In a dispute involving the practice of cross-plan offsetting, the US Court of Appeals for the Eighth Circuit upheld a district court's partial grant of summary judgment in favor of out-of-network health providers regarding their claims under the Employee Retirement Income Security Act of 1974 (ERISA) against a health plan third-party administrator (TPA). The Eighth Circuit concluded that the TPA's interpretation that plan documents permitted cross-plan offsetting to recover overpayments to the providers was not reasonable.
In litigation involving a practice known as cross-plan offsetting, the US Court of Appeals for the Eighth Circuit upheld a district court's partial grant of summary judgment in favor of out-of-network health providers regarding their ERISA claims against a health plan TPA (Peterson v. UnitedHealth Group Inc., (8th Cir. Jan. 15, 2019)). The Eighth Circuit concluded that the TPA's interpretation of governing plan documents as permitting cross-plan offsetting to recover overpayments to the providers was unreasonable.
Background
The TPA in this case administers numerous self-insured and fully insured health plans governed by ERISA. In 2007, the TPA adopted a practice known as cross-plan offsetting to recover overpayments made to out-of-network health providers. Under this practice, if the TPA believed it had overpaid an out-of-network provider for a claim under one health plan, it would recoup the overpayment by adjusting the amount paid to the same provider for a subsequent claim involving a different plan. (In contrast, under a same-plan offsetting arrangement, a TPA would recover an overpayment for an initial claim under a plan by deducting the overpayment from the amount it would otherwise make to the provider when the provider later treats an individual covered under the same plan. This assumes, however, that the provider subsequently treats an individual under the same plan – which, because it may not always be the case, limits the usefulness of same-plan offsetting.)
The plan provisions addressing offsetting only authorized offsetting payments made from the same plan.
The TPA's interpretation of the plan documents was unreasonable.
The district court certified its order for immediate appeal (28 U.S.C. § 1292(b)), concluding that:
Its order involved a controlling question of law.
There was a substantial ground for difference of opinion on this question.
Regarding the latter element, the district court observed that:
The practice of cross-plan offsetting presented an issue of first impression in the Eighth Circuit.
The only authority on this question outside the Eighth Circuit had concluded that the practice was permissible.
Outcome
On appeal, the Eighth Circuit affirmed the district court's order and held that the TPA's interpretation of the plan documents as permitting cross-plan offsetting was not reasonable.
Eighth Circuit Lacked Jurisdiction to Address Institutional Provider's Standing
On a threshold issue, the Eighth Circuit concluded that one of the providers had standing to sue on behalf of his patients/plan participants. The Eighth Circuit rejected the TPA's argument that the provider could not serve as an authorized representative because he had failed to sufficiently disclose a conflict of interest (that is, that the provider could balance-bill participants for amounts withheld as an offset).
TPA's Interpretation of Plan Documents Was Unreasonable
At issue on appeal was whether the controlling plan documents allowed the TPA to engage in cross-plan offsetting. The Eighth Circuit observed that the plans at issue authorized the TPA to interpret and implement the plans, meaning that the more deferential "abuse-of-discretion" standard of review applied (see Practice Note, ERISA Litigation: Standard of Review: Arbitrary and Capricious (Deferential) Standard of Review). The court reasoned, however, that nothing in the plan documents "even comes close" to authorizing cross-plan offsetting. The court rejected the TPA's argument that plan language giving it broad authority to interpret the plan authorized cross-plan offsetting. Rather, the court concluded that the TPA's position that it was authorized to engage in cross-plan offsetting had "virtually no basis in the text of the plan documents." To rule that the plan authorized this practice, the court added, would be akin to adopting a rule that any practice is permitted unless the plan expressly prohibits it.
While the Eighth Circuit stopped short of holding that cross-plan offsetting necessarily violates ERISA, it indicated that this practice "approaches the line" of what ERISA allows. According to the court, cross-plan offsetting is in tension with certain requirements under ERISA – including its fiduciary duty standards. The court reasoned that ERISA's fiduciary duties run separately to each plan, and under a cross-plan offsetting arrangement a provider can fail to pay a benefit owed to a participant under one plan so as to recover money for the benefit of another plan. Although this practice may benefit the latter plan, the court indicated, it may have a negative impact on the former plan. In the court's view, cross-plan offsetting could also constitute a transfer of money from one plan to another in violation of ERISA's exclusive purpose requirement (see Practice Note, ERISA Fiduciary Duties: Overview: Fiduciary Duties).
Practical Impact
Although the Eighth Circuit's decision does not completely shut the door on cross-plan offsetting, the court expresses significant skepticism – from an ERISA perspective – regarding this practice. Going forward, TPAs that intend to engage in cross-plan offsetting should have express authorization to do so in governing plan documents and service provider agreements.