The ruling in Penn. Chiropractic Ass’n v. BCBSA threatens to make recoveries more difficult for all insurers and may complicate the claims administration of self-funded plans. It also may necessitate self-insured plan sponsors reviewing network contracts with providers.
Here’s what happened: a federal district court gave providers ERISA beneficiary status instead of following the language in the parties’ network provider contracts.
As a result, the U.S. District Court for the Northern District of Illinois decided that the insurer’s efforts to recoup overpayments (that arose due to payer, not provider, error) had violated ERISA’s claims and appeal requirements. The court then ordered the insurer to follow those requirements as a remedy.
The payment offsets fell in the definition of an ERISA adverse benefit determination, which required a process for the providers to challenge the recoupment.
Interestingly, the providers met beneficiary status because the court held they were denied a “benefit” under the plan. The court said it did not hinge on an assignment of beneficiary rights but on whether the providers were paid directly.
History of the Case
The case arose out of a computer glitch, which caused BCBSA member Independence Blue Cross to pay capitated payments to chiropractors who were not approved to get them. Overpayments resulted. IBC’s policy consisted of sending “demand letters” and informing providers that if they failed to make arrangements to pay back the funds within 30 days, offsets would begin forthwith.
In 2007 and 2008, IBC recouped about $1.3 million from about 470 PCA members. Testimony revealed that recoupments were used when eligibility was disputed, when the provider did not remit a copay balance, to recover unpaid deductibles, when patients exceeded their visitation limits, and to cover plan charges. The insurer recouped overpayments by reducing payments to the providers, an action that seemed to be permitted in network provider contracts. In a section entitled “Payment,” the contract stated that the payer had the right to offset claim payments to a provider by the amounts owed by the provider. The providers sought to appeal IBC’s determination; however IBC does not provide information to providers about such appeals procedures, and the insurer’s view is that ERISA is not taken into account regarding the recoupment policies.
The providers sued to recover benefits they said they were owed. After preliminary rulings (Penn. Chiropractic Ass’n v. Blue Cross Blue Shield Ass’n, 2010 WL 3940694 (N.D. Ill., Oct. 6, 2010) and (Penn. Chiropractic Ass’n v. BCBSA, 2012 WL 182213 (N.D. Ill., Jan. 23, 2012)), they filed their fourth amended complaint.
In that last amended complaint, the chiropractors: (1) sought unpaid benefits that they contended BCBS entities unlawfully recouped from them; (2) requested injunctive relief under ERISA’s enforcement remedies; and (3) alleged violations of state rules prohibiting discrimination against chiropractors.
Subsequent rulings involved failed efforts by the chiropractors to gain class status. Also, a BCBSA’s effort to have the case thrown out failed in a November 2013 ruling (Penn. Chiropractic Ass’n v. BCBSA,2013 WL 595510 (N.D. Ill., Nov. 7, 2013)).
The Recoveries Were Egregious
In the latest ruling, Penn. Chiropractic Assn. v. the Blue Cross Blue Shield Assn., 09-cv-05619 (N.D. Ill., March 29, 2014), PCA asked the court to order IBC to reform its policies of recovering overpayments from chiropractors. PCA members testified that IBC used an improper notice and appeal process. They also said they were entitled to ERISA’s notice and appeal rights.
The court agreed with the providers, who said they got minimal notice or opportunity to challenge the insurer’s actions.
Individual chiropractors testified that letters sent to tell them that offsets were being made did not list or detail any of the specific services in question. The letters did not ask for any information or materials about the claims, explain how IBC had determined that the provider owed it the amount indicated, identify ERISA plans in question or quote from ERISA plan language. The letters lacked an offer of review to overturn the determination.
In situations where providers demanded appeals, letters were sent saying appeals had been denied, but they included no other evidence that an appeal had actually occurred.
