Date: 10-01-2015

Case Style: Pennsylvania Chiropractic Association v. Independence Hospital Indemnity Plan, Inc.

Case Number: 14-2322

Judge: Easterbrook

Court: United States Court of Appeals for the Seventh Circuit on appeal from the Northern District of Illinois (Cook County)

Plaintiff's Attorney:

Defendant's Attorney:

Description: Two chiropractors and an association
of chiropractors filed this suit against an insurance
company. They contend that, when determining how much
to pay for services rendered to patients, the insurer failed to
use the procedures required by 29 U.S.C. §1133, part of the
2 Nos. 14-2322 et al.
Employee Retirement Income Security Act (ERISA). Plaintiffs’
ability to invoke ERISA depends on their being “beneficiaries”
of a plan established under that law. See 29 U.S.C.
§1132(a)(1)(B). Over the course of 19 opinions that aggregate
more than 200 single-spaced pages, the district court concluded
that plaintiffs are beneficiaries and awarded damages
plus injunctions requiring the insurer to follow §1133 and
the Department of Labor’s regulation, 29 C.F.R. §2560.503–1,
when making decisions about coverage and level of payment
under insurance policies.
The insurer operates a preferred-provider system that offers
patients better benefits, or lower co-payments, when
they patronize medical providers who have agreed with the
insurer to accept lower reimbursements (per procedure) in
exchange for a better flow of business. The two chiropractor
plaintiffs have signed such contracts, which the parties call
“participating provider” or “network” agreements. Providers
bill the insurer directly and do not know (or care) whether
a given patient obtained the coverage as part of an ERISA
welfare-benefit plan or through some other means, such as
an affinity-group policy or an insurance exchange under the
Affordable Care Act.
The current dispute concerns the amounts providers receive
under their participating-provider contracts, not any
particular ERISA plan. The insurer believes that its policies
and contracts promise to reimburse particular services on a
capitation basis (a health maintenance organization receives
a fixed payment per patient per year, without regard to the
amount of value of services rendered), while the plaintiffs
believe that the insurer must use a fee-for-service system. If
the insurance policy calls for capitation payment, providers
Nos. 14-2322 et al. 3
who are outside a HMO cannot receive payment for a particular
class of services. After reimbursing some services on
a fee-for-service basis, the insurer declared that it had made
a mistake and recouped by reducing future payments for
other services that the insurer acknowledged were compensable.
Plaintiffs insist that it could not do this without offering
hearings under §1133 and the implementing regulations,
while the insurer says that the right procedures to use are
those specified by contract.
In siding with the plaintiffs, the district court required
the insurer to use procedures that are designed for retaillevel
disputes between a plan’s participants and their employer
(or plan administrator) rather than procedures designed
for wholesale-level disputes between an insurer and
providers under network contracts. If that is what ERISA requires,
then a mismatch between the procedures and the
kind of dispute involved is no concern of the judiciary’s. But
the insurer maintains that it is not what ERISA requires, because
(in its view) plaintiffs are neither participants in nor
beneficiaries of welfare-benefit plans.
Section 1133 requires “every employee benefit plan” to
make available to each “participant” and “beneficiary” procedures
that the Secretary of Labor may supplement by regulation.
Section 1132(a)(1)(B) permits participants and beneficiaries
to sue in federal court to enforce this duty. The parties
dispute whether the plaintiffs have “standing” to litigate
under §1132 and §1133. That’s a misnomer. Standing means
the combination of injury in fact, causation, and redressability.
See Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61
(1992). No one doubts that the plaintiffs have shown all three
of these. The issue in this suit is not whether chiropractors
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have standing but whether their claim comes within the
zone of interests regulated by a specific statute. The Supreme
Court stressed in Lexmark International, Inc. v. Static Control
Components, Inc., 134 S. Ct. 1377, 1386 (2014), the importance
of keeping standing distinct from statutory coverage. So we
avoid the language of standing and ask instead whether
plaintiffs are participants or beneficiaries as ERISA uses
those words—both of which are defined terms.
Plaintiffs concede that they are not participants under the
definition in 29 U.S.C. §1002(7). A participant is an employee
or former employee who seeks a plan’s benefits. But plaintiffs
describe themselves as beneficiaries. That word is defined
in §1002(8): “The term ‘beneficiary’ means a person
designated by a participant, or by the terms of an employee
benefit plan, who is or may become entitled to a benefit
thereunder.” We held in Kennedy v. Connecticut General Life
Insurance Co., 924 F.2d 698 (7th Cir. 1991), that when a “participant”
assigns to a medical provider the right to receive
the participant’s entitlement under the plan, this makes the
provider a “beneficiary” under §1002(8). Plaintiffs and the
district court rely principally on Kennedy for the conclusion
that they, too, are beneficiaries.
The problem with this contention all but catapults off the
page: a “beneficiary” is a person designated “by a participant”
