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Robbing Peter to Pay Paul: The Trouble with Cross-Patient Offsetting

By: Jon Jablon, Esq.

Our consulting team (via PGCReferral@phiagroup.com) is often presented with the following scenario: Patient A visits Hospital, and the Plan pays certain benefits to Hospital which are later discovered to have actually been excluded by the terms of the plan document. This is a classic overpayment scenario, except that Hospital refuses to refund the overpayment to the plan (which it is well within its rights to do). In response, to try to avoid the loss, the Plan decides to activate the right it has given itself to offset future benefits payable against amounts due to the Plan. The right to offset future benefits is a common one, and there is nothing inherently unenforceable about offsetting benefits due to a patient, when that particular patient owes the plan money.

This health plan interprets its offset provision to apply across different patients. Since it is unknown whether or when Patient A will incur more covered claims, the plan instead decides to recoup its overpaid funds by withholding benefits due to Patient B (who had the misfortune of being the next patient to visit Hospital).

The question posed to our consulting team is whether this is an acceptable practice.

Our answer is no.

First, regarding overpayments in general: with some exceptions – such as payments by the Plan in excess of a contracted amount, or in excess of billed charges (for non-contracted claims) – providers do not have a legal obligation to refund money to a health plan. Instead, courts have indicated that the overpayment was technically made to the patient, since the plan paid money that would have been patient responsibility, had the plan correctly denied that amount.

Plan Administrators have certain fiduciary duties pursuant to ERISA and common law, including to act solely in the interest of plan participants, to act with the exclusive purpose of providing benefits and paying reasonable plan expenses, and to strictly abide by the terms of the Plan Document. The most apt interpretation of the practice of cross-patient offsetting is that the Plan has withheld benefits to Patient B in order to benefit the plan, such that Patient B is denied benefits to account for a prior error on the part of the plan. The plan’s attempt to make itself whole at Patient B’s expense – even though Patient B played no role in, nor benefitted in any way from, nor was even aware of, the overpayment – could be interpreted as a violation of an important fiduciary duty.

Cross-patient offsetting negates benefits due to patient B because of the Hospital’s refusal to refund money to the Plan. When we consider that it is not the provider that has technically been overpaid, but Patient A, it becomes more clear that Patient B cannot have benefits withheld to compensate for the overpayment made to Patient A. It’s an attempt to punish Hospital for not refunding money that is legally due from Patient A. Meanwhile, Patient B has paid her contributions in exchange for benefits from the plan; to withhold benefits due to Patient B because another, unrelated patient has not repaid the plan money allegedly owed is a practice we strongly recommend against.

Overpayments happen, and The Phia Group can assist in recouping them – but please, please do not offset a perceived overpayment against future claims incurred by other patients!