Post-Payment Audits and ERISA: Attorney encouraging demanding ERISA rights during recoupment

Post payment audit practices by commercial healthcare insurers are reaping millions of dollars for insurers. However, the process used by many of the largest carriers to identify and collect overpayments is the subject of a number of current class action lawsuits. If successful, these lawsuits may require insurers to provide more rigorous, claim-by-claim appeal review of the audit findings.

Post payment audits frequently involve a limited number of claims. Medical records may be requested on a handful of claims to allow the carrier to review coding accuracy and medical necessity. Once a claim deficiency is identified, the audit may next involve a statistical extrapolation involving a greater portion of the provider claim history in order to determine the overpaid amount. Because the carrier is not making case-by-case judgments on each claim, the carrier can perform such audits quickly and often with great financial success.

A recent decision by a United State District Court Judge allowing post payment audit litigation to remain in federal court lends support to providers who claim that post payment audits involving employee plan benefits may violate certain protections in the Employee Retirement Income Security Act (ERISA).

“Insurance companies are becoming much more aggressive when conducting post payment audits. They come in and say they’d like to see ten or fifteen records to review as part of their audit process and then they’ll identify areas that they claim to be deficiencies,” states D. Brian Hufford of Pomerantz, Haudek, Grossman & Gross law firm.

“This is done without any appeal rights whatsoever. The insurance company determines that you owe the money”. Sometimes they do provide some sort of appeal process but usually it is very limited and, in effect, only a charade.”

Hufford represents providers fighting a $412,952.93 recoupment by Blue Cross Blue Shield of Rhode Island. BCBSRI initiated action against two healthcare providers for miscoding services. They demanded repayment of allegedly miscoded chiropractic services and sued the providers in state court for breach of contract and fraud. In October, the providers successfully won the right to have the case removed to federal court because the benefit payments involved numerous ERISA plans.

The question regarding jurisdiction over provider agreements involving ERISA plans is complicated. Carriers have had some success in arguing that provider agreement disputes, a matter of contract law, should be decided at the state level. However, the court ruled in the case that the Provider Agreements sufficiently relate to ERISA benefits and triggered ERISA’s broad preemption clause. The federal court has yet to make a final decision in the case but granted a preliminary injunction against BCBSRI to prevent the carrier from withholding any further payments until a federal decision is reached.

The implications of the decision go far beyond this case, explains Mr. Hufford. If the court finds that ERISA claim processing regulations do apply to post payment audit decisions, he anticipates the ruling could force dramatic changes in how post payment audits are performed.

“ERISA has very explicit requirements for what the insurance company must do. It has got to provide disclosure of the actual basis for the denial. It has got to make available and identify the provision in patient’s contracts that it is relying upon”. If there is a review that was done or if there is some analysis by a consultant or a medical reviewer, it has to be provided to the person upon request. Most significantly, it has to provide what is referred to under ERISA as a ‘full and fair review’ of the determination. If the provider goes through that process and they lose the full and fair review, then they have the right to go to court to challenge it.”

To further complicate the audit process, Hufford states that claims identified in such audits as questionable often span a number of different plans, both fully insured and self-funded, all of which may have different plan language regarding available benefits, claim review and appeal rights. Because of this variation in coverage details, claim-by-claim review is even more important for providers to demand but even more complicated for carriers to implement. In most audit notices, carriers tend to cite their right to overpayment recoupment as contained in any applicable provider agreement. However, as this case demonstrates, such agreements may be preempted from state jurisdiction thus requiring the plan to follow certain protections related to adverse benefit determinations.

ERISA has been regarded as one of the more complex aspects of claim review. Payors have long argued that state consumer protections, such as prompt payment laws and state healthcare liability laws, are not applicable to medical claims involving ERISA benefits due to ERISA’s broad preemption language.

Carriers have embraced the ERISA preemption due to the fact that ERISA provides limited remedy for damages suffered as a result of poor claims handling. If the payor is found to have breached a fiduciary duty, such as violating claims processing requirements, ERISA allows for “appropriate equitable relief.” Equitable relief in a medical claim dispute often means that the guilty party has to pay a wrongfully denied claim and perhaps related legal fees. However, punitive damages are specifically prohibited under ERISA. Many providers and provider law firms have lamented the limited damages available under ERISA.

“In many ways over the years ERISA has been a windfall for the insurance companies,” Hufford said. “Now what we are seeing is that ERISA can be used as a very effective tool by providers and patients against the insurance industry because it establishes very specific standards of conduct that they have to comply with. If it is used effectively, it can stop the kind of conduct that is happening here with the recoupment practices. If (carriers) have to comply on a patient-by-patient basis and follow the procedures ERISA requires, they are not going to be able to use methods of lumping together (different claims).”

Hufford encourages providers to appeal any overpayment notice that does not include sufficient justification for repayment and/or does not provide a quality appeal review process.

“The provider should be aware of what rights they have and should not sit on the rights. They can write a letter saying they object… They (providers) should be saying that ERISA governs this and they want to exercise ERISA rights to appeal. They should continue to press the issue even if the insurance company is denying it.”

Hufford said that even if the demand for release of claim detail and ERISA appeal review is ignored, submitting a written request for an ERISA-compliant review of each denial may still benefit providers down the road if litigation ensues.