Managing Overpayments: A Change in Landscape

Health plans seeking overpayment recovery from network providers may need to evaluate the member’s plan with consideration to ERISA notice and appeal rights.

Recent rulings have made what was once relatively routine for health plans more challenging. Prior to these rulings, the provider claims adjudication process contemplated ongoing adjustments for underpayment and overpayment of claims, and in many cases handled cases through a notice or joint plan–provider meetings. Provider contracts typically grant the payor setoff and recoupment rights against future claims payments and include provisions for a claims reconciliation process and an audit. In addition to contract remedies, courts and arbitrators recognized the ability of payors to recover overpayments under the Law of Mistaken Payments doctrine embodied in Restatement of Restitution § 20 and even allowed for common law remedies in the Medicare setting in the face of Medicare’s regulatory framework. See United States v. Lahey Clinical Hospital, Inc., 399 F.3d 1 (1st Cir. 2005) (the Medicare Act did not displace underlying common law causes of action such as unjust enrichment and payment by mistake of fact in actions against providers for the recovery of overpayments).

But recent rulings have addressed the recovery of overpayments not from the viewpoint of the provider’s relationship with the plan, but from the plan beneficiaries’ relationship with the plan, even in situations where the payment issue is governed by the provider contract. A court recently held that an ERISA fiduciary’s attempt to recoup overpayments from two network providers was governed by ERISA, and the contractual remedies outlined in the provider contract were preempted, triggering ERISA notice and appeal rights. Blue Cross & Blue Shield of Rhode Island v. Korsen, 945 F.Supp. 2d 268 (D.R.I. 2013). While other courts have recognized that a provider agreement creates a duty independent of ERISA (See, for example, Lone Star OB/GYN v. Aetna Health Inc., 579 F3d (5th Cir. 2009)), payors must recognize the developing trend and develop recoupment strategies that follow ERISA procedures for notice and appeal rights. Numerous decisions limited the manner in which an ERISA plan administrator may recoup overpayments to actions seeking “appropriate equitable relief” under ERISA § 502(a)(3), thus requiring administrators to meet the elements set forth in Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356, 362-63 (2006) to recover.

ERISA considerations are even more prevalent in situations involving non-contracted (or out-of-network) providers who obtain direct payment from plans based on patient assignments from ERISA-governed plans. For years, litigation has focused primarily on issues of standing, removal, exhaustion, standard of review and the provider’s ability to circumvent preemption under independent claims of misrepresentation. Recent decisions reversed the playing field with providers now citing ERISA regulations to forestall a plan’s recoupment effort as an “adverse benefit determination” requiring ERISA notice and appeal rights. At least one court held that a plan’s direct payment to a provider amounts to an ERISA benefit, and the reduction of the payment falls within the definition of an adverse benefit determination under 29 C.F.R. § 2560.503-1(m)(4). This trend has been reinforced by the amicus filing by the Department of Labor (DOL) in Tri-3 Enterprises v. Aetna, Inc., 2013 WL 4400850 (3rd Cir. Aug. 16, 2013).

What was once routine under provider contracts may now require plans seeking the recovery of overpayments to evaluate the member’s plan with consideration to ERISA notice and appeal rights, and post-Sereboff circuit decisions on bringing actions under ERISA § 502(a)(3) for recovery.

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