Almost All Non-Medicare and Non-Medicaid Claims are Governed by ERISA — And That's Good News

Hospital executives, contracting personnel and revenue cycle teams may have heard about The Employee Retirement Income Security Act of 1974 — better known as ERISA — but few clearly understand how this law can positively impact a hospital's bottom line. The Patient Protection and Affordable Care Act expanded parts of ERISA to apply to some non-ERISA claims under government sponsored healthcare plans, which bring additional advantages to hospitals.

If used properly, ERISA can be both a shield against audits and recoupments and a weapon in the collections process. The following is an overview of how to use this law to protect a hospital on previously paid claims and to assist in recovering money from health insurers on denied claims. In addition, included are some practical tips on creating revisions to a hospital's claims process to set up claims for more effective negotiations on payment of denied claims and how to better posture those claims for potential litigation down the road.  

ERISA generally applies to health plans in which a private (non-government) employer obtained health coverage for its employees. These employer-sponsored group health plans cover the vast majority of working Americans. In addition, there is now a section in PPACA that mandates that the health plan claims procedures contained in the U.S. Department of Labor's Claims Regulation be included as part of every group health plan or group health insurance policy in the country. This new development now makes The Claims Regulation applicable to all plans where a governmental entity, such as the federal government, a state or a city is the employer and sponsor of a health plan (whether insured or self insured).

As a threshold matter, it must be noted that ERISA protects "participants and beneficiaries" covered under applicable group health plans. Thus, a hospital must first ensure that its assignment of benefits forms give the hospital the legal status to invoke ERISA for both audits and collections. The hospital should strive to have: 1) beneficiary status, 2) legal rights by way of an assignment, and 3) the additional status of an "ERISA representative." Many forms currently in use by hospitals are sufficient to confer both beneficiary and assignee status, but hospitals should check their forms and update them in conjunction with qualified legal counsel, if necessary.
Health plans and health insurers around the country have increased their use of medical provider audits. The typical scenario involves a request for billing and/or medical records on claims that were previously paid, followed by a demand for a refund on a group of paid claims. The recoupment amount demanded by a health plan or insurer can often be in the hundreds of thousands or millions of dollars. However, even in-network hospitals can use ERISA to their advantage here.

Once a hospital has ERISA rights from the patients by way of the assignment of benefits forms, those rights can be used to oppose audits and recoupments. On claims governed by ERISA, federal law actually preempts all other states' laws and thus it preempts portions of a hospital's in-network contract. This means that only ERISA applies, and not state law or the terms of a provider contract. Since the provider contract is the main source of authority that a health plan or insurer might seek to use in an audit situation, federal ERISA preemption is critically important. Note that once contract provisions in a provider agreement, authorizing audits and recoupment, are preempted, they can be disregarded as void — leaving the health plan or insurer without a basis to conduct an audit or to demand recoupment. This principle is established in a series of federal ERISA decisions in U.S. Courts of Appeal.

In addition, ERISA provides that the hospital's patients' health plan documents, detailing all of the coverage and terms of the plans, are the legally governing documents regarding all claims filed under the plans. These health plan documents typically do not authorize audits and recoupments, and thus the health plan or insurer is typically unable to legally make demands upon a hospital for records or a refund. The Claims Regulation also governs the hospital's patients' ERISA-governed health claims, and those regulations contain no provision about reopening closed claims. This situation must be distinguished from Medicare and Medicaid, which both have a different legal landscape and a False Claims Act aspect not found under ERISA governed plans.

Even if there was a basis for recoupment in a health plan document, there is an ERISA legal principle that prevents a health plan or insurer from successfully suing a hospital to collect a refund. As long as the funds received by the hospital on the patients' claims were spent in the ordinary course of business and not segregated and set aside in a separate account, the health plan or insurer cannot legally recover those funds. This principle is contained in a series of U.S. Supreme Court ERISA decisions. A physician in Rhode Island, for example, recently won his case on these grounds. The federal court dismissed the health insurer's recoupment case against the physician completely. In fact, the federal court also awarded the physician money; the health insurer had to refund to the physician money it had taken from him via offsetting on other, unrelated claims.

One of ERISA's main tools is a provision in The Claims Regulation that requires a health plan or insurer to fully disclose documents regarding the basis for its decisions. That means the insurer must turn over emails, claims examiner's notes, in-house medical reviews, or any other information relating to its claims decisions. If the hospital sends a request to the health plan or insurer for its internal emails and documents, the health plan or insurer may discover that its position will be revealed as weak or without a valid basis, and it may then reverse its decision and pay the denied claims.

There are also a number of other rules in The Claims Regulation that can be used to gain leverage in collections. For example, The Claims Regulation requires a health plan or insurer to make claim decisions within 30 days of receiving a claim and to explain its decisions in detail, in a way that is not convoluted or vague. If these rules are violated, there are strong legal arguments that the denials are not valid and that the health plan or insurer has waived its rights to deny the claims. In addition, when these rules are violated, the appeals process can typically be skipped and you can go directly to a federal court to challenge claim denials.

To make it economically viable, the hospital can put together a large group of claim denials and pursue them all in the same lawsuit. And if successful, the health plan or insurer may be liable under ERISA to repay to the hospital the attorney's fees spent in pursuing the case.

Practical steps   
Short of litigation, however, there are steps that a hospital can take to achieve an improvement in collections on all ERISA-governed and governmental claims to which The Claims Regulation applies.  

First, a review should take place to see how the hospital reacts to incomplete or vague claim denials. It is highly likely that the hospital has not developed a series of ERISA-driven and ERISA-compliant responsive letters, formulated in consultation with ERISA claims and litigation counsel, that will pressure the health insurer into changing its negative decision or help posture the denied claims for more leveraged negotiations or litigation down the road. For example, hospitals should exercise their right to demand the health insurer's emails, medical reviews, bulletins or policy documents that bear upon claim decisions, and requests should be made at the right time and under the right circumstances. As a second example, the hospital should demand immediate payment on all claims where the health plan's denials are late, in violation of 30-day rule in The Claims Regulation. If standard ERISA letters are developed for use at various stages of the claims process, the hospital will have a better-positioned portfolio of denials to pursue for collection.

Second, with the assistance of ERISA counsel, a hospital can find ways to mine its data on denied claims to locate and segregate claims for which the health insurer or health plan has violated The Claims Regulation. Grouping together claims that have regulatory violations is the first step in putting together groups of claims for pursuit, using ERISA-specific collections strategies.

Discovering and implementing these ERISA principles and using them, in conjunction with qualified ERISA legal counsel, can both save a hospital hundreds of thousands or millions of dollars at the time of an audit and help the hospital pursue successful recoveries on denied claims.     

Richard Quadrino is a founding partner in Quadrino Schwartz, a boutique New York law firm.  He is a recognized legal authority in the field of ERISA and health insurance and represents medical providers throughout the United States in both claims management and litigation.

More Articles on ERISA:

How to Use ERISA to Increase Hospital Collections
Appellate Court Allows ERISA Suits Against Insurers

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