On March 2, 2012, a federal district court in South Carolina issued a ruling in Medical University Hospital Authority vs. Oceana Resorts, LLC, that should cause hospitals and other health care providers to think seriously about the policies and procedures they have in place for pursuing payment for their services, and carefully review the documents they use in admitting patients.

Stephen Showers was an employee of Oceana Resorts. Oceana sponsored a self-funded health plan. Mr. Showers sought medical treatment at the Medical University of South Carolina (MUSC). As part of the admission process, Mr. Showers signed a consent form that contained language assigning benefits "... under any insurance policy [he] may have" and directing "... any insurance company or other party to make payment of such benefits to [MUSC]." The consent form went on to authorize MUSC and Mr. Showers' doctor "... to collect benefits from any responsible third party through whatever means may be deemed necessary ..."

MUSC proceeded to render treatment to Mr. Showers, but when it submitted the bills for its services to the third party administrator for Oceana's plan, the claim was denied on the grounds that the hospital's services were excluded from coverage under the plan because they were "experimental" or "investigational."

MUSC sued Oceana and the health plan. The defendants moved to dismiss the claims (or in the alternative, for summary judgment). The defendants argued that MUSC lacked standing to pursue the claim, because the Oceana plan contained a provision that precluded participants from assigning benefits under the plan to any third person.

The defendants also argued that the consent form that Mr. Showers signed contained language that only assigned benefits "under any insurance policy" that he had. Oceana's self-funded health plan was not an "insurance policy" and so, according to the defendants, even if the plan had allowed an assignment of benefits, the consent form was ineffective to reach Mr. Showers' benefits (since they were not provided under an "insurance policy").

MUSC argued that the plan included an "implicit assignment" of benefits to health care providers. That is, because "network providers" (such as MUSC) were required to submit claims for payment to the plan's third party administrator, the plan itself provided an implied assignment of benefits to network providers. The court disagreed. It distinguished between Mr. Showers and the plan, and stated "MUSC is arguing that the implicit assignment was given by the Plan, not Mr. Showers." It concluded that "[a]n arrangement whereby the Plan sets up a default payment structure to provide payments to a medical provider would not constitute an assignment ..."

MUSC also argued that even if there was no implied assignment as a result of the plan's payment structure, the consent form provided a valid assignment from Mr. Showers. The court again found in favor of Oceana and the Plan, noting that unambiguous antiassignment provisions in ERISA plans are valid and enforceable, and that in light of the anti-assignment provision, "... only the Plan [and not one of its participants] may designate an alternative recipient for payments." On the basis of these findings, the court concluded "[b]ecause the Plan clearly prohibited Mr. Showers from assigning his Plan benefits, Mr. Showers' attempted assignment to MUSC was ineffective and cannot serve as the basis for derivative standing."

The court then shut the door on MUSC, finding that its consent form "... does not cover assignments to self-funded employee benefits plans" such as Oceana's, and granted the motion for summary judgment by Oceana and its plan.

It is too soon to tell whether this district court case will survive the scrutiny of the appellate court. And, the decision by a district court in South Carolina is not binding on courts in other jurisdictions. However, for the time being, the case is "on the books," so hospitals and other health care providers should consider taking steps to prevent a similar outcome.

First, health care providers should review the forms used during their admission and patient intake process, and take note of any language that may limit the scope of an assignment of health benefits. For example, language that limits an assignment to rights under "an insurance policy" should be extended to rights under any employee benefit plan and any other source of benefits to which the patient may be entitled.

Second, health care providers — particularly hospitals — should have policies in place that enable them to recover even if a plan contains an anti-assignment provision. In this regard, the MUSC case is somewhat unusual, because it appears that MUSC only claimed to be entitled to recover because of its claimed status as Mr. Showers' assignee. Health care providers often confirm coverage in advance for the services to be provided with the insurance carrier or, in the case of a self-funded plan such as Oceana's, with the plan's third party administrator. The act of confirming coverage (through a telephone call to the insurer or administrator, for instance) provides a basis for the health care provider to argue that a separate, independent basis for the health care provider's standing exists. In other words, when the health care provider independently confirms that the services to be rendered are covered by the plan, it may trigger a claim that is independent of, and that does not rely upon, any rights that may exist under the ERISA plan. Because the health care provider's rights in that circumstance are not dependent upon the plan, it would not need to demonstrate that the plan participant assigned its rights under the plan.

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