A version of this article was published by The Daily Record on July 24, 2018.
A federal appellate court will soon weigh in on whether UnitedHealth’s method of reimbursing medical providers violates ERISA, which is the federal law that, among other things, governs employer-sponsored health plans. Specifically at issue in Peterson v. UnitedHealth is United’s practice of cross-plan offsetting.
Cross-plan offsetting is the recouping of alleged overpayments to a provider for services rendered to patients in an employer-sponsored health plan by withholding payments due to the same provider for services rendered to patients in a different employer-sponsored health plan.
An employer can structure a health plan as either (1) a fully insured plan or (2) a self-insured or self-funded plan. Many employers with self-funded health plans contract with insurance companies for administrative services such as enrollment, claims processing, and access to provider networks.
Both fully insured and self-funded employer sponsored health plans rely on provider networks to offer health care to participants at lower costs. “In-network” providers are those who have contracted with a plan to provide services at negotiated or discounted rates.
In addition, and of great importance in Peterson, in-network providers typically are prohibited contractually from “balance-billing” patients for the excess over (1) the amounts they bill for services and (2) the negotiated or discounted amounts they are paid by patients’ plans. Out-of-network providers, on the other hand, are generally not prohibited from balance billing patients for the excess of the amounts they bill for services and the amounts they are paid by patients’ plans.
Two out-of-network providers sued United, asserting that (1) cross-plan offsetting is not allowed under the plan documents that United has with various employers; and (2) cross-plan offsetting is prohibited by ERISA.
The court hearing the case concluded that the plan documents do not allow cross-plan offsetting, and indicated that cross-plan offsetting might or might not violate ERISA.
That decision is now on appeal, and the Department of Labor has filed a brief in that appeal, not only agreeing that the plan documents do not permit cross-plan offsetting, but also arguing that cross-plan offsetting violates ERISA.
Adjudicating claims is complex, and mistakes are inevitable. A common mistake is for an administrator to pay a provider more than the provider is owed under the terms of the patient’s plan. If a provider disagrees it has been overpaid, a plan will not be reimbursed the overpaid amount unless it takes action against the provider. However, the cost of taking action may be more than the alleged overpayments.
Accordingly, United implemented its practice of cross-plan offsetting as a solution to this dilemma. Through cross-plan offsetting, United can recoup an overpayment to a provider by simply waiting until anyone covered by any of the thousands of plans it administers sees that provider.
The advantage of cross-plan offsetting to United is a disadvantage to providers, especially those who disagree that they have been overpaid. The lower court in Peterson noted that cross-plan offsetting allows United to act as “judge, jury, and executioner” when a provider disputes an alleged overpayment.
Cross-plan offsetting also disadvantages the plans from which United recoups overpayments. Further, cross-plan offsetting exposes participants to balance billing, because nothing prevents a provider from pursuing a patient for any amounts United offsets.
Also, the majority of plans from which United recouped overpayments were self-funded plans, while all of the plans that made overpayments were fully insured. According to the lower court, every one of these offsets put money in United’s pocket, and most of that money came from the pockets of sponsors of self-funded plans, resulting in participants in the recouped from self-funded plans being denied benefits (benefits to which United admitted these participants were entitled).
The lower court ultimately concluded that United did not act reasonably in interpreting the plan documents as permitting cross-plan offsetting. Although much of its analysis emphasized the tension between cross-plan offsetting and ERISA’s substantive provisions that require administrators to take actions as fiduciaries, solely in the interest of plan participants, and without conflicts of interests, the lower court did not reach or decide the question of whether ERISA prohibits cross-plan offsetting as a matter of law.
The appeal will make way for a potential ruling on whether cross-plan offsetting violates ERISA per se. The stakes are enormously high. If forced to stop cross-plan offsetting, insurers such as United stand to lose many millions of dollars per year in uncollectible claims overpayments. By the same measure, providers stand to gain substantially from the appeal.
The appeal could also be anti-climactic. The appellate court might never reach the ERISA issue, and simply conclude that the Peterson plan documents do not permit cross-plan offsetting. Alternatively, the court might conclude that, while the Peterson plan documents do not permit cross-plan offsetting, better drawn documents might, and, therefore, put off deciding the larger ERISA issue until a case is presented to a court with better written documents. Also, any decision by the appellate court could itself be further appealed.
Accordingly, only time will tell whether and when the legality of cross-plan offsetting will be resolved.