IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
August 18, 2009
No. 08-50646 Charles R. Fulbruge III
Clerk
LONE STAR OB/GYN ASSOCIATES
Plaintiff-Appellee
v.
AETNA HEALTH INC
Defendant-Appellant
Appeal from the United States District Court
for the Western District of Texas
Before HIGGINBOTHAM, GARZA, and PRADO, Circuit Judges.
EMILIO M. GARZA, Circuit Judge:
Lone Star OB/GYN Associates (“Lone Star”) brought this action in Texas
state court under Texas law, alleging that health insurance provider Aetna
Health Inc. (“Aetna”) failed to pay the proper amount for services provided to
patients treated by Lone Star. Aetna removed the case to federal court, arguing
that Lone Star’s state law claims were completely preempted by the Employee
Retirement Income Security Act (ERISA). Lone Star successfully moved in
district court to amend its complaint and remand the case back to state court.
For the following reasons, we vacate and remand.
No. 08-50646
I
Lone Star is a health care provider that entered into a contract
(hereinafter “Provider Agreement”) with Aetna Health, an administrator of
“employee welfare benefit plans” regulated by ERISA. See 29 U.S.C. § 1002(1).
Among the benefit plans administered by Aetna are health insurance plans for
The Boeing Company (“Boeing Plan”), Hyatt Corporation (“Hyatt Plan”) and
UPS (“UPS Plan”). By entering into the Provider Agreement with Aetna, Lone
Star became a “Participating Provider” for individuals enrolled in Aetna-
administered insurance plans (“Plan Members”), entitling Lone Star to inclusion
in physician directories that Aetna sends to its members.
Lone Star sued Aetna in Texas court under the Texas Prompt Pay Act
(“TPPA”). Lone Star alleged that Aetna had not paid Lone Star’s payment
claims1 at the rates set out in the Provider Agreement and within the time
period required by the TPPA. Attached to Lone Star’s complaint was a list of
disputed payment claims.
Aetna removed the case to federal court on the basis that Lone Star’s state
law claims were completely preempted by ERISA. In district court, Lone Star
filed a motion to remand to state court. Aetna pointed to payment claims that
it argued were preempted by ERISA because coverage was denied. Lone Star
sought leave to amend its pleadings so as to remove certain claims. The new list
of payment claims redacted those payment claims for which Aetna submitted no
payment because coverage was denied. All payment claims that Aetna had
1
For clarity, claims for payment submitted to Aetna by Lone Star are referred to as
“payment claims” while state law claims made under the TPPA are referred to as simply
“claims.”
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No. 08-50646
partially paid remained. The district court granted Lone Star’s motions for leave
to amend and remanded the amended claims. Aetna timely appealed.2
II
The party seeking removal bears the burden of showing that federal
jurisdiction is proper. Carpenter v. Wichita Falls Indep. Sch. Dist., 44 F.3d 362,
365 (5th Cir. 1995). Once the case is removed, a plaintiff’s voluntary
amendment to a complaint will not necessarily defeat federal jurisdiction; it is
within the district court’s discretion whether to remand the action to state court.
Henry v. Indep. Am. Sav. Ass’n, 857 F.2d 995, 998 (5th Cir. 1988). However, the
district court may not remand if the defendant demonstrates the presence of a
“substantial federal claim, e.g., one completely preempted by ERISA[.]” Giles v.
NylCare Health Plans, Inc., 172 F.3d 332, 337 (5th Cir. 1999). We review the
question of whether a claim is preempted under ERISA de novo. Ellis v. Liberty
Life Assur. Co. of Boston, 394 F.3d 262, 269 (2004).
III
In enacting ERISA, Congress created a comprehensive civil-enforcement
scheme for employee welfare benefit plans that completely preempts any state-
law cause of action that “duplicates, supplements, or supplants” an ERISA
remedy. Aetna Health Inc. v. Davila, 542 U.S. 200, 209 (2004). Complete
preemption converts a state law civil complaint alleging a cause of action that
falls within ERISA’s enforcement provisions into “ ‘one stating a federal claim
for purposes of the well-pleaded complaint rule.’ ” Id. (quoting Metro. Life Ins.
