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The push-and-pull between health providers seeking compensation for their services and health payers seeking fair pricing for member care has led to inventive methods of billing claims and recovering payments mistakenly paid. Cross-plan offsetting is a practice of recovering an overpayment made to a provider for a patient covered by a health plan by underpaying the same provider for services rendered to a separate patient covered by a separate health plan.
For example, assume Patient A is covered by a health insurance policy issued by Insurer. Patient A receives health services from Doctor and the claim is submitted to Insurer. Insurer pays Doctor $300 for the services, but afterward realizes it should have only paid Doctor $200 under its interpretation of Patient A’s health plan. Insurer requests the $100 difference from Doctor. Doctor disagrees with Insurer, believing payment was proper, and retains the full $300. From its perspective, Insurer has lost $100. Insurer could send a demand or even file a lawsuit against Doctor for the overpayment, but the costs associated with either would exceed the $100 overpayment. Insurer could deduct the $100 from any future claims for Doctor’s treatment of Patient A (an example of “inter-plan offsetting”), but Patient A may never be treated by Doctor in the future—this is particularly likely if Doctor is a specialist or emergency care provider. Another option would be to deduct the $100 from future claims for Doctor’s treatment of another patient, Patient B, who is covered by a different health insurance policy issued by Insurer. By offsetting Doctor’s claim for Patient B, Insurer has recouped its $100 overpayment and shifted the burden of recovery to Provider. This is cross-plan offsetting.
Cross-plan offsetting is not necessarily prohibited in ERISA plans. Few courts have weighed in on the issue, but those that have identified three key issues in cross-plan offsetting cases: (1) whether insureds or providers have standing to dispute cross-plan offsetting, (2) whether cross-plan offsetting violates ERISA’s fiduciary duty provisions, and (3) whether insurers may include language authorizing cross-plan offsetting in health plans. Understanding how courts have ruled on these issues can be instructive to insurers, insureds, and providers navigating litigation.
ERISA authorizes civil actions to recover benefits due under a plan to be brought by plan participants and beneficiaries.Healthcare providers are generally not authorized under ERISA to sue on their own behalf, even if they are entitled to direct payment from the plan administrator because the provider is not itself a plan participant or beneficiary.For a provider to sue under ERISA 29 U.S.C. § 1132, it must do so through an assignment or as a representative of a plan beneficiary. Separately, plaintiffs must also establish constitutional standing to sue. Constitutional standing consists of three elements: “[(1)] an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.”The plaintiff bears the burden of establishing standing and must allege facts demonstrating each element.
In Scott v. UnitedHealth Grp., Inc.,plaintiffs—insureds under employer-sponsored health plans—brought suit against UnitedHealth, the plan administrator, alleging the administrator breached its ERISA fiduciary duties to the members by using cross-plan offsetting regarding the claims of certain non-party plan members.UnitedHealth moved to dismiss the lawsuit, arguing the plaintiff-plan members had not been impacted by the cross-plan offsetting of other members’ claims and, therefore, lacked standing. The U.S. District Court of Minnesota agreed, finding that, while non-party members may have been able to allege injuries from UnitedHealth’s cross-plan offsetting, the plaintiffs were not subject to the offsetting and had not suffered an injury traceable to UnitedHealth’s cross-plan offsetting.The court dismissed the plaintiffs’ complaint.
Ryan S. v. UnitedHealth Grp., Inc.involved a plaintiff who was a member of a health plan administered by UnitedHealth bringing an ERISA claim under 29 U.S.C. § 1132(a)(3) (ERISA’s “catch-all” enforcement provision) against UnitedHealth, alleging it had underpaid covered health services.Among other allegations, the member alleged UnitedHealth engaged in cross-plan offsetting his claims, which allegedly left the member responsible for underpaid bills.The U.S. Central District Court of California dismissed the member’s complaint and the member appealed.The Ninth Circuit affirmed the dismissal, holding that the member’s “conclusory statement that he is ‘responsible’ for the bills is insufficient to establish that he was harmed by the alleged offsetting. [The member] alleges no facts that plausibly explain why cross-plan offsetting would cause the bills to fall to him.”Because the member had not adequately alleged he was harmed by UnitedHealth’s cross-plan offsetting, the Ninth Circuit affirmed dismissal for lack of standing.
