On May 16, 2018, the US Court of Appeals for the Third Circuit held in a precedential opinion that “anti-assignment clauses in ERISA-governed health insurance plans as a general matter are enforceable.” In so holding, the Third Circuit joined a chorus of other appellate courts which have uniformly upheld anti-assignment clauses in such plans.

In American Orthopedic & Sports Medicine v. Independence Blue Cross Blue Shield, No. 17-1663, 2018 US App. LEXIS 12637 (3d Cir. May 16, 2018), a healthcare provider appealed a New Jersey District Court’s order dismissing the provider’s claims against two insurers for lack of standing. The District Court held the provider lacked standing because an anti-assignment clause in the beneficiary’s ERISA-governed health insurance plan prohibited the beneficiary from assigning his claims against the insurers to the provider. The Third Circuit affirmed the District Court’s order, concluding there was “no compelling reason to stray from the black-letter law that the terms of an unambiguous private contract must be enforced. . . .”

The dispute in American Orthopedic arose from an out-of-network shoulder surgery performed on an ERISA-governed plan beneficiary. The provider charged the plan beneficiary over $58,000 for the surgery, but the beneficiary’s plan only covered a fraction of that amount. The plan’s insurers paid what the plan covered and informed the beneficiary that he would be responsible for the rest of the bill. The provider pursued an administrative claim against the insurers, while arranging for the beneficiary to assign his rights to the provider to recover plan benefits for the cost of the surgery. The insurers denied the provider’s claim and the provider, in turn, sued the insurers to recover the cost of the surgery. The District Court dismissed the provider’s claim on grounds that the provider lacked standing due to an anti-assignment clause in the beneficiary’s health insurance plan. The provider appealed to the US Court of Appeals for the Third Circuit arguing, among other things, that anti-assignment clauses in ERISA-governed health insurance plans are unenforceable against healthcare providers.

On appeal, the Third Circuit looked to ERISA’s text, the parties’ dueling policy arguments, and ultimately the “persuasive authority” from other Circuits which have examined the same issue. The court noted that “the text of ERISA . . . is inconclusive” on the question of whether anti-assignment clauses in health insurance plans are enforceable and that the parties “reasonable and competing policy arguments” on the issue of enforceability did “little to tip the scales” one way or another. The court ultimately turned to “thoughtful and reasoned decisions” by courts in the First, Second, Fifth, Tenth, and Eleventh Circuits, all of which have uniformly concluded that “nothing in ERISA forecloses plan administrators from freely negotiating anti-assignment clauses, among other terms.” Joining its Sister Circuits, the Third Circuit concluded that anti-assignment clauses in ERISA-governed health insurance plans (like the one in American Orthopedic) are as a general matter enforceable.

Even though the issue of the enforceability of anti-assignment clauses disposed of the provider’s appeal, the Third Circuit went on to address the provider’s other argument—that the court should have remanded the suit to allow it to perfect a power of attorney it held from the beneficiary, which it contended would give it standing to pursue the beneficiary’s claims. The insurers disputed this theory, arguing that “there is no appreciable distinction between assignments and powers of attorney” making it futile to remand on this issue. The Third Circuit rejected the insurer’s argument, stating that “our holding . . . that the anti-assignment clause is enforceable means that [the] beneficiary. . . did not transfer the interest in his claim, but it does not mean that [he] cannot grant a valid power of attorney.” An assignment “purports to transfer ownership of a claim to an assignee,” the court observed, while a power of attorney does not transfer an ownership interest in the claim, rather it simply confers on the agent the authority to act “on behalf of the principal.” The court concluded that despite the existence of an enforceable anti-assignment clause, a plan beneficiary may still confer on his agent the authority to assert a claim on his behalf via a power of attorney, (a situation perhaps particularly compelling in the healthcare context when short-term incapacitation might follow medical procedures), but that power would not grant an ownership interest. Nonetheless, the court determined that the provider here had actually waived its argument for remand to perfect the power of attorney during the litigation appeal process.

The Third Circuit concluded that the District Court had correctly held that the provider lacked standing to proceed in federal court, enforcing the anti-assignment clause, and the dismissal of the provider’s action was affirmed.