Peterson v. UnitedHealth Group Inc.

          Jason S. Cowart, D. Brian Hufford, and William K. Meyer, ZUCKERMAN SPAEDER LLP; Karen Hanson Riebel and Kristen G. Marttila, LOCKRIDGE GRINDAL NAUEN P.L.L.P.; Anthony F. Maul, THE MAUL FIRM, P.C.; Vincent N. Buttaci, John W. Leardi, and Paul D. Werner, BUTTACI & LEARDI, LLC, for plaintiffs.

          Gregory F. Jacob, Brian D. Boyle, Michael J. Walsh, Jr., and Meaghan VerGow, O'MELVENY & MYERS LLP; Timothy E. Branson and Erin P. Davenport, DORSEY & WHITNEY LLP, for defendants.

          ORDER

          Patrick J. Schiltz United States District Judge

         Two health-care providers-Dr. Louis Peterson and Riverview Health Institute (“Riverview”)-bring these actions on behalf of certain of their patients against UnitedHealth Group Inc. and various of its affiliates (collectively “United”). United acts as the administrator for numerous health plans governed by the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. 1001 et seq. According to plaintiffs, United has wrongfully failed to pay them and other providers who have treated patients enrolled in United-administered plans. Instead of paying the providers what they are owed, plaintiffs allege, United withholds some or all of their payments in order to offset overpayments that United claims to have made to the providers in connection with their treatment of different patients enrolled in different plans. Plaintiffs allege that this practice-known as “cross-plan offsetting”-violates ERISA and the terms of the plans.

         This matter is before the Court on the parties' cross-motions for summary judgment on the issue of whether the relevant plans authorize cross-plan offsetting. For the reasons explained below, the Court holds that they do not. But because this order “involves a controlling question of law as to which there is substantial ground for difference of opinion” and because “an immediate appeal from the order may materially advance the ultimate termination of the litigation, ” the Court certifies this order for immediate appeal pursuant to 28 U.S.C. § 1292(b).

         I. BACKGROUND

         A. Cross-Plan Offsetting

         United is one of the largest health insurers in the world. It both administers and insures health-insurance plans. Some of the plans that United administers are fully insured, meaning that United uses its own funds to pay claims. Other plans that United administers are self-insured, meaning that United uses the funds of the plan sponsor to pay claims. Bishop-Heroux Dep. 26-27. United's fully insured business accounts for 22 percent of all claim payments; the remainder come from self-insured plans. Bishop- Heroux Dep. 55-56.

         Administering health-insurance plans is a complex business, and United inevitably makes mistakes. One type of mistake is to pay a provider more than the provider is owed under the patient's health-insurance plan. This litigation challenges a particular technique that United uses to recover such overpayments-a technique known as “cross-plan offsetting.” The technique takes a little explaining:

         Suppose that a patient named Andy is insured under a health plan administered by United. Andy sees Dr. Peterson for treatment of a sore neck. Dr. Peterson submits his bill to United. United pays $350 to Dr. Peterson. Later, however, United discovers that it should have paid only $200 to Dr. Peterson. United contacts Dr. Peterson, brings the overpayment to his attention, and asks him to return $150.

         If Dr. Peterson agrees that he was overpaid and returns the $150, the problem is solved. But if Dr. Peterson does not agree that he was overpaid and refuses to return the money, United has limited options for getting back its $150. In theory, United could initiate administrative or legal proceedings against Dr. Peterson. As a practical matter, however, United is unlikely to do so, as United would spend far more than $150 in pursuing the $150 overpayment.

         Another option might be to engage in same-plan offsetting. Under this approach, United would wait until Andy or anyone else covered by Andy's health plan is treated by Dr. Peterson. When Dr. Peterson submits a bill to United on behalf of that patient, United would deduct $150 from the payment that it would otherwise make to Dr. Peterson. From United's perspective, however, same-plan offsetting presents a big problem: Dr. Peterson may never again treat Andy or someone who is insured under Andy's plan. Dr. Peterson practices in New York City, a giant metropolitan area. Andy may work for a small company in a distant suburb, and he may be insured under a company-sponsored plan that covers only Andy and 20 other employees. The chances may be slim that Dr. Peterson will ever again treat someone who is insured under Andy's plan. And thus, United may never have the opportunity to use same-plan offsetting to recoup its $150 overpayment from Dr. Peterson.

         To get around this problem, United adopted the practice of cross-plan offsetting. Under this approach, United merely has to wait until anyone covered by any of the thousands of plans that it administers sees Dr. Peterson. Suppose, for example, that two weeks after treating Andy, Dr. Peterson treats Betsy, who is injured while on vacation in New York City. Suppose further that Betsy is insured under a plan that is administered by United and that covers Betsy and 50 of her co-employees (all of whom live in San Diego). When Dr. Peterson submits a bill to United on behalf of Betsy, United would deduct $150 from the payment that Betsy's plan would otherwise make to Dr. Peterson and thereby recoup the overpayment that Andy's plan made to Dr. Peterson in connection with his treatment of Andy. It is this practice of cross-plan offsetting that Dr. Peterson and Riverview challenge in these lawsuits.