When patients assign their benefits to providers, those providers have constitutional standing to assert the injuries incurred by members.This holds true regarding claims for cross-plan offsetting, according to the U.S. District Court of New Jersey in Lutz Surgical Partners, PLLC v. Aetna, Inc.Lutz involved allegations that Aetna underpaid certain claims for members treated by Lutz Surgical to offset overpayments retained by Lutz for services provided to other members covered by different Aetna plans.Lutz sued Aetna on behalf of the members, bringing a cause of action for breach of Aetna’s ERISA fiduciary duties.Aetna argued, in part, the underpaid claims were allowed, subject to the offsets from the overpaid claims, and the members whose claims were underpaid were not directly charged for the difference between the underpayment and the total medical bill. The argument raised by Aetna is that when the overpaid amounts were reconciled with the underpaid amounts, Lutz had been properly paid and because the members were not charged any portion of the underpaid claims, neither Lutz nor the members suffered an injury necessary to establish standing.The court rejected this argument, finding the underpaid claims should be viewed independently from the overpaid claims and the fact that the provider did not bill the members for the remaining amounts allegedly owed did not impact the members’ standing, which was assigned to the provider.
The practice of cross-plan offsetting is not, in and of itself, a violation of ERISA. Plaintiffs must allege a specific cause of action under ERISA that cross-plan offsetting violates. Violation of ERISA fiduciary duties by the health plan or administrator is the cause of action that has been successful. ERISA 29 U.S.C. § 1104(a)(1) requires ERISA plan fiduciaries to discharge their obligations “solely in the interest of the participants and beneficiaries” and for the “exclusive purpose” of providing benefits to members and containing expenses.ERISA 29 U.S.C. § 1106(b)(1), (b)(2) restricts ERISA plan fiduciaries from self-dealing with plan assets to the detriment of plan members.These provisions allow plaintiffs to bring a cause of action for violation of ERISA fiduciary duties.
The plaintiff-providers in Peterson on behalf of Patients E, I, K, L, N, P, Q, and R v. UnitedHealth Grp., Inc., et al. alleged health plan administrators violated ERISA by underpaying member claims through cross-plan offsetting.Specifically, plaintiffs alleged a cause of action for violation of ERISA 29 U.S.C. § 1104(a)(1) and 29 U.S.C. §1106(b)(1), (b)(2) for breach of the administrators’ fiduciary duties.The U.S. District Court found the fiduciary provisions of ERISA are implicated in cross-plan offsetting situations, reasoning:
In stark terms, cross-plan offsetting involves using assets from one plan to satisfy debt allegedly owed to a separate plan—a practice that raises obvious concerns under §§ 1104 and 1106. These concerns are particularly acute in this case, in which every offset that United orchestrated did not just benefit a different, unrelated plan, but benefited United itself. Cross-plan offsetting creates a substantial and ongoing conflict of interest for claims administrators who, like United, simultaneously administer both self-insured and fully insured plans.
Of note, the Peterson court made clear that cross-plan offsetting may not, in and of itself, violate ERISA.The offsetting must be to the detriment of members and to the benefit of the plan administrator to violate ERISA’s fiduciary provisions.
The Lutz case also involved cross-plan offsetting claims brought via the ERISA fiduciary provisions.Like the Peterson court, the court in Lutz did not find cross-plan offsetting to be a per se violation of ERISA but found the offsetting at issue in the case before the court violated the ERISA provisions even though the member health plans in the case permitted cross-plan offsetting.
Two tests have been proposed to analyze whether cross-plan offsetting may be an acceptable practice. The first test originated in a Fifth Circuit case, Quality Infusion Care, Inc. v. Health Care Serv. Corp.,while the second test was proposed by the U.S. District Court of Minnesota in Peterson.
Quality Infusion involved a typical underpayment claim brought by a plaintiff-provider, but the health plans at issue were not ERISA plans, so the plaintiff brought a cause of action under the Texas Insurance Code.The plaintiff specifically alleged the defendant-plan administrator engaged in cross-plan offsetting and, therefore, improperly underpaid latter claims to compensate for overpaid prior claims.The administrator countered that cross-plan offsetting was expressly permitted by the member plans.The Fifth Circuit agreed with the administrator that the member plans permitted offsetting for claims within the same plan and across different plans and, therefore, the administrator was entitled to cross-plan offset the provider’s claims.
