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On October 1, 2005, the United States Court of Appeals for the Seventh Circuit reversed a District Court ruling that had afforded certain care providers with "beneficiary" status to contest an ERISA-governed plan's determination of how to calculate the providers' pay for chiropractic service rendered to plan participants. Pennsylvania Chiropractic Ass'n. v. Independence Hosp. Indem. Plan, Inc., 2015 U.S. App. LEXIS 17269 (ih  Cir. 2015).

The plaintiffs/providers were an association of chiropractors and two individual practitioners who claimed that the plan's insurer used the wrong method in determining payment levels for treating certain patients who were participants in the insured's group health plan. Id. at 2-3.

The defendant/insurer operated a "preferred-provider" system, and plaintiffs were "participating providers" in the network that had been established by the plan's insurer. Id. at 3. The insurer believed that under the plan documents in question, payments for the providers were to be made on a "capitation  basis," i.e. that the provider organization was to receive a fixed sum per person per year, regardless of the value of the services rendered by the providers. Id. at 3-4. The providers, on the other hand, contended that the insurer must use a fee-for-service system in order to comply with ERISA claims procedures as set forth in the statute and the implementing regulations. Id. at 4; see 29 U.S.C. § 1133 and 29 C.F.R. § 2560.503-1.

The aforementioned statutory and code provisions require "every employee benefit plan" to provide "any participant  or beneficiary" whose claim for benefits has been denied a written rationale for the denial. Id. at 5. The plan's insurer had paid the plaintiffs on a fee-for-service basis initially, but later declared that this had been a mistake (resulting in an alleged overpayment) and the insurer attempted to recoup its overpayments by reducing future payments to the providers. Id. at 4. The plaintiffs complained that the change in the insurer's payment method could not be done without a hearing under § 1133, while the insurer claimed authority under the participating-provider contract to make such reductions in payments. Pennsylvania Chiropractic Ass'n. v. Independence Hosp. Indem. Plan, Inc., 2015 U.S. App. LEXIS 17269, 4 (7th Cir. 2015).

The threshold issue in the case was whether the plaintiffs had either "participant" or "beneficiary" status, which is necessary to invoke the protection of§ 1133 and to sue for redress under 29 U.S.C. § 1132(a)(l)(B). Id. at 5.  The Seventh Circuit said that this was not an issue of the plaintiffs' "standing", calling that characterization of the conflict "a misnomer". Id. Instead, the Seventh  Circuit stated that the issue came down to the question of whether the plaintiffs' claim came within the "zone  of interests" regulated by ERISA. Id. To determine that question, the Court had to first determine whether or not the plaintiffs/providers were either "participants" or "beneficiaries" of the plan, as defined by ERISA.

The plaintiffs were plainly not "participants" in the plan since they were neither present nor former employees of the plan sponsor. Id. at 6. Plaintiffs instead claimed "beneficiary" status, which under ERISA's definition of that term includes persons designated by either a participant or by the plan itself as being actually or potentially entitled to benefits. Id.

The problem, however, in the eyes of the Court was that the plaintiffs were neither recipients of a valid assignment of benefits from a participant in the plan, nor did the plan itself designate the plaintiffs as beneficiaries.  Id.  at  7-8.  Instead, plaintiffs attempted to assert beneficiary status by virtue of their participating-provider agreement with the plan's insurer, but the Court held that those contracts were insufficient to create beneficiary status under ERISA's definition of the term. See 29 U.S.C. § 1002(8); Id. at 7.

Citing recent precedent from the Second Circuit (Rojas v. CIGNA Health & Life Ins. Co., 793 F.3d  253  (2d Cir.  2005)), the Court distinguished between the ability of the provider to invoke ERISA's remedies when it is a true assignee of a participant under the plan as contrasted with its status as a volunteer member of a network of providers established by the insurer of the plan. Id. at 9. The former, i.e. assignees, can assert a plan participant's rights as a beneficiary, while the latter cannot. This distinction between assignees and volunteer members is clearly important in determining whether or not a provider of services to a plan participant can avail itself as a "beneficiary" of the remedies that ERISA provides.


* The author gratefully acknowledges the research and editing assistance of Amber Lukowicz, a third-year law student at the Chicago-Kent College of Law.