$15M Prompt Pay Claims Against Humana Derailed by Preemption

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Jacklyn Wille

Houston-area hospitals that sought $15 million in late payment penalties from Humana Insurance Co. can’t maintain their claims against the insurer, a federal judge ruled ( Hous. Methodist Hosp. v. Humana Ins. Co. , 2017 BL 245811, S.D. Tex., No. 4:16-cv-1469, 7/17/17 ).

The hospitals’ claims failed because they arose under the Texas Prompt Pay Act, a law that sets deadlines for paying health insurance claims. Because the relevant Humana-insured health plans were subject to the Employee Retirement Income Security Act or the Medicare Advantage program, the hospitals’ claims under the Texas law were preempted by those federal programs, the judge ruled July 17.

Other states have passed prompt pay laws, and many have been successfully challenged through ERISA preemption lawsuits. A recent challenge to Georgia’s prompt pay law was successful, with the Eleventh Circuit in 2014 barring enforcement of the law against self-funded health plans. Prompt pay laws in Illinois and Alaska have been partly invalidated based on preemption concerns.

Several courts have had occasion to consider how the Texas Prompt Pay Act interacts with federal laws, and the results have been mixed. A federal judge in Dallas upheld the law from an ERISA preemption challenge in 2015, finding that it didn’t sufficiently “relate to” an ERISA-governed plan. The Fifth Circuit reversed that decision in 2016, saying that the Texas law doesn’t apply to third-party administrators of self-funded health plans. Although the Fifth Circuit declined to say whether the Texas law is preempted by ERISA, it held in an earlier decision that the law is preempted by the Federal Employees Health Benefits Act, which governs plans providing health benefits to federal employees.

In this case, Judge Sim Lake of the U.S. District Court for the Southern District of Texas said the Fifth Circuit’s analysis of FEHBA preemption “applies with equal force to ERISA preemption.” That’s because both ERISA and FEHBA require courts to determine whether the claims at issue “relate to” plans governed by the federal laws, Lake said. As a result, he blocked the hospitals from using the Texas law to seek $1.7 million in late payment penalties for claims related to ERISA-governed plans.

The Texas law is also preempted with respect to claims under Medicare Advantage plans, Lake said, because the law seeks to regulate the plans themselves, and not merely the arrangements between medical providers and health insurers. Given this, the hospitals’ claims for $13.5 million in penalties connected to Medicare Advantage plans also failed, Lake said.

Porter Rogers Dahlman & Gordon P.C. represents Humana. Porter & Hedges represents the hospitals.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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The decision is at http://src.bna.com/qTW.

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