When ERISA May Not Apply: Three Key Points from a Hospital’s Contract Suit Against an Insurance Company

Three Key Points from a Hospital’s Contract Suit Against an Insurance Company

October 8, 2012

In a recent decision, a federal district court in California remanded a case back to state court after finding that a hospital’s state law claims against an insurance company were not controlled by the federal Employee Retirement Income Security Act (ERISA) or otherwise by federal Medicare law.

In this case, the hospital contracted with the insurance company to provide care for authorized enrollees at a discounted services rate. The hospital brought suit against the insurance company, alleging that the insurance company did not pay amounts due to the hospital in situations in which Medicare was the primary payer for services and the insurance company was the secondary payer. The insurance company removed the case to federal court on grounds that the claims involved matters under ERISA and questions of federal Medicare law. The federal court held that ERISA does not apply and Medicare does not affect the hospital’s claims against the insurance company. As such, the contract claims should be decided in a state court.

The following are the three key takeaways from the California district court’s decision:

  1. ERISA May Not Apply to Contract Disputes Between Hospitals and Insurers. In this case, the court found that the hospital’s claims against the insurance company arose from the terms of the agreement between the hospital and the insurance company. Because the insurance company’s obligation to the hospital is based on a contract and not based on ERISA, the obligation exists whether or not an ERISA plan does.
  2. Even if Some of the Patients are Covered by ERISA, the Contract Claims May Fall Outside the Terms of ERISA Plans. The insurance company argued that because the hospital is attempting to recover for the treatment of patients and some of those patients are covered by ERISA, the federal law controls the hospital’s claims. However, the court rejected the insurance company’s argument and held that, because the hospital’s contract claims could not be brought by patient-assignors, these were not claims for benefits under terms of ERISA plans.
  3. Even if Medicare is the Primary Payer, Contract Disputes between Hospitals and Secondary Payer Insurers May Not Fall Under Medicare Provisions. The insurance company argued that Medicare law prevents the hospital from prevailing on its state law claims and, therefore, a federal court must resolve the Medicare issue. Even though Medicare is mentioned in the hospital’s complaint, the court found that the hospital’s contract claims do not require resolution of any Medicare issues. The court held that “no provision of Medicare constitutes an essential element of the state law claims” and, therefore, a state court, rather than a federal court, should have jurisdiction over the hospital’s state law claims.