In an important victory for health care providers, a federal district court in Illinois recently held that health plans may not simply unilaterally recover overpaid funds from health care providers, but rather must provide the appeal and other procedural protections required under the federal Employee Retirement Income Security Act (ERISA) and its implementing regulations. While it has long been the rule that ERISA’s appeal and other procedural rights must be allowed when ERISA plans issue “adverse benefit determinations” on claims submitted for reimbursement, it has not always been clear that these same procedures are required with respect to recoupment decisions. In Pennsylvania Chiropractic Association v. Blue Cross Blue Shield Association, No. 09 C 5619, 2014 WL 1276585 (N.D. Ill. Mar. 28, 2014), the Court held that Blue Cross Blue Shield (BCBS), an administrator and insurer of ERISA plans, could not recover overpayments it had made to certain chiropractors without first issuing new benefits determinations demonstrating the overpayments and complying with ERISA claims and appeals regulations.

“The Court held that BCBS’s practices came ‘nowhere near to substantial compliance with ERISA’s notice and appeal requirements.’”

The case was filed by an association of chiropractors that challenged BCBS’s recoupment and offset practices, alleging that BCBS regularly made unilateral decisions that it had overpaid chiropractors for services provided to plan participants, and then forcibly recouped those overpaid funds by offsetting against amounts due for later services. After many of the claims in the case were dismissed or settled, the parties were left with only the association’s claim seeking “full and fair review.” ERISA § 503(2) requires, when an ERISA plan denies a claim for benefits, that the plan provide an opportunity for a “full and fair review” of the decision by a plan fiduciary. The provider association requested equitable relief under ERISA § 502(a)(3), seeking an injunction to require BCBS’s compliance with the full and fair review requirements. The Court considered federal regulations implementing these provisions, which require that ERISA plans include specific information and explanations as part of an “adverse benefit determination,” which is defined as a denial, in whole or in part, of benefits sought. The regulations also require appeal rights and other procedural protections in connection with an adverse benefit determination.

After a bench trial, Judge Matthew Kennelly determined that the BCBS plans had to provide these robust appeal and other protections to health care providers before the plans could recover allegedly overpaid funds. The Court held that a plan’s decision that a previously paid benefit was incorrect falls within the definition of an “adverse benefit determination,” and thus triggers ERISA’s notice and appeal requirements before recovery of that payment can occur. BCBS failed to provide the required notice, information, and explanations to providers, and did not provide for appeal rights. The Court held that BCBS’s practices came “nowhere near to substantial compliance with ERISA’s notice and appeal requirements.” The plaintiff provider association will obtain an injunction requiring compliance by BCBS with the ERISA notice and appeal requirements, which will be issued following additional briefing by the parties.

BCBS’s practices with respect to recoupment, which have been declared violative of ERISA in this case, are not unique among plan administrators. In fact, it has become routine practice for many plan administrators and health insurers to audit provider claims and recoup reimbursement without allowing providers any recourse to challenge these decisions. Health care providers, such as hospitals, dialysis facilities, ambulatory surgery centers, and physicians — facing similar practices by other commercial payers — now have another arrow in their quiver to fight forcible recoupments and offsets by ERISA plans and administrators. In addition, regulations implementing the federal Patient Protection and Affordable Care Act (ACA) have made the ERISA notice and appeal requirements applicable to many non-ERISA plans, so the impact of this decision could extend beyond the world of ERISA plans.