For the past decade, United Healthcare has used “cross-plan” offsets to recoup overpayments to medical providers in connection with both its fully-insured plans and other self-funded plans it administers. Virtually all medical plans administered by United are included in the practice of cross-plan offsetting.
The practice of “cross-plan” offsetting is illustrated by the following hypothetical:
Patient A, an Alpha Corp. plan participant, receives medical treatment from a provider. United, which acts as administrator of Alpha Corp.’s medical plan, inadvertently overpays the provider by $250 and notifies the provider upon discovery. The provider denies the alleged overpayment and refuses to return $250 to United for reimbursement of the Alpha Corp. medical plan. Later, Patient B, a member of the Beta Corp. medical plan that is also administered by United, visits the same provider. When remitting payment to the provider in connection with the provider’s claim for treatment of Patient B, United reduces (or “offsets”) the payment in the amount of the alleged $250 overpayment for treatment of Patient A. The full allowed amount of the claim for treatment of Patient B is still drawn from the Beta Corp. medical plan. But not all of these funds are remitted to the provider. Through internal accounting, United reimburses the Alpha Corp. medical plan in the amount of the prior alleged overpayment.
The United States District Court for the District of Minnesota recently considered a facial challenge to this practice by two medical providers, purporting to act under assignments of claims from plan participants they treated, in the consolidated cases Peterson v. UnitedHealth Group Inc. et al. (Case No. 14-CV-2010) and Riverview Health Institute v. UnitedHealth Group Inc. et al. (Case No. 15-CV-3064). The parties engaged in limited discovery and then submitted cross-motions for summary judgment regarding whether United’s practice of cross-plan offsetting was consistent with the language of the plans being administered by United and the general requirements of ERISA.
In an order issued on March 14, 2017, the Minnesota district court rejected United’s practice of cross-plan offsetting as both insufficiently authorized by the language of the administered plans and as likely inconsistent with ERISA’s substantive and procedural requirements. In so doing, the court denied United’s motions for summary judgment and granted the plaintiffs’ motions for partial summary judgment, allowing plaintiffs’ claims to proceed through full discovery and litigation of appropriate remedies. This holding has potentially far reaching implications because United has employed this practice on behalf of virtually all plans it administers for a decade and, if the decision is correct, United could not continue to utilize the practice on a going forward basis, at least on the basis of plan language that was in evidence before the Minnesota court. Recognizing this, the district court certified the interlocutory order for immediate appeal to the Eighth Circuit.
Plaintiffs advanced two primary arguments. First, that the language of the relevant plans administered by United did not authorize United’s “cross-plan” offsetting practice. Second, that United’s practice violated ERISA by furthering United’s interests, or unrelated administered plans’ interests, at the expense of plan participants and beneficiaries with claims against which offsets were assessed.
United, in contrast, argued that cross-plan offsetting was authorized by general language in the plans requiring United to pay benefits and other language at least generally authorizing the plans to recoup overpayments, including in the case of most of the applicable plans, authorizing recoupment of overpayments through “same plan” offsets with respect to future benefits payable to the same covered person or medical provider. Because all of the applicable plans delegated to United the discretion to interpret the terms of the plan, United argued that its broad construction of this plan language to authorize “payment” of benefits by way of actual payment or through “cancellation of debt,” and to implicitly authorize “cross-plan” offsets where only same plan offsets were expressly authorized, was reasonable.
United also argued that the decision to authorize cross-plan offsets was actually made by plan sponsors through a process of “negative consent.” When United first implemented cross-plan offsetting in 2007, it sent a letter to existing clients describing the practice and provided a two-week window during which clients could elect to opt out of the program. New clients were allegedly required to consent to the program, or alternatively could utilize another third-party administrator. Through these means, United argued that each of their self-funded clients had expressly authorized the practice of cross-plan offsetting and waived any objections to instances in which plan funds would be drawn and would not be paid directly to their plan participants or beneficiaries, but potentially used to reimburse another plan, including United’s fully-insured plans, for a prior overpayment.
The district court sided with plaintiffs and rejected United’s arguments, reasoning that the discretion of the third-party administrator must be considered in conjunction with the trust and fiduciary duties under ERISA, including the obligation to discharge duties solely in the interest of participants and beneficiaries of the administered plans.
The court held that using assets from one plan to settle debts of another plan raised “obvious” concerns under ERISA, considering that:
- The practice of cross-plan offsetting was designed to facilitate recoupment of overpayments by plans unrelated to the claim with respect to which offsets are assessed and therefore was not done “solely in the interest of participants and beneficiaries” or certainly not solely in the interest of the participant or beneficiary whose claim was not funded in full for purposes of recouping the prior overpayment.
- United itself was the greatest beneficiary of cross-plan offsetting because the percentage of claims paid under, and overpayments recouped for, its fully-insured plans was much greater than the percentage of claims paid under any self-funded client plan.
