acquisitions. Nicole DiMaria is an associate at the firm, and practices primarily health law, including healthcare corporate and regulatory counseling.
An increasing number of physicians do not contract with managed care companies.1 These physicians opt to either establish cash-only practices, treat only patients covered by insurance products that do not entail provider networks, or treat managed care patients only as non-participating or out-of-network providers and balance bill patients for any charges in excess of insurer reimbursement.2 In addition to purely economic or fee related motivations, the likely reasons for healthcare providers' retreat from managed care contracting include market trends toward subscriber enrollment in plans that cover out-of-network services, such as the preferred provider organization (PPO), and providers' increasing frustration with the administrative burdens associated with managed care.3
While certain healthcare providers may find that such a retreat simplifies their practices, for other providers the decision to go non-par may simply replace the frustrations of managed care contracting with new ones, namely the uncertainties of getting paid.
A non-participating provider customarily has an expectation of payment from a patient's health insurer, traditionally establishing a course of dealing with health insurance companies prior to the provision of services. This often entails a dialogue with insurance administrators regarding matters such as coverage determinations and pre-authorizations, upon which a non-participating provider justifiably relies in his or her rendering of care to the patient. In spite of this seeming cooperation, the insurer is equipped with certain tools that make it difficult for a non-participating provider to establish a right to payment where anticipated reimbursement is denied subsequent to the provision of care.
This article focuses on the legal hurdles associated with the non-participating provider's ability to sue health insurance companies. The out-of-network practitioner must be very familiar with these hurdles in order to have any potential leverage to demand reimbursement.
Non-Participating Provider's Standing to Sue -Traditional Approach
A non-participating provider is not a party to the contract for health insurance coverage between a patient/subscriber and an insurance carrier, and does not have a direct contract with the insurance carrier. However, a patient will generally assign his or her rights under a health insurance plan to the provider of medical services, which is formally accomplished by signing an assignment form upon intake/admission. This enables the healthcare provider to send a claim directly to, and receive reimbursement directly from, the patient's health insurance company for services rendered to the patient. A patient's assignment of health insurance benefits has traditionally afforded the non-participating provider with standing to sue the patient's insurance company as an assignee/third-party beneficiary of the insurance contract.4
The Anti-Assignment Clause
A significant problem regarding the traditional approach to standing for non-participating providers lies in the anti-assignment clause. Health insurance contracts now commonly contain such a clause, which prohibits or limits the assignment of the insured's benefits to third parties, including healthcare providers, and precludes the non-participating provider's standing to sue as an assignee and/or third-party beneficiary.5 The validity of Horizon Blue Cross and Blue Shield of New Jersey's anti-assignment clause was upheld in Somerset Orthopedic Associates, P.A. v. Horizon Blue Cross and Blue Shield of New Jersey.6 In agreeing with the approach taken in other jurisdictions, the court in Somerset stated:
the anti-assignment clause has been deemed to advance the overarching public interest in limiting health care costs, for if the patient could assign his or her rights to payment to outside medical providers, it would undercut the pre-arranged costs with in-network providers...Accordingly [courts in other jurisdictions] have held that the purported assignment of benefits to a non-participating medical provider, in the face of an anti-assignment clause in a group health care policy, is void and unenforceabie against the insurer as contrary to public policy.7
Without a valid assignment, non-participating providers face a considerable hurdle in establishing the right to demand or contest payment from health insurance companies.
Potential Waiver of Anti-Assignment Clause
A non-participating provider may be able to argue the existence of a valid assignment due to a health insurer's waiver of an anti-assignment clause. In New Jersey, "an anti-assignment clause may be waived by a written instrument, a course of dealing, or even passive conduct, i.e., taking no action to invalidate the assignment vis-á-vis the assignee."8 A waiver argument may be especially appropriate in the case of a non-participating provider that has established an administrative relationship with a health insurer through, for instance, a history of direct payment from the insurer.
