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 health care 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).