Scott v. UnitedHealth Group, Inc (Cross-Plan Offsetting)

“When United and a provider dispute whether a claim was overpaid, cross-plan offsetting allows United to act as judge, jury, and executioner.”

Legal Risk for Plan Sponsors Remains Following Challenges to Cross-Plan Offsetting

AUTHOR Sarah Burns

DATE 7.27.2021

On May 20, 2021, in the case, Scott v. UnitedHealth Group, Inc., a federal judge in the District of Minnesota dismissed a class action challenge to cross-plan offsetting under the Employee Retirement Income Security Act of 1974 (ERISA). The Judge found the plaintiffs lacked standing to sue without having been individually injured by the practice.

One month later, in Lutz Surgical Partners PLLC v. Aetna, Inc., a federal judge in the District of New Jersey found cross-plan offsetting violates ERISA. Under certain circumstances, medical providers may have the standing to sue.

What is cross-plan offsetting?

Though cross-plan offsetting may sound like something out of a Premier League playbook, the practice is a method for third-party administrators (TPAs) to recover disputed overpayments made to treatment providers. Overpayments occur by mistake or in the context of coordination-of-benefits or subrogation disputes, where liability for payment is questioned after a claim has been paid. If a TPA is unable to recover overpayments from the provider or offset such against another claim to the same provider under the same plan (same-plan offsetting). In that case, the TPA might offset the overpayment by reducing a subsequent payment to the provider from a different plan (cross-plan).

The Scott court drew on the following illustration of cross-plan offsetting, with United operating as TPA and where the provider does not have a contractual relationship with United (i.e., is out-of-network):

Suppose that a patient named Andy is insured under a health plan administered by United. Andy sees Dr. Peterson for treatment of a sore neck. Dr. Peterson submits his bill to United. United pays $350 to Dr. Peterson. Later, however, United discovers that it should have paid only $200 to Dr. Peterson. United contacts Dr. Peterson, brings the overpayment to his attention and asks him to return $150.

If Dr. Peterson agrees that he was overpaid and returns the $150, the problem is solved. But if Dr. Peterson does not agree that he was overpaid and refuses to return the money, United has limited options for getting back its $150. In theory, United could initiate administrative or legal proceedings against Dr. Peterson. As a practical matter, however, United is unlikely to do so, as United would spend far more than $150 in pursuing the $150 overpayment.

Rather than chase the payment or accept the loss, TPAs sometimes recover the alleged overpayment via same-plan offsetting whereby the TPA would reduce payment to the provider on a future uncontested claim. But same-plan offsetting requires waiting for another claim to the same patient or another patient of the provider covered by the same plan. Cross-plan offsetting does not require such a provider – new uncontested claim – plan trifecta. Instead, the overpayment is recouped via another claim for the provider under any plan the TPA administers. It could be another plan sponsored by the same employer or by another plan sponsored by an unrelated employer.

Whether cross-plan offsetting is permissible under ERISA

In 2019, the Eighth Circuit Court of Appeals previously weighed in on cross-plan offsetting in Peterson v. UnitedHealth Group, Inc., calling it “in tension with the requirements of ERISA” but ultimately deciding that case based on the absence of plan terms that permit the practice. United is one of the world’s largest health insurers. As the District of Minnesota and Eighth Circuit noted in both cases, since United administers thousands of plans, it casts a wide net to unilaterally recapture alleged overpayments: “when United and a provider dispute whether a claim was overpaid, cross-plan offsetting allows United to act as judge, jury, and executioner.”

In an amicus brief to the Peterson court, the Department of Labor argued United’s practice of cross-plan offsetting violated ERISA because “a fiduciary cannot represent both sides in a transaction between a plan and another party, including another plan to which he is a fiduciary.”

The plan in Scott was self-insured, meaning the plan uses its own assets to pay claims for covered healthcare expenses; funded by the sponsoring employer and participating employees. The Scott plaintiffs challenged United’s cross-plan offsetting as a breach of fiduciary duty under ERISA by failing to act exclusively in the plan participants’ interests, self-dealing, representing both sides in a transaction, and transacting with a party in interest. But like the Eighth Circuit in Peterson, the Scott court did not get to the merits of the ERISA breach of fiduciary claim. Instead, the court dismissed the complaint because the plaintiffs only alleged United’s practices diminished the plan assets, not the plaintiffs’ entitlement to benefits. These plaintiffs did not have enough of a personal stake in the dispute to bring the litigation. Essentially, the case was thrown out on a threshold issue without deciding whether cross-plan offsetting violates ERISA.

But the Lutz court got there, after first finding that providers had standing to sue on their patients’ behalf, but only where assignment of benefits forms were properly completed and where the plan lacked any anti-assignment provision. Once standing was established, the Lutz court found the practice of cross-plan offsetting violated ERISA’s duty of loyalty and ban on representing both sides in a transaction.

More challenges to cross-plan offsetting will follow in the wake of these cases, leading to decisions on when and how the practice violates ERISA fiduciary duties. With guidance from the Scott decision, a plan participant whose personal benefit payment was affected by cross-plan offsetting is likely next in line to bring a breach of fiduciary claim against the TPA engaging in the practice.

Risk remains

Red flags continue to rise on cross-plan offsetting. The previous recommendations from OneDigital’s Compliance Team stands. Plan sponsors will want to inquire and review plan documents and third-party service agreements with their TPAs about whether they engage in the practice of cross-plan offsetting and fully understand how overpayments are recovered. Where a TPA is engaging in cross-plan offsetting, a plan sponsor may also seek to add indemnification language to its agreement with the TPA.

For more information on how to ensure your organization remains compliant, visit OneDigital’s Compliance Confidence page.