/>iIn a recent opinion, Smith et al. v. UnitedHealth Group Inc. et al., the US Court of Appeals for the Eighth Circuit affirmed the dismissal of an Employee Retirement Income Security Act (ERISA) class action suit brought by health plan participants. The court determined that the plaintiffs could not assert a breach of ERISA by merely arguing a plan’s terms were inconsistent with federal benefits law. Rather, plaintiffs must also show a concrete injury.
A link to the opinion is here.
The Controversial Practice of Cross-Plan Offsetting
Cross-plan offsetting is a practice by which an administrator of multiple health plans reduces, or even pays nothing, on a benefit due to a provider for a particular patient covered under one plan in order to recover (offset) an amount believed to have been overpaid to the provider with respect to services rendered to another patient covered by another plan.
In recent years, several courts have ruled that cross-plan offsetting is not a legally permissible method for recouping provider overpayments. Typically, courts that allow cross-plan offsetting review whether the terms of the plan document permitted cross-plan offsetting before addressing issues raised related to the practice. In Peterson v. UnitedHealth Group, Inc., the US Court of Appeals for the Eighth Circuit ruled in 2019 that the practice of cross-plan offsetting was not permissible because it was not specifically authorized in the applicable plan documents. The court did not address whether cross-plan offsetting necessarily violates ERISA.
The US Department of Labor’s (DOL) position on cross-plan offsetting is that third-party administrators (TPAs) engaging in the practice violate ERISA fiduciary duties owed to group health plans and their participants. They do this by wrongfully retaining assets from one health plan for a debt allegedly owed by a different health plan, for the benefit of the third-party administrator. In fact, the DOL recently settled with a TPA that had engaged in improper cross-plan offsetting.
Cross-plan offsetting harms providers because it allows an automatic remedy for an alleged overpayment that would not otherwise be available, putting the provider in the position of having to argue the propriety of a disputed overpayment after funds have already been taken back. It can also be an administrative burden for providers to have to track offsets that are not always clearly identified across multiple patients and plans in order to attribute payments and balances correctly. Cross-plan offsetting also harms patients by putting them at risk of being balance billed for wrongfully offset claims.
The Claim at Issue in Smith et al. v. UnitedHealth Group Inc. et al.
Rebecca Smith and Cristine Ghanim are participants in separate self-funded health insurance plans administered by UnitedHealth Group. Smith and Ghanim underwent medical procedures in 2020 and United covered the procedures. However, United did not pay the providers in full, and instead used cross-plan offsets to offset the payments to the providers for overpayment allegedly owed to other plans with respect to services to other patients. Smith and Ghanim brought claims against United under 29 U.S.C. § 1132(a)(2), asserting that United’s practice of cross-plan offsetting violates United’s duty of loyalty and other prohibitions under ERISA. Smith and Ghanim sought injunctive and equitable relief.
Smith and Ghanin, however, did not pay more for the procedures than they would have if United had not used cross-plan offsets, since the providers had not yet sought to collect the amounts offset by United from them.
The district court reviewed United’s motion to dismiss the complaint for lack of subject-matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1) and failure to state a claim under Rule 12(b)(6), and dismissed the case based on Smith and Ghanim’s lack of constitutional standing under Rule 12(b)(1).
The Eighth Circuit’s Opinion
The Court of Appeals affirmed the district court’s dismissal of the case. The court explained that both plans at issue explicitly delegated to United the discretion to decide how to implement cross-plan offsets when paying benefits. ERISA requires that fiduciaries follow the terms of plan documents to the extent that the plan terms are consistent with ERISA. They also must avoid conflicts of interest.
While the court acknowledged that Smith and Ghanim asserted that the plans’ language was inconsistent with ERISA and they had pled a statutory cause of action under ERISA, the plaintiffs had not shown a concrete injury, and therefore did not have standing.
The court was also not convinced by the plaintiffs’ argument, that while they had not been billed by the providers for the claims offset by United, the risk of future balance billing for the offset claims could satisfy the constitutional requirement that a plaintiff must show concrete-harm. The court explained that the injunctive relief Smith and Ghanim sought cannot prevent providers from collecting on their outstanding debts through balance billing and would therefore not address their speculative injury.
Parties challenging cross-plan offsetting should be mindful of this decision and fully develop the record as to how they have been directly harmed by a TPA engaged in improper cross-plan offsetting.
