ADVANCED ORTHOPEDICS AND SPORTS MEDICINE INSTITUTE, PC v. OXFORD HEALTH INSURANCE INC.
3:21-cv-17221
D.N.J.May 27, 2022Background
- Advanced Orthopedics (out-of-network provider) performed preauthorized emergency spinal surgery on Oxford’s insured (K.G.) on Aug. 10, 2016; the hospital obtained a preauthorization confirmation from Oxford.
- Advanced Orthopedics billed $269,859.50 (its alleged UCR charge); Oxford paid $4,671.36 and the insured faced a large balance.
- The preauthorization letter expressly stated that approval did not guarantee payment and that payment would be determined based on the member’s benefit plan (terms, exclusions, limits).
- Advanced Orthopedics sued Oxford in state court asserting breach of implied contract, breach of good faith and fair dealing, promissory estoppel, and unjust enrichment; Oxford moved to dismiss under Fed. R. Civ. P. 12(b)(6), arguing ERISA preemption.
- The district court found the pleaded claims depend on the ERISA plan (and the preauthorization letter ties payment to plan terms), concluded the state-law claims are expressly preempted by ERISA §514(a), and granted dismissal without prejudice, with leave to amend within 30 days.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether state common-law claims are preempted by ERISA | Preauthorization and prior course of dealing created an independent promise to pay provider’s UCR rates | Preauthorization letter disclaims any payment guarantee and ties payment to the member’s benefit plan; resolution requires interpreting the plan -> preempted | Claims "relate to" the ERISA plan and are expressly preempted; dismissed without prejudice |
| Whether Plastic Surgery Ctr. controls to avoid preemption | Plastic Surgery Ctr. permits out-of-network providers to pursue state-law claims based on independent pre-service agreements | Plastic Surgery Ctr. is distinguishable: there are no allegations of an independent oral/written agreement here and the preauthorization letter links payment to plan terms | Court distinguished Plastic Surgery Ctr. and found it inapplicable |
| Validity of unjust enrichment claim | Oxford was unjustly enriched by retaining benefit and underpaying provider | For insurers the ‘‘benefit’’ is discharge of insurer’s obligation to insured (plan-based), so the claim depends on the plan | Unjust enrichment claim also preempted |
| Whether to permit amendment | Plaintiff seeks leave to plead additional facts (e.g., prior course of dealing or an independent agreement) | N/A | Court grants leave to amend within 30 days to allege facts showing an independent agreement |
Key Cases Cited
- Aetna Health Inc. v. Davila, 542 U.S. 200 (ERISA preemption of state-law actions seeking benefits under employee benefit plans)
- Gobeille v. Liberty Mut. Ins. Co., 577 U.S. 312 (scope of ERISA §514 preemption)
- Plastic Surgery Ctr., P.A. v. Aetna Life Ins. Co., 967 F.3d 218 (3d Cir.) (when oral promises create freestanding obligations separate from plan)
- Ingersoll-Rand Co. v. McClendon, 498 U.S. 133 (state-law claims refer to ERISA plans when plan existence is critical to liability)
- Menkes v. Prudential Ins. Co. of Am., 762 F.3d 285 (3d Cir.) (preemption analysis where claims require interpreting plan terms)
- N.Y. State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645 (ERISA preemption framework and limits)
- Thieme v. Aucoin-Thieme, 227 N.J. 269 (N.J. law on unjust enrichment elements)
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard for plausibility)