A recent unreported New Jersey District Court decision offers some support that the waiver of an anti-assignment clause may be successfully argued.9 While the court dismissed the plaintiff non-participating provider's claims against a health insurer for lack of standing due to the existence of an anti-assignment clause, the court acknowledged the validity of the waiver argument, explaining that any claim regarding waiver of the anti-assignment clause must be supported by sufficient information in the complaint.
Even if a non-participating provider can prevail with regard to assignment (i.e., where there is no anti-assignment clause, or where there is a valid waiver of the anti-assignment clause), the provider faces another legal hurdle: the Employee Retirement Income Security Act (ERISA).
ERISA broadly preempts state laws (including state common law claims) that relate to an employee welfare benefit plan.10 ERISA limits the participant's remedies with respect to such a plan, or the health care provider's remedies via the participant's assignment of plan benefits, to the following: 1) recovery of benefits due to the participant under the terms of the plan, 2) enforcement of the participant's rights under the terms of the plan, or 3) clarification of the participant's rights to future benefits under the terms of the plan.11
If a patient obtains health insurance through an employer-sponsored plan subject to ERISA, and the healthcare provider asserts derivative standing with respect to a claim payment matter against the insurer through a valid assignment of the patient's health insurance benefits, the matter is likely under federal jurisdiction, and subject to ERISA's substantial remedy limitations.12
ERISA preemption can present significant difficulties. Consider the following scenario: If the insurer has denied the non-participating healthcare provider's claims for reasons such as the patient not being covered at the time of services, and the patient was, in fact, not covered in spite of the insurer's representations to the contrary prior to the provision of services, the non-participating provider would most likely not have a viable remedy under ERISA, since ERISA limits recovery to "benefits due" under the terms of the plan.
Therefore, arguing standing on the basis of an assignment may not be the non-participating provider's best avenue. While courts have taken different approaches with respect to the breadth of the phrase "relate to" in the ERISA preemption clause, it is quite apparent that the greater the connection a claim has to an ERISA plan, the greater likelihood that ERISA will preempt the claim. 13 If a non-participating provider is asserting standing on the basis of an assignment of benefits of an ERISA-governed plan, this inherently connects the provider's claim to the ERISA plan.
This perspective is supported by a recent New Jersey decision, Feit v. Horizon Blue Cross and Blue Shield of New Jersey.14 In Feit, the court found the plaintiff healthcare providers' claims were not pre-empted by ERISA, in part because the plaintiff did not seek to recover fees as "assignees of the rights of the patients," but instead sought fees under the plaintiff's provider agreement with the insurer, a source of an insurer's obligation that is separate and distinct from an ERISA-governed plan. While this case involved participating providers as opposed to non-participating providers, it supports the premise that an assertion of assignment may only further the perception that a claim is connected to, and dependent upon, an ERISA plan and that the absence of the assertion of assignment may actually assist if a non-participating provider would like to avoid ERISA preemption.
Potential Alternatives to Standing Via Assignment-Negligent Misrepresentation, Equitable Estoppel and Promissory Estoppel
The legal arguments discussed below-negligent misrepresentation, equitable estoppel and promissory estoppel-may be useful to the non-participating provider in establishing standing outside of the assignment context in cases where a valid assignment cannot be established and/or where ERISA preemption is not preferable. These arguments are based on the theory that, through the traditional dialogue that is established between the non-participating provider and the health insurer regarding the patient's coverage, where it is foreseeable that the provider will rely upon the insurer's representations, the health insurer owes some obligation to the non-participating provider apart from the patient's health insurance contract.
Most courts have recognized the legitimacy of these types of state law claims when brought by independent, third-party healthcare providers against insurance companies, finding no ERISA preemption.15 While New Jersey does not have substantial case law with respect to these types of claims in such a context, certain decisions discussed below indicate that New Jersey courts lean toward the majority view with respect to ERISA preemption, and would acknowledge non-participating healthcare providers' state law claims against health insurers such as negligent misrepresentation, equitable estoppel and promissory estoppel.
