HLD, v. 32, n. 10 (October 2004)
U.S. Court In Texas Finds No ERISA Pre-Emption Of Medical Provider's
Contract Claims Against Plan Administrator
The Employee Retirement Income Security Act (ERISA) does not completely
pre-empt a medical provider's breach of contract claims against an ERISA plan's
"claims supervisor," a federal district court in Texas ruled August 18. The
court found that the breach of contract claims neither involved an issue of
exclusive federal concern nor affected the relationship between the plan sponsor
and plan participants.
Baylor University Medical Center and other affiliated entities
(collectively Baylor) sued Epoch Group, L.C. (Epoch) in state trial court for
breach of contract to recover payment for medical services provided to two participants
of an employee welfare benefit plan. Epoch serves as the plan's "claims supervisor."
Epoch entered into a subscriber services agreement with Private Healthcare Systems,
Inc. (PHCS). Baylor became a part of the PHCS network of providers after it
signed a hospital services agreement, which requires PHCS to obtain payor acknowledgements
with its payors, including Epoch. The payor acknowledgement required Epoch to
pay PHCS providers pursuant to their hospital services agreements.
In its lawsuit, Baylor claimed that Epoch failed to pay for the
medical care provided to the two plan participants in accordance with the contractual
agreement. Baylor sought recovery of over $115,000 in damages. Epoch removed
the action to federal district court based on diversity jurisdiction. Epoch
also asserted federal question jurisdiction on the basis that ERISA completely
pre-empted Baylor's claims. Epoch moved for summary judgment.
The U.S. District Court for the Northern District of Texas denied
Epoch's summary judgment motion. The court rejected Epoch's argument that it
was entitled to judgment as a matter of law because it had no privity of contract
with Baylor. The court held that the hospital services agreement, the subscriber
services agreement, and the payor acknowledgement constituted a single, unified
contract regarding Epoch's obligation to timely pay Baylor's legitimate claims.
While the agreements were not executed simultaneously, they referenced each
other and showed an "intertwined relationship between the parties and the instruments
at issue," the court said. All three agreements were needed to complete the
relationship between Epoch, PHCS, and Baylor, the court observed. By signing
the payor acknowledgment, Epoch assumed both the right to receive discounts
for medical care provided by Baylor and the obligation to pay Baylor in a timely
Next, the court held that ERISA did not completely pre-empt Baylor's
claims. In so holding, the court looked to the two-part test for ERISA pre-emption
set forth by the Fifth Circuit in Memorial Hosp. Sys. v. Northbrook Life
Ins. Co., 904 F.2d 236 (5th Cir. 1990). First, the court found that the
contract claims at issue were not an exclusive area of federal concern. Specifically,
the court noted that Baylor's contract claims did not depend on or derive from
the two participants' rights to recover benefits due under an ERISA plan. "Instead,
Baylor's right to recover payment for covered health services is governed by
the three intertwined contracts and does not implicate the restrictions and
limitations of ERISA," the court said. Second, Baylor's contract claims did
not directly affect or modify the relationship between the plan sponsor and
its plan participants. In fact, the court noted, Baylor lacked independent standing
to seek redress under ERISA without claiming assignment of the plan participants'
rights. Baylor here was suing as an independent creditor, not on behalf of its
patients (the two plan participants).
Baylor Univ. Med. Ctr. v. Epoch Group, L.C., No. Civ.A3:03-CV-2392-G,
2004 WL 1856833 (N.D. Tex. Aug. 18, 2004).