Background
FHMC, LLC and FHMC Clinic, LLC operate a medical clinic and emergency care facility in Fountain Hills, Arizona, as out-of-network (OON) providers with no direct contract with Blue Cross and Blue Shield of Arizona. When treating Blue Cross insureds, FHMC had patients sign forms acknowledging personal financial responsibility and execute assignments of insurance benefits purporting to transfer their rights under their Blue Cross plans directly to FHMC. For 71 emergency-care claims totaling approximately $467,084.70 (the Pre-NSA Claims), Blue Cross sent reimbursement checks directly to the insureds rather than to FHMC, and FHMC was unable to collect from those patients.
After the federal No Surprises Act (NSA) took effect in January 2022, FHMC alleged Blue Cross dramatically reduced reimbursement rates and committed a series of NSA violations—delayed claim processing, inadequate payments, refusal to negotiate, improper arbitration submissions, and underpayment of arbitration awards (the Post-NSA Claims). FHMC first sued Blue Cross in federal district court, which dismissed the action for failure to state a claim. FHMC then filed an eleven-count complaint in Maricopa County Superior Court under Arizona law. The superior court dismissed all claims, ruling that the Pre-NSA Claims failed because Blue Cross owed no contractual duty to pay FHMC directly, and that the Post-NSA Claims were preempted by federal law. FHMC appealed.
On appeal, the Court of Appeals declined to follow the superior court’s preemption-first analysis. Citing principles of federalism and the canon favoring avoidance of constitutional issues, the court chose to address whether FHMC stated any valid claim under state law before reaching federal preemption—ultimately finding it need not address preemption at all.
The Court’s Holding
The Court of Appeals affirmed dismissal of all eleven counts on state-law grounds. On the core breach-of-contract claim, the court held that FHMC’s patient assignment forms did not create a contractual relationship with Blue Cross because health insurance policies generally cannot be assigned without insurer consent, and FHMC never alleged Blue Cross consented. The assignments could only transfer post-loss claims—not pre-loss contractual rights to payment—and because Blue Cross had already reimbursed the insureds, there was no breach the insureds could have sued over and therefore none FHMC could assert as assignee. The Post-NSA Claims failed for the same reason: the NSA shields insureds from OON billing disputes, so the insureds themselves had no cognizable claim to assign.
The remaining claims fell for related reasons: the implied covenant of good faith and fair dealing and tortious bad faith require an underlying contractual or special relationship that did not exist between an OON provider and the insurer; promissory estoppel failed because no sufficiently definite promise was made directly to FHMC; the Arizona Prompt Pay Statute (A.R.S. § 20-3102) provides no private right of action; and unjust enrichment failed because FHMC’s emergency services directly benefited its patients, not Blue Cross, and federal law independently required FHMC to render those services regardless of insurance status. Claims under the Arizona insurance misrepresentation statute and Consumer Fraud Act failed because Blue Cross made no representation about policy terms and the alleged conduct occurred outside the sale or advertisement of merchandise. Tortious interference failed because Blue Cross fulfilled its obligations by reimbursing its own insureds and its conduct was neither improper nor intentional.
In a notable postscript, the court found that FHMC’s appellate briefs contained fabricated case citations—including non-existent LexisNexis reporter citations—and misrepresented the holdings of cited authorities, including a citation to Coleman v. City of Mesa for a proposition the case does not contain. The court forwarded its decision to the State Bar of Arizona for review of potential professional conduct violations.
Key Takeaways
- Patient-executed assignments of insurance benefits do not bind a health insurer to pay an OON provider directly absent insurer consent; without that consent, such assignments transfer only post-loss claims—not pre-loss contractual rights—and only to the extent the insured-assignor had a cognizable claim to assign.
- An OON provider cannot pursue breach of contract, implied covenant, bad faith, or unjust enrichment claims against an insurer where no contractual or special relationship exists between them, and where the provider’s services were rendered primarily to benefit patients (including under a federal EMTALA obligation) rather than to benefit the insurer.
- Arizona courts will analyze whether a plaintiff stated a valid state-law claim before reaching federal preemption, consistent with federalism principles—meaning OON providers cannot rely on preemption rulings alone to set precedent about NSA enforcement.
- Appellate courts may refer counsel to the State Bar when briefs contain fabricated citations or misrepresent the holdings of cited authorities; the court exercised that referral power here.
Why It Matters
This decision significantly narrows the toolkit available to OON emergency providers seeking reimbursement from insurers in Arizona. By holding that patient assignments do not obligate insurers to pay providers directly—and that providers cannot recover in unjust enrichment for care they were federally required to render—the court forecloses the most common theories OON providers use to collect when insurers pay patients and patients fail to remit. Providers who cannot contract directly with insurers are effectively left to pursue the patient, not the insurer, when reimbursement checks go astray.
The court’s referral of FHMC’s counsel to the State Bar adds a pointed warning to healthcare litigation practitioners: use of AI-generated or otherwise unverified citations in appellate briefs carries serious professional consequences. Combined with the court’s methodical rejection of every alternative state-law theory FHMC advanced, the opinion signals that Arizona courts will police both the substance and the integrity of advocacy in OON reimbursement disputes.