In McCall v. Metropolitan Life Insurance Company, the New Jersey District Court concluded that ERISA does not preempt "state law efforts to regulate the conduct of plan administrators and medical consultants in [the] area of negligent or fraudulent misrepresentation." The court reasoned that if the ERISA preemption provision were construed as broadly as the defendant health insurer urged, "health care providers such as[plaintiff] would be stripped of the right to bring suit for tortuous conduct... where negligent misrepresentations by private claims reviewers to health providers induce the provider to render extended medical services and care."16
Another case that lends support to the validity of a health care provider's state law misrepresentation-type claim is Finderne Management Co. v. Barrett. While Finderne did not involve healthcare providers' claims, the court found that claims brought by small business entities and their principals for misrepresentation against various insurance and other professionals were not preempted by ERISA, and its reasoning equally supports claims brought by healthcare professionals.
The court stated:
This issue does not require an examination of the particulars of an ERISA plan. Plaintiffs are not seeking entitlement to benefits under an ERISA plan. Rather, the claim turns on the duties of defendants outside of the ERISA context; reference to the ERISA plan will be peripheral to the issues in this case. 17
The following is a brief overview of the elements of claims for negligent misrepresentation, equitable estoppel and promissory estoppel.
A claim for negligent misrepresentation "must establish that the defendant negligently made an incorrect statement of a past or existing fact, that the plaintiff justifiably relied on it and that his reliance caused a loss or injury."18 In order to establish negligence, there must be a determination that the defendant owed a duty to the plaintiff, which determination is "a question of fairness and policy."19 Important factors in this analysis are the forseeability of harm to others that may result from the defendant's conduct, "the relationship of the parties, the nature of the attendant risk, the opportunity and ability to exercise care, and the public interest in imposition of a duty."20 Importantly, "the absence of a contractual or special relationship is not dispositive."21
In support of the imposition of a duty upon a health insurance company to non-participating providers, consider the New Jersey District Court's description of the relationship between health insurers and healthcare practitioners:
If health benefits administrators and managed care consultants fail to act reasonably in making representations concerning insurance coverage, financial harm will likely be inflicted on the medical companies that provide treatment in reliance upon promises of payment. This threatened harm, moreover, can easily be avoided if [these entities] ensure the accuracy of their representations or refrain from making assurances of coverage in instances in which they do not have the authority to do so...[H]ealth care providers are often compelled by circumstances to rely on the representations made by benefits administrators and managed care consultants. Thus, the general public and companies involved in the delivery of medical care have a vital interest in ensuring that health plan administrators and medical consultants exercise due care in making such representations concerning insurance coverage. 22
Equitable estoppel is defined as "the effect of the voluntary conduct of a party whereby he is absolutely precluded, both at law and in equity, from asserting rights which might perhaps have otherwise existed...as against another person, who has in good faith relied upon such conduct, and has been led thereby to change his position for the worse."23 The doctrine was established "to prevent a party's disavowal of previous conduct if such repudiation would not be responsive to the demands of justice and good conscience."24 Estoppel may arise by silence or omission where one is under a duty to speak or act."25
A claim of promissory estoppel requires the following elements:
(1) a clear and definite promise by the promisor; (2) the promise must be made with the expectation that the promisee will rely thereon; (3) the promisee must in fact reasonably rely on the promise, and (4) detriment of a definite and substantial nature must be incurred in reliance on the promise.26
Healthcare providers should not be discouraged by the legal mazes associated with these matters, and should attempt to enforce their right to payment. Otherwise, they will be forced to bear the economic risk of a health insurer's misrepresentations, a result that appears unjust and contrary to the ideals of our healthcare and judicial systems.
As is apparent from the discussion above, a non-participating healthcare provider should anticipate an insurer's standing and ERISA arguments from the outset, and should draft his or her complaint accordingly. While there is no guarantee of overcoming the legal hurdles identified above due, in part, to the lack of substantial precedent in New Jersey, knowledge of the potential obstacles is the first step in framing an argument that affords the best chance of success.