or “by the terms of an employee benefit plan,” and
plaintiffs are neither. (The parties call these two possibilities
“derivative standing” and “direct standing.” We use the
statutory language instead.) Plaintiffs do not rely on a valid
assignment from any patient. Nor do they rely on a designation
in a plan. Instead they rely on their contracts with an
insurer. That does not meet the definition in §1002(8). No
Nos. 14-2322 et al. 5
employee’s benefits are at issue and none had to pay an extra
penny as a result of the insurer’s treatment of some procedures
as capitation based rather than fee-for-service based;
plans’ duties to their participants are unaffected by this litigation.
It became clear at oral argument that plaintiffs deem every
insurer (perhaps every policy) to be a “plan.” When asked
why, their counsel replied that a big insurer is bound to implement
some plan or other. An employer (defined in
§1002(5)) establishes a plan; the plan’s administrator (another
defined term, see §1002(16)(A)) may contract for insurance
to implement that plan; indeed, an employer may offer a
particular policy of insurance as the plan. But this does not
equate the insurer to the plan, for “welfare plan” is itself a
defined term: “any plan, fund, or program which was heretofore
or is hereafter established or maintained by an employer
or by an employee organization, or by both, to the extent
that such plan, fund, or program was established or is
maintained for the purpose of” providing medical or other
fringe benefits. 29 U.S.C. §1002(1).
The defendant, which used to be known as Blue Cross of
Greater Philadelphia but changed its name when it expanded
its territory and services, is not “established” or “maintained”
by any employer. It was established in 1938, long before
ERISA, and exists independently of employers and their
plans. It now covers more than seven million people, far
more than any ERISA plan. That some employers’ plans
provide benefits through an insurer does not make the policy
“the plan.” And plaintiffs’ contracts are with an insurer in
its role as insurer, not any employer or plan sponsor; the
network contracts cover all dealings with the insurer rather
6 Nos. 14-2322 et al.
than the administration of a particular plan. The insurer is
the sole defendant; no participant, employer, plan sponsor,
or plan administrator is a litigant. The district court’s injunctions
regulate the dealings between medical providers and a
particular insurer, not between plaintiffs and plan sponsors.
Plaintiffs’ view that any document related to a plan is itself a
plan was rejected by the Supreme Court in CIGNA Corp. v.
Amara, 563 U.S. 421, 131 S. Ct. 1866, 1877–78 (2011).
The Second Circuit recently held that a network contract
between a medical provider and an insurer does not make
that provider a “beneficiary” under ERISA. See Rojas v.
CIGNA Health & Life Insurance Co., 793 F.3d 253 (2d Cir.
2015). Plaintiffs insist that Rojas contradicts this circuit’s approach,
established in Kennedy, but we have explained why
Kennedy and similar opinions do not support plaintiffs’ position.
Rojas concludes that every circuit that has addressed
the subject has distinguished between providers’ status as
assignees of particular claims to benefits and providers’ status
as voluntary members of a network established by an insurer.
See 793 F.3d at 258, discussing Spinedex Physical Therapy
USA Inc. v. United Healthcare of Arizona, Inc., 770 F.3d 1282,
1289 (9th Cir. 2014); Hobbs v. Blue Cross Blue Shield of Alabama,
276 F.3d 1236, 1241 (11th Cir. 2001); and Ward v. Alternative
Health Delivery Systems, Inc., 261 F.3d 624, 627 (6th Cir. 2001).
The language of those other decisions is not as clean as the
Second Circuit’s—and the Second Circuit’s use of “standing”
as a synonym for statutory coverage itself leaves something
to be desired—but our review of the decisions in other circuits
leads us to agree with Rojas that the distinction between
assignment of particular claims and status as an innetwork
provider is supported by the case law. And, more
to the point, it is supported by the language of ERISA.
Nos. 14-2322 et al. 7
Plaintiffs express concern that ERISA’s preemption
clause, 29 U.S.C. §1144(a), will disable them from enforcing
procedural protections negotiated by contract. But state law
regulating insurance is outside the scope of that clause. See
29 U.S.C. §1144(b)(2)(A); Rush Prudential HMO, Inc. v. Moran,
536 U.S. 355 (2002); Fontaine v. Metropolitan Life Insurance Co.,
No. 14-1984 (7th Cir. Sept. 4, 2015). The state law of insurance
contracts is a form of state law regulating insurance and
is enforceable whether or not a given insurer sells its policy
to employers. We need not distort the word “beneficiary” in
order to enable medical providers to contract for and enforce
procedural rules about how insurers pay for medical care.
Plaintiffs are not “beneficiaries” as ERISA uses that term,
so they are not entitled to the procedures established by
§1133 and the implementing regulations. They may have
contract claims, but as the parties are not of completely diverse
citizenship a federal court cannot adjudicate them.
(Plaintiffs have not contended that contract issues could or
should be resolved under the supplemental jurisdiction. See
28 U.S.C. §1367. Indeed, plaintiffs have not contended that
the insurer broke any contractual promise.) The damages
and injunctions therefore must be vacated, and the award of
attorneys’ fees to plaintiffs falls with them.

Outcome: REVERSED

Plaintiff's Experts:

Defendant's Experts:

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