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Blanket Reliance on Preauthorization Could Cost You

Like many practices and providers, you may be of the belief that preauthorization will either guaranty payment for services rendered or, alternatively, should the carrier refuse to fairly compensate for such services, allow for a variety of legal claims to be brought in court.  This belief, however, is often misguided as the U.S. District Court for the District of New Jersey just explained in Advanced Orthopedics & Sports Med. Inst., P.C. v. Oxford Health Ins., Inc. (Civil Action No. 21-17221).

In Advanced Orthopedics, the patient (who is covered via a self-funded plan governed by ERISA) was admitted to the emergency room complaining of severe leg pain.  After MRIs revealed L4-5 disk herniation with a foraminal component at level L5, the doctor recommended a procedure for which the hospital facility contacted Oxford and obtained pre-authorization.  Despite billed charges equating to $269,859.50 (an amount that Advanced Orthopedics – referred to herein as the “Practice” – asserts equals the UCR price), Oxford only issued payment of $4,671.36.  Consequently, the Practice filed suit alleging: (1) breach of implied contract; (2) breach of warranty of good faith and fair dealing; (3) promissory estoppel; and (4) unjust enrichment – all of which are state law claims.

Oxford subsequently moved to dismiss the complaint, arguing that such causes of action were preempted by ERISA since they are state law claims.  The Court agreed.

In coming to this conclusion, the Court reasoned that the state law claims sufficiently “related to” the patient’s ERISA plan and, thus, preemption was warranted.  Perhaps most importantly, the Court noted that the Practice could not rely upon the preauthorization (i.e., whether as a separate contract or otherwise) since the preauthorization directly related to the patient’s ERISA plan.  Critically, this was the case since the preauthorization did not state that reimbursement would be based on UCR and even included such language such as: “[P]ayment is based on […] terms, conditions, exclusions, and limitations of the member’s health benefit plan,” and “approval does not guarantee payment.”

Language of this nature and the omission of a reimbursement calculation methodology allowed the court to differentiate previous cases that suggested state law causes of action could be brought against the carrier/third-party administrator – in those precedent cases, there were grounds to determine that the preauthorization or other communications created a different contract separate and apart from the ERISA plan, thereby allowing the state law claims to continue.

Therefore, the lesson to be learned from this case is that providers/practices should be weary of assuming that preauthorization will result in satisfactory payment or allow for legal claims to successfully be brought, particularly with regard to self-funded/ERISA plans.  The language of such preauthorization should be carefully reviewed and scrutinized, especially in non-emergent circumstances, as failure to do so could result in lesser reimbursement than expected and eliminate possible remedies otherwise generally available.

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