ERISA Does Not Completely Preempt Out-of-Network Providers' Promissory Estoppel Claims: McCulloch v. Aetna

Introduction

McCulloch Orthopaedic Surgical Services, PLLC, a/k/a Dr. Kenneth E. McCulloch v. Aetna Inc. is a landmark case decided by the United States Court of Appeals for the Second Circuit on May 18, 2017. This case explores the intricate interplay between the Employee Retirement Income Security Act of 1974 (ERISA) and state-law claims, particularly focusing on whether ERISA preempts a promissory estoppel claim brought by an out-of-network healthcare provider against a health insurer.

The plaintiff, Dr. Kenneth E. McCulloch, sought reimbursement from Aetna for performing knee surgeries on a patient enrolled in an Aetna-managed health plan governed by ERISA. As an out-of-network provider without a contract with Aetna, McCulloch's claim hinged on an alleged promise by Aetna to reimburse him a certain percentage of the usual, customary, and reasonable (UCR) rate.

Summary of the Judgment

The Second Circuit held that ERISA does not completely preempt McCulloch's state-law promissory estoppel claim. The court applied the two-pronged "Davila test" to determine preemption and concluded that McCulloch did not satisfy the requirements for complete preemption under ERISA §502(a)(1)(B). Specifically, McCulloch was not the type of party who could bring an ERISA claim due to the invalid assignment, and his promissory estoppel claim was based on an independent legal duty separate from ERISA obligations. Consequently, the appellate court vacated the district court's orders and remanded the case back to state court.

Analysis

Precedents Cited

The judgment extensively references several key cases to underpin its reasoning:

Montefiore Medical Center v. Teamsters Local 272 (2d Cir. 2011): Established the "Davila test" for ERISA preemption, emphasizing the need for both prongs to be satisfied for complete preemption.
AETNA HEALTH INC. v. DAVILA (Supreme Court, 2004): Introduced the two-pronged test to assess whether a state-law claim is wholly preempted by ERISA.
Montefiore Medical Center, etc.: Utilized to argue that an assignment to providers typically confers standing under ERISA, contrasting with the present case where such assignment was invalid.
Allhusen v. Caristo Construction Corp. (N.Y. 1952): Cited to illustrate that clear anti-assignment provisions render assignments void.
Stevenson v. Bank of N.Y. Co. (2d Cir. 2010): Supported the notion that promissory estoppel claims can exist independently of ERISA.

These precedents collectively reinforce the court's stance that not all state-law claims by healthcare providers are extinguished by ERISA, especially when such claims are founded on independent legal duties.

Legal Reasoning

The court meticulously applied the "Davila test," which requires:

Determining if the plaintiff is an "individual" who could have brought the claim under ERISA §502(a)(1)(B).
Assessing whether the claim involves "no other independent legal duty" beyond ERISA obligations.

In this case, the court found that:

First Prong Failure: McCulloch did not have a valid assignment of the patient’s right to payment due to the health plan’s clear anti-assignment provision, making him ineligible to bring an ERISA claim.
Second Prong Fulfillment (Not Required): Even though the second prong was addressed, the failure of the first prong already negated complete preemption.

Additionally, the court emphasized that McCulloch's promissory estoppel claim arose from Aetna’s independent promise, separate from the ERISA plan, thus maintaining its viability under state law.

Impact

This judgment has significant implications for out-of-network healthcare providers and insurers:

Providers' Standing: Out-of-network providers without valid assignments retain the ability to pursue state-law claims based on insurer promises.
Insurer Obligations: Insurers may be held accountable for their representations to providers, even when such providers are outside network agreements.
ERISA's Scope: The decision delineates the boundaries of ERISA preemption, ensuring that it does not blanketly eliminate all state-law claims against health plan administrators.

Future cases will likely reference McCulloch v. Aetna when addressing the preemption of state-law claims by ERISA, particularly in scenarios involving out-of-network providers and promises not directly tied to ERISA plan terms.

Complex Concepts Simplified

Employee Retirement Income Security Act of 1974 (ERISA)

ERISA is a federal law that sets minimum standards for most voluntarily established health and pension plans in private industry. It provides protections to individuals in these plans, ensuring fiduciary responsibilities and benefit guarantees.

Promissory Estoppel

A legal principle that allows an injured party to recover damages for a promise that was relied upon, even if a legal contract does not exist. To establish promissory estoppel, one must show a clear and definite promise, reasonable reliance on that promise, and resulting injury from such reliance.

Assignment of Benefits

This refers to the transfer of a policyholder's right to receive benefits directly to a third party, such as a healthcare provider. Valid assignments typically allow providers to collect payments directly from insurers.

Davila Test

A two-part test derived from AETNA HEALTH INC. v. DAVILA used to determine if a state-law claim is preempted by ERISA. It assesses both the standing of the plaintiff under ERISA and whether the claim involves independent legal duties outside of ERISA.

Conclusion

The Second Circuit's decision in McCulloch v. Aetna underscores that ERISA does not universally preempt state-law claims by out-of-network healthcare providers, especially when such claims are anchored in independent legal obligations like promissory estoppel. By refusing to accept the invalid assignment and recognizing the provider's reliance on a separate promise, the court ensures that providers are not left without recourse when insurers make commitments outside the framework of ERISA plans. This judgment balances the protective scope of ERISA with the equitable principles of state law, fostering a legal environment where both plan participants and third-party providers have avenues for legitimate claims.