Vice President and Co-Founder, AVYM Corporation, Los Angeles, CA
When a self-funded employee benefit plan, or any payer of health benefits, overpays a benefit claim to a medical provider, it is difficult to get the money back. When an overpayment is made, the provider and the payer often do not agree if the payment is accurate and correct. It comes as no surprise that payers have developed various methods to facilitate overpayment recoveries beyond simply asking for the refunds. One of the most common such methods is offsetting, reducing the amount of future benefit claims to cancel out a prior overpayment.
Cross-plan offsetting is a method insurers use to pull back alleged overpayments related to patients from one plan by reducing or eliminating payments related to patients from a different self-insured plan. This process has garnered significant scrutiny about the legality of the actions.
In a landmark class action case, a federal judge shut down UnitedHealthcare’s (UHC) cross-plan offsetting practice as a “troubling use of plan assets,” ruling the industry standard practice of “cross-plan offsetting creates a substantial and ongoing conflict of interest” for all claims administrators who “simultaneously administer both selfinsured and fully insured plans.” The court also called into question UHC’s practice of reaching “into the pockets of the sponsors of self-insured plans” and putting that money “in UHC’s pocket.” In the United States (U.S.), over 100 million people are covered under their group-sponsored health plans, which are governed by Employment Retirement Income Security Act (ERISA), meaning this case will have far-reaching effects on the entire healthcare industry.
In an extraordinary decision, U.S. District Judge Patrick J. Schultz has effectively barred cross-plan offsets. The judge weighed in on two very important questions: first, whether UHC acted reasonably in interpreting its client’s plans to permit cross-plan offsetting; and whether the practice complies with the fiduciary duties imposed by Employment Retirement Income Security Act (ERISA). The court offered an answer to both issues while providing very clear guidance for plans, claims administrators, medical providers and patients.
Healthcare Claims Denials
The number one healthcare claims denial in the country is overpayment recoupments through cross-plan offsets; correspondingly, the cost for self-insured health plans is overpayment recoupment through cross-plan offsets and subsequent embezzlement of plan assets.
Healthcare providers of all types have offsetting claims that can go as far back as several years in order to retrieve payments made years ago, and affect all types of claims, potentially resulting in inevitable provider bankruptcy and subsequent patient bankruptcy. Providers or patients that face UHC or any payer refund demands, recoupments or offsets must understand the implications of these lawsuits as well as their rights under ERISA. With the new legal guidance this landmark case provides, will self-insured plan sponsors, like AT&T and Gap Inc., be held accountable to allowing UHC to engage in such ERISA violations such as embezzlement, self-dealing and breach of fiduciary duty?
In the class-action; Peterson, D.C. et al v. UnitedHealth Group Inc. et al, U.S. District Court of Minnesota civil docket #: 0:14-cv-02101-PJS-BRT, originally filed in 2014, healthcare providers alleged ERISA violations by UHC for withholding and offsetting newly adjudicated claim payments from one patient to satisfy an alleged overpayment in the past from separate, unidentified patients in complete violation of ERISA, and even worse, by misrepresenting to the patients and the plan sponsors on patient Explanation of Benefits’ “payment made to provider,” when, in fact, no such payment was ever made to the providers, according to the court complaint.
In answering the first question, Judge Schultz considered whether the language in UHC’s client health plans at issue in the case, identified as 46 Plan Bs, authorized UHC to engage in cross-plan offsets. According to the court they did not: “The Court finds that UHC’s interpretation is unreasonable. The plans themselves do not authorize cross-plan offsetting. To the contrary, most of the plans contain specific overpayment and recovery language that would be rendered meaningless if UHC was authorized by the generic clauses that it relies upon to engage in cross-plan offsetting.”
The court went on to clarify: “Every one of the overpayment provisions is triggered only when the plan itself makes an overpayment…In other words, each Plan B authorizes the recovery of overpayments made by the Plan B.” The court order further clarified: “None of the overpayment…provisions contains any language allowing other plans to recover their overpayments from the plan. In other words, not one Plan B authorizes recovery of an overpayment made by a Plan A.”
Remarkably, the judge chided UHC for creating its cross-plan offsetting process for its own benefit without examining the language of the plans. The judge specifically drew attention to this point, according to the court order: “It should be noted, that in looking carefully at the language of the plans…the Court is doing something that UHC itself did not do before implementing cross-plan offsetting…”
“Only after getting sued did UHC hunt through the plans for language that might provide a post hoc justification for its conduct. UHC admits that it was not able to find a single provision of a single plan that explicitly authorizes cross-plan offsetting,” according to court records.
