On May 31, the Ninth Circuit Court of Appeals published an opinion in Bristol SL Holdings, Inc. v. Cigna Health and Life Insurance Company, which has significant implications for the healthcare industry, most notably by clarifying the broad scope of the Employee Retirement Income Security Act’s (ERISA) preemption of state law causes of action arising from pre-service coverage communications between medical providers and health plan administrators.

The opinion held ERISA preempted an out-of-network provider’s state law claims arising from verification of benefit (VOB) and preauthorization communications with a health plan administrator under both the “reference to” and “connection with” prongs of ERISA preemption analysis. The opinion also distinguished prior Ninth Circuit case law finding no preemption of state law claims on the ground the member was not covered by an ERISA plan at the time services were rendered.

This opinion stands to benefit payors and health plan administrators as it will limit the ability of health care providers to “plead around” ERISA preemption or expand the scope of ERISA benefits actions by asserting non-derivative state law claims.

Background

ERISA § 514(a) states that: “. . . the provisions of [ERISA] shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan [governed by ERISA].” 29 U.S.C. § 1144(a).

There are two categories of state law claims that “relate to” ERISA plans: those that have “reference to” ERISA plans, and those that have an impermissible “connection with” ERISA plans. A state law claim has “reference to” ERISA plans where the existence of the ERISA plan is essential to the law’s operation. Similarly, a state law claim has an impermissible “connection with” ERISA, if the state law governs a central matter of plan administration or interferes with nationally uniform plan administration, or if it bears on an ERISA-regulated relationship.

District courts have come to differing conclusions regarding ERISA preemption of state law claims arising from pre-service communications between health care providers and plan administrators, in some instances permitting state law claims to proceed where the provider expressly disclaimed receiving an assignment of benefits from the member, or pleaded its claims based solely on preservice communications without referencing plan terms or coverage.

Against this backdrop, out-of-network providers have used pre-service communications as a basis for state law causes of action either in the absence of an ERISA benefits claim, or, as in Bristol, as an alternative to a derivative ERISA benefits recovery claim.

Bristol sued Cigna as successor-in-interest to Sure Haven, Inc. a bankrupt for-profit substance abuse treatment center that was out-of-network with Cigna, claiming Cigna failed to pay claims for 106 Sure Haven patients with health plans administered by Cigna. Bristol alleged that prior to providing the services at issue, Sure Haven called Cigna to verify the members’ benefits and obtain preauthorization for its intended services. At a certain point, Cigna started denying Sure Haven’s claims, as it had become aware that Sure Haven was improperly waiving patient cost-sharing, a practice known as “fee-forgiving,” which was prohibited by the Cigna-administered health plans.

Bristol asserted an ERISA § 502(a)(1)(B) claim based on assignments of benefits from the members, and in the alternative, state law causes of action for breach of oral contract, breach of implied contract, and promissory estoppel, based on Sure Haven’s pre-service VOB and preauthorization communications with Cigna.

The district court entered summary judgment in Cigna’s favor on the state law causes of action based on ERISA preemption, and Bristol appealed.

The Ninth Circuit held oral arguments on December 7, 2023, and several amici briefs were submitted by prominent focus groups in the health care industry. The appellate court published an opinion on May 31, 2024, affirming summary judgment on preemption grounds.[1]

Holding and Analysis of Bristol v. Cigna

The Ninth Circuit concluded that ERISA preempts state law causes of action arising from VOB and pre-authorization calls under both the “reference to” and “connection with” prongs of ERISA preemption analysis.

The court found state law claims based on preservice communications had “reference to” ERISA plans, because:

• The “context” for the VOB and pre-authorization calls matters — if the calls concern whether reimbursement is available under the ERISA plans, state law claims arising from those calls conflict with the exclusive remedial scheme provided under ERISA.
• Relying on ERISA plans to calculate damages for state law claims also triggers ERISA preemption.
• Asserting both state law and ERISA causes of action as an assignee of benefits further supported finding that the state law claims were preempted by ERISA.

The Ninth Circuit also found ERISA preempts state law causes of action based on preservice communications for having an “impermissible connection with” ERISA plans. In this respect, the court noted:

• VOB and pre-authorization calls are central matters of plan administration — they assist plan administrators in determining whether services are medically appropriate and ensure more expensive out-of-network care is cost-justified.
• Subjecting ERISA plan administrators to state law liability for representations made during pre-treatment calls would interfere with uniform plan administration because: benefits would be governed not by ERISA and the plan terms, but by innumerable phone calls and their variable treatment under state law.

Finally, the court distinguished The Meadows, a Ninth Circuit case finding no ERISA preemption of state law claims based on preservice VOB. The court noted that, in The Meadows, there was no preemption because the state law claims challenged the insurer’s representation that coverage existed, and in fact the patient was not covered by an ERISA plan at the time of service. Accordingly, there were no ERISA benefits to apply. By contrast, in Bristol, the issue was not whether an ERISA plan existed, but how the benefits were administered, which is squarely preempted.

Our Take

This decision will limit health care service providers’ ability to bring state law claims arising from VOB, pre-authorization calls, and other pre-service communications, when the member’s plan is subject to ERISA.

The Second Circuit Court of Appeals also recently issued a summary order in Park Avenue Podiatric v. Cigna Health and Life Insurance Company, similarly holding ERISA preempted state law causes of action arising from pre-service communications with out-of-network providers.

The impact of these decisions should be significant, given the growing trend of providers seeking to “plead around” ERISA by alleging exclusively state law causes of action either separately, or in the alternative to an ERISA claim. This is a positive development for payors and health plan administrators seeking to avoid state law claims by non-contracted providers and maintain consistency with ERISA. Health plans and insurers should take note of this decision and its effect on pending or future litigation by providers (particularly out-of-network providers) treating members with ERISA plans.

[1] In a separate unpublished memorandum disposition, the Ninth Circuit affirmed the district court’s grant of summary judgment to the plan administrator on plaintiff’s ERISA claim seeking recover of benefits under 29 U.S.C. § 1132(a)(1)(B). https://ecf.ca9.uscourts.gov/n/beam/servlet/TransportRoom?servlet=ShowDoc/009034386473.