Co. v. Taylor, 481 U.S. 58, 65-66 (1987)). In other words, even if the plaintiff did
2
As an initial matter, we address our jurisdiction over the appeal. After oral argument
was heard in this case, the Supreme Court issued its decision in Carlsbad Tech., Inc. v. HIF
Bio., Inc., 129 S. Ct. 1862 (2009), establishing that district court orders declining to exercise
supplemental jurisdiction over state law claims pursuant to 28 U.S.C. § 1367 and remanding
those claims to state court are appealable under 28 U.S.C. § 1447. Thus, this Court’s opinion
in Giles v. NylCare Health Plans, Inc., 172 F.3d 332, 336 (5th Cir. 1999) remains good law, and
we maintain jurisdiction over the appeal from the district court’s order.
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No. 08-50646
not plead a federal cause of action on the face of the complaint, the claim is “
‘necessarily federal in character’ ” if it implicates ERISA’s civil enforcement
scheme. Giles, 172 F.3d at 336-37 (quoting Taylor, 481 U.S. at 64-65).
ERISA’s civil enforcement scheme is laid out in § 502(a) of the ERISA
statute. Section 502(a)(1)(B) establishes that a civil action may be brought by
a participant or beneficiary: “[T]o recover benefits due to him under the terms
of his plan, to enforce his rights under the terms of the plan, or to clarify his
rights to future benefits under the terms of the plan[.]” 29 U.S.C. § 1132(a)(1)(B).
Therefore, if a party’s state law claims fall under this § 502(a)(1)(B) definition,
they are preempted by ERISA.
Aetna argues that Lone Star’s state law claims seek to recover benefits due
to Lone Star under the terms of their patients’ Member Plans and are thus
preempted by ERISA. Lone Star, however, argues that their state law claims
arise solely from the Provider Agreement, as Aetna failed to pay the correct
contractual rate for services rendered to patients who were Members of Aetna
Plans.3 There are thus two issues we must resolve: (1) whether state law claims
that arise out of a contract between medical providers and an ERISA plan are
preempted by ERISA; and (2) whether Lone Star’s state law claims in fact
implicate only rate of payment issues under the Provider Agreement, or if they
actually involve benefit determinations under the relevant plan.
3
Lone Star clearly has standing to seek benefits under the terms of their patients’
ERISA plans, as Lone Star’s patients have assigned Lone Star their rights under those plans.
The crucial question is whether Lone Star is in fact seeking benefits under the terms of the
plan, or rights that derive from the independent basis of the contract. A healthcare provider
suing on the basis of assignment of ERISA rights, benefits or claims from a plan member must
proceed under the procedures established by § 502(a), as the provider is seeking to enforce the
terms of the plan. See, e.g., Quality Infusion Care Inc. v. Humana Health Plan of Tex., Inc.,
290 F. App’x. 671, 679 (5th Cir. Aug. 13, 2008) (unpublished). But where the basis of the suit
is entirely independent of the ERISA plan, and thus of the plan member, an assignment of
benefits from the patient cannot confer standing.
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No. 08-50646
A
In order to determine whether Lone Star’s claims fall within the scope of
§ 502(a), we must look at the relationship between the Provider Agreement and
the ERISA plans. In Davila, the Supreme Court held that:
[I]f an individual, at some point in time, could have brought his claim
under ERISA § 502(a)(1)(B), and where there is no other independent
legal duty that is implicated by a defendant’s actions, then the
individual’s cause of action is completely pre-empted by ERISA §
502(a)(1)(B).
Davila, 542 U.S. at 210 (emphasis added). The ERISA preemption question thus
turns on whether the Provider Agreement creates a legal duty “independent” of
the ERISA plan—in this case, a duty to pay a specific contractual rate for
services rendered under the ERISA plan.
