Bristol SL Holdings, Inc. v. Cigna Health & Life Ins. Co., ___ F.4th ___, 2024 WL 2801531 (9th Cir. May 31, 2024).

ERISA preempts out-of-network provider’s state-law reimbursement claims against health plan administrator

Sure Haven, Inc., operated a for-profit drug rehabilitation and mental health treatment center. Sure Haven was an out-of-network provider for Cigna, which administers health plans under ERISA. Sure Haven would place a “verification call” to Cigna to confirm a patient’s eligibility for out-of-network benefits; Cigna would provide Sure Haven a reimbursement rate (a percentage of the “usual and customary rate”); and Sure Haven would later place “authorization calls” to Cigna to confirm the specific treatments provided. Under the terms of the health plan, Cigna could deny claims if a provider engaged in fee-forgiving—not charging patients deductibles and co-pays, which eliminates patients’ financial incentive to seek cheaper in-network care. Cigna became suspicious that Sure Haven was engaging in fee-forgiving and refused to reimburse the costs of treating 106 patients (valued at more than $8.6 million) unless Sure Haven provided proof of patient payments. Bristol SL Holdings became the successor-in-interest to Sure Haven and sued Cigna in federal district court under ERISA and California law. The district court dismissed all claims and Bristol appealed.

The Ninth Circuit affirmed. In an unpublished decision, the court upheld the dismissal of Bristol’s ERISA claims because Cigna had proven that fee-forgiving occurred and Cigna was permitted to deny claims on that basis. In a companion published decision, the court held that ERISA preempted Bristol’s state-law claims for breach of contract and promissory estoppel. Bristol theorized that Cigna’s representations during the verification and authorization calls had created enforceable agreements that Cigna later breached when it refused to reimburse due to the suspected fee-forgiving. The court held that ERISA preempted these claims because they have both a “reference to” and an “impermissible connection with” an ERISA plan. In effect, Bristol sought to obtain under state law a remedy it could not obtain under ERISA. The state-law claims relied on the substance of the ERISA plans to calculate damages, while seeking to impose state-law liability that intruded on a central feature of ERISA plan administration—the complicated system of authorizing and verifying out-of-network coverage. Plan administrators like Cigna typically cannot determine whether participants made fee contributions until after services are rendered, so authorizing claims under state law inhibits the administrator’s ability to enforce plan terms. The court distinguished The Meadows v. Employers Health Ins., 47 F.3d 1006 (9th Cir. 1995), on which Bristol had relied, because in that case the enrollees’ ERISA plan coverage had lapsed before their medical care was provided, thus defeating an ERISA preemption argument in otherwise similar circumstances.

The bulletin describing this appellate decision was originally prepared for the California Society for Healthcare Attorneys (CSHA) by H. Thomas Watson, Peder K. Batalden, and Lacey Estudillo at the appellate firm Horvitz & Levy LLP, and is republished with permission.

For more information regarding this bulletin, please contact H. Thomas Watson, Horvitz & Levy LLP, at 818-995-0800 or htwatson@horvitzlevy.com.