Ninth Circuit Publishes New Opinion Regarding Healthcare Provider Assignments and Reinforcing Broad Standing to Bring Suit Against Payors

On January 10, 2024, the United States Court of Appeals for the Ninth Circuit published an opinion in the matter of South Coast Specialty Surgery Center, Inc. v. Blue Cross of California, which resolidified the Ninth Circuit’s position that an assignment allowing a healthcare provider to receive payment directly from a payor also implicitly grants that provider the right to sue the payor for payment.¹

What does this mean for healthcare providers seeking to sue payors over reimbursement issues?

It is well understood in the healthcare industry that a provider is not a plan “participant” under ERISA or any other regulatory framework.² Therefore, a provider must obtain a valid and enforceable assignment of benefits from its patients to have the right to sue a payor for the benefits and duties owed under a patient’s health benefit plan. As discussed below, it is best practice to write assignments that are explicit and ensure that the assignments grant the provider the right to sue for all rights, benefits, and duties owed to the patient by the plan. But what if a provider’s assignment only grants it the right to receive payment directly from the payor? Can the provider still sue? In South Coast, the Ninth Circuit answered, yes, but only for payment.

Like many providers, South Coast obtained assignment of benefits from each of its patients. In this case, South Coast submitted hundreds of claims for payment on behalf of its patients to Blue Cross, and Blue Cross reimbursed South Coast directly. South Coast alleges at some point Blue Cross began under-reimbursing and sometimes denying South Coast’s claims. Believing its services were covered and to be reimbursed at higher rates pursuant to the terms of the Blue Cross Plans, South Coast sued Blue Cross under section 502(a) of ERISA, 29 U.S.C. § 1132(a)(1)(B). South Coast’s assignments included the following language:

Assignment of Benefits

I hereby authorize my Insurance Company to pay by check made payable and mailed directly to: [South Coast] for the medical and surgical benefits allowable, and otherwise payable to me under my current insurance policy, as payment toward the total charges for the services rendered. I understand that as a courtesy to me, the South Coast Specialty Surgery Center will file a claim with my insurance company on my behalf. However, I am financially responsible for, and hereby do agree to pay, in a current manner, any charges not covered by the insurance payment. If it is necessary to file a formal collection action, I agree to pay all costs, including reasonable attorney’s fees incurred by the outpatient medical center in the collection of the outstanding fees.

The district court dismissed South Coast’s claims for lack of standing, finding that this language did not confer to South Coast the right to sue on behalf of its patients. South Coast appealed.

The Ninth Circuit reversed the lower court. It acknowledged that the assignment language provided South Coast the right to receive payment directly from the payor, but did not expressly grant it the right to sue.³ Nevertheless, the Ninth Circuit concluded that South Coast had the right to sue. In doing so, the court reiterated the precedent in the Ninth Circuit that, “[a]n assignment of the right to receive payment of benefits generally includes the limited right to sue for non-payment under § 502(a)(1)(B)” even if the assignment, like South Coast’s, does not explicitly state that the provider has the right to sue.⁴ The Ninth Circuit reasoned that allowing a healthcare provider to receive direct payment from a payor but preventing it from suing to receive proper payment contradicts the purpose of ERISA.⁵

This opinion reinforces broad standing for healthcare providers to sue payors and diminishes one of the main defenses asserted by payors especially for healthcare providers located in the Ninth Circuit, which includes Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, Washington, Guam, and the Northern Mariana Islands.

While this favorable decision and others like it provide some relief, providers may best protect their rights to reimbursement by making the language in their assignment of benefits forms expansive and explicit. Not all courts recognize the right to sue as implicit in the right to receive payment. Even where this implicit right is recognized, having an explicit assignment of the right to sue helps to avoid any doubt.  Moreover, many providers would like to bring breach of fiduciary duty claims against payors for their bad-faith denial of claims and rescissions of coverage after treatment has been rendered. But some federal courts have found that, because breach of fiduciary duty claims often implicate many beneficiaries, such claims may not be assigned by implication or operation of law. Instead, only an express and knowing assignment of a breach of fiduciary breach claim is valid.⁶ Therefore, a provider’s assignment should encompass all the rights and duties it would like to protect on behalf of its patients and/or enforce against payors.

We expect that payors may seek to incorporate and rely on anti-assignment provisions in their plans in an attempt to curb suits brought by providers. Although providers should certainly be weary of these anti-assignment provisions in assessing the viability of their claims, the Ninth Circuit repeatedly has found it is the duty of the payor to give the provider notice of these anti-assignment provisions before raising this defense for the first time in litigation.⁷ It is a unique predicament for payors and providers because both parties benefit from issuing payment directly without needing to involve the patient. However, this efficiency may increase exposure for payors.

For more information about this article, preparing assignment of benefit forms, payor/provider disputes, or healthcare reimbursement litigation in general, please contact AGG Healthcare Litigation attorneys Chesley McLeod or Landen Benson.

[1] South Coast Specialty Surgery Ctr., Inc. v. Blue Cross of Cal., 90 F.4th 953 (9th Cir. 2024).

[2] See 29 U.S.C. § 1002(7).

[3] South Coast, 90 F.4th at 960.

[4] Id. (quoting DB Healthcare , LLC v. Blue Cross of Ariz., Inc., 852 F.3d 868, 877 n. 7 (9th Cir. 2017)).

[5] South Coast, 90 F.4th at 961.

[6] See Tex. Life, Acc. Health & Hosp. Serv. Ins. Guar. Ass’n v. Gaylord Ent. Co., 105 F.3d 210, 218 (5th Cir. 1997).

[7] See, e.g., Cal. Spine & Neuro. Inst. v. Blue Cross of Cal., 811 Fed. App’x. 429 (9th Cir. 2020); Beverly Oaks Phys. Surg. Ctr., LLC v. BCBS of Ill., 983 F.3d 435, 440-41 (9th Cir. 2020) (finding that payor waived anti-assignment provision when it did not raise this issue during appeals process).