In an important win for healthcare providers, on July 17, 2020, the Third Circuit determined in a published opinion that an out-of-network provider’s direct claims against an insurer for breach of contract and promissory estoppel are not pre-empted by ERISA.  In Surgery Ctr., P.A. v. Aetna Life Ins. Co.[1] In an issue of first impression, the Third Circuit addressed the question of what remedies are available to an out-of-network provider when an insurer initially agrees to pay for the provision of out-of-network services, and then breaches that agreement.

This case arose because two patients—identified as J.L. and D.W.—required medical procedures that were not available in-network through Aetna. J.L. needed bilateral breast reconstruction surgery following a double mastectomy and D.W. required “facial reanimation surgery,” which the Third Circuit describes as “a niche procedure performed by only a handful of surgeons in the United States.” Neither J.L. nor DW had out-of-network coverage for these procedures. D.W.’s plan also contained an “anti-assignment” clause, which would have prevented D.W. from assigning his or her rights under the plan to the Plastic Surgery Center, P.A.

Both J.L. and D.W. were referred to the Plastic Surgery Center, P.A., which specializes in plastic and reconstructive surgery. Before agreeing to perform the procedures, the Plastic Surgery Center reached out to Aetna by phone to confirm that Aetna would pay for the treatment.

In both cases, Aetna agreed to pay for the procedures. In J.L.’s case, Aetna approved the breast reconstruction procedure and agreed to pay “a reasonable amount for those services according to the terms of the Plan.” In D.W.’s case, contemporaneous notes record that Aetna agreed to approve the facial surgery and “to provide payment at the ‘highest in-network level.’”

The Plastic Surgery Center performed the required procedures, but Aetna paid only a fraction of its bills. The Plastic Surgery Center filed a lawsuit claiming (1) breach of contract, (2) unjust enrichment, and (3) promissory estoppel.

The district court, in deciding Aetna’s motion to dismiss, held that section 514(a) of the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001, et seq., which pre-empts state laws that “relate to” ERISA plans, pre-empted all of the Plastic Surgery Center’s claims. Judge Wolfson dismissed the suit in favor of Aetna, and the Plastic Surgery Center appealed.

On appeal, Aetna conceded that a “single stand-alone agreement” between an insurer and out-of-network healthcare practice would not “relate to” an ERISA plan, and therefore would not fall within the ERISA pre-emption language contained in section 514(a). However, Aetna argued that both D.W’s and J.L.’s payment arrangements in this case made reference to the payment terms contained in the Aetna plans, and therefore “relate to” an ERISA plan. Plastic Surgery Center, represented by Maggs McDermott & DiCicco, LLC, argued that that the terms of the plan were not essential to the claims against Aetna, and the Third Circuit agreed.

The panel reasoned that state law claims were not related or connected to the patients’ ERISA benefit plans because the Plastic Surgery Center did not participate in Aetna's provider network. “Thus, absent a separate agreement between Aetna and the Center, there was no obligation for the center to provide services to the plan participants, no obligation for Aetna to pay the Center for its services, and no agreement that compensation would be limited to benefits covered under the plan.” Therefore, Aetna's promise to cover the out-of-network procedures fell outside the bounds of the ERISA-covered plan, and was not pre-empted by ERISA.

However, the panel reached the opposite conclusion with respect to the unjust enrichment claim. Whereas a straightforward breach of contract claim or promissory estoppel claim would not require reference to an ERISA plan, the Plastic Surgery Center’s unjust enrichment claim required the Center “to demonstrate that Aetna ‘received a benefit and that retention of that benefit without payment would be unjust.’” The Third Circuit determined that the “benefit” conferred on Aetna was “not the provision of the healthcare services per se, but rather the discharge of the obligation the [Aetna] owes to its insured.” Thus, the unjust enrichment claim could only be satisfied by reference to an ERISA plan and this claim was pre-empted.

Based on this reasoning, the Third Circuit affirmed the dismissal of the Plastic Surgery Center’s unjust enrichment claim, but reversed the dismissal with respect to the Center’s breach of contract and promissory estoppel.

This important decision is a win for out-of-network healthcare providers seeking to hold insurers accountable for paying for agreed-upon out-of-network treatment. It confirms that ERISA does not pre-empt all common law claims a provider may have against an insurer for breaching a payment agreement, and provides a level of comfort that providers will be able to enforce contracts with insurers for the provision of out-of-network medical services. It also shows that the courts will not allow an anti-assignment clause to become a license to underpay medical professionals.

The decision provides the beginnings of a roadmap for successful breach of contract and promissory estoppel claims against insurers who breach their agreements to pay for out-of-network medical procedures. Physicians who regularly provide out-of-network services should carefully document all approvals from insurance companies, and consider preparing standard form contracts to be used in negotiations with insurers that set forth the services to be provided alongside dollar amounts.



[1] The opinion was issued by Circuit Judges Cheryl Ann Krause, Paul B. Matey, and Eastern District of Pennsylvania Judge Nitza I. Quiñones Alejandro (sitting by designation).

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