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New Decision May Assist Providers in Alleged Overpayment Clawbacks Banner Image

New Decision May Assist Providers in Alleged Overpayment Clawbacks

Month: July 2021

New Decision May Assist Providers in Alleged Overpayment Clawbacks

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For more information about this blog post, please contact Khaled J. Klele, Ryan M. Magee, or Labinot Alexander Berlajolli. 

If you have ever been entangled in a billing audit, you should read a recent decision issued by the United States District Court for the District of New Jersey (the “DNJ”) that addressed the practice commonly known as cross-plan offsetting, and provides new arguments to healthcare providers in clawbacks of alleged overpayments and recoupments.

In Lutz Surgical Partners PLLC, et al. v. Aetna, Inc., Case No. 3:15-cv-2595, the DNJ considered whether Aetna Life Insurance Company’s (“Aetna”) practice of cross‑plan offsetting violated the Employee Retirement Income Security Act of 1974 (“ERISA”).

Cross-plan offsetting refers to the practice of not paying a benefit due under one plan to recover an amount believed to be owed to another plan because of that other plan’s overpayment. For example, if a provider allegedly owed an overpayment for a claim under Plan A, the plan administrator (here, Aetna) would recoup the disputed overpayment through cross‑plan offsetting from a claim under a Plan B. Once the provider who retained the alleged overpayment submitted a subsequent claim for a different patient under Plan B, the plan administrator would pay for that claim by cancelling the debt that the provider allegedly owed to Plan A.

The DNJ held that Aetna’s practice of cross-plan offsetting violated its fiduciary duty as a plan administrator under Section 406(b)(2) and Section 404(a) of ERISA.

Following the Third Circuit’s prior finding that Section 406(b)(2) “creates a per se prohibition of a transfer between two funds where the trustees are identical but the participants and beneficiaries are not[,]” the DNJ held that Aetna, as an ERISA plan administrator and fiduciary for both Plan A and Plan B, whose participants and beneficiaries are not identical, violated ERISA “by failing to pay a benefit owed to a beneficiary under one plan in order to recover money for the benefit of another plan[.]” Further, the DNJ held that Aetna’s use of a pooled bank account for both plans makes the interests of Plan A adverse to those of Plan B, such that “when Aetna extracts funds from the account to pay for a Plan A claim, the amount of funds in the account available to pay for a Plan B claim decreases.”

Section 404(a) of ERISA provides that “a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and . . . for the exclusive purpose of . . . providing benefits to participants and their beneficiaries.” Thus, the DNJ held that when Aetna offsets an alleged overpayment to Plan A by withholding funds payable for claims under Plan B, it serves another purpose unrelated to the interests of Plan B participants and beneficiaries, i.e., recovering overpayments made under Plan A, in violation of Section 404(a).

Montana Says No Reasonable Search Duty for Preliminary Title Commitment

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The Montana Supreme Court recently held that there is no duty to conduct a reasonable search when a title insurer prepares a preliminary title commitment. Phipps v. Old Republic Nat’l Title Ins. Co., 2021 MT 152 (Mont. 2021). In the case, a couple (“Plaintiff”) acquired parcels of real property, used for ranching, through multiple transactions. The property was physically accessible using certain roads, but the legal accessibility was uncertain, as the public records of the county in which the property was located lacked records establishing these two roads as public roadways. In 2017, Plaintiff entered into an agreement with another couple to sell the property, which was conditioned in part on the provision of title insurance, as well as Buyer’s approval of a preliminary title commitment. A preliminary title commitment was ordered from an abstract company, and due to the lack of records concerning the roads, legal access to the property was listed as an exception to the policy. Buyer was unsatisfied with the commitment and walked away from the deal for the property, despite the county at issue later adopting a resolution declaring the two roads at issue to be public roadways, which resulted in a revised title commitment removing legal accessibility as an exception. Plaintiff filed an action in Montana District Court, alleging negligence, professional negligence, and negligent misrepresentation against the title insurer and title agent.  More precisely, they alleged that certain documents in the County Road Books (which are not part of a standard title search) would have shown that the roads in question were, in fact, public roads. Defendants argued, in part, that they had no duty to Plaintiff in preparing a preliminary commitment. The District Court granted summary judgment for the Defendants, and in an “Order on Threshold Legal Issue,” found that relevant Montana statutes “do not impose a duty with respect to the offer of title insurance in a preliminary commitment, thus foreclosing [Plaintiff’s claims].” Plaintiff appealed.

The Montana Supreme Court upheld the findings of the District Court. The Court began by tracing the history of title insurance law in the state, finding that for many years, courts found “a duty on the part of the title insurer when it issues a title commitment . . . to base its title commitment and report upon a reasonably diligent title search of the public records. A breach of that duty would constitute negligence.” Malinak v. Safeco Title Ins. Co., 661 P.2d 12 (Mont. 1983). However, the Court found, when the Montana Legislature enacted the Montana Title Insurance Act (“MTIA”) in 1985, it expressly provided that “[t]he rights, duties, and liabilities applicable to the preparation and issuance of an abstract of title are not applicable to the issuance of a preliminary report.” Section 33-25-111 (2), MCA. Based on this, the Court found that “it [was] clear that the enactment of the MTIA removed the common law ground for the particular claims [Plaintiff] has made herein, based upon the preliminary commitment,” including the common law claim elucidated in Malinak. Plaintiff’s argument “regarding the practical importance of the preliminary commitment to real estate transactions [was] well taken, but [the Court] cannot impose duties upon that process as a matter of common law when the legislature has acted otherwise . . . [and] the District Court correctly entered summary judgment.”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Desiree McDonald at dmcdonald@riker.com, or Andrew Raimondi at araimondi@riker.com.

