Since the implementation of the Affordable Care Act, escalating economic pressures surrounding private reimbursement have led to friction between providers and health plans. Narrowing networks and decreasing reimbursement rates incentivize these players to test the boundaries of their contractual and statutory obligations to each other. These private payor disputes have sparked a wave of litigation that is shaping this rapidly-developing area of the law, which includes payment of employee health benefits under the Employee Retirement Income Security Act (ERISA).
The recent ERISA decision by the Supreme Court in Montanile v. Board of Trustees of National Elevator Industry Health Benefit Plan, 136 S.Ct. 651 (2016), has created additional pressures for health plans seeking to recover overpayments from their own plan participants, and providers may begin to feel these pressures as health plans react. Although Montanile may contribute to the increased friction between providers and health plans, the potential implications of the decision for providers are both positive and negative, depending on the network status of the provider and the jurisdiction in which the matter may be litigated. After Montanile, when ERISA applies, health plans are limited in their ability to recover overpayments from providers. However, courts may be less willing to find that ERISA preempts state-law fraud and breach of contract actions if, as a result, a health plan would be denied recovery.
Overpayments under ERISA health plans
ERISA’s primary purpose is to protect the interests of participants in employee benefit plans.1 One way ERISA achieves this purpose is to ensure the integrity of written, bargained-for employee benefit plans.2 Plan fiduciaries are responsible for the proper administration of plan assets in accordance with the terms of the plan3 and in the interest of all plan participants and beneficiaries.4 Courts have recognized that self-funded plans may become financially unfeasible if they are required to absorb payments not contemplated by the underwriting of the plan.5 Thus, plan documents impose on participants the obligation to reimburse overpayments, as defined by the plan, and the plan’s recovery of overpayments inures to the benefit of all participants and beneficiaries by reducing the total cost of the plan.6
One point of dispute in recent litigation is the ability of health plans to recover overpayments from health care providers. ERISA plans usually contain a provision authorizing the plan to recover “overpayments,” defined as including payments made in error, e.g., for services that were not medically necessary,7 or payments in an amount greater than what is payable under the plan.8 Overpayments may also occur when a third-party is responsible for medical expenses, frequently under a coordination of benefits provision9 or a subrogation and reimbursement provision.10 Payors have also taken the position that an overpayment occurs when a provider waives, discounts, or “forgives” participants’ coinsurance payments, arguing that coverage is conditioned on the collection of coinsurance.11
Limited rights of recovery under ERISA
ERISA § 502(a) sets forth “an integrated system of procedures for enforcement,” which provides the exclusive remedies for enforcing the ERISA statute and the terms of ERISA plans.12 In enacting ERISA, Congress chose to include certain remedies and exclude others under the ERISA enforcement scheme in order to balance the need for prompt and fair claims settlement procedures against the public interest in encouraging the formation of employee benefit plans.13 Accordingly, whenever a litigant seeks to enforce the terms of an employee benefit plan governed by ERISA, the litigant is limited to the remedies available under ERISA § 502(a).
The Montanile Decision
The Montanile case considered the ability of a health plan to recover overpayments from a participant under ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3), which authorizes plan fiduciaries to file civil suits to obtain “appropriate equitable relief” to enforce the terms of the plan.14 The Montanile decision is part of a series of decisions by the Supreme Court interpreting the words “appropriate equitable relief.”15 These decisions have established that, in order to recover an overpayment under § 502(a)(3), a plan must assert (1) an equitable claim (2) for equitable relief.16 To satisfy these requirements, plans typically assert that they have an equitable lien over a specific fund, the overpayment, and the plan seeks to enforce the equitable lien against that fund. Prior to Montanile, there was a circuit split as to whether a plan is still seeking an equitable remedy when the defendant, who once possessed the specific fund, has dissipated it, and the plan then seeks to recover out of the defendant’s general assets.
The underlying facts in Montanile are similar to what occurs in hospitals every day. Robert Montanile received medical treatment for injuries he sustained as a result of a motor vehicle collision with a third party—a drunk driver who ran a stop sign. Montanile’s employee benefit plan paid more than $120,000 in benefits related to the accident. However, the terms of the plan established that the plan had a right to reimbursement whenever a member recovered money from a third party who was responsible for the injury.
