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Anti-Assignment Provision Prohibits Participant From Assigning Plan Benefits to Treating Hospital

Anti-Assignment Provision Prohibits Participant From Assigning Plan Benefits to Treating Hospital

ERISA and Life Insurance News
(August 21, 2012)

The Medical University of South Carolina (“MUSC”) hospital provided inpatient care to Stephen Showers from January 3 through March 17, 2010, and provided outpatient care to him later that year. As an employee of Oceana Resorts, Showers participated in Oceana’s self-funded employee welfare benefit plan.

As part of the hospital admission process, Showers signed a “Consent for Medical Treatment” form, which MUSC contended assigned his plan benefits to the hospital. However, when MUSC submitted claims for Showers’s care, the plan denied the claims based on an exclusion for experimental and/or investigational services and treatment.

MUSC’s two administrative appeals were denied, and it filed suit against Oceana and the plan pursuant to ERISA, 29 U.S.C. § 1132(a), alleging that the denial of plan benefits was unreasonable.

The defendants filed a motion to dismiss, or in the alternative for summary judgment, on the ground that MUSC lacked standing under 29 U.S.C. § 1132(a)(1)(B). The parties agreed that MUSC lacked direct standing to sue for plan benefits, because it was neither a participant nor a beneficiary of the plan. MUSC claimed, however, that it had derivative standing, because Showers had assigned his benefits to MUSC when he signed the consent form. The federal district court acknowledged that the Fourth Circuit has “never specifically addressed the question of derivative standing for ERISA benefits” in a published opinion, but that it has based at least two opinions on the presumption that a healthcare provider either did or could acquire derivative standing. See Sheppard & Enoch Pratt Hosp. v. Travelers Ins. Co., 32 F.3d 120 (4th Cir. 1994) (implicitly holding that the hospital had derivative standing to bring the claim); HealthSouth Rehab. Hosp. v. Am. Nat’l Red Cross, 101 F.3d 1005, 1008 (4th Cir. 1996) (reasoning that a hospital could have acquired derivative standing if the signatory of the consent form had been a participant or a beneficiary of the self-funded plan).

Therefore, the court denied defendant’s motion to dismiss, concluding that it was possible for a medical care provider to acquire derivative standing through an assignment of benefits from a plan participant. Thus, MUSC’s complaint stated a plausible claim for relief.

As a basis for summary judgment, defendants argued that an anti-assignment provision in the plan prohibited Showers from assigning plan benefits, that the alleged assignment in the consent form was therefore unenforceable, and that MUSC had no derivative standing as a matter of law.

MUSC argued that the plan implicitly assigned benefits to all network medical care providers based on the payment structure of the plan, and therefore, that MUSC actually did not need the consent form to obtain derivative standing.

The court ruled, however, that MUSC could not have obtained an assignment from the plan, as the plan did not contain specific language allowing an assignment to a network provider. Further, the payment structure outlined in the plan does not give rise to an implied “assignment,” but rather, was a third-party beneficiary arrangement. The court held that ERISA does not provide statutory standing for third-party beneficiaries, and a hospital cannot have independent standing without an enforceable assignment from the participant, citing Dallas Cnty. Hosp. Dist. v. Assoc.’s Health & Welfare Plan, 293 F.3d 282, 289 (5th Cir. 2002).

Because the plan unambiguously prohibited Showers from assigning his plan benefits, under the “universally recognized canons of contract interpretation” his attempted assignment to MUSC was ineffective and could not serve as a basis for derivative standing. Further, the terms of the consent form did not cover self-funded employee benefit plans and thus did not give MUSC derivative standing. Summary judgment was granted to the defendants.

Click here to view the full August 2012 Edition of the ERISA and Life Insurance News.

H. Sanders Carter
T (404) 962-1015
F (404) 962-1220
Kenton J. Coppage
T (404) 962-1065
F (404) 962-1256
Dorothy H. Cornwell
T (404) 962-1096
F (404) 962-1246

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