Federal Update: From Proposed Rules to Litigation

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For more information about this blog post, please contact Khaled J. Klele, Ryan M. Magee, or Labinot Alexander Berlajolli.

CMS Delays Best Drug Price Reporting Rule

Pursuant to 86 FR 28742, the Centers for Medicare and Medicaid Services (“CMS”) seeks to delay for 6 months the January 1, 2022 effective date of a final rule that requires drugmakers to report the best prices for drugs when offered as part of a value-based purchasing (“VBP”) arrangement. CMS stated that the delay was necessary to provide CMS, states, and manufacturers more time to make necessary system changes to implement the new best price and VBP program. The proposed rule also proposes to delay for 2 years the April 1, 2022 effective date of inclusion of certain U.S. territories (American Samoa, Northern Mariana Islands, Guam, Puerto Rico, and the Virgin Islands) in the Medicaid drug rebate program.

HHS Withdraws Advisory Opinion on 340B Discounts

In light of getting sued, the United States Department of Health and Human Services (“HHS”) has withdrawn its Advisory Opinion 20-06, issued December 30, 2020, requiring drug makers to provide 340B discounts to hospitals that use contract pharmacies. Several pharmaceutical companies sued HHS regarding the rule, and the United States District Court of Delaware refused to dismiss the lawsuit. HHS stated that it withdrew the Advisory Opinion because it created confusion and was never intended to create the obligations alleged in the lawsuit. The news of the withdrawal is a blow to hospitals that use contract pharmacies.

HHS Withdraws Rule on Affordable Life-Saving Medication

86 FR 32008: HHS has proposed to withdraw a final rule introduced under the previous administration requiring community health centers to pass on 340B drug discounts for insulin and injectable epinephrine to low-income patients. The community health centers argued that the final rule would create significant administration costs and burdens. HHS initially delayed implementation of the final rule and is now proposing to withdraw it completely instead of proposing changes to address the concerns.  Comments are due by July 16, 2021.

CMS Issues Rule on Affordable Care Act

86 FR 35156: CMS issued this proposed rule to attempt to expand the Affordable Care Act ("ACA"). For example, the proposed rule lengthens the annual open enrollment period for 2022 by an additional 30 days, create a new special enrollment for certain low-income consumers so they may access premium-free or very low-cost coverage available to them because of the enhanced advanced premium tax credit ("APTC") provisions included in the American Rescue Plan Act of 2021, and expands the duties of Federally-facilitated Exchange Navigators to offer more help to consumers. CMS issued a fact sheet on the proposed rule.  Comments are due by July 28, 2021.

Federal Court Upholds Interim Rule Regarding Star Ratings

The U.S. District Court for the District of Columbia recently ruled in favor of the Department of Health and Human Services against three Medicare Advantage Plans that challenged an interim final rule issued by the CMS on how Medicare Advantage star ratings were calculated during the COVID-19 pandemic. Avmed, Inc. et al v. Becerra, Civil Action No. 20-3385 ("JDB").

CMS rates a plan from one to five stars based on certain metrics and, by statute, the higher the rating, the higher the federal payments the plan will receive. The federal rule granted HHS’s motion for summary judgment regarding the interim final rule that was issued on April 6, 2020 that modified the data submission requirements and rating methodology for the 2021 Star Ratings to address the expected disruption to data collection due to COVID-19. Specifically, CMS suspended the requirement that plans submit certain data because it was unsafe to collect and, instead, relied on the previous year’s data as well as new data derived from other sources. On November 20, 2020, three plaintiffs challenged the interim final rule claiming that CMS exceeded its authority. The Federal Court ruled in its opinion that CMS did not exceed its authority and upheld the interim final rule.

Supreme Court Declines to Hear HHS Site-Neutral Policy

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For more information about this blog post, please contact Khaled J. Klele, Ryan M. Magee, or Labinot Alexander Berlajolli.

On Monday, the U.S. Supreme Court declined to hear a challenge to the U.S. Department of Health and Human Services’ (“HHS”) site-neutral payment policy, allowing Medicare reimbursement cuts to hospitals to continue.

The case stemmed from a final rule issued in 2018 that made $600 million in cuts to hospitals when services are provided at off-site outpatient clinics. Before the final rule, the Centers for Medicare and Medicaid Services (“CMS”) would pay hospitals a hospital rate, as opposed to the lower physician office rate, for services that are provided in an office setting operated by a hospital. In an attempt to overturn the final rule, the American Hospital Association (“AHA”) and dozens of hospitals sued CMS, arguing that it exceeded its authority when it finalized the cuts.

In 2019, a federal judge initially ruled in favor of the AHA, finding that HHS exceeded its rulemaking authority. However, on appeal, the U.S. Court of Appeals for the District of Columbia (“Appeals Court”) reversed the lower court’s decision and ruled that HHS's payment cuts to hospitals’ off-site outpatient departments were legal because the changes were volume-control measures that do not have to be budget-neutral. The Appeals Court also found that HHS’s interpretation of federal law was adequate, as the federal law governing the payment rule allows the agency some latitude on changing its payment formula.

The U.S. Supreme Court did not provide reasons as to why it declined to hear the appeal. However, in declining to take up the case, the U.S. Supreme Court has effectively permitted the Appeals Court ruling to stand, impacting the way CMS establishes payment rates under the Outpatient Prospective Payment System, and perhaps other services, for the foreseeable future.

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