In a monumental decision for Out-Of-Network Providers nationwide, on June 1, 2016, U.S. District Judge Kenneth Hoyt of the Southern District of Texas ruled against Cigna and ordered the insurer to pay $11.4 million to cover underpaid claims and, an additional $2.3 million in ERISA penalties, in perhaps the first instance where a claims administrator was ordered to pay ERISA penalties to a medical provider.
U.S. District Judge Hoyt, after a nine day bench trial, ruled that Cigna’s claims of overpayment and fee forgiveness fraud failed, as did its arguments against Humble Surgical Hospital’s (Humble) ERISA claims. According to court records:
“Based on the analysis and reasoning set forth herein, the Court determines that Cigna’s claim(s) for reimbursement of overpayments made pursuant to ERISA and/or common law fail, as a matter of law;”.
The court goes on to say, “The Court further concludes that Cigna’s defenses to Humble’s ERISA claims fail and Humble is entitled to recover damages under § 502(a)(1)(B)1 and penalties under § 502(c)(1)(B).”
Case info: Connecticut General Life Insurance Co. et al. v. Humble Surgical Hospital, LLC, (Cigna v. Humble) Case number 4:13-cv-03291, in the U.S. District Court for the Southern District of Texas. Entered June 01, 2016
This decision represents a major paradigm shift in Out-of-Network benefits and claim processing for all health care providers and health plans in the nation and establishes clear guidance on critical issues such as cross-plan offsetting, Cigna’s fee forgiveness protocol, SIU practices and ERISA disclosure requirements. The decision sheds light on the payor initiated “out-of-network fraud” enigma and is one of a series of critical court decisions which address the typical scenario for out-of-network providers: payors refusal to pay claims which leads to “catch-all” out-of-network lawsuits seeking total overpayment refunds of claims previously paid to providers , all based on broad and vague allegations of fraud.
At its core, this court decision provides the entire managed care and plan benefits industry with basic, yet comprehensive legal reasoning and essentially offers a roadmap to addressing modern-day healthcare litigation.
In his ruling, U.S. District Judge Kenneth Hoyt wrote that the health insurer initiated the litigation seeking $5.2 million in restitution and filed claims against the hospital, alleging it engaged in fraudulent out-of-network billing practices, which resulted in “overpayments”.
Humble denied the allegations and countersued Cigna for (a) nonpayment of current member/patient’s claims, underpayment of certain claims, and delayed payment of all claims in violation of ERISA § 502(a)(1)(B); (b) failure to provide a full and fair review under ERISA; (c) breach of fiduciary duties of loyalty and care under ERISA; and (d) penalties pursuant to ERISA § 502(c,), according to the court documents.
This landmark decision has the potential to save millions of Americans from medical bankruptcy. Additionally, it illustrates one of the most pressing issues facing out-of-network patients and providers across the nation. Payor initiated Deductible and Co-Pay waiver claim denials and overpayment recoupments or offsets is the No. 1 out-of-network claim denial, contributing to increases in the number of personal bankruptcies. According to many recent surveys, reports and case studies, one in five American adults will struggle to pay medical bills. In fact, medical bills are the leading cause of personal bankruptcy, affecting even those with health insurance. Subsequently, approximately 76% of Americans paid for out-of-network coverage through their employer-sponsored health plans, according to a December 2013 National Composition Summary from DOL Bureau of Labor Statistics. It’s clear that the epidemic of out-of-network deductible balance billing wrongly imposed by ERISA plans has inevitably contributed significantly to unexpected medical bills and personal bankruptcy.
According to the court records, the evidence clearly demonstrated that Cigna flagged Humble’s claims, for SIU processing, never told the hospital and “did not –and by its conduct—could not provide a reasonable meaningful opportunity for a full and fair review of its decision regarding Humble’s claims.”
“Cigna’s method for processing Humble’s claims was simply disingenuous and arbitrary, as it was focused more on accomplishing a predetermined purpose — denying Humble’s claims,”
Cigna argued that it could assert its claim based on the plans “overpayment” provisions, according to the court documents: “Here, Cigna relies on a provision within many of its plan documents entitled, “Recovery of overpayment,” which provides, “When an overpayment has been made by Cigna, Cigna will have the right at any time to: recover that overpayment from the person to whom or on whose behalf it was made; or offset the amount of that overpayment from a future claim payment.”
However, the court rejected that argument, “However, this provision, standing alone, is insufficient to create a lien or constructive trust as it does not: mention the words “lien” or “trust”; state that any overpayment shall constitute a charge against any particular proceeds; give rise to a security interest in such proceeds; even suggest that a trust is being sought for Cigna’s and/or the plan’s benefit on any particular provider payments; or advise of the need for any particular provider to preserve, segregate or otherwise hold such funds or proceeds in trust…Therefore, the Court determines that Cigna has failed to establish that the “Recovery of Overpayment” provision contained in its plan documents creates a constructive trust or equitable lien by agreement.”