It is clear that the Provider Agreement and the ERISA plans cross-
reference each other.4 The Provider Agreement establishes that Aetna will pay
Lone Star and Lone Star physicians’ claims for “Covered Services,” where
“Covered Services” are those services recognized as “medically necessary” under
the terms of the relevant ERISA plan. The ERISA plans state that Aetna will
pay “Recognized Charges,” and, under the definition of “Recognized Charges,”
state that where Aetna has an agreement with a health care provider, the
“Recognized Charge” is the rate established in that agreement. The Provider
Agreement also establishes the rates of payment receivable from Aetna for
treating Plan Members. Under the Provider Agreement, Lone Star is to be paid
the lesser of: (i) its usual, customary, and reasonable billed charges; (ii) the rates
set forth in the Compensation Schedule; or (iii) the fee schedule in the Member’s
Plan.
4
In describing the terms of the ERISA plans, we use the provisions of the Hyatt Plan
as an illustrative example. All references to “the ERISA plan” are therefore to the Hyatt Plan.
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No. 08-50646
However, determination of the rate that Aetna owes Lone Star under the
Provider Agreement does not require any kind of benefit determination under
the ERISA plan. The fee schedules in the Member Plans in this case all refer
back to the Provider Agreement. The Provider Agreement sets out the
Compensation Schedule, which establishes the rate of payment as a fixed
percentage of the “Aetna Market Fee Schedule,” a standard schedule used by
Aetna that is updated annually and based on the location where the service is
performed. The Aetna Market Fee Schedule relies on codes used by doctors
known as “CPT Codes,” which identify the medical procedure performed by the
doctor. Each CPT Code has a different rate of reimbursement under the Aetna
Market Fee Schedule. Thus, in calculating what it owes Lone Star, Aetna
determines the reimbursement rate under the Aetna Market Fee Schedule for
each CPT Code submitted by the doctor, and pays Lone Star the fixed percentage
(set out in the Provider Agreement) of that amount.
Lone Star concedes that in calculating the correct contractual rate, the
amounts of the Plan Member’s Copayment/Coinsurance/Deductible will have to
be accounted for, and those amounts are set out in the ERISA plan, not the
Provider Agreement. However, Lone Star argues that mere consultation of an
ERISA plan is not enough to bring the claims within the scope of § 502(a).
We agree. A claim that implicates the rate of payment as set out in the
Provider Agreement, rather than the right to payment under the terms of the
benefit plan, does not run afoul of Davila and is not preempted by ERISA. See
Blue Cross v. Anesthesia Care Assocs. Med. Group, Inc., 187 F.3d 1045, 1051 (9th
Cir. 1999). Though the plan and the Provider Agreement cross-reference each
other, the terms of the plan—in particular, those related to coverage—are not
at issue in a dispute over whether Aetna paid the correct rate for covered
services as set out in the Provider Agreement. While Aetna is correct that any
determination of benefits under the terms of a plan—i.e., what is “medically
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No. 08-50646
necessary” or a “Covered Service”—does fall within ERISA, Lone Star’s claims
are entirely separate from coverage and arise out of the independent legal duty
contained in the contract and the TPPA.
In so holding, we adopt the reasoning of the Third and Ninth Circuits, and
that of a majority of district courts in this Circuit 5 which have relied on this
distinction between “rate of payment” and “right of payment.” See Anesthesia
Care,187 F.3d at 1051; Pascack Valley Hosp., Inc. v. Local 464A UFCW Welfare
Reimbursement Plan, 388 F.3d 393, 403-04 (3d Cir. 2004). Anesthesia Care dealt
with essentially identical facts to this case: a group of medical providers
participating in an ERISA-regulated medical care plan offered by Blue Cross
sued Blue Cross over changes to fee schedules that were specified in an
agreement between Blue Cross and the providers. See Anesthesia Care, 187 F.3d
5
A majority of the district courts in this Circuit have held no ERISA preemption of
state law claims where there is an underlying contract between the provider and the insurance
company and the claims are not dependent on interpretation of the plan. See Touro Infirmary
v. Am. Mar. Officer, Civil Action No. 07-1441, 2007 WL 4181506 (E.D. La. Nov. 21, 2007)
(finding no preemption because assignment did not give plaintiff standing to sue under §
502(a)); Ne. Hosp. Auth. v. Aetna Health Inc., Civil Action No. H-07-2511, 2007 WL 3036835
(S.D. Tex. Oct. 17, 2007) (where suit was based on separate contract there is no preemption);
Mem’l Hermann Hosp. Sys. v. Aetna Health Inc., No. 4:06-CV-0828, 2007 WL 1701901 (S.D.
