Ninth Circuit Affirms ERISA Preempts State Law Claims by Out-of-Network Provider

June 18, 2024

On May 31, 2024, in Bristol SL Holdings, Inc. v. Cigna Health and Life Insurance Company, the Ninth Circuit Court of Appeals (Ninth Circuit) held that ERISA preempts state law claims challenging the denial of out-of-network provider reimbursements by group health plans. The Ninth Circuit affirmed the district court’s grant of summary judgment in favor of Cigna, the TPA for the ERISA plans, in the action brought by a drug treatment center’s successor-in-interest, Bristol SL Holdings, Inc. (Bristol).

For several years, Sure Haven, a drug treatment center, had contacted Cigna by phone to verify their patients’ out-of-network plan coverage, seek preauthorization for their care, and obtain the applicable reimbursement rate. But despite this verification process, in 2015, Cigna began rejecting Sure Haven’s reimbursement claims for covered plan participants due to “fee-forgiving.” Fee-forgiving is a healthcare provider’s practice of failing to collect patient cost-sharing (e.g., copayments and deductibles), which inflates insurance costs. The ERISA plan language clearly permitted Cigna to deny claims based on fee-forgiving. Accordingly, Cigna refused to reimburse 106 covered patients’ treatment claims, which reportedly totaled over $8.6 million. Sure Haven filed for bankruptcy in 2017.

Bristol purchased Sure Haven’s insurance claims against Cigna from the bankruptcy estate. When negotiations failed, Bristol sued Cigna in federal court, asserting an ERISA claim for recovery of plan benefits and various state law contract and fraud claims, including breach of contract and promissory estoppel. (Promissory estoppel is a doctrine that allows for recovery of damages despite no actual contract based upon one party’s detrimental reliance on a promise made by the other party.) Bristol contended that Cigna’s representations during the verification and preauthorization calls created independent, enforceable contractual obligations under state law.

As a defense, Cigna asserted ERISA preemption (i.e., that any state law claims are superseded and thus set aside by ERISA.) The district court held that ERISA preempted Bristol’s state law contract claims and granted summary judgment for Cigna. Bristol appealed the ruling to the Ninth Circuit.

On appeal, the Ninth Circuit affirmed the district court ruling and held that Bristol’s state law claims for breach of contract and promissory estoppel were preempted by ERISA because they had both a “reference to” and an “impermissible connection with” the ERISA plans. In its opinion, the Ninth Circuit first explained that a state law claim has a “reference to” an ERISA plan if it is premised on the existence of an ERISA plan, provides alternate enforcement mechanisms for ERISA plan obligations, or challenges the administration of ERISA plan benefits. Here, the Ninth Circuit observed that Sure Haven’s calls to Cigna were specifically to verify out-of-network coverage and reimbursement available under ERISA plans. Similarly, Cigna’s denial of claims due to Sure Haven’s fee-forgiving was in accordance with the ERISA plan terms. Additionally, Bristol’s calculation of damages for the state law claims relied upon the ERISA plan terms. Therefore, the Ninth Circuit concluded that the state law contract claims challenging the administration of plan benefits were premised upon the ERISA plan terms and thus preempted (i.e., Bristol could not seek to obtain through a state remedy what it could not obtain through ERISA).

Next, the Ninth Circuit analyzed Bristol’s claims under the “connection with” test for ERISA preemption. Under this test, a claim has an impermissible connection with an ERISA plan if it governs a central matter of plan administration or interferes with nationally uniform plan administration. The Ninth Circuit noted that permitting state law liability on Bristol’s claims would intrude on a central matter of ERISA plan administration (specifically, Cigna’s system of verifying out-of-network coverage and authorizing treatment by phone, while later conditioning reimbursement on whether a medical provider has secured the proper financial contributions from plan participants). Additionally, the Ninth Circuit recognized that allowing liability on Bristol’s state law claims would impermissibly interfere with nationally uniform plan administration by subjecting an insurer’s verification and preauthorization communications to their variable treatment under state law instead of ERISA and the plan terms.

In a concurrently filed memorandum, the Ninth Circuit also affirmed the district court’s grant of summary judgment to Cigna on Bristol’s ERISA claim seeking recovery of plan benefits.

For ERISA group health plan sponsors, the ruling is important because it reinforces the breadth of ERISA’s preemption of state law causes of action, particularly in the context of pre-service coverage communications between healthcare providers and plan administrators. The decision makes clear that healthcare providers seeking reimbursement from group health plans cannot circumvent ERISA or expand the scope of available legal actions by asserting state law claims.

Bristol SL Holdings, Inc. v. Cigna Health and Life Insurance Company