So your company sponsors a self-insured health care plan, and you’ve been tasked with administering the plan, but in reality, most of the day to day administration is handled a third party administrator (“TPA”). Just curious – do you know what your TPA’s policies are with respect to recovering overpayments? Do you know whether your TPA engages in a recovery practice known as cross-plan offsetting? If you don’t know the answer to that question, now is the time to ask. Given the Eighth circuit’s recent decision in Peterson v. UnitedHealth Group Inc . (and the amicus brief filed by the Department of Labor (“DOL”) during the course of that litigation ), you can be assured that healthcare providers, plaintiffs’ attorneys, and the DOL are paying attention, and may be asking you those very questions soon.
Cross-plan offsetting is an industry practice that’s been in use for over a decade by a number of insurers and TPAs to recoup overpayments (or alleged overpayments) made to healthcare providers. The practice involves offsetting, or shorting, payments to a healthcare provider on one claim to make up for, or recoup, an overpayment made to the same provider on a prior claim, generally one submitted under a different health plan.
The practice is most often used in connection with non-network (or “out-of-network”) providers. When dealing with network providers, TPAs have a contract in place that sets expectations and parameters for billing rates and recovery practices. As a result, disputes over payments are less likely to arise with network providers, and if disputes do arise, they’re generally resolved pursuant to the contract. The situation can be very different when dealing with non-network providers, who have less incentive to compromise with respect to billing and overpayment disputes. In response, TPAs discovered that, where providers are uncooperative or dispute the overpayment, recoveries can be forced by withholding, or offsetting, payments on future claims.
As an example of what cross-plan offsetting might look like in practice, consider the following:
- TPA Z administers a number of different medical plans, including three separate self-insured medical plans, Plans A, B, and C, each of which is sponsored by a different unrelated employer.
- The employer-sponsor of Plan A transfers $100,000 to TPA Z to cover claims processed under Plan A in June. Later, in July, Z determines that it erred in processing one of those claims, resulting in a $3,000 overpayment to Dr. Smith. Z seeks repayment from Dr. Smith, but he refuses, arguing that he was actually owed the full amount he received.
- At the same time, two other claims submitted by Dr. Smith are pending with TPA Z – one under Plan B and one under Plan C. Z determines that, under the terms of those plans, $2,000 is due to Dr. Smith for services rendered to a participant of Plan B and $4,000 is due to Dr. Smith for services rendered to a participant of Plan C. The employer-sponsors of Plans B and C have transferred sufficient funds to Z to cover those claims. However, rather than transfer the full $6,000 to the doctor, Z withholds $3,000 (the amount of the alleged overpayment made with respect to Plan A), pays $3,000 to Dr. Smith, and (presumably) utilizes the remaining $3,000 to reimburse the employer-sponsor of Plan A.
Why the concern now if this has been going on for over a decade?
For the most part, not much attention was paid to this practice until a group of healthcare providers, suing under the Employee Retirement Income Security Act (“ERISA”) on behalf of their patients, prevailed in a pair of consolidated class action cases against United HealthCare. The consolidated suit, Peterson v. United Health Group, Inc., centered on the premise that the relevant plan documents did not authorize United HealthCare to engage in cross-plan offsetting with respect to non-network providers The United States District Court for the District of Minnesota agreed and granted partial summary judgment to the plaintiffs. United HealthCare appealed, and on January 15, 2019, the Eighth Circuit Court of Appeals issued an opinion affirming the district court.
While the case was on appeal, the DOL weighed in, filing an amicus brief in support of the plaintiffs, in which the DOL took the position that cross-plan offsetting violates ERISA’s exclusive benefit rule (the requirement that a plan fiduciary must act for the exclusive purpose of providing benefits to the plan’s participants and their beneficiaries) and constitutes a prohibited transaction. The DOL characterized cross-plan offsetting as a practice that deprives one plan’s participant of benefits to which that participant was entitled (i.e., full payment of that participant’s claim) in order to satisfy recovery obligations owed to another plan. Additionally, the DOL expressed concern that the practice exposes affected participants to potential liability stemming from the fact that non-network providers may balance bill patients (a process whereby the provider can bill the patient for any amount not paid by the plan) when the TPA fails to transmit full payment, even if the difference relates to an alleged overpayment on a prior bill.
