A promise made is a promise kept—unless it is made over the phone under an ERISA plan.  So ruled Judge Oetken last week, in a dismissal of a doctor’s lawsuit to collect payment allegedly promised by a healthcare benefit plan administrator.  McCulloch Orthopedic Surgical Servs., PLLC, a/k/a Dr. Kenneth E. McCulloch v. United Healthcare Ins. Co. of New York, a/k/a Oxford, No. 14–CV–6989 (JPO) (S.D.N.Y. June 8, 2015).

Dr. McCulloch, an orthopedic surgeon, performed arthroscopic knee surgery on a patient.  Prior to performing the surgery, his staff contacted United Healthcare Insurance Company of New York (aka “Oxford”), and allegedly was assured that the patient was covered by Oxford’s plan, that the plan provided for payment to out-of-network physicians such as Dr. McCulloch, that the plan covered the surgical procedures that Dr. McCulloch would provide for the patient, and that Oxford would reimburse Dr. McCulloch at 70% of UCR (the usual, customary, and reasonable rates for such procedures).

The doctor proceeded with the surgery on the basis of his understanding.  Afterwards, he billed Oxford $15,479.80 for the surgery (i.e., the alleged UCR of $34,024, minus certain deductions and offsets).  Oxford paid $641.66, and also apparently sent McCulloch a reply letter denying coverage. 

Noting that $641.66 is “less than what [Oxford] spends on a set of tires for the limousine of its CEO,” Dr. McCulloch sued Oxford in New York Supreme Court.  Oxford removed the suit to the Southern District of New York, and moved to dismiss on the ground that Dr. McCulloch’s claims for promissory estoppel — even if properly pled — are preempted by section 502(a) of ERISA.  This is where things get interesting.

Under the Second Circuit precedent of Montefiore Med. Ctr. v. Teamsters Local 272, 642 F.3d 321 (2d Cir. 2011), a “health care provider’s [state-law] claims against a benefit plan established pursuant to [ERISA] are, under certain circumstances, completely preempted by federal law under the two-pronged test for ERISA preemption…”  Id. at *4.  Assuming a plaintiff satisfies the first prong of this test (which is not germane here), the court must then ask “whether there is an independent legal duty that is implicated by the defendant’s actions.”  Id.  If no independent legal duty is found, then the plaintiff’s claims are preempted.

Here, Dr. McCullogh argued that the phone call with Oxford’s representative gave rise to an independent legal duty under the common-law doctrine of promissory estoppel.  But Judge Oetken held that this argument “is squarely foreclosed by Second Circuit precedent,” namely MontefioreId.  The Montefiore court rejected the contention that “verbal communications … gave rise to an independent legal duty,” and found that “[w]hatever legal significance these phone conversations may have had …, they did not create a sufficiently independent duty” because they involved a “pre-approval process” that was “expressly required by the terms of the Plan itself” and was “therefore inextricably intertwined with the interpretation of Plan coverage and benefits.”  Montefiore, 642 F.3d at 332.

Judge Oetken’s ruling faithfully applied Second Circuit precedent—but not without noting the peculiarity of the Second Circuit’s rule that a healthcare benefit plan administrator’s telephonic representations about plan coverage cannot create a duty that would give rise to promissory estoppel.  “Still,” Judge Oetken opined, “it is worth noting that several cases with similar facts have concluded that there is no ERISA preemption where a confirmatory communication could create a basis for an independent legal duty, even if it is evident that the communication is plan-related.”  McCulloch, at *6 (citing opinions from the 7th, 8th, 9th, and 10th Circuits, as well as the Northern District of Illinois).

The Second Circuit rule seems to mean that third parties to a benefit plan (e.g., out-of-network doctors), who probably fairly often rely on such confirmatory phone calls in the ordinary course of business, are left to proceed at their own peril when doing so, to assume the risk of being short-changed or denied payment altogether when the bill comes.  Indeed, one can argue that the rule preempts promissory estoppel claims in precisely the type of scenario in which estoppel seems reasonable.

Importantly, Judge Oetken viewed Dr. McCulloch’s claim as concerning a “right to payment” instead of the “amount of payment.”  Id. at *5.  Right-to-payment claims “are said to constitute claims for benefits that can be brought pursuant to [ERISA] § 502(a)(1)(B),” while amount-of-payment claims “are typically construed as independent contractual obligations between the provider and … the benefit plan.”  Id.  Had Judge Oetken viewed this as a dispute over the amount of payment, he likely would have found that an independent legal duty existed and that Oxford was bound by promissory estoppel not to walk away from its representations.

For now, at least, the lesson is clear: just because a plan covers the patient, does not mean it covers the doctor.  Out of network, out of luck.