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Dialysis Newco, Inc. v. Community Health Systems Group Health Plan

United States Court of Appeals, Fifth Circuit

September 11, 2019

DIALYSIS NEWCO, INC., doing business as DSI Laredo Dialysis, Plaintiff - Appellee,

          Appeals from the United States District Court for the Southern District of Texas

          Before ELROD, GRAVES, and OLDHAM, Circuit Judges.


         This case involves a three-way dispute between an ERISA plan and its administrator, a third-party processor, and a healthcare provider. At its core, this is a contract dispute over whether the administrator and the third-party processer underpaid the provider for hemodialysis treatments received by an employee of the administrator. The district court determined that the provider had standing to bring this lawsuit because an anti-assignment provision in the plan was ambiguous or, in the alternative, because the anti-assignment provision was rendered unenforceable by a Tennessee statute. Holding that the plan's anti-assignment provision is not ambiguous and that the Tennessee statute is preempted by ERISA, we REVERSE, VACATE, and RENDER.


         The Employee Retirement Income Security Act of 1974 (ERISA)[1] is "[a]n ambitious statutory scheme" that is "designed 'to protect the interests of participants in employee benefit plans and their beneficiaries' by (1) 'requiring the disclosure and reporting to participants and beneficiaries'; (2) 'establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans'; and (3) 'providing for appropriate remedies, sanctions, and ready access to the Federal courts.'" Tolbert v. RBC Capital Mkts. Corp., 758 F.3d 619, 621 (5th Cir. 2014) (alteration omitted) (quoting 29 U.S.C. § 1001(b)).

         Community Health Systems, Inc. is the administrator of an employee health plan governed by ERISA. The plan gives the administrator authority to construe any disputed or ambiguous terms. The administrator delegated the processing of medical claims received under the plan to MedPartners Administrative Services, L.L.C., a third-party processor. MedPartners's responsibilities included making initial benefit determinations and handling first-level appeals; the administrator had authority over second-level appeals and retained "final discretionary authority" to determine benefits eligibility. MedPartners, in turn, subcontracted with Global Excel Management, Inc., for processing claims.

         The administrator employed an individual referred to in the briefings as "H.S." In 2012, H.S. began receiving hemodialysis from Dialysis Newco, Inc., a healthcare provider located in Laredo, Texas, that was out-of-network for the plan. The plan stated that medical benefits "must not exceed the Usual and Customary Charges." Usual and Customary Charges were defined by the plan as follows:

Usual and Customary Charge. Usual Charge means the amount ordinarily charged by a Provider for any given service, and Customary Charge means a charge that falls within the range of the Usual Charges for any given service within the geographic area in which the service is rendered.

         On the first day of his treatment, H.S. executed a document styled as an "Assignment of Benefits," which gave the provider the right to submit claims and receive benefits on his behalf. For the first three months, the provider was paid 100% of its billed amount. However, starting with treatment given in December 2012, MedPartners and Global Excel changed course and determined that the Usual and Customary Charge was capped at 200% of what Medicare paid. At issue in this case is payment for more than 100 dialysis treatments provided to H.S. between December 2012 and November 2013. Of the $844, 472.02 billed by the provider for those treatments, the administrator paid $68, 278.48 (roughly 8%), leaving a balance of $776, 193.54.

         The provider submitted first-level appeals contesting that it had been underpaid, and Global Excel, with MedPartner's approval, denied those appeals. Notwithstanding the language of the plan, a denial letter sent to the provider stated that "the 'customary' charge is what providers typically accept as payment from all payors, which is on average 200% of the U.S. ESRD Medicare allowable." In March 2014, the provider filed a second-level appeal with the administrator, but the administrator never responded. In November 2015, H.S. executed a second document styled as an "Assignment of Benefits," which gave the provider the right to pursue any legal claims arising out of the medical services it provided. Four days later, the provider brought this lawsuit under ERISA, seeking payment of the $776, 193.54 balance.[2]

         In the district court, the appellants responded by arguing that the provider lacked standing to bring the lawsuit because the plan contained an anti-assignment provision. However, the district court determined that the anti-assignment provision was unenforceable for two independent reasons. First, the district court concluded that the language of the anti-assignment provision was ambiguous and, as such, it would be construed against the plan. Second, the district court concluded that even if the anti-assignment provision was not ambiguous, the plan's choice of law provision invoked the laws of Tennessee, and a Tennessee statute invalidated any language in the plan that would prohibit assignment to a healthcare provider. The district court rejected the appellants' argument that the Tennessee statute would itself be preempted by ERISA. Having determined that the provider had standing to sue, the district court found that the appellants had abused their discretion by reading a 200%-of-what-Medicare-pays rule into the plan and remanded the claims back to the administrator to determine whether the provider's charges were "usual and customary" as that term is defined by the plan.

         The district court denied the appellants' motion to certify an interlocutory appeal on the question of the provider's standing. Thereafter, prior to the standing question reaching us on appeal, the district court rendered judgment on a wide host of other issues that the parties also now contest before us on appeal, including: questions of administrative exhaustion; questions of whether the 200%-of-what-Medicare-pays rule was a permissible reading; questions of whether the district court's subsequent interpretations of the plan were supported by the administrative record; and questions of joint and several liability. Because we hold that the district court erred in its determination that the provider had standing to bring the lawsuit in the first place, we reverse, vacate, and render on that ground without reaching any of the other issues that were argued on appeal.


         We review a district court's grant of summary judgment in ERISA cases de novo, applying the same standards as the district court. Humana Health Plan, Inc. v. Nguyen, 785 F.3d 1023, 1026 (5th Cir. 2015). Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a).


         ERISA does not supply the provider with a basis for bringing its claim directly against the appellants; instead, the provider's standing to bring this lawsuit must be derived from the beneficiary and it is subject to any restrictions contained in the plan. If the provider lacks standing to bring the lawsuit due to a valid and enforceable anti-assignment clause, then federal courts lack jurisdiction to hear the case. See LeTourneau Lifelike Orthotics & Prosthetics, Inc. v. Wal-Mart Stores, Inc., 298 F.3d 348, 353 (5th Cir. 2002).

         As such, we address two issues related to the provider's standing argued by the parties on appeal. First, we address whether the district court erred by determining that the plan's anti-assignment clause is ambiguous and invalid. And second, we address whether the district court erred by determining, in the alternative, that even if the plan's anti-assignment clause is unambiguous it is rendered unenforceable by Tennessee law.[3]


         We first address whether the district court erred by determining that the plan's anti-assignment clause is ambiguous and invalid.

         We have previously noted "Congress's intent that employers remain free to create, modify and terminate the terms and conditions of employee benefits plans without governmental interference." LeTourneau, 298 F.3d at 352 (citation omitted). As such, we have held that when an ERISA plan contains a valid anti-assignment provision, a putative assignment to a healthcare provider ...

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