The out-of-network (OON) business model faces challenges as the result of changes to health and benefit plan OON coverage, but a ruling by Judge Hoyt of the U.S. District Court for the Southern District of Texas suggests that health plans should be careful in refusing payment based on perceived OON high charges, questions about OON co-insurance collection, or provider financial arrangements.
Specifically, on June 1, 2016, in Civil Action No. 4:13-CV-3291, Judge Hoyt found CIGNA liable to Humble Surgical Hospital, LLC (HSH) for $13.7 million (not including penalties and attorney fees) in an action where CIGNA initially sued to recover about $5 million that CIGNA alleged had been overpaid to HSH and HSH counter-sued for non-payment and underpayment of claims. Given that CIGNA’s non-payment of the OON claims it questioned is a common tactic in the battle by plan administrators (including BCBS, Aetna or United HealthCare) against OON providers, this ruling potentially means such plan administrators could face significant liabilities on OON unpaid or underpaid claims, and the decision adds a new facet to the use of the Employee Retirement Income Safety Act of 1974 (ERISA) in such disputes.
Underlying the case are facts with similarities to many OON care situations. CIGNA alleged that HSH overcharged for care and waived patient co-insurance amounts (i.e. deductible and co-pay amounts). In response to these issues, CIGNA sent claims to its “special investigations unit,” delaying payment indefinitely for lack of documentation, denying payment, or reducing payment based on discounts provided to patients (for example, CIGNA would treat a 50 percent reduction in patient responsibility as a 50 percent reduction in total charges). Among other reasons CIGNA argued supported its actions, CIGNA alleged that the plans it administered prohibited payment when the patient is not financially responsible for charges – an argument many plan administrators have made since 1991 when CIGNA prevailed in Kennedy v. Conn. Gen. Life Ins. Co., 924 F .2d 698, 701 (7th Cir. 1991).
In a surprising twist, ERISA, which plan administrators frequently rely upon to try and avoid the application of state law claims (such as those requiring prompt payment), was part of CIGNA’s downfall. Judge Hoyt determined that CIGNA did not live up to its ERISA obligations when CIGNA interpreted plan language to allow it to avoid payment when HSH waived or discounted co-insurance amounts – an interpretation that Judge Hoyt did not think would have been apparent to a plan beneficiary. Also, Judge Hoyt determined such acts by CIGNA comprised a conflict of interest because CIGNA was reimbursed by plan sponsors in part based on cost savings.
Further, Judge Hoyt ruled that ERISA does, in fact, preempt state law claims – specifically CIGNA’s claims for equitable relief under state law causes of action for “money had and received” and “unjust enrichment.” Such claims had been successful for other plan administrators because they allowed a judge to rule in favor of the plan administrator on the basis of equity without a finding of specific wrong-doing by an OON provider such as fraud. Victories on such theories were troubling for OON providers because high charges associated with facility services and waivers or discounts of co-insurance could feed into a plan administrator narrative of “inequitable” conduct that is entirely lawful.
In summary, the ruling in this case could be of significant benefit to OON providers seeking payment from plan administrators and defending against claims of overpayment. Precisely for this reason, though, it seems likely that CIGNA will appeal the decision. In the meantime, it also seems likely plan administrators may be less aggressive in OON claim adjudication – though it will no doubt increase plan administrator efforts to convince plan sponsors to adopt additional restrictions on OON benefits.