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Retroactive Adverse Benefit Determinations

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One of the most frustrating experiences for a medical practice’s billing staff is an insurer’s denial of previously authorized benefits. This is especially problematic when the patient’s benefit is retroactively denied after the insurance company has already made payment. From the insurer’s perspective, a retroactive denial payment results in an overpayment to the provider, which must be repaid. To recoup these “overpayments,” some insurers use “negative remittances.” Negative remittances are where an insurer takes back a benefit payment by offsetting other compensable claims. For patients covered under an ERISA plan, these benefit denials require notice and have appeal rights.

The Employee Retirement Income Security Act, or ERISA, was enacted in 1974 to protect employees’ rights in their employer-sponsored benefit plans. Under ERISA, benefit denials are termed “adverse benefit determinations,” which include, but are not limited to the denial, reduction, or a failure to make payment of a benefit. Under ERISA, any determination that a claim should not be paid in full constitutes an adverse benefit determination. An insurer’s retroactive adverse benefit determination, without adhering to the notification and appeal processes, violates the protections afforded by ERISA. It is not settled law as to whether an insurer’s repayment demand letter constitutes an adverse benefit determination. For sure, when an insurer’s recoupment efforts go beyond making a repayment demand and results in the offsetting of other compensable claims, the insurer must comply with ERISA protections requiring a “full and fair review” for ERISA-covered plans. Notification of an adverse benefit determination must include:

  1. The specific reason or reasons for the adverse determination;
  2. Reference to the specific plan provisions on which the determination is based;
  3. A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary;
  4. A description of the plan’s review procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action following an adverse benefit determination on review;
  5. Copies of internal rule, guideline, protocol, or other similar criteria which was relied upon in making the adverse determination.

ERISA distinguishes between “right to payment” issues and “rate of payment” issues. “Right to payment” issues are created when an insurer fails to honor the patient’s benefit or when the insurer denies the patient’s claim. The “right to payment” are governed by ERISA. In contrast, “rate of payment” issues are contractual in nature. Participating provider agreements create a contractual duty that is independent of ERISA. Participating provider fee schedule disputes do not necessarily involve ERISA; an insurer’s recoupment of overpayments based on the contracted fee schedule is not a denial of benefits. This type of payment dispute is a matter of contract law, where the underlying provider contract controls the payment provisions. Underpayments are a contract matter for participating providers. For providers who are not participating, underpayments or overpayments may implicate ERISA’s protections. In the absence of a provider contract, the insurer does not have any independent contractual duties relative to the provider’s claims. An out-of-network provider’s claims based on the underpayment of a claim could raise a “right to payment” issue under ERISA. In assessing which course of action to take, the provider must determine whether the insurer’s action has created a “right to payment” issue or one involving the “rate of payment.”

Right to payment issues may arise with “mistaken authorizations.” An insurer may attempt to retroactively recoup payments on the basis that the services should not have been authorized. Participating provider agreements generally dictate the authorization procedures that the provider must follow in order to receive payment. Medical providers rely on the benefit authorizations and pre-approvals they receive from the insurance carrier to reasonably determine that payment will be forthcoming. Arguably, insurance plans have a duty to their participating providers to generate complete and accurate information via the provider’s verification of benefits.

For plans governed under ERISA, medical providers should insist on the insurer’s compliance with ERISA’s protections. ERISA protections are only available for plans that are, by statute, ERISA plans. If the plan falls under ERISA, the medical provider may challenge the insurer’s adverse benefit determination and take advantage of all of the notification, denial substantiation requirements, and appeal rights. (Medical providers are not beneficiaries of an ERISA plan. Through a valid assignment of benefits, the medical provider may avail itself to the applicable ERISA protections on behalf of the patient.) The provider should attempt to understand the insurer’s reasoning behind its repayment demands to determine whether it constitutes an adverse benefit determination.