Network Providers Have ERISA Rights
The defendants argued that the providers lacked standing to sue because only participants and beneficiaries have the right to sue to recover ERISA benefits. The question of whether PCA members could sue hinged on whether they were beneficiaries
The court held that the providers were plan beneficiaries with standing to sue under ERISA, because the plan documents specified that the insurer paid providers directly for covered services, and money payments for health services were tantamount to ERISA benefits. The court reasoned that the relevant plans made the providers eligible to receive money payments for health services, and because of that, they satisfied ERISA’s definition as beneficiaries.
PCA said several documents, particularly: (1) an “evidence of coverage” document; (2) a document entitled “Personal Choice Health Benefits Plan” and (3) “A Comprehensive Major Medical Group Contract,” taken together should serve as plan documents for purposes of ERISA analysis. CIGNA said ERISA allows for enforcement only of the ERISA plan and no other document. The court concluded that the grouping of documents highlighted by PCA could be considered as an ERISA plan document.
When Providers Become Beneficiaries
The court agreed with PCA’s primary argument that being paid directly as in-network providers was enough to make PCA a beneficiary.
PCA’s secondary argument was that it always obtained assignments of benefits from its patients. The court agreed that AOBs also give providers beneficiary status.
The court also held that the ERISA plan’s anti-assignment clauses do not matter when the payer remits money directly to an in-network provider, although the situation might be different if the case involved an out-of-network provider. The court said in-network providers that are paid directly did not need assignments of benefits in order to be classed as beneficiaries. Being in-network was sufficient, the opinion stated.
Adverse Benefit Determinations
The court then decided that offsetting future claims to recover past overpayments fit under the definition of an “adverse benefit determination.” ERISA defines an ABD as:
a denial, reduction, or termination of, or a failure to provide or make payment (in whole or in part) for, a benefit, including any such denial, reduction, termination, or failure to provide or make payment that is based on a determination of a participant’s or beneficiary’s eligibility to participate in a plan, and including, with respect to group health plans, a denial, reduction, or termination of, or a failure to provide or make payment (in whole or in part) for, a benefit resulting from the application of any utilization review, as well as a failure to cover an item or service … because it is determined to be experimental or investigational or not medically necessary or appropriate.
Having determined that direct payments to providers involve ERISA benefits to beneficiaries, the court decided that the practice of withholding or reducing direct payments to a network provider to recoup previous incorrect payments should be defined as an ERISA adverse benefit determination.
Next, the court determined that the insurer’s recoupment procedures fell short of ERISA standards, for the following reasons.
- They did not identify specific reasons an overpayment had occurred.
- There was no offer to provide information about the basis of the determination, including plan policies and definitions.
- They did not inform providers that they had a right to appeal the payer’s determination.
- They failed to properly process appeals, including keeping records of them and telling providers that their appeals had been rejected.
Accordingly, the court issued a permanent injunction requiring the payer to modify its procedures to comply with ERISA, giving the following justifications.
The evidence showed that it has been IBC’s usual course of business to provide inadequate notice and appeal rights in connection with recoupments of payments from PCA’s members. The injuries at issue are irreparable…
PCA’s members are likely to continue to suffer the same injuries over and over again, in the near and not-so-near future. Redressing those injuries would require repeated future lawsuits on a claim-by-claim basis. This is not an adequate remedy for the future harm.
Implications
This case marks a compelling victory for providers by affording them the same procedural safeguards that ERISA requires for plan participants. This decision considerably strengthens providers’ ability to challenge overpayment determinations and impedes employer health plans’ use of offsets.
Before this decision was announced, many plans and third-party administrators in the self-funded industry sought to recover overpayments by applying offset provisions without furnishing providers with a mechanism to dispute or appeal the bad news.
Going forward, plan administrators will have to give in-network providers a “full and fair review” of their decisions to reduce or withhold future payments, and much of that has to do with notification and transparency. It includes: (1) distributing to providers a written or electronic notice of the adverse decision, including the specific reasons why the decision to withhold or reduce payment was made; (2) giving providers a reasonable opportunity to appeal the decision; and (3) giving providers reasonable access to and copies of documents, records and other information relevant to the plan’s decision.
Group health plans will now need to carefully monitor their audit and overpayment programs to ensure that they employ the necessary procedural safeguards to avoid potential ERISA violations when pursuing reimbursement.