NJ District Court Weighs in on Federal Benefits Law Preemption

Legal Intelligencer article by Lamb McErlane PC Partner Vasilios (“Bill”) J. Kalogredis, Esquire[i] and Associate Andrew Stein, Esquire.

On September 24, 2018, the United States District Court for the District of New Jersey filed a decision in Glastein v. Aetna addressing a motion to dismiss.[ii] It is an unpublished decision, but it worth discussing for its instructive—if not precedential—value. In response to the motion filed by the defendant insurer, Aetna, the Court disagreed that the claims brought by the plaintiff physician, Dr. Cary Glastein, were preempted by federal benefits law.

Dr. Glastein is an orthopedic surgeon who specializes in spine surgery. On October 27, 2016, he provided what the Court agreed was medically-necessary surgery to a patient. Dr. Glastein was an out-of-network provider, but he had contacted Aetna prior to performing the surgery. Aetna sent to Dr. Glastein a written authorization to perform the surgery. Once the surgery was complete, Dr. Glastein forwarded a bill to Aetna for $209,000. The Court noted in its decision that this amount was “normal and reasonable . . . given the complexity of the procedure . . . .”ii Despite obtaining written authorization from the insurer before performing the surgery and subsequently charging an amount that the Court recognized was normal and reasonable, Aetna paid nothing.

As a result, Dr. Glastein brought claims against Aetna including for breach of contract, promissory estoppel, account stated, and fraudulent inducement. While the doctor filed his claims in the Superior Court of New Jersey, Aetna removed the case to the New Jersey District Court. On August 8, 2018, the defendant insurer filed its motion to dismiss giving rise to the Court’s September 24 decision.

The basis of Aetna’s motion to dismiss is, essentially, that it provides insurance to the patient through a plan covered by the federal statute entitled the Employee Retirement and Income Security Act (ERISA). Since Dr. Glastein’s state common law claims are preempted by ERISA, Aetna argued in its motion, the claims must be dismissed. On the face of it, this is a tenable argument under the law. Section 514(a) of ERISA states in no uncertain terms that the federal statute “shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan [under ERISA].” [iii]

Focusing on the term “relate to,” the Court described two instances where state law is preempted, namely (1) where the state law refers to an ERISA plan and (2) where the state law has what the Court calls an “impermissible connection” with an ERISA plan.ii Looking at the claims that Dr. Glastein brought, the Court concluded that they fall under neither of the foregoing two categories. As to the first, the Court found that the complaint never refers to ERISA in support of the claims. The complaint merely states that the doctor is entitled to $209,000 because that is a reasonable and normal charge under what the Court deemed an implied-in-fact contract. As to the second, the Court found that the provider’s suit against the insurer does not implicate (much less transgress) ERISA’s goal to protect participants and beneficiaries. It therefore establishes no impermissible connection.

It is important to repeat that the Court’s decision solely addressed a motion to dismiss. However, the Court did provide some indication about how it views the underlying merits of the case. In its analysis, the Court discussed a similar case wherein the authorization provided to the doctor (by insurer Horizon in that instance) was not a guarantee of payment. That absence of an independent guarantee of payment may have linked the authorization to the patient’s ERISA plan. Distinguishing that case, the Court in Glastein v. Aetna found that Aetna’s pre-surgery authorization did not explicitly lack a guarantee. Apologies for the double negative, but it is apt since the Court stopped short of finding that the pre-surgery authorization provided to Dr. Glastein did have a guarantee of payment. Nevertheless, in its finding that the authorization was distinguishable from that in the previous case, the Court may have given a preview of how it is inclined to dispose of the case.

The Court went on to discuss another point on which to distinguish the case at bar from recent District Court cases. Specifically, the other cases required the Court to reference the patients’ ERISA plans in order to adjudicate the respective matters. In this case, as the Court (and this article) previously stated, the claims in the complaint neither reference nor rely on the patient’s ERISA plan and therefore the Court need not do so to adjudicate the case. As far as the Court is concerned, the patient’s ERISA plan need not enter the equation.

While not approved for publication, the Court’s analysis of similar cases provides your healthcare practices and your provider clients with useful guidance. While it is true that the Court highlights some of the strategic missteps that Aetna may have taken in its motion, the more useful guidance is found in the underlying facts. Though it may have been fortuitous in Dr. Glastein’s situation, moving forward I imagine he and his colleagues will take additional care to review pre-treatment authorizations to ensure that they establish an independent, contractual obligation on the insurer to pay the reasonable and normal fee.

[i] Vasilios (“Bill”) J. Kalogredis, Esquire is Chairman of Lamb McErlane’s Health Law Department. Bill has been practicing health law for over 40 years, representing exclusively physicians, dentists, group practices, other health care professionals and health care-related entities.

Andrew Stein is an associate at Lamb McErlane PC.  He concentrates his practice at the intersection of health law and business law. He represents individuals and businesses with a primary focus on licensed medical and dental professionals, medical and dental practices, and other health care entities.

[ii] Cary Glastein, M.D. v. AETNA, Inc., et al., Civ. No. 18-9262, filed September 24, 2018 (U.S.D.J).

[iii] 29 U.S.C. § 1144(a).