On January 15, 2019, the United States Court of Appeals for the Eighth Circuit considered whether certain plan documents allowed UnitedHealth Group Inc. and affiliates (“United”) to engage in a practice known as “cross-plan offsetting.”  Louis J. Peterson, D.C., et al. v. UnitedHealth Group Inc. et al, 913 F.3d 769 (8th Cir. 2019).  “Same-plan offsetting” and “cross-plan offsetting” are techniques used by health plan administrators to recover overpayments from providers.  If an administrator engages in same-plan offsetting to recover an overpayment from a provider who treats a member of Plan A, the administrator will wait until another member of Plan A is treated by the same provider and deduct the amount of the overpayment from the payment it would otherwise make to that provider.  Thus, if many members of Plan A (i.e. members of the same employer health plan) receive treatment from the same provider, then same-plan offsetting makes it relatively easy for the plan administrator to recoup overpayments from that provider.

However, it is not always the case that members of the same plan receive treatment from the same provider.  Health plan administrators sometimes engage in the practice of cross-plan offsetting to recover overpayments in these situations.  Pursuant to this practice, the administrator recoups an overpayment for a healthcare service provided to a member of Plan A by withholding payment for a service provided to a member of an entirely different plan. 

The plaintiffs were out-of-network medical providers who sued to challenge United’s payment and recovery procedure that included cross-plan offsetting of payments made to out-of-network providers on behalf of their patients who were United plan beneficiaries.  The United States District Court for the District of Minnesota had granted partial summary judgment to the plaintiffs, finding that, based on the district court’s review of the underlying plan documents, “all of those plans explicitly authorize same-plan offsetting; and not one of those plans explicitly authorizes cross-plan offsetting.”  Id. at 773 (emphasis added).  The district court concluded that United’s interpretation of the underlying plan documents was not reasonable.  Id.

In reaching its opinion, the district court noted that every plan that had made overpayments to the providers was fully insured.  On the other hand, the court noted, the majority of the plans from which the overpayments were recovered were self-insured.  “In other words, every one of the cross-plan offsets at issue in this litigation put money in United’s pocket, and most of that money came out of the pockets of the sponsors of self-insured plans.”  Peterson et al. v. United HealthGroup Inc., 242 F. Supp. 3d 834, 840 (D. Minn. 2017).  The district court emphasized that the practice of cross-plan offsetting creates a “substantial and ongoing conflict of interest for claims administrators who, like United, simultaneously administer both self-insured and fully insured plans.”  Id. at 844.

United appealed the district court’s decision.  The issue before the Eighth Circuit was whether the underlying plan documents allowed United to engage in cross-plan offsetting.  The Eighth Circuit focused on two key points:  (1) whether the plan documents actually authorized cross-plan offsetting; and (2) whether cross-plan offsetting is in tension with ERISA.  With respect to the first point, the Eighth Circuit found that “nothing in the plan documents even comes close to authorizing cross-plan offsetting.”  Peterson, 913 F.3d at 776.  United had argued that the plan language granted it broad authority to administer the plan, and this broad language was sufficient to authorize cross-plan offsetting.  The Eighth Circuit rejected this argument, noting that to adopt United’s argument “would be akin to adopting a rule that anything not forbidden by the plan is permissible.”  Id.  The court went on to state that “United’s assertion that it has the authority to engage in cross-plan offsetting can hardly be called an interpretation because it has virtually no basis in the text of the plan documents.”  Id.

With respect to the second point, whether cross-plan offsetting is in tension with ERISA, the Eighth Circuit noted that under ERISA, plan administrators are fiduciaries of plan assets, which are to be held in trust and for the purpose of providing benefits to plan participants and beneficiaries.  The court further noted that each plan is a separate entity and a fiduciary owes duties to each distinct plan.  Accordingly, cross-plan offsetting is inherently in conflict with a plan administrator’s fiduciary duties to each plan it separately administers.  See id. at 777.  The Eighth Circuit concluded that cross-plan offsetting “push[es] the boundaries of what ERISA permits” and called the practice “questionable at the very least.”  Id.

The Eighth Circuit ultimately found that United’s interpretation of the underlying plan documents was not reasonable.  It concluded that cross-plan offsetting violated the underlying plan language because the plan documents did not expressly authorize this recovery technique.  In addition, although the Eighth Circuit did not reach a conclusion on the merits as to whether cross-plan offsetting violates ERISA, it is clear that the court viewed the practice with a great deal of skepticism. The Eighth Circuit's opinion is available here.