Montanile obtained a $500,000 settlement in connection with his negligence claim against the drunk driver. Montanile’s attorneys received $260,000 of the settlement fund as payment of their fees and costs. The health plan asserted a right to $120,000 from the remaining $240,000 of the settlement. Montanile’s attorneys retained the disputed amount in their trust account while they attempted to negotiate a settlement of the health plan’s claim. After settlement discussions broke down, Montanile’s attorneys informed the health plan that they would distribute the remaining settlement funds to Montanile unless the plan objected within 14 days. The plan did not respond within this timeframe, and the attorneys distributed the remainder of the settlement fund to Montanile.
The plan filed suit against Montanile under ERISA § 502(a)(3), asking the court to enforce an equitable lien upon any settlement funds or property in Montanile’s actual or constructive possession. The district court granted summary judgment to the health plan, rejecting Montanile’s argument that there was no longer a specific, identifiable fund separate from his general assets against which the plan’s equitable lien could be enforced. The district court held that the plan was entitled to reimbursement from Montanile’s general assets, regardless of whether Montanile had dissipated some or all of the settlement funds. The Eleventh Circuit affirmed the district court, reasoning that a plan can always enforce an equitable lien once the lien attaches, and that dissipation of the specific fund to which the lien attached cannot destroy the underlying reimbursement obligation.
In its review of the Eleventh Circuit decision, the U.S. Supreme Court observed that the basis for the plan’s action was equitable because the plan had an equitable lien by agreement that attached to Montanile’s settlement fund when he obtained title to that fund. The Court also noted that the nature of the plan’s remedy would have been equitable had it immediately sued to enforce the lien against the settlement fund in Montanile’s possession. However, the Court concluded that the plan was seeking legal, not equitable, relief in this action because the plan was attempting to collect the overpayment from Montanile’s general assets.
In arriving at this conclusion, the Court considered standard equity treatises, noting that equitable remedies are, as a general rule, directed against some specific thing. Accordingly, equitable liens are ordinarily enforceable only against a specifically identified fund. The lien is eliminated when the defendant dissipates the fund on nontraceable items. The Court noted that, under ordinary circumstances, the plaintiff would retain only a personal claim against the wrongdoer—a quintessential action at law. The Court did not expressly determine that such an action at law would be preempted by ERISA, but there would be a strong argument for preemption based on ERISA precedent.
Impact of Montanile on litigation between health plans and providers
As discussed above, recent litigation has focused on the ability of health plans to recover overpayments from providers. Plans frequently conduct postpayment audits to identify these overpayments.17 The plan will then issue a request for reimbursement of the alleged overpayment from the provider.18 If the provider does not comply with the request, the plan may file suit against the provider or withhold payment of future claims until the plan recoups the amount of the alleged overpayment.19 Providers have challenged the plan’s right to recoupment in litigation, often drawing counterclaims for overpayment by the plan.20
At first glance, Montanile may seem to be a conclusive victory for providers facing reimbursement claims. Clearly, under ERISA, health plans are limited to recovery of a specific fund constituting the overpayment. In most cases, by the time a health plan asserts its right to recover an overpayment from a provider, the funds have been commingled and dissipated. This would appear to bar recovery for health plans seeking overpayments from providers.
However, case law is evolving rapidly in the federal courts, making it difficult to predict when a plan’s claims against a provider will be governed by state or federal law. When a health plan’s claims are preempted by ERISA, providers likely will benefit from the Montanile decision because the plan is not entitled to recover from the provider’s general assets. However, even prior to Montanile, some courts exhibited reluctance to preempt state-law claims by health plans against providers when that preemption would prevent plans from recovering overpayments to providers. More courts may follow this trend after Montanile, allowing health plans to pursue overpayments through state-law claims for fraud and breach of the provider’s network agreement.
Depending on the circuit, a plan’s theory of recovery may depend on the provider’s network status. Some courts have allowed health plans to assert claims for overpayments against out-of-network providers under ERISA § 502(a)(3) on the theory that the provider’s rights are derivative of the participant’s rights, which are governed by ERISA.21 The Montanile decision may prove to be an insurmountable hurdle to plans seeking recovery under this theory.