         In their briefs, the parties refer to the allegedly overpaid claims (such as Dr. Peterson's claim for treating Andy) as the “A claims, ” and the plans that made these overpayments (such as the plan that covered Andy) as the “A Plans” or “Plan As.” The parties refer to the later claims that United purportedly paid through debt cancellation (such as Dr. Peterson's claim for treating Betsy) as the “B claims, ” and the corresponding plans (such as the plan that covered Betsy) as the “B Plans” or “Plan Bs.”^[1]

         Dr. Peterson and Riverview are both out-of-network providers who provided services to an “Andy”-that is, to a patient who was insured under a Plan A administered by United. Both providers submitted claims to United. Both received payment for those claims from the Plan A. Both were later informed by United that they had been paid too much. Both disputed that they had been paid too much, and both refused to return the alleged overpayment. With respect to both, United responded by recouping the disputed overpayment through cross-plan offsetting. In other words, when United learned that Dr. Peterson or Riverview had submitted a subsequent claim regarding a “Betsy”-that is, a different patient who was insured under a different United-administered plan (a Plan B)-United did not pay for those claims by transferring money to Dr. Peterson or Riverview. Instead, United purported to pay for those claims by cancelling debt that Dr. Peterson or Riverview allegedly owed to the Plan A.

         Cross-plan offsetting advantages United and disadvantages providers. When United and a provider dispute whether a claim was overpaid, cross-plan offsetting allows United to act as judge, jury, and executioner. United treats the provider as being in debt to Plan A-no matter how strongly the provider denies being in debt to Plan A-and United collects that disputed debt by offsetting money that Plan B owes to the provider. In theory, the provider could initiate administrative or legal proceedings against United to recover the offset. As a practical matter, however, the provider is unlikely to do so, as the provider would spend far more than, say, $150 in pursuing a $150 offset. In short, without offsetting, the onus would be on United to initiate proceedings and prove that the provider was overpaid by Plan A. With offsetting, the onus shifts to the provider to initiate proceedings and prove that it was underpaid by Plan B.

         As much as providers such as Dr. Peterson and Riverview may dislike offsetting, they do not have standing to bring these actions in their own right. That is because health-insurance plans are contracts between United, on the one hand, and patients or in-network providers, on the other hand. Dr. Peterson and Riverview are out-of- network providers. Moreover, United has fiduciary obligations under ERISA to the patients, not to providers. For that reason, Dr. Peterson and Riverview have brought these actions as assignees or authorized representatives of their patients, ^[2] and these actions focus on whether, by engaging in cross-plan offsetting, United has violated any legal duties to its insureds.

         Speaking very broadly, plaintiffs make at least two contentions in these lawsuits. First, they argue that nothing in any of the relevant plans authorizes United to engage in cross-plan offsetting. That contention is the subject of the parties' cross-motions for summary judgment and will be addressed at length in this order. Second, plaintiffs argue that, in engaging in cross-plan offsetting, United is violating ERISA by furthering its own interests at the expense of its insureds. In particular, when a “Betsy” (that is, someone insured under a Plan B) is treated by her doctor, she is legally responsible for paying her doctor's bill. When United pays her doctor not with cash, but instead by cancelling a purported debt that the doctor denies owing, Betsy's doctor may very well assert that he has not been paid for treating Betsy and demand that Betsy pay the full amount of his bill. Betsy would not be placed at such financial risk if United-which, as administrator of Plan B, owes a fiduciary duty to Betsy-would use Plan B assets to pay Betsy's doctor. Instead, United uses Plan B assets to help Plan A recover a disputed debt.

         B. Development and Implementation of the Cross-Plan Offset System

         United implemented its system of cross-plan offsetting in March 2007 as part of a wider overhaul of its payment system.^[3] Jacob Decl., Mar. 28, 2016 [hereinafter “First Jacob Decl.”] Ex. D. United did not implement cross-plan offsetting in response to a request from a plan sponsor or insured; instead, United came up with this system on its own. Burch Dep. 65-70, 177.

