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Court Finds “Hypothetical” Injury Insufficient for Claims of ERISA Preemption of NJ’s Out-of-Network Surprise Billing Law
Court Finds “Hypothetical” Injury Insufficient for Claims of ERISA Preemption of NJ’s Out-of-Network Surprise Billing Law

In a March 23, 2020 decision issued by Chief Judge Freda L. Wolfson, U.S.D.J. in NJ Spine Society, Inc. v. Caride, et al., the court addressed threshold standing issues relating to the Out-of-Network Consumer Protection, Transparency, Cost Containment and Accountability Act (the OON Act), which was enacted on June 1, 2018 and is commonly referred to as New Jersey’s “Surprise Billing Law.”

The NJ Spine Society (Society), on behalf of its association members, challenged the OON Act to the extent it allows self-funded plans governed by federal law pursuant to the Employee Retirement Income Security Act (ERISA) to opt-in to the OON Act’s provisions. Under Section 9 of the OON Act, if a covered person receives inadvertent out-of-network services, or treatment at an out-of-network health care facility on an emergency or urgent basis, the carrier must ensure that the covered person's financial liability is limited to network cost sharing. For plans that opt into Section 9, Section 10 of the Act creates an arbitration process to resolve out-of-network billing disputes for involuntary and inadvertent out-of-network claims.

Sidestepping the ERISA preemption arguments raised in the motion to dismiss brought by several agencies of the State of New Jersey (Department of Banking and Insurance, Attorney General, and Department of Health), the court asked for supplemental briefing on whether the Society had associational standing to challenge the OON Act, pursuant to the test set forth in Hunt v. Wash. State Apple Adver. Comm'n. Granting dismissal of the complaint, the court agreed with the State agencies that the Society’s alleged injury to its members caused by the Act’s provisions was merely conjectural or hypothetical.

In so ruling, the court rejected two theories proffered in the plaintiff’s briefing. First, the court rejected the Society’s argument that the Act’s opt-in procedure created business planning uncertainty because it lacked precision on how any uncertainty caused by the Act actually impacted the Society’s members. Second, the court rejected the Society’s argument that the Act creates market incentives to steer self-funded plan clients to opt-in, as it had merely cited to one letter from a single health plan administrator encouraging its members to opt in; this by no means demonstrated “inevitable” market incentives to opt-in. The court did find, however, that because the complaint solely sought declaratory and injunctive relief based on ERISA preemption, which is “primarily a question of law,” the need for fact-intensive, individual participation of the Society’s members would not be required. Because the dismissal was made without prejudice, the Society does have the opportunity to replead its claims with more precision within 30 days.

While the OON Act is still developing with further challenges likely to ensure, this initial decision has made clear that sweeping allegations brought by associations, or health care providers directly, will be closely scrutinized to ensure that an actual, not hypothetical, injury has been plead in compliance with standing requirements.

We will continue to monitor related developments on this issue and will provide updates as applicable.

  • Patricia A. Lee
    Partner

    Patricia Lee is an experienced and tenacious litigator who has handled a broad spectrum of civil and criminal cases in state and federal court. She currently represents the firm’s clients in the areas of healthcare and commercial ...

  • Matthew A. Baker
    Partner

    Matthew Baker represents clients in a wide variety of litigation matters. In particular, Matt works with healthcare insurance providers in ERISA and related litigation, advising on issues involving out-of-network ...

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