People For the American Way

Biden Judges Rule that Medical Center can Collect Government Payments for Patients’ Medical Services when Patients Give it Permission

News and Analysis
Biden Judges Rule that Medical Center can Collect Government Payments for Patients’ Medical Services when Patients Give it Permission

Judge Salvador Mendoza, nominated by President Biden to the Ninth Circuit court of appeals, wrote a  unanimous decision, joined by Biden judge Roopali Desai, which reversed a lower court and made clear that health care providers can collect ERISA benefits when patients assign such rights to it. The decision also benefits patients themselves by helping protect them from having to pay large medical costs up front and then wait for insurance reimbursement.  The January 2024 decision was in South Coast Specialty Surgery Center v Blue Cross of Calif..


What Happened in this Case?

 South Coast Specialty Surgery Center provides outpatient surgery and medical care to patients, many of whom have health insurance plans under ERISA, the Employee Retirement and Income Security Act. To avoid having to pay medical care costs out of pocket and then later get insurance reimbursements, many patients assign their right to collect ERISA benefits to South Coast. The Center then provides the medical services to patients without charging them and collects payment from an insurance company. Although Blue Cross of California had previously paid such reimbursements to South Coast, it stopped doing so in 2019 because of a new “prepayment review” policy. As a result, the insurance company refused to pay the ERISA insurance benefits for approximately 150 medical claims to SouthCoast, “resulting in a potential shortfall of $5.4 million.”

When South Coast sued in federal court, Blue Cross claimed that the medical center could not file suit under ERISA because it was not a plan participant or a beneficiary. The district court agreed with Blue Cross and dismissed the case without trial. South Coast appealed to the Ninth Circuit.

How Did Judges Mendoza and Desai and the Ninth Circuit Rule and Why is it Important?

Judge Mendoza wrote a unanimous opinion, joined by Judge Desai, which reversed the lower court and found that South Coast could seek ERISA insurance payments from Blue Cross concerning patients who assigned it their right to such payments and could sue the insurer for non-payment. The panel sent the case back to the lower court, where the case will proceed.

Judge Mendoza’s opinion carefully examined past precedent as well as the language of the ERISA law and the relevant policies and forms. He concluded that ERISA “permits the assignment of health and welfare benefits to a healthcare provider,” and that it “allows such a provider to bring derivative claims on behalf of its patients” against insurance companies as necessary.  As another court cited by Mendoza recognized, this eliminates “the necessity for beneficiaries to pay potentially large medical bills and await compensation from the plan.”

The opinion also concluded, contrary to the lower court, that South Coast’s assignment of benefit form signed by patients in fact “assigned South Coast the right to sue for non-payment of benefits.” Although the form did not explicitly mention such lawsuits, Judge Mendoza explained, past precedent and the language of the form and the statute make clear that it “assigned South Coast the right to sue for non-payment of benefits.” To interpret the form otherwise, he wrote, “makes neither textual nor practical sense” and would leave South Coast “with little legal recourse after ‘fronting’ the costs of care.”

The decision by Judges Mendoza and Desai is obviously important to South Coast and its patients. It also makes more clear that insurance companies cannot avoid reimbursing medical care providers for the costs of such care, helping both providers and patients. In addition, it is an example of the importance of promptly confirming fair-minded Biden nominees like Judges Mendoza and Desai to our federal courts.