The Blue Cross Blue Shield practice of mailing direct payment of out of network benefits to patients instead of assignment-holding providers was recently found to be a violation of Louisiana law, a ruling which casts into question the legality of millions of dollars in benefit payments which BCBS has sent directly to patients.
BCBS has been on the forefront of an insurance industry strategy of using anti-assignment provisions to force medical providers in network. Such provisions restrict direct payment of benefits to only patients and in-network providers.
The Louisiana Department of Insurance determined that BCBS was in violation of the Louisiana Assignment Statute and enlisted the Louisiana Attorney General for enforcement assistance. Once advised of the state’s position regarding applicability of the law, BCBS responded with a federal lawsuit claiming that the law was preempted by the Employee Retirement Income Security Act (ERISA).
The U.S. Court of Appeals for the fifth circuit ruled in August that the Louisiana law was not preempted by ERISA, paving the way for medical providers in Louisiana, Mississippi, and Texas to seek payment for out-of-network claims erroneously mailed to patients in violation of state assignment protections. This ruling applies to insurance carriers and not self-funded ERISA plans.
The court reviewed the BCBS anti-assignment provisions which appear in coverage documents under the heading “Direct Payment to Member.” Such provisions stipulate that payment can only be made to providers with “Direct payment” agreements with the insurer. However, in the absence of an agreement for direct payment, checks are mailed directly to the member without regard to “a member’s attempted assignment to, or direction to pay, another, except as required by law.”
As a result, out-of-network medical providers are left with the choice of demanding payment upfront, if possible, or of providing care based on trust that patients would relinquish benefits checks once received. BCBS conceded in court documents that their refusal to honor AOBs violated the state AOB law but argued that the law was not applicable to the benefit plans in questions because of the widely litigated ERISA preemption rule which places regulation of employee benefit plans under federal rather than state regulation.
However, the Fifth court interpreted the preemption to apply to state regulations which might expand coverage. In honoring an assignment of benefits, the beneficiary is merely transferring rights and benefits to another party and this action does not result in any expansion of coverage.
“Failure to follow the law cannot create preemption concerns. Should Blue Cross pay a patient after receiving notice that the patient assigned her benefits claim to a hospital, Blue Cross can seek recovery from the person improperly paid (here, the patient), and Blue Cross recognizes the availability of this remedy in its plan terms, as it reserves the right to recover improper payments,” states the case.
See www.ca5.uscourts.gov/opinions/pub/04/04-31114-CV0.wpd.pdf for the entire text of the ruling.
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