Your daily routine is interrupted when the mailroom clerk drops a thick certified mail envelope on your desk. Inside that envelope is a dense, rambling and threatening 20-page demand letter from an attorney. The letter appears to be challenging the denial of a benefits claim under your company's group health plan. The amount claimed to be owed by the plan is wildly inflated compared to the value of the medical services and supplies that were actually or allegedly provided.
The demand letter contains a document signed by the health plan participant that purports to assign to an out-of-network medical provider the participant's benefits and legal rights, and also to appoint the out-of-network provider as the participant's "authorized representative" and "assignee" under the Employee Retirement Income Security Act (ERISA) and the plan.
The demand letter says that your "usual and customary rates" for paying out-of-network claims are invalid. With a generous sprinkling of boldface, underlines and ALL CAPS, the barely coherent demand letter purports to back up its spurious claims with a hodgepodge of sources, such as newspaper articles, lawsuits in faraway places and a 2008 investigation by the New York attorney general.
Situations like this have become all too common under employer-sponsored group health plans. A physician-owned, out-of-network health care service provider—such as an ambulatory surgery center or a sleep center—sends a demand letter to the plan administrator. The letter asserts an appeal of a denied benefits claim by one of the plan's participants; requests copies of a lengthy list of plan-related documents; and alleges that the plan administrator, the plan sponsor, the plan's third-party claims administrator, the insurance carrier and/or the plan itself have violated ERISA and other federal or state laws relating to plan administration or the participant's benefits claim.
Often, there is evidence that the out-of-network provider has waived some or all of the participant's portion of the charges otherwise payable for the health care services received, such as a waiver or reduction of the participant's required cost-sharing amount under the terms of the plan for deductibles, co-pays and co-insurance pertaining to the covered services.
What should you do when you receive this kind of shakedown letter? And more importantly, what should you be doing to avoid getting a letter like this in the first place?
How to Respond
Do not ignore the letter. ERISA imposes mandated timeframes for responding to benefit claims and appeals, as well as for responding to written requests from participants or their authorized representatives for certain plan-related documents that are required to be disclosed under ERISA.
Determine what defenses may be available to you. Do any of these possible defenses apply?:
- The out-of-network provider has no standing to bring a claim in its own right as the purported legal assignee of the participant's plan benefits because the plan has and can enforce an "anti-assignment" clause.
- The out-of-network provider has no standing to bring its claim in court because it has suffered no "injury in fact."
- The "authorization form" signed by the participant does not properly appoint the out-of-network provider as the participant's "authorized representative" under ERISA and the terms of the plan.
- The out-of-network provider has misleadingly conflated its appointment by the participant as his or her "authorized representative" (as reflected in the authorization form) with an appointment as the participant's legal "assignee," which are different legal appointments with different legal rights.
- The plan will not pay benefits for charges that the participant is not obligated to pay based on an express exclusion from coverage to that effect contained in the plan document.
- The plan pays a specified maximum benefit amount for out-of-network provider expenses (often referred to as an "allowable amount"), which is much less than the out-of-network provider's billed amount.
- The requested documents are not required to be disclosed under ERISA.
Building Your Defense
To build a formidable defense against abusive out-of-network provider claims and billing practices, a plan sponsor could amend its group health plan in the following ways:
- Incorporate a comprehensive benefits exclusion for charges incurred by a participant when the participant is not obligated to pay out of pocket, is not billed by the health care provider or would not have been billed but for the coverage of such charges under the terms of the plan.
- Incorporate provisions that limit assignment of the participant's rights and benefits. This strengthens the plan's position when defending claims brought by out-of-network providers.
- Incorporate provisions permitting recoupment of overpayments made to health care service providers.
- Incorporate provisions that outline the process for a participant to appoint an "authorized representative" under the plan and ERISA for purposes of the plan's benefit claim and appeal procedures, and confirm the rights of the plan to disregard certain appointments that are determined to be defective, fraudulent or otherwise invalid.
By including these and other preventative measures in the group health plan documents—such as the plan, summary plan description and employee communication materials—the plan administrator can go a long way towards inoculating the plan and the plan sponsor from the substantial cost and time commitment involved with having to defend against inflated claims made by unscrupulous out-of-network providers.
Brian Giovannini and Cathy Currie are attorneys in the Houston office of Haynes and Boone. Giovannini serves as advisor and benefits counsel to a diverse group of clients, from local governments to Fortune Global 500 corporations. Currie advises clients on employee benefits and executive compensation legal matters, and was previously in-house counsel for a large international engineering services company.
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