- Because the existence of a prior overpayment was determined exclusively by United and often disputed by the provider, the practice subjected plan participants to potential balance billing and claims of non-payment with respect to amounts United declined to pay in order to recoup an overpayment in connection with a claim under an unrelated plan.
The court concluded that in light of these facts and ERISA’s strict fiduciary duties, “cross-plan offsetting is, to put it mildly, a troubling use of plan assets—one that is plainly in tension with ‘the substantive and procedural requirements of the ERISA statute . . . .’” Although the court did not completely foreclose the possibility that cross-plan offsetting could comply with ERISA if expressly authorized by plan language, it cast considerable doubt over this question and stated the court’s view that this, at a minimum, would require careful evaluation by the plans of the ways in which cross-plan offsetting would ultimately inure to the benefit of the plan and its beneficiaries and participants.
With respect to United’s interpretations of general plan language as authorizing cross-plan offsetting, the court held that United stretched plan language further than could be allowed, even accepting its discretionary authority to construe the terms of the plans. The court noted that United’s interpretations did not reflect long-standing and well-documented interpretations of its authority under the respective plans, and that there was no evidence in the record that United examined the language of any plan in order to determine whether it in fact authorized cross-plan offsetting until after being sued over the practice. The court further held that United’s construction of general plan language instructing United to pay benefits as implicitly authorizing payment to providers through “cancellation of debt” was unreasonable because it rendered meaningless each plan’s specific provisions related to overpayment recovery, which expressly authorized only a plan’s right to recover overpayments by reducing future benefit payments from the plan to the same participant of the plan in question or the same provider. Moreover, the court concluded that United stretched these general overpayment recovery provisions too far to construe them as implicitly authorizing cross-plan offsets in view of the fact that cross-plan offsetting could easily have been expressly authorized if desired and in view of the tension between the practice and plans’ obligation to fulfill fiduciary duties to their specific participants and beneficiaries under ERISA.
In addition, the court was clearly concerned about what it found to be a failure by United to adequately disclose the details of the cross-plan offsetting practice to its self-funded plan clients, an in particular how the practice benefited United by allowing it to recoup alleged overpayments under its fully-insured plans that might otherwise not be recoverable. The district court concluded that United’s March 2007 letter to existing clients described generally how cross-plan offsetting would work, but emphasized the potential benefits to self-funded plans without calling attention to the potential benefits to United. Furthermore, the court held that, in contrast to other examples of “negative consent” approved by the Department of Labor in advisory opinions, United was not neutral about the proposed procedure of cross-plan offsetting, but “strongly encouraged” plans to agree to it, and then allowed an insufficient period of time (2 weeks) to consider the program. With respect to new clients, the district court questioned whether there was any meaningful disclosure of the practice of cross-plan offsetting as, according to the court, there was a dearth of evidence in the record of any written disclosures, and most disclosures appeared to have been oral, ad hoc, and in the context of conversations with personnel who were not clearly authorized to make judgments about whether the plans should participate in cross-plan offsetting.
In sum, the district court’s opinion represents a comprehensive rejection of the current practice of cross-plan offsetting by United, at least based on the prevalent existing plan language.
It is worth noting that the district court’s opinion may conflict with the opinion of the Fifth Circuit in Quality Infusion Care, Inc. v. Health Care Service Corp., 628 F.3d 725 (5th Cir. 2010). In this case, the court addressed the objections of a non-network provider, Quality Infusion Care, to cross-policy offsetting of claims for payment for services provided under plans insured by Health Care Service Corporation d/b/a Blue Cross Blue Shield of Texas (“BCBS”). The case is notable, among other reasons, because it makes no reference to ERISA whatsoever. However, it appears to present a situation nearly identical to that presented to the Minnesota district court, and the Fifth Circuit reached the opposite conclusion, holding that BCBS had a “contractual right” to administer the cross-policy offsets based on overpayment recovery language in the various plans at issue that is very similar to the plan language addressed by the Minnesota court. While some of the plans at issue were government plans that would not be subject to ERISA, at least one of the plans appears to have been a private plan that was fully insured by BCBS and therefore would have been an ERISA plan. Nevertheless, the Fifth Circuit did not address any tension between BCBS’s offsetting practices and fiduciary duties imposed by ERISA.
The certain appeal of the recent decision in Peterson is one to watch. In the meantime, plan sponsors have many important questions to consider, including: Do they believe their current plan language authorizes cross-plan offsetting? Is cross-plan offsetting desirable because it operates to the net benefit of plan participants and beneficiaries by better insuring recovery of overpayments that might otherwise prove unrecoverable for practical reasons? Should general plan language regarding overpayment recovery like the language addressed by the Minnesota court be amended to clearly authorize cross-plan offsetting? Should plan administrators take action now to document consideration of and compliance with their fiduciary duties with respect to cross-plan offsetting that may have involved claims under their plans?