Cross-plan Offsetting Practices and the Eighth Circuit’s Ruling
Cross-plan offsetting is used by third-party administrators of multiple health plans to reduce or even withhold payment to a medical provider for a specific patient covered under one plan to recover an amount believed to have been overpaid to the provider for services rendered to another patient covered by a different plan.
Recently, courts have ruled that cross-plan offsetting is not legally permissible for recouping provider overpayments. Courts that allow cross-plan offsetting typically review whether the plan document’s terms permit it before addressing issues related to the practice. For instance, in Peterson v. UnitedHealth Group, Inc., the US Court of Appeals for the Eighth Circuit ruled 2019 that cross-plan offsetting was not permissible because it was not explicitly authorized in the applicable plan documents. The court did not address whether cross-plan offsetting necessarily violates ERISA.
The US Department of Labor (DOL) asserts that third-party administrators (TPAs) engaging in cross-plan offsetting violate ERISA fiduciary duties owed to group health plans and their participants. The DOL recently settled with a TPA engaged in improper cross-plan offsetting.
Cross-plan offsetting harms medical providers by providing an automatic remedy for an alleged overpayment that would not otherwise be available. It puts the medical provider in the position of arguing the propriety of a disputed overpayment after funds have already been taken back. It can also be an administrative burden for medical providers to track offsets that are not always clearly identified across multiple patients and plans to attribute payments and balances correctly. Insurers still carry out such practices even when medical providers win Federal No Surprises Act arbitration awards.
A significant case related to cross-plan offsetting is the Eighth Circuit Court of Appeals case, Smith et al. v. UnitedHealth Group Inc. et al. The Eighth Circuit ruling makes it very clear that parties (i.e. medical providers, patients, etc.) challenging cross-plan offsetting must show how they have been directly harmed by a TPA engaged in improper cross-plan offsetting.
The plaintiffs in Smith et al. v. UnitedHealth Group Inc. et al. sued UnitedHealth Group, Inc. for ERISA violations in that case. They claimed that UnitedHealth Group, Inc. used cross-plan offsets to offset payments to medical providers, which violated ERISA. However, the district court granted United’s motion to dismiss, stating that the plaintiffs lacked standing. The Eighth Circuit Court of Appeals affirmed the dismissal, noting that both plans explicitly delegated to United the discretion to decide how to implement cross-plan offsets when paying benefits. The court also stated that the injunctive relief the plaintiffs sought could not prevent medical providers from collecting on their outstanding debts through balance billing and would not address their speculative injury. In other words, the plaintiffs must be able to show concrete harm.