Of critical importance is the court’s analysis and decision on Cigna’s “tracing” arguments as well. According to court records, “Cigna is not entitled to equitable restitution of any alleged overpayments based on the “tracing” method, as it cannot identify any specific res separate and apart from Humble’s general assets. See Health Special Risk, 756 F.3d at 366 (reasoning that “Sereboff did not move away from any tracing requirement; it distinguished between equitable liens by agreement—which do not require tracing—and equitable liens by restitution—which do.”). As the Court explained in Knudson, the basis for petitioners’ claim is “that petitioners are contractually entitled to some funds for benefits that they conferred. The kind of restitution that petitioners seek, therefore, is not equitable…but legal—the imposition of personal liability for the benefits that they conferred upon respondents.”Knudson, 534 U.S. at 214.”
The court also weighed in on Cigna’s “fee forgiving “argument, “The plan language does not support denying Humble’s claims based on waiver, due to Humble’s alleged fee-forgiving policy, or, in Cigna’s own novel view, pursuant to a proportionate share analysis.”
Next, the court weighed in on Cigna’s arguments that Humble’s claims were not covered by the plans based on Exclusionary language in the plan documents: “Cigna has not offered evidence that any of the services billed by Humble were not covered by the plans or that they were improperly billed Therefore, Cigna’s interpretation of the “exclusionary” language as rejecting covered services, was improper and violative of the plans’ terms.” “For these reasons, the court determines that Cigna improperly applied the exclusionary language contained in the plans and, in the process, abused its discretion, especially since Cigna admittedly has never used the exclusionary language to reject covered services before and was relentless in engaging in an arbitrary manner with regard to Humble and its claims.”
“Finally, the evidence suggests that Cigna failed to explain to the plan sponsors and/or members/patients/insureds that it was applying a proportionate share analysis to Humble’s claims. Thus, Cigna breached its fiduciary duty when it strayed from the terms of the plans and interpreted its ASO Agreements with plan sponsors as conferring authority upon it that was not specifically set forth in and/or was contrary to the various plans.”
Essentially, CIGNA was “Checkmated” on all their arguments
Ultimately, the court ruled against Cigna on every major argument and consistent with previous appellate court decisions, provides step by step guidelines on whether Cigna’s “fee forgiveness protocol” and “overpayment offsets” are legally correct,
“Therefore, the Court holds that Cigna’s claims processing procedure and appeals review process violated ERISA and concomitantly, its fiduciary duty of care and loyalty to the members/patients and the plan sponsors. Indeed, Cigna earned handsome returns as a result of its aberrant and arbitrary claims processing methodology. The evidence establishes that it was subject to a double heaping from the plan sponsors’ pockets—first, in receiving a fee for claim processing services–and second, in receiving fees based on “savings,” regardless of how garnered. In the process, however, Cigna forfeited its objectivity and violated its fiduciary duties of care and loyalty by making benefit determinations that did not consider UCR or conform to the plans’ terms in violation of ERISA.”
The court also made an interesting observation regarding Cigna’s third party vendor negotiation and Cigna’s claim that Humble misrepresented the charges: “Cigna’s assessment of Humble’s disclosure duties is fallacious, at best. The fallacy is manifested in several respects. First, Cigna has not publicly disclosed its ASO Agreements with plan providers to any of its members/patients or third-party healthcare providers because it considers such documents to be proprietary as well. To this end, Cigna cannot expect unfettered access to contracts maintained by third-party healthcare providers without permitting them unrestricted access to the same. To require otherwise would be to reward Cigna’s duplicitous conduct.”
Finally, Humble claimed that it was entitled to ERISA penalties, arguing “Cigna’s refusal to provide such plan documents placed it at a serious disadvantage–both in defending against Cigna’s claims for overpayment and in recovering on its own claims for underpayment. “
The court agreed and issued a substantial penalty on Cigna for failing to Disclosure the Plan Terms reasoning: “The Court is of the opinion that, after October 2010, Cigna became more than a third-party “claims administrator” because of the manner in which it processed Humble’s claims. While the evidence establishes that Cigna is not the “designated” or named plan administrator it, nevertheless, became the de facto plan administrator by way of its conduct and admissions under an ERISA-estoppel theory.”
The court concluded: “Without plan documents, Humble could not know whether Cigna was even processing its claims pursuant to the terms of the plans…In these respects, Cigna interfered with and frustrated the contractual relationship between the plan sponsors and the members/patients by imposing a methodology for claim processing that was not part of any plan.
In essence, Cigna “hijacked” the plan administrator’s role and subverted it for its personal benefit. Indeed, Cigna’s unprecedented claims processing methodology and incessant related acts were extraordinary acts of bad faith.”
All Out-of-Network providers and self-insured health plans must understand this landmark case in order to protect members and beneficiaries from inappropriate medical debt and bankruptcy and to safeguard and protect self-insured health plan assets from possible conversion or abstraction. Education and understanding of this landmark court decision will bring peace, harmony and compliance to the healthcare industry, especially when health plans are determined to contain healthcare costs and healthcare providers are dedicated to providing all patients with high quality, affordable healthcare when exercising their freedom of choice and right to seek out-of-network care.
For over 6 years, Avym Corp. has advocated for ERISA plan assets audit and embezzlement recovery education and consulting. Now with the Supreme Court’s guidance on ERISA anti-fraud protection, we are ready to assist all medical providers and self-insured plans recover billions of dollars on behalf of hard-working Americans. To find out more about Avym Corporation’s Fiduciary Overpayment Recovery Specialist (FOR) and Fiduciary Overpayment Recovery Contractor (FORC) programs click here.