Navigating Out-of-Network Claims: Key Takeaways for Providers From Surgery Center Case in New York Federal Court

This decision demonstrates that out-of-network health care providers must carefully document and specify contractual agreements with insurers to effectively pursue claims for payment, as legal challenges arise when asserting claims without a clear contract, especially for elective services.

The plaintiffs, Manalapan Surgery Center, P.A., New Horizon Surgical Center, LLC, Surgicore of Jersey City, LLC, and Surgicore Surgical Center, LLC, sued SEIU for breach of contract, unjust enrichment, promissory estoppel, and fraudulent inducement. The plaintiffs alleged that they were out-of-network providers with an ad-hoc agreement with SEIU. Prior to performing patient surgeries, the plaintiffs claim that they contacted SEIU’s customer service representatives who confirmed the procedures were authorized and covered. Despite this, the plaintiffs assert that SEIU issued payments for surgeries late and lower than the usual and customary rates. The plaintiffs sought the difference between the amounts billed and the amounts paid, plus prejudgment interest and treble damages, based on allegations of fraudulent conduct.

SEIU argued for dismissal based on (1) preemption under the Employee Retirement Income Security Act (ERISA) and (2) failure to state a claim.

First, the court held there was no ERISA preemption. It reasoned that the plaintiffs’ claims did not “relate to” an ERISA plan, because they did not have a reference to or an impermissible connection with an ERISA plan. The court noted that the claims were not premised on the assignment or denial of benefits according to an ERISA plan, and the relief sought would not affect the terms, administration, or relationships of an ERISA plan. Further, the plaintiffs did not claim that communications with SEIU’s representatives related to an ERISA plan or that SEIU’s payment amount was based on the terms and conditions of the plan.

Second, the court dismissed the plaintiffs’ claims for failure to state a claim. The court dismissed the breach of contract claim because the complaint lacked details about the “ad hoc” agreement, such as when it was formed, or even whether it is one agreement or multiple agreements. Mere communications between unidentified employees confirming cost sharing did not demonstrate that SEIU took responsibility for certain costs or meant to be bound in contract. The court dismissed the unjust enrichment claims because the plaintiffs provided elective — as opposed to emergency — medical services, and thus the benefits ran “to the patient and not the insurer.” The court also noted that the plaintiffs did not allege that SEIU “was enriched at Plaintiffs’ expense.” Next, the court dismissed the promissory estoppel claim because unidentified employees confirming cost sharing did not constitute “a clear and unambiguous promise.” At most, it was the promise of some payment. Finally, the court dismissed the plaintiffs’ claim of fraudulent inducement for failing to state a “specific misrepresentation or omission of material fact.”

The court dismissed the complaint without prejudice and stated that it was not granting leave to amend. The plaintiffs had previously said that they had no intention of filing an amended complaint, and they did not seek leave to amend in their opposition to the motion to dismiss.

This decision illustrates the challenges that out-of-network providers — who by definition are not covered under a documented network contract — may face in pursuing claims against insurers for payment of medical services. It underscores the importance of alleging the existence and terms of a contract, or a clear and unambiguous promise, with sufficient specificity and detail, and of distinguishing such claims from claims based on ERISA plans or benefits. The decision also highlights the difficulty of asserting claims for unjust enrichment, promissory estoppel, or fraudulent inducement in the absence of a clear contract or promise, especially when the services provided are elective and not emergency services. Out-of-network health care providers should be mindful of these issues when negotiating, documenting, and enforcing their agreements and expectations with insurers, and when seeking legal recourse for non-payment or underpayment of claims.