Doctors Switch Legal Strategy as Surprise Billing Losses Mount

Medical providers are testing a new legal strategy to recoup unpaid arbitration awards as health insurers rack up victories in surprise billing disputes.

The shift underscores the difficulties both sides face in arbitration under the No Surprises Act, which requires doctors and insurers to settle most unexpected out-of-network bills themselves rather than balance-billing the patient. The volume of disputes has exposed cracks in the system, leading to a series of lawsuits around ineligible claims, fraud, and unpaid awards.

Courts have largely concluded that the law doesn’t grant doctors the right to sue over unpaid awards in most circumstances. Most recently, the US Supreme Court denied two air ambulance companies’ petition to hear their case after the US Court of Appeals for the Fifth Circuit ruled against them.

Providers are now adapting their legal strategy by arguing insurance companies are guilty of improper denial of benefits under the Employee Retirement Income Security Act and unjust enrichment under common law. Hundreds of cases in the US District Court for the District of New Jersey were paused last month pending a decision on the amended claims in Rowe Plastic Surgery of NJ LLC v. Aetna Life Insurance Co.

But the doctors are likely to face problems, at least in overcoming ERISA preemption on their unjust enrichment claims, said Leslie Howard, co-founder of Cohen Howard, a firm representing out-of-network providers.

“I think it’s worth a shot at it, because I don’t think there’s any other avenue to enlist the court’s help,” she said.

ERISA requires you to sue on behalf of the patient, Howard added, so state or common law claims are “really the only conduit where a provider can sue on behalf of himself or herself.”

The providers would have a particularly hard time clearing the threshold for unjust enrichment claims under ERISA, said Christine Cooper, co-managing partner at Koehler Fitzgerald LLC, who works with insurers at aequum LLC to defend patients from out-of-network bills.

“We’ve had success in getting those unjust enrichment claims thrown out because they can only go after the party that benefited by the services. And I think it is truly fair to say that the plan is not benefiting by the services,” she said. “It is the patient.”

IDR v. Arbitration

Providers’ problems stem from the fact that the NSA doesn’t incorporate the section of the Federal Arbitration Act that permits courts to enforce arbitration results. Courts are also increasingly noting the differences between the NSA’s “independent dispute resolution” process and traditional arbitration as it’s recognized under the FAA, Cooper said. She pointed to US District Judge Brian R. Martinotti’s decision last year in New Jersey in Modern Orthopaedics of NJ v. Premera Blue Cross.

“Stated simply, the IDR process is far too different from arbitration for this Court to conclude that Congress implied for the FAA to govern the IDR process in general,” he wrote.

Arbitration typically is established by private contract and allows for hearings and appeals. Surprise billing IDR, by contrast, is a tightly regulated process argued on paper and mandated by statute.

“It’s its own beast,” Cooper said.

Some lawyers still see litigation as a better bet than filing a complaint with the Centers for Medicare & Medicaid Services, the division of the Department of Health and Human Services overseeing surprise billing.

“Filing these administrative complaints with these governmental agencies is far less efficient and takes a whole lot longer to process than it would if you file a federal lawsuit where there’s a strict timeline,” said Justin Cohen, who represents medical providers as a partner at Kotlar Cohen.

The typical resolution time with the CMS is around 90 days, Howard estimated. Sue-and-settle strategies are less attractive now that the courts have been siding with the insurers.

“A lot of these practices can get hurt but, all in all, it’s not dismal,” she said of CMS enforcement.

A pending CMS rule is expected to help address some of the issues that insurers and providers have been fighting over. But it won’t solve everything, and lawmakers seem unlikely to revisit the law’s problems anytime soon.

Congress “needs to go back to the drawing board” and solicit input from doctors, insurers, and employers, Cooper said.

“I think this legislation really demonstrates a lack of understanding of how the health-care system actually works,” she said.