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ERISA Derivative Action is Subject to Arbitration Under Hospital

ERISA Derivative Action is Subject to Arbitration Under Hospital's Provider Services Agreement

Greenville Hospital System v. Employee Welfare Benefits Plan for Employees of Hazelhurst Management Co., 2014 WL 4976588 (D.S.C. Oct. 3, 2014)

ERISA and Life Insurance News
(January 16, 2015)

Greenville Hospital System("GHS") and Aetna Life Insurance Company entered into a Hospital Services Agreement, under which GHS became a preferred Aetna provider and could submit claims directly to Aetna for hospital services provided to patients covered by an Aetna health insurance plan.

Aetna agreed to pay GHS directly for those services at rates established by the parties, and GHS agreed that it would not bill Aetna insureds for the denial of payments.  GHS also agreed to abide by Aetna's requirement for precertification and to notify Aetna within two business days, or as soon as reasonably possible, of all admissions of Aetna insureds.

The agreement also contained a mandatory arbitration provision, requiring binding arbitration of "any controversy or claim arising out of or relating to this Agreement or the breach, termination, or validity thereof ..." Additionally, the top of each page of the Agreement contained the following provision:


(Bolding in original.)

In August 2011, GHS treated a participant in a health insurance plan established by Hazelhurst Management Company and underwritten by Aetna.  The patient's mother signed a consent for treatment, which included an assignment of the patient's benefits under the plan to GHS.

Thereafter, GHS submitted a claim, which Aetna denied on the ground that GHS had failed to obtain precertification as required by the provider services agreement.  GHS appealed, and Aetna upheld the denial.  GHS then filed an ERISA action in the federal district court, alleging failure to pay benefits and failure to provide plan documents in a timely manner.

Aetna filed a motion to dismiss the complaint and to compel arbitration pursuant to 9 U.S.C. § 3 of the Federal Arbitration Act and Rule 12(b)(1) and (6) of the Federal Rules of Civil Procedure. Aetna argued that by filing the action, GHS was attempting to avoid arbitration required by the agreement, and that its claims were not about whether services were covered under the plan, but rather the failure of GHS to obtain precertification as a condition for payment.

GHS contended that it bought the action as a derivative action on behalf of the insured, and that it should have the right to pursue the claim under ERISA and not be compelled to arbitrate.  GHS cited CardioNet, Inc. v. Cigna Health Corp., 751 F.3d 165 (3d Cir. 2014), to support its position that a provider's direct and derivative claims fell outside of the agreement's arbitration clause.  In CardioNet, the Third Circuit held that a provider's derivative claim against the insurer on behalf of the insured was not subject to an arbitration clause in the administrative services agreement between the insurer and the provider.

Relying on another recent opinion, Greenville Hospital System v. United Healthcare Insurance Company, No. 6:13–2837–HMH (D.S.C. Apr. 3, 2014), the court agreed with Aetna, and found that the dispute between GHS and Aetna fell under the agreement and was subject to arbitration.

The court reasoned that GHS filed a claim with Aetna on behalf of the insured and pursuant to the agreement.  Aetna denied the claim based on the agreement.  While GHS contended that it did not agree to arbitrate whether services were covered under the employee welfare benefits plan, the court noted that it did agree to arbitrate "any controversy or claim arising out of or relating to this Agreement or the breach, termination, or validity thereof ..."

While a determination of benefits under the plan may fall within ERISA, the court found that GHS's claims related to the scope of the agreement, which provided: "Except when a Member requires Emergency Services, Hospital agrees to comply with any applicable precertification and/or referral requirements under the member's Plan prior to the provision of Hospital Services.  Hospital agrees to notify Company within two (2) business days, or as soon as reasonably possible of all admissions of Members, and all services for which Company requires notice."

The court granted Aetna's motion to compel arbitration and dismissed the case without prejudice.

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H. Sanders Carter
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Andrea K. Cataland
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Kenton J. Coppage
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