When a patient sees a provider, the patient signs an “assignment of benefits” contract with the provider, assigning the patient’s legal rights to recover benefits from the insurance company to the provider so that the provider can be directly reimbursed for the services rendered to the patient. When the provider is in-network, this process is executed with little fanfare. However, for an out-of network provider, the road to reimbursement is not always as smooth. Not all states expressly permit assignment-of-benefits clauses, and as a result, insurers send the reimbursement to the beneficiary rather than the provider. The beneficiary is then supposed to forward the reimbursement onto the provider, which many of them do. However, if they do not, providers are put in the uncomfortable and difficult position of suing the patient, which has an uncertain likelihood of success. Given this arduous task, some providers contend that insurance companies have begun to utilize direct payment to patients in retaliation against providers for refusing to join the insurer’s networks.

In fact, in 2015, providers of inpatient and outpatient substance abuse and/or mental health treatment to chemically-dependent individuals filed suit against a group of insurers that includes several Blue Cross entities for this exact practice. In Dual Diagnosis Treatment Center, Inc., et al. v. Blue Cross of California, et. al., the providers alleged that defendants purposefully ignored valid assignments of benefits and instead directly reimbursed providers’ patients in order to punish the providers for being a few of a small number of providers who had not joined the insurers’ networks.

In their defense, the insurers stated that some of the plans contained anti-assignment provisions, prohibiting beneficiaries from entering into assignment-of-benefits contracts with providers. The original complaint sought to recover benefits, remove breaching fiduciaries and, against the Blue Cross insurers, injunctive and declaratory relief that Blue Cross’ pattern of denying providers’ assigned claims without reviewing the operative plan document or informing providers of the denial violates the Employee Retirement Income Security Act of 1974 (ERISA), the federal law that regulates employee sponsored retirement and welfare benefit plans. The court granted insurers’ motion to dismiss without prejudice, specifically to allow the providers to amend their complaint to demonstrate that waiver or estoppel would apply to the anti-assignment provisions.

The providers filed a second amended complaint, which was dismissed by the court with leave to amend, and the providers filed a third amended complaint in October 2017. The third amended complaint brought two claims: a claim for plan benefits under ERISA and a state law claim under California law alleging that the Blue Cross insurers misled providers about the assignability of benefits (specifically, misrepresenting that benefits were assignable when they were not and also representing that benefits were not assignable when they were). The insurers filed a motion to dismiss on the state law claim, which the court granted on the grounds of insufficient standing because the providers did not properly allege an economic injury. Specifically, the court held that collection costs, bad debt, preventing the providers from assisting their patients in the administrative appeals process and denying providers the opportunity to make alternate payment arrangements or collect additional money from their patients up front were insufficient to allege that the insurers’ conduct resulted in economic injury to the providers. The providers’ claim for benefits under ERISA still stands. However, there is no date set for hearing at this time.

The outcome of this case will set the stage for future litigation and out-of-network payment strategies. In addition to this and other pending cases, out-of-network providers or those considering an out-of-network strategy should closely monitor proposed legislation in their states of operation regarding direct-pay-to-patient methods. Some states, such as Indiana, have proposed legislation requiring insurers to directly reimburse out-of-network providers for certain services. These types of laws, in combination with litigation, will significantly influence the risk associated with pursuing an out-of-network payment strategy.