Recent Federal Court Ruling: No ERISA Preemption of Texas Prompt Pay Law Regarding Payment Deadlines; Texas Legislature May Act on Prompt Pay Issues

March 31, 2015 | Insights

What’s new. A Texas federal district court has ruled that ERISA does not preempt or prohibit application of the Texas Prompt Pay (“TPP”) law to Third Party Administrators (“TPAs”) of self-funded benefit plans. Judge Lynn found that the contract between the provider (Methodist Hospitals) and Aetna acting as a TPA were not directly connected with the ERISA plans under which the patients were enrolled, and, therefore, there was no ERISA preemption. Aetna Life Ins. Co. v. Methodist Hospitals of Dallas, No: 3:14-cv-347-M (Order filed March 3, 2015). Aetna has already appealed the ruling to the Fifth Circuit.

Why does it matter if ERISA preempts Texas Prompt Pay law as it applies to TPAs? If the entire TPP law is preempted (barred) by ERISA, then billed charges penalties could not be recovered because a TPA paid claims late. If a court or arbitrator finds that the TPP law applies to TPAs based on the statute’s language—as discussed in yesterday’s e-Alert–that is not the only defense that TPA’s will assert to the collection of billed charges penalties and interest. Instead, the TPAs—like Aetna in this case–will continue to argue that ERISA preempts application of the TPP law, even if it otherwise applies.

Texas Legislature may be wading into TPP disputes. A bill has been filed for the current legislative session to lower the current penalty caps—so providers would be able to collect less in billed charges penalties and interest. This bill also makes it explicit that providers can only sue for two years after the date a claim is denied or underpaid. More details about the bill can be found here: Angela Morris, “Lawmakers Target Lawyers’ ‘Prompt Pay’ Practice,” Texas Lawyer (March 20, 2015).

In This Story

Mary Emma Karam
Partner, Dallas