         One benefit to United of implementing cross-plan offsetting has already been explained: When United and a provider dispute whether the provider has been overpaid, United is able to act unilaterally to recoup the alleged overpayment and thereby place the burden on the provider to initiate proceedings and prove that it was not overpaid (something most providers will not bother to do with respect to most disputed overpayments). Another benefit to United is not as obvious: Many of the Plan As-that is, the plans that make the overpayments-are fully insured; in other words, the money that United mistakenly pays to a provider comes out of United's pockets. Many of the Plan Bs-that is, the plans that send money to the Plan As to reimburse them for the overpayments-are self insured; in other words, the money that reimburses United for its alleged overpayment comes out of the plan sponsors' pockets. Several internal United documents emphasize this point and gush about how cross-plan offsetting will allow United to take money for itself out of the pockets of the sponsors of self-insured plans. See Meyer Decl. Ex. A at 13735 (September 2004 presentation stating, in bold text, that the new system “[a]llows recovery of fully insured overpayments on self funded claim payments!”); id. Ex. H at 13910 (August 2004 presentation stating that “[c]rossing policies for bulk recovery helps recover FI [fully insured] dollars faster”); id. Ex. I at 13757 (callout on a 2005 chart of figures highlighting a “[f]ully insured o/p recovery on a [self insured] payment!”).

         Before implementing cross-plan offsetting, United sent a letter to existing clients^[4] describing the new system and how it would work. First Jacob Decl. Ex. D. The letter described the new system as follows:

Under our existing process, a claim overpayment for a self insured plan could only be recovered when both the overpayment and the claim payment involved the same self insured plan. Thus, a self insured plan that had a claim overpayment with a particular provider would have to wait until its participants incurred additional claims with that provider before the overpayment could be deducted. Under the new process, we will, in most instances, be able to recover claim overpayments made to a provider by reducing future claim payments to that provider, regardless of whether those future claim payments involve your plan, another self insured plan or a fully insured plan.

         First Jacob Decl. Ex. D at 2605. In other words, United emphasized the potential benefits of cross-plan offsetting to the self-insured plans, but called no attention to the potential benefits of cross-plan offsetting to United itself.

         United's system for cross-plan offsetting includes rules for prioritizing recoveries. This is necessary because United might allege that multiple overpayments were made to a single provider. So, for example, United may allege that self-insured Plan A1 overpaid Dr. Peterson by $100 on May 1, and that fully insured Plan A2 overpaid Dr. Peterson by $125 on June 1, and that self-insured Plan A3 overpaid Dr. Peterson by $75 on July 1. When Dr. Peterson submits a claim to self-insured Plan B1 on August 1, and United decides that Plan B1 owes Dr. Peterson $200 in connection with that claim, and United further decides to use that $200 to recoup some of the overpayments previously made to Dr. Peterson, to which plan should United transfer Plan B1's money? Plan A1? Plan A2? Plan A3?

         Under United's system for cross-plan offsetting, fully insured plans are first in line to recover their overpayments from fully insured claim payments. Only after fully insured overpayments have been satisfied may self-insured plans recover from fully insured claim payments. Likewise, self-insured plans are first in line to recover from self-insured claim payments, after which fully insured plans may recover. Id. at 2606. The 2007 client letter explained this system and provided several illustrative examples. Id. at 2606-08.

         In this litigation, every Plan A-that is, every plan that made overpayments- was fully insured. Meyer Decl. Exs. C, D. Conversely, the majority of the Plan Bs-that is, the majority of plans from which the overpayments were recovered-were self- insured. Meyer Decl. Ex. F; ECF No. 74 ¶ 5. In other words, every one of the cross-plan offsets at issue in this litigation put money in United's pocket, and most of that money came out of the pockets of the sponsors of self-insured plans.^[5]

         When United implemented this system in 2007, it gave existing clients about two weeks to decide whether to opt out. First Jacob Decl. Ex. D at 2605 (exemplar letter giving clients until February 22, 2007 to opt out); id. Ex. A at 3859 (clients were given advance notice of letters by February 7 and letters were mailed on February 9). New clients do not have that option; they must participate in cross-plan offsetting or find a different claims administrator. Burch Dep. 282-83.

         The parties dispute how much information about cross-plan offsetting United provides to its new clients and whether any of that information is in writing. As with several other issues, the record on this issue is somewhat murky. It appears, however, that disclosures concerning United's system of cross-plan offsetting are mostly or entirely handled by United's banking team during what appear to be fairly technical explanations of the banking, account-setup, and account-funding processes. Bishop- Heroux Dep. 192-94, 226-27; Bishop-Heroux Decl. ¶¶ 6-7; Second Jacob Decl. Ex. X. It also appears that such disclosures mostly occur orally and on a somewhat ad hoc basis, Burch Dep. 282, although United has identified one written document that explicitly mentions cross-plan offsetting-a document that United has apparently given to new clients since 2010. Bishop-Heroux Decl. ¶ 6; Second Jacob Decl. Ex. X. The document does not provide nearly as much detail about cross-plan offsetting as the 2007 letter, however-and, like the 2007 letter, the document says nothing about the fact or extent of United's conflict of interest. Second Jacob Decl. Ex. X at 3816. United says that it provides these oral and written ...