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Cross-Plan Offsetting: The Latest Abuse of Providers by Commercial Managed Care Payors

by Gregory J. Pepe

October 15, 2019

In January 2019, the Eighth Circuit published its opinion in Peterson v. UnitedHealth Group, Inc.

Peterson involved a widely used practice by some commercial insurers in which the payors withhold payments to providers for services provided to insureds, which the payor believes were previously paid in error. The payors offset the amount of the alleged erroneous payment from the amount payable for the services attributable to another insured in another plan. While payors have frequently deducted payment from providers under the authority, they claim to have in the provider agreement between the payor and the provider, this new practice is being undertaken against providers where the provider is a nonparticipating provider and has no contract with the payor. Under such an arrangement, if the patient has permissible out-of-network benefits under their health benefit plan, the patient assigns the right to receive payment under that plan to the provider at the time treatment is rendered. When the payor pays those outof-network amounts, but later conducts an audit of the payment previously made to the provider and determines that the benefit was overpaid, its recourse ought to be to either seek reimbursement from the insured, or from the plan.

Under ERISA, the payor is not permitted to sue the provider for the overpayment, because ERISA does not permit an action for damages as a remedy. This principle was established in Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, decided by the Supreme Court on November 9, 2015.

To date, attorneys bringing legal action against United have not found benefit plan language which allows a plan to take money out of Plan A and reimburse Plan B for an overpayment made in error by United. In fact, in Peterson, the Eighth Circuit found that United violated its fiduciary duty to manage the assets for the “exclusive purpose” of a plan … language explicitly set forth in ERISA. In addition, the Eighth Circuit found that “…there is no evidence in the record that, prior to implementing cross-plan offsetting, United examined the language of any plan or even considered whether the practice was authorized.” The lack of any testimony by United that in fact plan documents were not consulted prior to action being taken to recoup money from a provider flies in the face of United’s claim that it believes ERISA standards allow it to take such measures. In other words, faced with the prospect of its inability to take legal action against a provider to recoup monies that United paid allegedly in error, United opted for a program of “self-help”, without regard to any plan, or the provisions of ERISA.

In a previous case, the Fifth Circuit held that a “reasonable interpretation” of the broad deference afforded a plan administrator under ERISA led it to conclude that cross-plan offsetting is allowed Quality Infusion Care v. Health Care Services (2010). The Fifth Circuit provided none of the analysis of the competing ERISA mandates, instead relying on a long line of ERISA case law giving broad deference by the courts to decisions made by plan administrators.

The opposing views set forth in the two decisions provided United with the grounds to file a writ of certiorari with the U.S. Supreme Court on May 30, 2019.

It is important to note that the U.S. Dept. of Labor filed an amicus brief in the Eighth Circuit which took the position that United’s actions in cross-plan offsetting violates its fiduciary duties under ERISA. The DOL took the position that in a case such as this, deference should not be given to the plan administrator because these cases involve interpretation of the law, not interpretation of the plan. A copy of the DOL Amicus Brief is also attached to this memo.

The outcome of a possible Supreme Court decision in this area cannot be understated. At stake is whether a payor organization can take back money from non-participating providers after that money has been paid to them. It is undeniable that a billing and payment process which would require referencing the underlying plan documents each time would be burdensome and perhaps not achievable by payors, especially in light of state prompt-pay laws. In addition, payors are understandably reluctant to pursue recoupment from their insureds or from plans, fearing the potential loss of business and the dissatisfaction of plan members. These issues however are at the foundation of what it means to be an insurer or a plan administrator. The plan has a fiduciary duty to get it right the first time, and not pursue a kind of self-help which is arguably illegal after the alleged mistake has been discovered.

The final aspect of this case pointed out by both the Eighth Circuit and the DOL, is the potential for bad behavior by payors when the money for which recovery is sought is in United’s accounts (in the case of insured plans) but the recoupment being sought is in the accounts of employers (in the case of self-insured plans). According to United’s own published reports, fully 70% of its health care business is now undertaken as a plan administrator for self-insured employers. The DOL pointed out the inherent conflict of interest when a payor can take money from a self-insured plan …out of someone else’s pocket… and reimburse itself for alleged overpayments made out of insured plans. The DOL assessed such potential as a core tenet that cross-plan offsetting violates the fiduciary duties of an ERISA plan administrator


Gregory J. Pepe

Gregory J. Pepe, founding principal, practices in the areas of commercial finance, healthcare law, alternative dispute resolution and mediation, and general business law. Attorney Pepe represents numerous physician groups, including large integrated practices, IPAs, and PHOs. He has been an advisor to many state medical societies, including the Connecticut State Medical Society regarding physician practice management issues within the context of organized medicine, and regarding initiation of litigation by medical societies against managed care companies.