Tex. June 11, 2007) (holding no preemption because although plaintiff could have sued under
assignment it chose not to and had rights independent of the plan); Crossroads of Tex., LLC
v. Great-West Life & Annuity Ins. Co., 467 F. Supp. 2d 705 (S.D. Tex. 2006) (suit for
underpayment based on the end of contract was not preempted); Halliburton Co. Benefits
Comm. v. Mem’l Hermann Hosp. Sys., No. Civ.A. H-04-1848, 2006 WL 148901 (S.D. Tex. Jan.
19, 2006) (in a declaratory action, because provider intended to forgo its claims arising under
ERISA, and only intended to pursue state law claims there was no federal issue); Mem’l
Herman Hosp. Sys. v. Great-West Life & Annuity Ins. Co., No. Civ.A. H-05-1234, 2005 U.S.
Dist. LEXIS 40585 (S.D. Tex. June 30, 2005) (holding no preemption because although plaintiff
could have sued under assignment it chose not to and had rights independent of the plan);
Tenet Healthsystem Hosps., Inc. v. Crosby Tugs, Inc., No. Civ.A. 04-1632, 2005 WL 1038072
(E.D. La. Apr. 27, 2005) (suit brought under contract was not preempted because provider was
not suing on basis of assignment). But see St. Luke’s Episcopal Hosp. v. Acordia Nat’l, Civil
Action No. H-05-1438, 2006 WL 3093132 (S.D. Tex. June 8, 2006) (notwithstanding contract
between hospital and insurance, dispute was over patients’ right to coverage and was thus
dependent on plan terms); Radiology Assocs. of San Antonio, P.A. v. Aetna Health, Inc., No.
CIVASA03CA1152RF(NN), 2005 U.S. Dist. LEXIS 3749 (W.D. Tex. Mar. 2, 2005) (breach of
contract claim preempted because contract was intertwined with ERISA plan).
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No. 08-50646
at 1048. The Ninth Circuit found that the cause of action arose out of the
provider agreement and thus did not fall under ERISA § 502(a), rejecting Blue
Cross’s argument that a reference in the provider agreements to “Physician’s
covered billed charges” depended on interpretation of the terms of the plan. See
id. at 1051-52.
Anesthesia Care was decided before Davila, and Aetna argues that the
result is incorrect under Davila. We disagree.6 In Davila, plaintiffs brought suit
under the Texas Health Care Liability Act (“THCLA”), alleging that the
administrators of their ERISA-regulated benefit plans had violated the
independent legal duty of “ordinary care” in denying coverage under the terms
of the plan. The Supreme Court held that, because “the failure of the plan itself
to cover the requested treatment would be the proximate cause” of the plaintiffs’
injuries, and because “interpretation of the terms of [plaintiffs’] benefit plans
forms an essential part of their THCLA claim,”the claim was preempted by
ERISA. Davila, 542 U.S. at 213. Davila was thus concerned with the situation
where “potential liability . . . derives entirely from the particular rights and
obligations established by the benefit plans,” i.e., coverage and benefit
determinations. Id. Where, however, a medical service is determined to be
covered and the only remaining issue is the proper contractual rate of payment,
coverage and benefit determinations are not implicated and the claims are not
preempted.
Davila also does not support the proposition that mere reference to or
consultation of an ERISA plan in order to determine a rate of pay is sufficient
6
We are not the only post-Davila Circuit court to have adopted the distinction between
the “rate of payment” and the “right of payment.” The Third Circuit, in a post-Davila case,
applied the Anesthesia Care reasoning to find no ERISA preemption of claims where (1) the
claims arose from the terms of a contract allegedly independent of the plan; (2) the
participants and beneficiaries of the plan were not parties to the contract; and (3) the dispute
was over the “amount” of payment rather than the “right” to payment. Pascack Valley Hosp.,
388 F.3d at 403-04.
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No. 08-50646
for preemption. In Davila, the Supreme Court re-affirmed that the preemptive
force of § 502(a)(1)(B) mirrored that of § 301 of the Labor Management Relations
Act (“LMRA”). Id. at 209. LMRA cases establish that the need to refer to a
collective bargaining agreement to determine, for example, the rate of pay, does
not bring claims within the scope of § 301. See Livadas v. Bradshaw, 512 U.S.