In contrast, some district courts have allowed plans to maintain state-law actions to recover overpayments from out-of-network providers under theories of fraud and unjust enrichment, reasoning that ERISA plans merely provide context for “garden variety” fraud claims that are not preempted by ERISA.22 The District Court of New Jersey stated that a finding that ERISA preempts a health plan’s state-law claims would effectively deny the plan any form of relief.23 Therefore, in holding that the plan’s state law claims were not preempted, the court explained that “preventing an insurer from recovering from a provider for that provider’s fraudulent or negligent misrepresentations would be at odds with the very purpose of ERISA.”24 After Montanile, more courts may find this argument persuasive when determining whether a plan’s state law claims are preempted.
With respect to in-network providers, some courts have determined that the network agreement governs the relation between the provider and the health plan; therefore, ERISA is not implicated when a health plan seeks overpayments from an in-network provider.25 On the other hand, some courts have determined that the relationship between a health plan and an in-network provider is governed by ERISA when the plan is seeking recovery of an overpayment. For example, in Blue Cross & Blue Shield of Rhode Island v. Korsen,26 Blue Cross sued an in-network provider to recover overpayments for services that were not medically necessary, alleging inter alia breach of the provider agreement and fraud. The district court determined that Blue Cross’s state-law claims were preempted by ERISA because Blue Cross was acting as an ERISA fiduciary for various health plans in administering and paying the claims for which it sought recovery. Therefore, the district court converted Blue Cross’s claims into a single count for enforcement of ERISA plans under ERISA § 502(a)(3).
Blue Cross later argued that its claim for equitable relief under § 502(a)(3) was still viable because it sought to enforce an “equitable lien by agreement,” created by virtue of its network agreement with the provider.27 However, the district court determined that the network agreement did not create an equitable lien by agreement because the alleged overpayment resulted from a recent change in Blue Cross’s billing policy, which Blue Cross sought to apply retroactively. The lack of notice to the provider regarding the alleged overpayment defeated Blue Cross’s ability to assert an equitable lien by agreement. Moreover, Blue Cross presented no evidence regarding the dissipation of the funds constituting the alleged overpayment, whereas the provider presented evidence suggesting that the payments had been dissipated over the years for business expenses. As a result, Blue Cross could not recover its overpayments against the provider under ERISA § 502(a)(3).
Practical implications for provider-plan relationships
In response to Montanile, health plans may increase their efforts to recoup or recover overpayments from providers for the practical reason that the Montanile decision has interfered with one source of recovery—the plan member. Recovery from providers may prove to be less problematic for health plans than recovery from plan participants. The initial effect of Montanile may be to deny recovery to plans pursuing overpayments from providers under ERISA § 502(a)(3). However, in the long-term, courts may be inclined to determine that ERISA is not implicated in overpayment disputes between providers and payors if the effect of preemption is to deny any recovery to the plan. Without a doubt, Montanile complicates the landscape for private payor disputes, and it will probably lead to more changes in this rapidly-developing area of the law. Previous trends suggest that providers and health plans will continue to enter the fray in order to shape the case law as it develops.
Dorothy H. Cornwell is Of Counsel in the Atlanta office of Smith Moore Leatherwood. She practices in the areas of health care and life, health, and disability insurance. She is experienced in assisting clients with regulatory matters as well as stated and federal litigation. Ms. Cornwell’s practice focuses particularly to issues related to private reimbursement for health care, including emerging issues related to the Affordable Care Act.
1 Aetna Health Inc. v. Davila, 542 U.S. 200, 208 (2004).
2 Zurich American Ins. Co. v. O’Hara, 604 F.3d 1232, 1236 (11th Cir. 2010).
3 Mertens v. Hewitt Assoc., 508 U.S. 248, 251 (1993).
4 Zurich, 604 F. 3d at 1237.
5 Id. at 1238.
6 Id. at 1237.
7 See, e.g., Blue Cross & Blue Shield of Rhode Island v. Korsen, 945 F. Supp. 2d 268 (D.R.I. 2013) (health insurer sought overpayment from provider for services that were incorrectly billed and later determined not to be medically necessary).
