Category Archives: ERISA

Third Circuit Court of Appeals Upholds Assignments

Non participating providers have been waiting for this decision for a long time.  In North Jersey Brain & Spine Center v. Aetna, Inc., the Third Circuit held that an assignment of insurance benefits to aprovider, but without explicitly giving the provider the right to file suit, nonetheless gives the provider standing to sue for these benefits under ERISA.

Aetna contended in this case, and healthcare insurer CIGNA argued in other cases, such as Franco v. Connecticut General Life Ins. Co., that a provider could only have ERISA standing if she had an assignment that gave her the right to file suit on her patient’s behalf.  Some insurers went further, contending that the assignment language must specify the causes of action that the provider could bring, as if a non-lawyer patient could know that.  Here the Third Circuit properly held: “An assignment of the right to payment logically entails the right to sue for non-payment. . . . The value of such assignments lies in the fact that providers, confident in their right to reimbursement and ability to enforce that right against insurers, can treat patients without demanding they prove their ability to pay up front.  Patients increase their access to healthcare and transfer responsibility for litigating unpaid claims to the provider, which will ordinarily be better positioned to pursue those claims.”

The Third Circuit now joins all the other circuits in this holding.  This applies to non-participating providers, that is, providers who do not participate in an insurer’s network.  Participating providers don’t need an assignment from their patients (called participants or beneficiaries under ERISA) because they have a direct action under their participating provider agreements.

Fighting Back Against Repayment Demands and Recoupments

Health insurers often pay providers directly who have assignments from their patients and then determine months later that it paid incorrectly and demand the money back.  Sometimes this demand is accompanied by accusations of fraud and abuse on the part of the provider.  When the provider doesn’t pay, the insurer recoups the money from current payments and offsets from future payments.  In sum, all payments from the insurer stop until the full amount is paid off.

Most of the time, the provider and her staff, overwhelmed by the accusations and financial demands, either agrees to pay the money back up front, gets offset, or enters into negotiations with the insurer.

What rarely happens, though, is appealing the health insurer’s repayment demand in the first place.  In 2011, for example, only 2.25% of all of United Healthcare’s repayment determinations were appealed.

Why is that?  Well, providers didn’t think they had legal rights to challenge recoupments, and insurers took the position that providers (as compared to their patients, as plan members) had no legal rights at all.   In most cases insurers did not even give information to providers about the existence of an appeal.  Instead, they usually sent a letter stating the amount of the recoupment, and a deadline to pay.

All that should change as a series of court decisions have now made it clear that repayment determinations and recoupments fall under ERISA, which governs most commercial employer plans.  This means, for providers who are out of network, a repayment demand and recoupment are actually denials of benefits, and they have the right to notice, the right to an appeal, and the right to full and fair review of the appeal.

Are there limitations to this critical decision?  For example, say an insurer determined that the provider never provided the service to the patient in the first place, but billed for it. Ostensibly that’s fraud, right, and fraud arises under state law, not ERISA.  In Premier Health Center, P.C. v. UnitedHealth Group (D. N.J. Aug. 28, 2014), the court differentiated an insurer’s claim against a provider for fraud (which might arise under state law, not ERISA) and the procedure an insurer uses to recoup payments based on what it believes to be fraudulent activity (which does arise under ERISA).  That is, an insurer “must allow the provider the opportunity to challenge that determination in accordance with ERISA procedure, lest the determination be accepted at face value.”

And there it is.  Every accusation of fraud and abuse by an insurer was not simply an accusation but an unchallengeable, non-appealable statement of fact.  Now the tide has turned in the providers’ favor.

What is the takeaway from all this?  What should providers do when health insurers send them a repayment demand and seek to recoup payments?

  1. You do not need to pay the demanded amount upfront or over time.  Under ERISA, you have substantial appellate rights. You should make use of them.
  1. You need to determine for the payments at issue with respect to each of your patients’ plans whether you are in network or out of network with the health insurer.
  1.  Even if you are in network you may have contractual appellate rights that you should utilize.
  1. You must insist that the insurer gives you the reason for the repayment demand upfront.  Remember, a repayment demand is a denial, just like any other denial you have received.
  1. You must draft all appeals very carefully and fully.  Boilerplate appeals will receive boilerplate rejections.
  1. Should your appeals be rejected anyway, you have options to consider, including mediation, arbitration, and litigation.

The Case of the Hidden Fees

In self-funded plans under ERISA, corporations pay health care benefits themselves and, in addition often contract with a health insurer to administer the plan.  The health care insurer operates as a third-party administrator, or TPA, and is paid a fee for these administrative services.

In the case of Hi-Lex Controls, Inc. v. Blue Cross Blue Shield, 751 F.3d 740 (6th Cir. 2014), all was well and good until Blue Cross Blue Shield of Michigan (BCBSM) got greedy.  It was already receiving its administrative fee on a contractual per-employee-per-month basis.  Apparently, that wasn’t good enough.  BCBSM started to add mark ups to hospital claims, and it invented a remarkable phrase to capture the difference between the higher amount it billed to its self-funded client and the lower amount it paid to the hospital: “Retention Reallocation.”

BCBSM took these mark up fees from its self-funded client every year from 1993 until 2011 when it finally disclosed their existence for the first time.  Its client, to say the least, was not amused.  It sued BCBSM for breach of fiduciary duty and self-dealing – both violations of ERISA.  After a nine-day bench trial (there is no right to a jury trial under ERISA), the federal district court awarded more than $5 million to Hi-Lex Controls and an additional $900,000 in prejudgment interest.

But was BCBSM a fiduciary to Hi-Lex Controls?  After all, the relationship arguably was contractual in nature and BCBSM could be said to have breached its contract by charging more than the contracted-for amount.

This is the issue that is almost always at the heart of litigation under ERISA and so it is worth talking about.  A breach of contract claim would normally be preempted, meaning that ERISA would apply and not state law.  So Hi-Lex Controls could not bring a breach of contract claim here.

Since ERISA governs, there could be a claim if there were a fiduciary relationship.  This, in turn, hinges on the exercise of discretionary control.  Hi-Lex Controls proved at trial that BCBSM sometimes waived the mark up fees for some clients, meaning it exercised discretion.  As a result (and there were other technical aspects I need not describe here) the appellate court held that BCBSM was a fiduciary.

ERISA requires a duty of loyalty on the part of fiduciaries, and bars self dealing.  Affirming the lower court’s trial decision in its entirety, the Sixth Circuit’s decision is instructive for the following reasons:

First, because the case arises under an employee benefits plan, the claims must be brought under ERISA, not state law.

Second, self-funded plans should be investigating how their TPAs are administering their plans in order to take effective action against miscreants.  One option is a regular audit of fees.  A thorough review of prior conduct before hiring a TPA is also a must.

Third, even after the critical discovery of the overcharge, it took a trial to establish the necessary findings of discretion (in the ultimate irony, BCBSM sometimes did not collect the hidden fees; if it always did arguably there would not be discretion) in order to prove that BCBSM was a fiduciary and therefore that its actions were in violation of ERISA.  Plans should be prepared to move forward in this way to protect their plan assets.