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U.S. Court In Texas Finds No ERISA Pre-Emption Of Medical Provider's Contract Claims Against Plan Administrator


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 manner.

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).

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