The judge also questioned whether UHC ever disclosed their intention to engage in cross-plan offsets or the likely conflict of interest to its plan clients: “It appears, however, that disclosures concerning UHC’s system of cross-plan offsetting are mostly or entirely handled by UHC’s banking team during what appear to be fairly technical explanations for banking, account-setup and account-funding processes. It also appears that such disclosures mostly occur orally and on a somewhat ad hoc basis.”
UHC argued that it did disclose its cross-plan offset provisions to its clients’ benefits and finance and treasury folks, to which the court responded: “It is not clear whether those individuals have authority to make plan-wide fiduciary decisions, nor is it clear whether these disclosures are made before or after a plan sponsor decides to become a UHC client.”
Regarding the second question, whether the practice of cross-plan offsetting violates ERISA, the judge, while weighing possible conflicts of interest in violation of ERISA, went so far as to mention the fact that UHC lined its own pockets with self-insured plan assets: “The money that reimburses UHC for its alleged overpayment comes out of the plan sponsors’ pockets. Several internal UHC documents emphasize this point and gush about how cross-plan offsetting will allow UHC to take money for itself out of the pockets of the self-insured plans.”
“In other words, every one of the cross-plan offsets at issue in this litigation put money in UHC’s pocket, and most of that money came out of the pockets of the sponsors of self-insured plans,” according to the court records.
The court went into great detail regarding UHC’s conflict and possible prohibited transaction and breach of fiduciary duty: “In light of this case law and the strict fiduciary duties imposed by ERISA, cross-plan offsetting is, to put it mildly, a troubling use of plan assets—one that is plainly in tension with the substantive or procedural requirements of the ERISA statute. 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 UHC orchestrated did not just benefit a different, unrelated plan, but benefited UHC itself.”
“Cross-plan offsetting creates a substantial and ongoing conflict of interest for claims administrators who, like UHC, simultaneously administer both self-insured and fully insured plans…,” according to court records.
The judge, after examining the facts of the case, shed light on an enormous incentive for UHC: “As the single biggest payer of claims, UHC’s personal stake in cross-plan offsetting dwarfs that of any self-insured plan. UHC in this circumstance has every incentive to be aggressive about looking for overpayments from its own fully insured plans (which overpayments can be recovered from self-insured plans) and less aggressive about looking for overpayments from self-insured plans (which overpayments might be recovered from fully insured plans).”
“And indeed, this incentive is reflected in UHC’s internal documents, which enthusiastically describe how cross-plan offsetting will permit UHC to reach into the pockets of the sponsors of self-insured plans to recover the overpayments that UHC makes in connection with fully insured plans.”
The court further clarifies its reasoning and confirms: “It is also undoubtedly true, as UHC is reluctant to acknowledge, that cross-plan offsetting can harm plan participants” and “It is not fairly debatable, however, that the type of cross-plan offsetting challenged in this case—cross-plan offsetting engaged in by an administrator who insures some (but not all) of the plans—presents a grave conflict of interest.”
Ultimately, the court concluded: “UHC labors under a continuing conflict of interest in administering the cross-plan offset system because UHC fully insures some but not all of the plans. More importantly, the fact remains that cross-plan offsetting is in tension with ERISA’s fiduciary rules, is not provided for in the plans, and is at odds with the specific offset language contained in most of the plans. As a result, UHC did not act reasonably in interpreting the Plan [documents] that are at issue in this case to permit cross-plan offsetting. The court therefore grants plaintiffs’ motions for partial summary judgment and denies UHC’s motions for full summary judgment.”
Judge Schultz ruled in favor of the Plaintiff’s, issuing Summary Judgment against UHC on the issue that money cannot be transferred from Plan A beneficiaries to Plan B beneficiaries or to line the pockets of UHC itself. Summary Judgment means there are no material facts in dispute and as a matter of law; UHC violated the plans’ language. In ruling against UHC on almost every argument, the judge certified the case for immediate appeal, acknowledging that this was a landscape-changing and “exceptional case,” and taking into consideration that UHC, as the nation’s largest insurer, will have to “undertake the extremely expensive and disruptive process of unwinding its cross-plan offsetting practice.”
“This court order resolves a controlling and dispositive question of law: whether UHC acted reasonably in interpreting the plans to permit cross-plan offsetting.”
“IT IS HEREBY ORDERED THAT:
- Defendants’ motions for summary judgment are DENIED.
- Plaintiffs’ motions for summary judgment on Phase I issues are GRANTED.”
Based on the fact that cross-plan offsetting is pervasive throughout the healthcare industry, the court guidance will undoubtedly have tremendous ramifications on all plans, third-party administrators, medical providers and patients. Medical providers must be proactive and adopt compliant practices and policies. Health plans must also be proactive in validating that plan assets get returned to their plan, and not applied to cover shortfalls in another plan.