The “Teeth” of a Refund Request: Cross-Patient Offsetting

By: Jon Jablon, Esq.

Overpayment recovery can be messy even on a good day. As we all know all too well, without a contract, there’s no meaningful cap on what a provider can charge for its services; the provider’s legal claim runs to the patient, and courts have iterated that a provider is not unjustly enriched when the total received doesn’t exceed the total the provider could have legally collected, even if the plan has paid more than the SPD’s stated maximum in error. Unfortunately, “fair market value” is a plan design ideal, not a legal limit on pricing, and all this creates a very unfriendly legal climate for clawing dollars back once they’ve gone out the door. So, plans look for leverage, and the only tangible tool is offsetting: using a future claim to repair a past overpayment (with appropriate SPD language, that is). When it’s the same patient, no one is harmed, since an overpayment made to the provider really benefits the patient in the form of fewer dollars for the provider to collect from the patient, so reducing a future claim incurred by that patient is framed as a corrective measure. In short, offsetting the same patient’s future claims against unreimbursed overpayment amounts can be an effective tool when used correctly and responsibly.

Where it gets tricky, though, is when a plan tries to offset across different patients, effectively stripping one innocent patient of benefits to make the plan whole for a prior processing error.

The major problem is the fiduciary duty. ERISA’s “exclusive benefit” rule requires that claims be adjudicated solely in the interest of plan participants. Cross-patient offsetting flips that on its head: if the plan reduces or denies Participant B’s otherwise-payable claim to make the plan whole for Participant A’s overpayment, it turns Participant B’s claim into a collection device for someone else’s debt, pitting participants against each other and arbitrarily denying B’s claim to purportedly benefit the plan. Participant B’s welfare becomes a sacrificial lamb for the plan as a whole, which of course is not what ERISA intends. Courts and regulators have criticized cross-plan offsets as out of step with ERISA’s purpose, and cross-patient offsets (within the same plan) are no better from a compliance perspective.

Despite our recommendations against the practice, however, we’re sometimes asked how to compliantly structure an EOB for a cross-patient or cross-plan offset.

Our answer? Can’t be done.

Even if the plan tries to wave those fiduciary concerns away, HIPAA privacy rules box you right back in. The federal claims procedure regulations (29 CFR § 2560.503-1) require specificity, including the exact reason for the reduction/denial. If the plan is reducing B’s claim because of A’s prior overpayment, federal regulations tend to require the plan to explain facts about A’s claim – but HIPAA certainly doesn’t allow a plan to share Participant A’s PHI with Participant B. There’s a structural collision between these federal laws: if the plan were to strip out Participant A’s details to stay HIPAA-compliant, the EOB would be too vague to reasonably satisfy the claims procedure rules, but if the EOB included enough detail to satisfy the claims procedure rules, the disclosure would violate HIPAA. (Though this isn’t the primary problem with cross-patient offsetting, it’s something to keep in mind nonetheless.)

Regardless, whether you’re contemplating an offset, trying to document one, or cleaning up after one, The Phia Group can help. Contact PGCReferral@phiagroup.com or your dedicated ICE inbox today.