California Spine And Neurosurgery Institute v. Fresenius USA, Inc.

Background

California Spine and Neurosurgery Institute, referred to as Cal Spine, sued the captioned defendant over payment for medical services. The opinion’s body identifies the defendant as Fresenius Medical Care Holdings, Inc., or FMCH, while the caption identifies Fresenius USA, Inc. Cal Spine asserted promissory estoppel, a claim based on an alleged promise that caused the plaintiff to act to its detriment.

Cal Spine alleged that it provided surgery to R.A., an employee of FMCH and participant in an employee welfare plan sponsored and underwritten by FMCH. Cal Spine was an out-of-network provider with UnitedHealthcare, or UHC. Before the surgery, Cal Spine alleged that a UHC representative told its staff that covered care by out-of-network providers would be paid at “usual and customary rates.” Cal Spine also alleged that UHC sent a letter confirming that the treatment was medically necessary and covered by the plan.

Cal Spine performed the surgery and billed $83,000. It alleged that FMCH paid $7,320.44, while stating that the allowed amount was $11,123.75, with the remainder of that amount attributed to R.A.’s coinsurance and deductible. Cal Spine sought approximately $75,769.56, less applicable patient payments, plus interest.

Motion and legal standard

FMCH moved for judgment on the pleadings under Federal Rule of Civil Procedure 12(c). That motion tests whether the pleadings show that the moving party is entitled to judgment as a matter of law, assuming the complaint’s factual allegations are true. The court explained that the motion uses the same legal standard as a motion to dismiss for failure to state a claim.

FMCH did not argue that Cal Spine’s promissory-estoppel claim was implausible. Instead, it argued that ERISA preempted the claim. ERISA preemption is generally an affirmative defense, meaning the defendant ordinarily must establish it. The court explained that such a defense may support dismissal at the pleading stage only when an obvious bar to relief appears on the face of the complaint.

ERISA preemption analysis

The dispute concerned ERISA’s express-preemption provision, 29 U.S.C. § 1144(a). That provision displaces state laws that “relate to” an employee benefit plan. The court described the relevant test as asking whether the state-law claim has either a “reference to” or a “connection with” the plan. FMCH relied only on the “reference to” theory.

The court explained that a claim has a reference to an ERISA plan when it is based on the existence of the plan or when the plan’s existence is essential to the claim. FMCH relied on several district court decisions, including earlier cases involving Cal Spine, that treated similar provider claims as preempted because the alleged promises would not have been made without the patients’ plans.

Judge Chen found the contrary line of authority more persuasive. The court distinguished factual, but-for causation from the legal source of a claim. In its view, the fact that an ERISA plan provided the setting for the alleged promise did not itself mean that the claim was based on the plan. The relevant question was whether the defendant’s alleged obligation arose from the plan or from an independent promise.

The court also noted that ERISA generally governs relationships involving plans, plan members, employers, and employees, but does not give a health provider independent standing to sue under ERISA. Cal Spine was not seeking plan benefits as R.A.’s assignee. The court therefore treated the alleged promise by UHC, acting for FMCH, as an obligation independent of the plan.

Application to Cal Spine’s claim

The court held that Cal Spine sufficiently alleged that UHC promised payment at usual and customary rates. The allegation was supported by an insurance verification form described in the complaint and submitted to the court. Because Cal Spine’s claim was based on that alleged promise rather than the plan itself, the court found no ERISA preemption.

FMCH argued that the plan’s coverage of out-of-network services and its use of the phrase “usual and customary” made the claim dependent on the plan. The court rejected that argument. It reasoned that even if the promise incorporated the plan’s payment term, the legal source of the claim remained the promise. Using the plan’s rate as a benchmark for measuring damages was too limited a connection to make the claim one for benefits under the plan.

The court further stated that the pleadings did not show that interpreting “usual and customary” would require the kind of detailed and burdensome plan analysis that can support preemption. FMCH had not met its burden of establishing the defense from the face of the complaint.

Disposition

The court denied the motion for judgment on the pleadings. It did not decide whether Cal Spine would succeed on its promissory-estoppel claim, and it did not address whether Cal Spine could assert an ERISA-based claim through an assignment from R.A. The order disposed of Docket No. 27 and encouraged the parties to discuss settlement.