A healthcare provider renders services to a patient and submits a reimbursement claim to the patient's insurer. The insurer pays the claim. Later, the provider receives a letter from the insurer stating that the claim was improperly paid and demanding repayment of the allegedly overpaid amount. When the provider refuses to return the amount, the insurer "recoups" it by refusing to pay the provider for future claims submitted on behalf of other patients or unrelated services.
Post-payment audits and recoupment demands have become commonplace in today's healthcare environment. While an in-network provider’s provider agreement generally contains a dispute resolution procedure through which the provider can appeal the overpayment determination, out-of-network providers often are not afforded such process. Recently, both in- and out-of-network providers have fought back against these demands using the Employee Retirement Income Security Act of 1974 (ERISA), and, in many cases, have been successful in doing so.
An insurer generally initiates the recoupment process through a letter to the provider stating that the insurer overpaid the provider on one or more past claims and demanding immediate repayment of the amount allegedly overpaid. The insurer may not provide a reason why it believes the provider was overpaid and may not detail how it came to that determination.
If the provider does not voluntarily pay the allegedly overpaid amount, the insurer simply offsets it against future claims that the provider submits on behalf of other patients and for other services. For out-of-network providers, there may be no judicial or administrative procedure offered for reviewing the validity of the insurer’s position and, if any review procedure is offered, the insurer generally handles the review through an internal audit department, special investigations unit (SIU) or in-house legal department.
A growing number of cases indicates that providers may be able to challenge insurer recoupments under Employee Retirement Income Security Act of 1974 (ERISA). ERISA grants a plan participant or beneficiary certain procedural protections when an ERISA plan issues an "adverse benefit determination," (ABD) which is defined broadly to include "a denial, reduction, or termination of, or a failure to provide or make payment (in whole or in part)…." Specifically, upon issuing an ABD, the plan must provide written notification "in a manner calculated to be understood" by the recipient, including the following: (i) the specific reason(s) for the adverse determination; (ii) reference to the specific plan provisions on which the determination is based; (iii) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material is necessary; (iv) a description of the plan's review procedures and the time limits applicable to such procedures, including notice that the claimant has a right to bring a claim under ERISA to challenge the decision; and (iv) any internal rule, guideline, protocol, or other similar criterion [that] was relied upon in making the adverse determination.
These "baseline procedural protections" ensure that when a claimant appeals a denial, she will have a fair chance to present her case. In the past few years, courts have extended the definition of ABD to include insurer recoupment demands, a move that is significant in that it grants ERISA's procedural protections to providers who receive those demands.
Using ERISA, providers have recovered amounts withheld with respect to unrelated claims through lawsuits they have filed based on assignments of benefits from their patients. Courts have also indicated that a provider may be able to recover attorneys' fees and costs.
While a provider's ability to challenge an insurer's recoupment demand may depend on a number of factors, including, among others, whether the provider is in- or out-of-network, has a valid assignment of benefits from the patient-participant, details underlying the insurer's overpayment determination, and any fault or misconduct by the provider, providers should not overlook ERISA as a potential vehicle for doing so.
Lauren Garraux is an associate and James Scheuermann is a partner at K&L Gates in Pittsburgh, Pennsylvania. Both represent healthcare providers including physicians, physician groups, hospitals and hospital systems in disputes with payers relating to reimbursement for services rendered to plan participants.