The Eighth Circuit didn’t go as far as the DOL, declining to definitely rule that cross-plan offsetting violates ERISA, but it did opine in dicta that the practice “at the very least approaches the line of what is permissible” under ERISA.
So what should Plan Sponsors do now?
While United HealthCare recently petitioned the U.S. Supreme Court for review of Peterson, for now, given that the DOL effectively put everyone on notice of its position, plan sponsors should proceed with caution when it comes to cross-plan offsetting.
Plan sponsors should determine whether their TPAs are engaging in cross-plan offsetting, and if so, what ability the plan sponsor has to disallow that practice.
Some TPAs, likely in response to Peterson, have ceased the practice altogether, at least with respect to non-network providers. Others, responding only to the Eighth Circuit’s narrow ruling, have taken the position that the practice is still permissible as long as it’s specifically authorized by the plan. Those TPAs have in some cases sent notices to plan sponsors advising them that the plan’s benefits booklets or coverage manuals would be updated with language specifically authorizing bulk recovery processes that may include cross-plan offsetting. These notices may ask the plan sponsor to affirmatively consent to the new language or advise that the new language will go into effect unless the plan sponsor affirmatively opts out by a specific date. In other cases, the TPA may not give the plan sponsor the option to opt out, or the TPA may take the position that opting out means opting out of all recovery services.
To the extent possible, plan sponsors looking to minimize risk, should opt out or otherwise end the practice of cross-plan offsetting. Even if the plan has already been given the opportunity to opt out, and the window has passed, nothing prevents a plan sponsor from revisiting the issue with the Plan’s TPA.
If the practice is not and will not be utilized to recoup overpayments, plan documents, summary plan descriptions, and any operative benefit booklets or other documents may need to be revised to remove any language authorizing or referencing cross-plan offsetting.
Plan sponsors should consider this as a general reminder that when it comes to ERISA welfare plans – particularly self-insured plans – the plan administrator (often the plan sponsor or a committee appointed by the plan sponsor) owes a fiduciary duty to the plan, and needs to stay on top of what the plan’s TPAs are doing. It’s fine, and in fact prudent in many cases, to rely on qualified TPAs to handle the actual day to day administration of the plan – I.e., to process claims, make medical necessity and precertification decisions, coordinate benefits or pursue subrogation, and to pursue recovery of overpayments when errors occur. After all, most employers aren’t experts in the healthcare industry. Plan administrators can’t just set it and forget it. Instead, plan administrators need to maintain a clear understanding of how their TPAs are administering their plans and continually evaluate the authority that’s been granted to those TPAs. Those that don’t may unexpectedly find themselves on shaky ground.
ENDNOTES  Louis J. Peterson, D.C. v. UnitedHealth Group Inc., et al., Nos. 14-CV-2101, 15-CV-3064, 242 F. Supp. 3d 834, 2017 WL 991043 (D. Minn. 2017).  Louis J. Peterson, D.C., et al. v. UnitedHealth Group Inc., et al., No. 17-1744, 2019 WL 190929 (8th Cir. Jan. 15, 2019).  Brief for the Secretary of Labor as Amicus Curiae, Peterson v. UnitedHealth Group, Inc., available at https://www.dol.gov/sol/media/briefs/peterson_2017-09-05.pdf.  29 U.S.C. § 1104(a)(1).  29 U.S.C. § 1106(b)(1)-(2).  Supra note 3 at 1, 11.  Supra note 2 at 10.  See https://www.scotusblog.com/case-files/cases/unitedhealth-group-inc-v-peterson/ (last visited July 22, 2019).