One other court has adopted the Fifth Circuit’s reasoning in Quality Infusion and extended the reasoning to ERISA plans and formulated the Fifth Circuit’s reasoning into a test.The Quality Infusion test to determine whether cross-plan offsetting is permitted asks: (1) whether the member health plans allow cross-plan offsetting and (2) whether the cross-plan offsetting practices at issue violate ERISA even if allowed by the health plans.
The Eighth Circuit has rejected use of the Quality Infusion test when analyzing cross-plan offsetting in the ERISA context and instead favors the Finley factors.The Finley factors require that the court consider the following factors when determining whether a plan permits cross-plan offsetting:
(1) whether the interpretation of the plan (as permitting cross-plan offsetting) is consistent with the goals of the plan; (2) whether the interpretation renders any language in the plan meaningless or internally inconsistent; (3) whether the interpretation conflicts with the substantive or procedural requirements of ERISA; (4) whether the administrator has interpreted the relevant plan language consistently; and (5) whether the interpretation is contrary to the clear language of the plan.
As a best practice, health plans, administrators, providers, and members should perform the Quality Infusion test and consider the Finley factors when analyzing plan language for cross-plan offsetting purposes. Performing both analyses provides a comprehensive view as to whether courts will find cross-plan offsetting acceptable.
The caselaw on the issue provides a few examples of plan provisions that have been found not to authorize cross-plan offsetting and of plan provisions that have been found to authorize cross-plan offsetting. Reviewing these examples can aid plan drafters and those reviewing plan language for coverage or litigation purposes.
Language permitting cross-plan offsetting must be explicit. The Peterson court rejected the argument that the broad authority to interpret the plans granted to the administrator permitted cross-plan offsetting.The Peterson court also made clear that plan language must specifically permit offsetting across different plans and not merely permit offsetting within the same plan.To authorize cross-plan offsetting, plan language must, therefore, be explicit and specifically provide for cross-plan offsetting.
The Fifth Circuit in Quality Infusion analyzed the offset language of three different health plans and concluded that each plan permitted cross-plan offsetting.The plan provisions referenced the possibility of overpayments and reserved the insurer’s right to recover such overpayments. All three provisions specifically recognized the plan’s right to recover overpayments from the provider and the patient. One of the three provisions went further and explicitly authorized the insurer to recover overpayments from any person beyond the provider or patient. The three provisions also referenced the insurer’s right to recover overpayments by offsetting future payments.To improve the likelihood that a cross-plan offsetting provision will be enforceable, the provision should state the insurer’s right to recover overpayments from the provider, patient, or other patients and should make clear the right to recover applies to future claims. As mentioned previously, the Quality Infusion case did not involve ERISA plans, so the holdings of Quality Infusion should be applied in the ERISA context cautiously.
Considering similar plan language as the Quality Infusion court, the court in Omega Hospital also found that the plan language of two different health plans permitted cross-plan offsetting.Similar to the plan language in Quality Infusion, the plans in Omega Hospital contemplate the risk of overpayments and authorize the insurer to collect the overpayments. The Omega Hospital provisions also specifically allow for recovery by offsetting amounts submitted in future claims. One of the Omega Hospital provisions explicitly granted the insurer the right to recover overpayments by offsetting future claims made on behalf of other patients covered by health plans issued by the insurer.
While the language in Quality Infusion and Omega Hospital was approved by the respective courts, it should be noted that none of the plans analyzed included the specific term “cross-plan offsetting.” In addition to the language discussed in Quality Infusion and Omega Hospital regarding reservation of the right to recover overpayments, the right to offset amounts on future claims, as well as the right to recover from the provider, patients, and other patients, more explicit language permitting cross-plan offsetting should be included in health plans to ensure that courts more in line with the Peterson view will approve the practice. Explicit use of the term “cross-plan offsetting” should be used to avoid any need for implication.
Cross-plan offsetting is a tool that insurers may find beneficial to recover overpayments without the need to initiate litigation. Following the analyses provided by the few courts to consider cross-plan offsetting can help payers, providers, and plan members understand whether the practice will be permitted or prohibited.
