The United States District Court for the District of Minnesota recently determined, in Peterson v. UnitedHealth Group, Inc., that a health insurer’s practice of “cross-plan offsetting” was illegal because the terms governing the impacted health plans did not authorize the practice.
Background. Cross-plan offsetting is a practice employed by health insurers and TPAs to recoup alleged overpayments made to service providers for patients from one health plan by reducing or eliminating payments for patients from different plans also serviced by the insurer or TPA.
Facts. The plaintiffs in Peterson, a class action lawsuit, were health care providers that the defendant-insurer/TPA alleged had been overpaid for services provided to certain patients covered under a self-insured health plan that was administered by the defendant. To recoup these overpayments, the defendant reduced or eliminated future payments it made to the plaintiffs for services they provided to patients covered under different self-insured group health plans also administered by the defendant.
In response, the plaintiffs sued, alleging that the defendant had wrongfully failed to pay them for providing covered health services to patients enrolled in health plans administered by the defendant.
District Court. In hearing the matter, the district court reviewed the terms of the health plans at issue to determine whether they authorized the defendant’s practice of cross-plan offsetting. The district court determined that the health plans’ terms provided no such authorization for the defendant’s practice. The district court commented that the defendant’s interpretation of the plans to allow cross-plan offsetting was “inherently unreasonable” and created “gross conflicts of interest.”
Moreover, the district court ruled that the defendant had violated its fiduciary duty as the plans’ administrator by failing to obtain the plan sponsors’ consent to reduce or eliminate payments from the health plans to offset the overpayments made from different health plans.
Takeaway from Peterson. The district court’s ruling in Peterson only relates to whether the terms of the health plans at issue authorized cross-plan offsetting and not whether the practice was a violation of ERISA fiduciary duties. Nonetheless, the district court noted its skepticism about whether ERISA permits cross-plan offsetting, especially in the context of an insurer that both insures certain plans and acts as TPA for other self-insured health plans.