1. Ann S. O'Malley, James D.Reschovsky, No Exodus: Physicians and Managed Care Networks, May 2006, http://www.hschange.com/CONTENT/838/.
4. See Tirgan v. Mega Life and Health Insurance, 304 N.J. Super. 385 (Super. Ct. Law Div. 1997).
5. See Gregory Surgical Services, LLC v. Horizon Blue Cross Blue Shield of New Jersey, No. Civ.A.06-462(JAG), 2006 WL 1541021 (D.N.J. 2006).
6. Somerset Orthopedic Associates, P.A. v. Horizon Blue Cross and Blue Shield of New Jersey, 345 N.J. Super. 410 (Sup.Ct. App. Div. 2001).
7. Id. at 417-18.
8. Garden State Buildings v. First Fidelity Bank, 305 N.J.Super 410 (Sup. Ct. App. Div.)
9. Gregory Surgical Services, LLC v. Horizon Blue Cross Blue Shield of New Jersey, Inc., No. Civ.A. 06-462(JAG), 2006 WL 1541021 (D.N.J. 2006).
10. Finderne Management Company, Inc. v. Barrett, 355 N.J. Super. 170, 185(Sup. Ct. App. Div. 2002).
11. 29 U.S.C. § 1132(a)(1)(B).
12. See, e.g., McCall v. Metropolitan Life Insurance Co., 956 F. Supp. 1172, 1185-86 (D.N.J. 1996).
13. See, e.g., Finderne, 355 N.J. Super. at 188-191.
14. Feit v. Horizon Blue Cross and Blue Shield of New Jersey, 385 N.J. Super. 470 (Sup. Ct. App. Div. 2006).
15. Children's Hospital Corp. v. Kindercare Learning Centers, Inc., 360 F. Supp.2d 202, 206 (D. Mass. 2005).
16. McCall, 956 F. Supp. at 1186.
17. Finderne, 355 N.J. Super. at 195-96.
18. Masone v. Levine, 382 N.J. Super. 181, 187 (Sup. Ct. App. Div. 2005).
19. Snyder v. American Ass. of Blood Banks, 144 N.J. 269, 292-93 (1996).
22. McCall, 956 F. Supp. at 1187.
23. Heuer v. Heuer, 152 N.J. 226, 237(1998) (citation omitted).
24. Id.(citation omitted).
25. Id.(citation omitted).
26. Malaker Corp. Stockholders Protective Comm. v. First Jersey National Bank, 163 N.J. Super. 463, 479 (App. Div. 1978).
This article was previously published in New Jersey Lawyer Magazine, a publication of the New Jersey State Bar Association, and is reprinted here with permission.
By Franklin J. Rooks Jr., PT, MBA, Esq.
Many physicians have come to the conclusion that some insurance contracts aren’t worth having. More and more physician specialties have opted out of participating provider contracts or have chosen not to participate in the first place. Reimbursement is the primary reason for not participating. The amount allowed for various CPT codes simply is not enough. On top of that, there is the “MPPR” – Multiple Procedure Payment Reduction. This ominous concept was crafted by the Centers for Medicare & Medicaid Services (CMS).
The MPPR functions to reduce the allowable amount of multiple medical procedures that are performed during the same session by the same provider. Insurance carriers, such as United Healthcare have modeled their reimbursement on this CMS policy, and implemented their own versions of the MPPR. Often, in-network reimbursement is not commensurate with the education, skill, and value that the physician delivers.
Under a provider agreement with the insurance carrier, the physician is bound by its terms, including nuances such as the MPPR. The provider agreement requires the physician to accept pre-negotiated payments for specified services as payment in full. When a contract exists with the insurer, the physician is referred to as a “participating provider.” One legal definition of a participating provider is “[o]ne who agrees in writing to render health care services to or for persons covered by a contract or contracts issued by a health service corporation in return for which the health service corporation agrees to make payment directly to the participating provider.” Physicians who are not contracted with a particular insurance carrier are referred to as “non-participating” physicians. Unlike participating providers, these non-participating physicians do not agree to accept the insurer’s reimbursement (and approved amounts) as payment in full. Out-of-network providers are subject to a different reimbursement structure.
