September 17, 2015

U.S. Third Circuit Allows Providers to Sue Health Insurers Directly

For many years, the United States Court of Appeals for the Third Circuit was out of step with its sister Courts of Appeal when it came to the issue of suing health insurance companies for failing to cover the medical expenses of patients they insured. In other circuits, a health care provider, such as a physician, hospital or surgery center, could sue the insurer directly, provided the patient had signed an assignment of the right to payment from the insurer—something a patient typically does when registering for treatment.

But in the Third Circuit, covering the Districts of Delaware, New Jersey and the Virgin Islands, as well as the Eastern, Middle and Western Pennsylvania, courts were likely to rule that the assignment of the patient’s right to payment wasn’t sufficient to permit the provider to sue the insurer. 

So back in 2014 when the North Jersey Brain & Spine Center (Center) sued Aetna, Inc., for failing to cover the medical bills of three Aetna-insured patients, the District Court for the District of New Jersey granted Aetna’s motion to dismiss the case for lack of standing on the part of the Center. The court’s decision rested on the distinction it drew between assignment of a right to payment, which is what the Center received from its patients, and assignment of a legal claim or right to sue. In other words, the court required a provider to have an assignment document that explicitly included the words “legal claim” or “right to sue.”

The Center appealed to the Third Circuit, and on September 11, 2015, that court reversed the dismissal and reinstated the case against Aetna. A unanimous three-judge panel cited a combination of statutory law, case law and common sense in support of its conclusion that all a health care provider needs is an assignment of a right of payment in order to proceed against a health insurer.

The court ruled that section 502(a) of ERISA, as interpreted by the courts of all other Circuits addressing the issue, provides standing to a health care provider holding an assignment of a right of payment. The common sense element of the rationale was two-fold. First, providers would be reluctant or unwilling to provide medical treatment in advance of payment without the comfort of knowing they could enforce payment rights against insurers. Second, providers are almost invariably in a better position than their patients to assume the risks and expense of litigation.

The case is North Jersey Brain & Spine Center v. Aetna, Inc., Case No. 14-2101 (3d Cir., Sept. 11, 2015).

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