In a long-awaited opinion, the Eighth Circuit Court of Appeals struck a blow to UnitedHealth Group. Inc.’s (“United”) sweeping overpayment recovery scheme.
See Peterson ex rel. Patients E, I, K, L, N, P, Q & R v. UnitedHealth Grp., Inc., No. 17-1744 (3d Cir. Jan. 15, 2019). Medical providers have long believed that cross-plan offsetting should be impermissible. While the Eighth Circuit did not go so far as to declare this policy violative of ERISA, it does hold that cross-plan offsetting cannot reasonably be pursued where plan terms do not expressly allow for it and, showing its skepticism of the policy, it recognized that cross-plan offsetting, at best, “approaches the line of what is permissible” under ERISA.
United is one of the nation’s largest insurance providers, which administers and funds thousands of health insurance plans across the county. See id., slip op. at 3. As is common in the industry, when United mistakenly overpays a provider for a patient’s treatment, United will seek to recover the overpayment by reducing future payments to the provider to offset the overpaid amount. Id. at 2. In a traditional offset scenario, payers like United will withhold payments to the provider for subsequent claims in connection with the same patient whose claims were previously overpaid. But beginning in 2007, United implemented a much broader recoupment strategy to extend its ability to recover overpayments — rather than merely offsetting future claims for the same patient, or future claims for different patients covered by the same health plan, United offset alleged overpayments for different patients covered by entirely separate health benefit plans, that United was administering. Id. at 3. This practice is referred to as “cross-plan offsetting.” Id. The question of whether this practice is permissible is unique to the out-of-network context, as in-network provider contracts typically provide detailed rules for network recoupment action.
In Peterson, two out-of-network providers challenged United’s cross-plan offsetting scheme on behalf of their patients, who are beneficiaries of United-administered plans, asserting that the patients’ plan documents do not authorize cross-plan offsetting and thus the recoupments violate the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001 et seq. See id. at 3; Peterson ex rel. Patients E, I, K, L, N, P, Q & R v. UnitedHealth Grp., Inc., 242 F. Supp. 3d 834, 836 (D. Minn. 2017). The district court in this case granted summary judgment on liability in the plaintiffs’ favor on that ground, finding that there was not “a single provision of a single plan that explicitly authorizes cross-plan offsetting.” Peterson, 242 F. Supp. 3d at 843. The practice further could not be justified by “generic provisions that require United to pay benefits and that grant United discretion to interpret and administer the plans,” because United’s discretion is circumscribed by the obligations ERISA imposes on plan fiduciaries: to act “‘solely in the interest of the participants and beneficiaries” and to refrain “from dealing with the assets of the plan in the fiduciary’s own interest and from acting in any capacity on behalf of a party whose interests are adverse to those of the plan or plan participants.” Id. at 843, 845 (quoting 29 U.S.C. §§ 1104(a)(1), 1106(b)(1)-(2)).
The district court elaborated that the trouble with United’s cross-plan offsetting is “particularly acute” because United recovers alleged overpayments made by health plans that United fully insures (the “Plan As”) by offsetting subsequent payments for patients covered by self-funded health plans that United also administers (the “Plan Bs”). Peterson, 242 F. Supp. 3d at 838-39; 844. When a fully-insured Plan A makes an overpayment, that overpayment comes directly from United’s funds. If United offsets Plan A’s overpayments by withholding future payments for claims payable by a self-funded Plan B—diverting Plan B’s payments to recover Plan A’s overpayments — United is reimbursing itself for its own overpayments with the Plan B plan sponsor’s funds. Id. at 839. The district court found that “every one of the cross-plan offsets at issue in this litigation put money in United’s pocket, and most of that money came out of the pockets of the sponsors of self-insured plans.” Id. at 840. In doing so, the court concluded that United’s “cross-plan offsetting is, to put it mildly, a troubling use of plan assets” that “is plainly in tension with United’s fiduciary obligations under ERISA,” 29 U.S.C. §§ 1104(a)(1), 1106(b)(1).
The Eighth Circuit has now affirmed, agreeing that “nothing in the plan documents even come[s] close to authorizing cross-plan offsetting.” Peterson, No. 17-1744, slip op. at 9. The Court further rejected United’s interpretation of its general authority to administer the plans as permission to conduct cross-plan offsetting anyway — “adopting a rule that anything not forbidden by the plan is permissible . . . would undermine plan participants’ and beneficiaries’ ability to rely on plan documents to know what authority administrators do and do not have.” Id. at 10 (“United’s assertion that it has the authority to engage in cross-plan offsetting can hardly be called an interpretation because it has virtually no basis in the text of the plan documents.”).
United’s interpretation of its discretionary authority was further unreasonable in light of its role as a fiduciary of plan assets. Id. As a fiduciary, United must exercise its discretionary authority solely in its beneficiaries’ interests and for the “exclusive purpose” of providing them benefits. Id. at 10-11 (quoting 29 U.S.C. § 1104(a)(3)). United must also view each plan as a distinct entity, with its fiduciary duties flowing separately to each plan. Id. at 11. The Court concluded that United’s cross-plan offsetting was in tension with these fiduciary obligations “because it arguably amounts to failing to pay a benefit owed to a beneficiary under one plan in order to recover money for the benefit of another,” which “may constitute a transfer of money from one plan to another in violation of ERISA’s ‘exclusive purpose’ requirement.” Id. (quoting 29 U.S.C. § 1104(a)(1)). Because the reasonableness of a plan administrator’s interpretation must be viewed with an eye toward the substantive and procedural requirements of ERISA, and United’s practice “is questionable at the very least,” the Court held that United’s interpretation of the relevant plans was unreasonable and affirmed summary judgment on liability in the plaintiffs’ favor.
Peterson offers two key takeaways. First, it highlights that plan administrators’ broad discretion to interpret plan terms has its limits, and administrators’ authority to administer its plans is not free reign to take any action not expressly prohibited. Accordingly, administrators — particularly those that make policy decisions applicable across the many plans they administer — should be sure that their use of plan funds is keyed to discrete provisions in the governing plan documents. Conversely, providers should use their position as an authorized representative of their patients to their advantage, and assert their rights under ERISA when the plan terms do not support the plan’s (or its administrator’s) determinations.
Second, the decision reinforces that an administrator’s authority and discretion to interpret and administer a plan is tempered by its fiduciary obligations to each plan under ERISA. Courts will evaluate the reasonableness of an administrator’s decision not only based on the plan language, but also on whether the decision was made “solely in the interest of the participants and beneficiaries” and for the “exclusive purpose” of benefitting each plan it administers. 29 U.S.C. § 1104(a)(1). Peterson thus serves as a reminder that courts “view interpretations that authorize practices that push the boundaries of what ERISA permits with some skepticism,” and require clear plan language to support decisions that might conflict with those goals. No. 17-1744, slip op. at 11.