Out-of-network reimbursement is usually higher than in-network allowable. Absent a law or regulation, the non-participating physician can bill the patient for the difference between the amount charged and the insurance carrier’s out-of-network reimbursement amount. Reimbursement for out-of-network services may be on a “usual, customary, and reasonable” (UCR) basis. UCR generally means the prevailing rate that is standard or most common for a particular medical service rendered in a particular geographic area. UCR typically exceeds the negotiated amount in the participating provider agreement. However, out-of-network reimbursement is not always pegged to the UCR standard. Many physicians mistakenly believe that the out-of-network benefit is paid at the UCR rate. Even under ERISA, there is no requirement for an insurer to reimburse out-of-network services at UCR rates. Out-of-network reimbursement can be linked to Medicare’s rates, or less. Because there is no contract, patients are responsible for paying any balance left unsatisfied after the insurer’s payment. Out-of-network claims can be more costly to the insurance carrier and to the patient.
As a mechanism to encourage participation, insurance carriers issue payments directly to its participating providers on behalf of the patients who receive covered services. Many insurance carriers do not extend this same courtesy to non-participating physicians. Rather than pay the non-participating physician directly, some insurance carriers issue payment for services rendered by the physician directly to the patient. The reimbursement check is made payable to the patient, not to the physician. Physicians may wonder how this happens, considering that all the right authorization and verification steps are performed in the physician’s office. The physician practice’s patient financial policy or other intake paperwork invariably contains an assignment of benefits. An assignment of benefits is an agreement whereby the patient requests that his or her insurance carrier issue payment directly to the provider. Most physicians have the expectation that, regardless of participation status, the insurance check will be sent to their office. To the surprise of many physicians who have not provided services on an out-of-network basis, the assignment is unlikely to be honored.
Unbeknownst to many physicians, the patient’s subscriber agreement with the insurance carrier may contain anti-assignment language. An anti-assignment clause will generally render the patient’s assignment of benefits to the physician null and void. This clause gives the insurance carrier the discretionary right to not accept the patient’s assignment of benefits. In other words, the anti-assignment clause allows the insurer to issue payment directly to the patient. For the clause to be effective, the insurance agreement with the plan subscriber must contain specific and express language “[m]anifesting an intention to prohibit the power of assignment…” To meet that standard, courts have held that the anti-assignment clause generally must state that patient’s assignment “(i) shall be ‘void’ or ‘invalid,’ or (ii) that the assignee shall acquire no rights or the non-assigning party shall not recognize any such assignment.” These contractual anti-assignment clauses are generally enforceable.
In many instances, the patient and the physician alike are unaware that the insurer’s payment of the benefit will be sent to the patient. Patients are typically not knowledgeable about whether their insurance plan contains an anti-assignment clause. Even if they are informed, the significance of this is seldom realized. It is generally only through routine claims follow up, that the physician’s billing staff discovers that the check they have been waiting for has been sent to the patient. The staff member verifying and authorizing the patient’s benefits is not informed of this at the time of contact with the insurance carrier. “By the way, we’ll be sending the surgery payment to the patient,” is not something the staff member is likely to hear. And, as many physicians have discovered, it is not always easy to get insurance payments from patients who have cashed, and possibly, spent the insurance reimbursement check.
