There has been a dramatic rise in the number of lawsuits involving billing disputes between plans subject to the Employee Retirement Income Security Act (“ERISA”) and out-of-network healthcare providers. Certain third-party claims administrators for the ERISA plans are proactively suing out-of-network healthcare providers for alleged fraudulent billing practices. Connecticut General Life Insurance Company and Cigna Health and Life Insurance Company (collectively, “Cigna”) is one of the most proactive of those claims administrators.
In Connecticut General Life Insurance Company v. Humble Surgical Hospital, LLC, CA No. 4:13-cv-03291 (S.D. Tex. June 1, 2016), Cigna sued Humble Surgical Hospital, LLC, a physician-owned hospital (“Humble”), to recover alleged overpayments made to Humble due to fraudulent billing practices in violation of both ERISA and state common law. After a nine-day bench trial, Judge Kenneth Hoyt of the U.S. District Court for the Southern District of Texas denied Cigna’s request for reimbursement for alleged overpayments, and awarded Humble more than $13 million to cover certain alleged underpaid claims and ERISA penalties. The court’s decision relied primarily on two findings. First, the court determined that Cigna improperly applied the “exclusionary language” contained in the plans it administered. Second, the court determined that Cigna failed to establish that the relevant language in the plan documents created a constructive trust or equitable lien.
Cigna improperly applied the plans’ exclusionary language.
Among its claims, Cigna alleged that Humble engaged in a fee-forgiving practice by consistently waiving the “patient cost-share” of Humble’s billed charges. Cigna refused to pay these claims, arguing that this practice allowed the plan participants to pay nominal amounts, while causing Cigna to pay more than its participant’s required share. In defending its non-payment of claims, Cigna, relied in part on its interpretation of the standard exclusionary provision included in self-funded ERISA plans it administered that “specifically excluded” from payment “charges which [the participant is] not obligated to pay or for which [the participant is] not billed or for which [the participant] would have been billed except that they were covered under this plan.” According to Cigna, if a provider waived or made no effort to collect a plan participant’s deductible, co-pay or co-insurance amount, the exclusionary provision allowed Cigna to either not pay at all, or pay only a portion of the claim(s) in accordance with Cigna’s proportionate share analysis. Cigna also interpreted the provision as meaning that if a portion of the bill was “forgiven,” such amount was specifically excluded from the plan and Cigna had no obligation to pay it.
The court rejected Cigna’s interpretation, finding Cigna abused its discretion in the process, and reasoned that it was contrary to how the average plan participant would interpret the boilerplate exclusionary provision. Additionally, since the average plan participant is likely to read the provision as requiring Cigna to pay its full share for covered services in accordance with the terms of the plan, regardless of the amount ultimately charged to the participant, the court similarly found no support in Cigna’s interpretation for its proportionate share analysis.
Relevant language in the plan documents did not establish a constructive trust or equitable lien.
Cigna asserted a claim for equitable reimbursement of the plan overpayments pursuant to ERISA § 502(a)(3), based on Humble’s alleged fraudulent billing practices. Cigna relied on certain boilerplate language in the plans that granted Cigna authority to recover overpayments of benefits. The court, however, focused on the language of Cigna’s “overpayment recovery” provision and found that language insufficient to create a lien or constructive trust since it failed to clearly express Cigna’s intent to create a lien and/or constructive trust on particular funds.
While the case may be appealed, for now there are two primary “takeaways” from the court opinion. First, the typical boilerplate exclusionary provision common in most plans is not always enough to justify non-payment of claims by the administrator, even under a discretionary standard of review. Instead, the plan document and summary plan description should specifically state that if a provider does not bill or collect for the deductible, co-pay and/or co-insurance amount, the out-of-network charge will no longer be considered a covered charge under the plan (or alternatively, that the covered charge will only be the net amount actually billed to the plan). Plans should also consider providing that the out-of-pocket annual maximums do not apply to out-of-network claims. Second, plans should clearly express the intent to create an equitable lien and/or constructive trust by specifically adding such subrogation-type language to the relevant provision, giving the plan the right to collect overpayments (either directly or by way of offset).
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2 Cigna’s proportionate share analysis involved Cigna determining the percentage payable of the participant’s bill by the amount the participant had paid versus what he had been obligated to pay, and using that percentage to determine the percentage that it would pay of its share.
3 ERISA plans are required to be interpreted as they are likely to be understood by the average plan participant. See North Cypress Medical Center v. Cigna, 781 F.3d at 195 (5th Cir. 2015) (quoting Stone v. UNOCAL Termination Allowance Plan, 570 F.3d at 260 (5th Cir.2009) (internal quotation marks omitted) (quoting Crowell v. Shell Oil Co., 541 F.3d at 314 (5th Cir.2008)).