Cross-Plan Offsetting: What Health & Welfare Plans Must Know

Cross-plan offsetting is becoming increasingly problematic and has become the subject of litigation. This practice involves a network provider shorting one out-of-network claim to make up for an overpayment made to the same provider on services to a different participant in a different plan! The United States Court of Appeals for the Eighth addressed this issue in Peterson v. UnitedHealth Group, Inc., 913 F.3d 769 (2019). The case was brought by a doctor on behalf of his patients alleging that UnitedHealth Group, who had applied the practice of cross-plan offsetting to several self-funded multi-employer plans, violated the plan documents of such plans and therefore violated ERISA. The Court of Appeals agreed, finding that no plan affected by this practice explicitly allowed for cross-plan offsetting, and found that UnitedHealth violated ERISA.

To understand cross-plan offsetting, take the following example. A Participant in a multi-employer health & welfare plan has a surgery performed by an out-of-network surgeon. He is billed $10,000 for the surgery. The Plan requires 50% coinsurance for out-of-network surgeries, so the Participant expects to pay $5,000. The surgeon bills the plan for the remaining $5,000. The plan is self-funded but uses a PPO provider to process and administer payments. The $5,000 bill from the surgeon is received by the PPO provider and meets the requirements to be paid by the Plan. The PPO provider takes $5,000 from the Plan’s fund but does not pay the Surgeon the entire amount. Why?

Because unbeknownst to the Participant and the Plan, the PPO provider overpaid the surgeon $1,500 on another out-of-network claim for a participant in a completely different plan. Rather than litigate the matter with the surgeon, the PPO provider will pay the surgeon $3,500 on the current claim and withhold the remaining $1,500 to compensate itself for the earlier “overpayment.” That leads the surgeon to balance bill the Participant for the $1,500 shortfall.

The Department of Labor took issue with this practice and filed an amicus brief in Peterson, alleging that UnitedHealth failed to act in the exclusive interest of plan participants in violation of its fiduciary duties under ERISA. According to the Department of Labor, UnitedHealth was not acting in the best interest of the plan or its participants when it shorted otherwise eligible claims and engaged in self-dealing by retaining the payments to reimbursement itself for the mistakes. Additionally, in many cases UnitedHealth shorted a claim for a self-funded plan to reimburse itself from an overpayment made by a fully insured plan, meaning UnitedHealth was effectively paying itself as opposed to another plan. The Court of Appeals did not rule on whether UnitedHealth breached its fiduciary duty because this was not at issue in the case. However, it agreed with the Department of Labor that UnitedHealth’s practices created concerns under ERISA’s fiduciary requirements.

Final Thoughts

Although there was no ruling on whether cross-plan offsetting resulted in a breach of ERISA fiduciary duty in the Peterson case, a class action suit was recently filed making those allegations. The Plaintiffs in Scott v. UnitedHealth Group, Inc. are alleging that cross-plan offsetting (i.e., the same action discussed in the Peterson case) is a breach of ERISA’s fiduciary duty provisions and are requesting that the money recouped in cross-plan offsetting be restored to the affected plans.

While the Department of Labor is yet to address this issue with a regulation, its clear opposition to this practice is cause for concern for self-funded multi-employer health plans. Plan Trustees should review their PPO Agreement to determine whether it permits cross-plan offsetting. If so, Trustees and Administrators should be aware that this practice only affects out-of-network claims and therefore should evaluate their potential exposure (i.e., percentage of out-of-network claims). Ultimately, Trustees and plan professionals should follow this litigation closely and work with their PPO providers following whatever decision comes out of the 8th Circuit.