The practice of issuing payments to the patient has negatively impacted the cash flow of some practices. Chasing patients for payment has also consumed valuable practice resources. But, which is the lesser of two evils? Accepting insufficient in-network rates or chasing payments received by the patient? Fortunately, not every patient pockets the money. But enough of them do. While this practice is frequently a detriment to the physician, it allegedly has the opposite effect for insurers. Issuing the physician’s payment directly to the patient has been purported to occupy an important function in reining in the costs of health care. It has been rationalized that an insurer’s ability to control costs and provide affordable health care coverage is directly related to the number of medical providers participating in its program. One insurer was quoted on the practice of issuing payment directly to patients. “This discretion is crucial to the [insurer’s] ability to maintain a viable provider network, as the provider’s right to receive direct payment represents an important incentive for hospitals to become [the insurer’s] network members.” Paying patients directly may provide an impetus for non-participating physicians to enter into participation agreements. Whether such “participation inducement” actually accomplishes its intended purpose is debatable.
In 2010, New Jersey weighed in on the insurer’s practice by passing a statute governing such payments issued to patients:
“With respect to a carrier which offers a managed care plan that provides for both in-network and out-of-network benefits, in the event that the covered person assigns, through an assignment of benefits, his right to receive reimbursement for medically necessary health care services to an out-of-network health care provider, the carrier shall remit payment for the reimbursement directly to the health care provider in the form of a check payable to the health care provider, or in the alternative, to the health care provider and the covered person as joint payees, with a signature line for each of the payees.”  [emphasis added]
Other states have taken similar measures by enacting mandatory assignment of benefit laws. A mandatory assignment of benefit law requires insurers to send payments directly to out-of-network providers if the patient has an assignment agreement with that provider. Alabama, Alaska, Connecticut, Georgia and Texas are among the handful of states which have some enactment of a mandatory assignment of benefit statute.  Texas, for example, provides that “[a]n insurer may not deliver, renew, or issue for delivery in this state a health insurance policy that prohibits or restricts a covered person from making a written assignment of benefits to a physician or other health care provider who provides health care services to the person.” Proponents of these statutes have argued that there are benefits beyond just making it easier for the provider to receive payment. It could potentially lead to a decrease in the litigation between out-of-network providers and insurance carriers. It could also lessen the administrative burdens associated with managing out-of-network claims on both sides. Access to care may be limited as well. Some providers who are keen to the insurance carrier’s practice of issuing checks to the patient require up-front payment, prior to receiving any service. This may either discourage the patient from receiving service or delay necessary services, or, place a burden on the patient to fund the service in advance. 
Physicians who contemplate accepting patients on an out-of-network basis should be aware of the potential obstacles. The physician should determine whether the state in which he or she practices has a mandatory assignment of benefits statute. It would be beneficial to educate the out-of-network patients by informing them that the physician’s payment for services rendered may be sent to them. Clearly express that the practice requires the patient to promptly endorse the check over to the physician. By knowing the potential challenges to out-of-network reimbursement, the practice can better manage its risk and its expectations. And, thus lessens the probability of chasing payment.
Franklin J. Rooks Jr., PT, MBA, Esq. is a physical therapist and practicing attorney in Philadelphia, Pennsylvania. Prior to his practice of law, Frank was a founding partner of PRO Physical Therapy, a Wilmington, Delaware based operator of physical therapy clinics (now ATI Physical Therapy). Frank can be contacted at email@example.com
SeeKrauss v. Oxford Health Plans, 418 F.Supp. 2d 416, 426 (S.D. N.Y 2005). With respect to insurance plans governed under ERISA, Congress did not specifically state that coverage was “subject to” UCR limits. Id.
SeeOwen v. CNA Ins./Continental Ins. Co., 771 A.2d 1208, 1214 (N.J. 2001).
SeeGroup Health Ins. of N.J v. Howell, 193 A.2d 103 (N.J. 1963).
SeeThe Renfrew Center v. Blue Cross and Blue Shield of Central New York, 1997 WL 204309 at *4 (N.D. N.Y.).
 N.J.S.A. 26:2S-6.1c.
 McKinnis, Elliot, The Case for Mandatory Assignment of Benefits Laws, 8 Ind. Health L. Rev. 171, 173 (2011).
 Tex. Ins. Code Ann. § 1204.053.