107, 123-25 (1994) (“[W]hen the meaning of contract terms is not the subject of
dispute, the bare fact that a collective-bargaining agreement will be consulted
in the course of state-law litigation plainly does not require the claim to be
extinguished.”); see also Anesthesia Care, 187 F.3d at 1051 (citing Livadas, 512
U.S. at 123-25). We find that the same reasoning applies in the context of ERISA
§ 501(a)(1)(B).
Finally, in seeking remedies under the Texas Pay Prompt Act, Lone Star
is not seeking relief that “duplicates, supplements or supplants” that provided
by ERISA. Davila, 542 U.S. at 209. The TPPA allows a physician or provider
to collect the contracted rate plus penalties for “payable” claims that are not paid
within a statutorily specified amount of time. A TPPA remedy only overlaps
with the ERISA enforcement scheme if there is a dispute over whether a claim
is “payable”—whether there has been a denial of benefits because there is a lack
of coverage. Again, where claims do not involve coverage determinations, but
have already been deemed “payable,” and the only remaining issue is whether
they were paid at the proper contractual rate, ERISA preemption does not apply.
B
The remaining issue is how Lone Star’s payment claims are properly
characterized. With its motion to remand, Lone Star originally submitted a list
that contained payment claims that were partially paid as well as payment
claims for which Aetna denied all payment. Aetna pointed out to the district
court that fully denied claims were preempted under ERISA because they
resulted from Aetna’s determination that the particular medical services were
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No. 08-50646
not covered under the applicable plan. Lone Star resubmitted a list of payment
claims with all fully denied payment claims redacted. The payment claims at
the heart of the current dispute are thus those that were partially paid by Aetna.
Aetna argues that the claims are partially paid because they resulted from a
partial denial of benefits due to Aetna’s determination that a given service was
not “medically necessary” under the terms of the ERISA plan.7 Thus, Aetna
contends that because even partial denials of benefits depend on interpretation
of the plan, the partially paid claims are preempted. Lone Star argues that the
payment claims were for services that Aetna determined were covered by the
plan, but for which Aetna paid the wrong contractual rate, for example through
mistakenly referring to the wrong rate in Aetna Market Fee Schedule.
We hold that claims for underpayment under the Provider Agreement,
which do not implicate coverage determinations under the terms of the relevant
plan, are not preempted under ERISA. See supra Part III.A. However, on the
basis of the record before us, we cannot answer the factual question of whether
the disputed payment claims were partially paid because Aetna denied the
service for lack of coverage under the plan, or because Aetna misinterpreted the
Provider Agreement or made a mistake in referring to the proper fee schedule.
If each individual payment claim submitted by a doctor in fact corresponds to a
single medical procedure, there may be credence to Lone Star’s contention that
a partial payment by Aetna indicates an error in calculating the contractual rate
rather than a coverage determination under the plan, since a procedure is either
covered or not covered under the plan. If, however, any individual payment
7
Aetna argues that the payment claims resulted from “adverse benefit determinations”
under the relevant plan. Under the plan, an “adverse benefit determination” means a “denial,
reduction, or termination of a benefit, including a failure to pay all or part of a benefit claim,
whether based on a determination that the Claimant is ineligible to participate in the Plan or
based on a utilization review. The term also includes failure by the Plan to cover an item or
service for which benefits are otherwise provided because it is found to be Experimental or
Investigational, or because it is found not to be Medically Necessary or appropriate.”
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No. 08-50646
claim potentially encapsulates multiple procedures only some of which were
covered, and partial payment thus resulted from a denial of benefits under the
plan, the claim may be preempted. We leave it to the district court to determine
whether any of the payment claims submitted by Lone Star implicate a coverage
determination under the plan and thus a federal issue under ERISA. We
therefore VACATE the district court’s order and REMAND to the district court
for further proceedings not inconsistent with this opinion.
11