8 Kolbe & Kolbe Health and Welfare Benefit Plan v. Medical College of Wisconsin, Inc., 657 F.3d 496 (7th Cir. 2011).
9 See, e.g., Central States, Southeast and Southwest Areas Health and Welfare Fund v. Gerber Life Ins. Co., 771 F.3d 150 (2d Cir. 2014) (employee benefit plan sought reimbursement from private accident policies covering injuries occurring during scholastic athletic events pursuant to a coordination of benefits provision in the plan).
10 See, e.g., Wurtz v. Rawlings Co., LLC, 761 F.3d 232 (2d Cir. 2014) (plan participants filed suit to enjoin health plan from obtaining reimbursement of medical benefits paid for injuries related to third-party torts from the participants’ tort settlements).
11 See, e.g., North Cypress Medical Center Operating Co., Ltd. v. Cigna Healthcare, 781 F.3d 182 (5th Cir. 2014) (out-of-network hospital brought action against health plan for reimbursement of claims denied by plan based on failure of hospital to collect coinsurance).
12 Davila, 542 U.S. at 208.
14 Montanile, 136 S. Ct. at 655.
15 See Mertens v. Hewitt Associates, 508 U.S. 248 (1993) (establishing that “equitable relief” is limited to “those categories of relief that were typically available in equity” during the days of the divided bench); Great-West & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002) (holding that a plan could not impose personal liability under § 502(a)(3) on a member for a contractual obligation to pay money, but may be able to impose a constructive trust or equitable lien on a particular fund or property in the member’s possession); Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356 (2006) (holding that a plan was entitled to a recovery because both the basis for the claim and the remedy sought were equitable, since the plan sought to enforce a constructive trust in the amount of the overpayment against the settlement fund that the beneficiaries retained in a separate account); and US Airways, Inc. v. McCutchen, 569 U.S. ___, 133 S. Ct. 1537 (2013) (reaffirming the Sereboff decision and holding that the basis for the claim was equitable because the plan terms created an equitable lien by agreement and because the plan sought to enforce the lien against a specifically identifiable fund within the beneficiaries’ control).
16 Sereboff, 547 U.S. 356 (2006).
17 See, e.g., Premier Health Center, P.C. v. UnitedHealth Group, 292 F.R.D. 204 (D. N.H. 2013) (class action suit by providers challenging health plan’s procedures to recover overpayments of benefits that were assigned to the providers by their patients).
18 See, e.g., id.
19 See, e.g., id.
21 See, e.g., Connecticut General Life Insurance Co. v. Southwest Surgery Center, LLC, No. 14 CV 8777, 2015 WL 6560536 (N.D. Ill Oct. 29, 2015); U.S. Renal Care, Inc. v. Wellspan Health, No. 1:14-CV-2257, 2015 WL 5286638 (M.D. Pa. Sept. 10, 2015); International Longshore & Warehouse Union-Pacific Maritime Ass’n Welfare Plan Bd. of Trustees v. South Gate Ambulatory Surgery Center, LLC, No. C 11-1215, 2012 WL 4364567 (N.D. Cal. Sept. 24, 2014).
22 See, e.g., Tri State Advanced Surgery Center, LLC v. Health Choice, LLC, 112 F. Supp .3d 809 (E.D. Ark. 2015); Connecticut General Life Ins. Co. v. Advanced Chiropractic Healthcare, 54 F. Supp. 3d 260 (E.D.N.Y. 2014); Assoc. of New Jersey Chiropractors v. Aetna, Inc., No. 09-3761, 2012 WL 1638166 (D. N.J. May 8, 2012).
23 Assoc. of New Jersey Chiropractors, 2012 WL 1638166 at *5 (quoting Horizon Blue Cross Blue Shield of New Jersey v. Transitions Recovery, No. 10-3197, 2011 WL 2413173 (D. N.J. June 10, 2011).
25 DB Healthcare, LLC v. Blue Cross Blue Shield of Arizona Inc., No. CV-13-1558, 2014 WL 3349920 (D. Ariz. July 9, 2014).
26 Blue Cross & Blue Shield of Rhode Island v. Korsen, 746 F. Supp. 2d 375 (D. R.I. 2010).
27 Blue Cross & Blue Shield of Rhode Island v. Korsen, 945 F. Supp. 2d 268, 282 (D. R.I. 2013).
This article was published in AHLA Weekly (Sept. 11, 2015). © American Health Lawyers Association.