Out-of-Network Disputes in ERISA Health Plans Resolved by Litigation
Rising healthcare costs, the increasing complexity of plan administration under state and federal rules, and differing interpretations regarding reimbursement rates are resulting in increased litigation. “Out of network” disputes are a prime example. These disputes are often between the institutional medical service provider, such as a hospital, and a health insurance company, a self-insured employer, or a third-party administrator.
Many healthcare plans insured and/or administered by an insurance carrier allow participants to obtain medical services from providers who are not specifically covered by the participant’s healthcare plan. In this type of an arrangement, the provider is often referred to as an “out-of-network,” “non-participating,” or “non-par” provider.
The participant’s costs resulting from the out-of-network service may be different from “in-network” services in regard to co-pays,the reimbursement rate, and the requirement that must be met for a deductible. The rate to be reimbursed is generally governed by the details of the health plan documents.
The Employee Retirement Income Security Act of 1974 (ERISA) is the federal law that sets minimum standards for most voluntarily established pension and health plans in private industry. Health plans are governed by the provisions of ERISA, 29 U.S.C, §§ 1001 and related sections. Exceptions to this ERISA provision include governmental plans, church plans, certain workers’ compensation plans, non-U.S. plans, or “excess benefit” plans.
Under ERISA, pension and health plan sponsors have certain fiduciary responsibilities. The “Summary Plan Description” is a central component of ERISA reporting and disclosure requirements. Sometimes referred to as the “SPD,” it must describe the benefits, rights, and obligations of each plan member in great detail and with easy-to-understand language. SPDs must address how out of network reimbursements are determined.
Plan participants and beneficiaries have a right to request information about the plan on an as-needed basis. The plan sponsor generally has 30 days from receipt of a written request for information to reply with documents that typically include the most recent SPD, and/or other documents that describe plan features and operations.
When out-of-network services are chosen by a health plan participant, the healthcare provider may ask the participant, among other things, to sign an “assignment of benefits and rights” that essentially makes the provider the beneficiary of the ERISA plan and any non-ERISA contracts. When the participant grants these rights, the provider becomes eligible to be reimbursed directly by the health plan insuring entity. If the provider disagrees with the reimbursement rates, they are eligible to pursue the plan participant’s rights, including litigation.
The value of these out-of-network disputes can quickly escalate to millions of dollars.
Two out-of-network cases with national significance that have received considerable attention recently are:
• Koenig et. al. v. Aetna, (U.S. District Court for the Southern District of Texas, No. 4:13-cv-00359), and
• Connecticut General Life Insurance Company and CIGNA Health and Life Insurance Co. v. Humble Surgical Hospital LLC, (also in the Southern District of Texas, No. 4:13-cv-3291).
The Koenig case was based on alleged inconsistencies in the claims adjudication process, including the use of payment discount policies, as well as Aetna’s alleged refusal to provide the beneficiary provider with requested fee schedules.
In a Memorandum on Motion for Judgment dated October 29, 2015, the U.S. District Court for the Southern District of Texas concluded in Koenig “…that the evidence fails to support a finding that Aetna underpaid NCMC on any ERISA claim.” The court went on to state,
“As claim administrator, Aetna had discretionary authority to determine eligibility for benefits and construe plan terms. A court is loath to reverse the administrator’s finding because a reversal requires the court to find that the administrator abused its discretion. … Discretionary authority to determine eligibility for benefits and to construe the terms of the plans rests in Aetna.”
In the Cigna case, Cigna sued Humble for more than $5 million in alleged over-payments. Cigna suspected that Humble was engaging in “fee-forgiving” by adjusting the co-insurance or deductible fees for certain patients. Humble was also alleged to be inflating its rates in order to increase reimbursement rates.
Humble responded with a counterclaim under ERISA and Texas law, claiming insufficient reimbursement for 595 specific claims, breach of fiduciary duty, and failure to comply with requests for plan documents. Cigna maintained it had the discretion to interpret the plan as it did.
The district court granted Humble’s request for a Judgment on Partial Findings following a nine-day bench trial. The district court concluded that Cigna's claims and defense failed. Humble was awarded $11 million in damages and $2.3 million in penalties.
Cigna then appealed to the U.S. Court of Appeals, Fifth Circuit (No. 16-20398). In a decision issued on December 19, 2017, the appellate court ruled as follows:
(1) REVERSED the district court's decision with respect to Cigna's exclusionary language defense, supporting Cigna’s position on discretion;
(2) REVERSED the district court's ERISA penalty determination for not providing requested plan documents because that duty belonged to the officially designated Plan Administrator, not Cigna;
(3) VACATED IN PART the district court's dismissal of Cigna's claims and REMAND for further factual findings pursuant to this opinion; and
(4) VACATED the district court's award of attorneys' fees and REMAND for reconsideration.
Plaintiff or defense attorneys who are interested in learning more about these or other out-of-network cases are invited to contact the author for details.
Dr. Mark Johnson, J.D., is an ERISA expert, including matters relating to out-of-network benefits. He is a former ERISA Plan Managing Director and plan fiduciary for a Fortune 500 company, Dr. Johnson has practical knowledge of plan documents as well as an in-depth understanding of ERISA obligations. He works as an expert consultant and witness on 401(k), ESOP and pension fiduciary liability; retiree medical benefit coverage; third party administrator disputes; individual benefit claims; pension benefits in bankruptcy; long term disability benefits; and cash conversion balances. Reach him at 817-909-0778.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.