United HealthCare Administered ERISA Plan Sued for Embezzlement in Medical Claims Overpayment Offset Dispute

United HealthCare Administered ERISA Plan Sued for Embezzlement in Medical Claims Overpayment Offset Dispute

On May 10, 2016, in the southern district of Texas Federal Court, United HealthCare administered self-insured ERISA plan, GAP Inc. and its Plan Administrators, Cynthia Radovich and Lesley Dale, were sued for alleged ERISA plan assets “self-dealing and embezzlement”, deceptively concealed through an “illegitimate recoupment scheme that financially rewards United for wrongfully recouping valid benefits”.

As we have written about before and as part of a growing trend, another self-insured health plan is being sued for alleged embezzlement and self-dealing. United HealthCare administered self-insured ERISA plan, GAP Inc. and plan administrators, Cynthia Radovich and Lesley Dale, were sued by out-of-network (OON) hospital, Redoak Hospital, LLC, for alleged ERISA plan assets “Self-dealing and embezzlement”, based on its co fiduciary, United HealthCare’s (UHC) alleged cross plan overpayment offset practices, according to court documents.

This extraordinary and multifaceted ERISA lawsuit will impact all ERISA self-insured plans, employer sponsored plan employees, and healthcare providers, resulting in uncertainties for every healthcare claim. Overpayment refund demands and cross-plan offset practices are the nation’s most insidious claim denials and may ultimately determine the fate of the entire U.S. ERISA healthcare system. 

In the healthcare provider arena the No. 1 health care claim denial in the country today is the overpayment recoupment and claims-offset.  Correspondingly, for self-insured health plans, the No. 1 hidden cost is overpayment recoupment and plan assets embezzlement.

The Court Case Info: Redoak Hospital, LLC v. Gap Inc., Gap Inc. Health and Life Insurance Plan, Cynthia Radovich, and Lesley Dale,  in the United States District Court for the Southern District of Texas, Houston Division, Case 4:16-cv-01303, Filed on 05/10/16.

According to court documents, Redoak Hospital Plaintiff filed a DOL EBSA Complaint on the alleged overpayment offset by the Defendants Plan, Gap, Inc, and the plan’s co-fiduciary, UHC, prior to filling this ERISA lawsuit, alleging:

 “This dispute arises out of Defendants’ ongoing and systematic ERISA violations consisting of an elaborate scheme to abstract, withhold, embezzle and convert self-insured Plan Assets that were approved and allegedly paid to Plaintiff for Plaintiff’s claim, to purportedly, but impermissibly, satisfy a falsely alleged ―overpayment‖ for another stranger claim, especially when the stranger is a plan beneficiary of a fully-insured plan that is insured by the Plan’s co-fiduciary, United Healthcare (hereinafter, ―United‖). Defendants knew or should have known that the Plan’s overpayment recovery provisions cannot be triggered until there is an allegation of overpayment by the Plan to the Plan Beneficiary subject to this action, and that converting the Plan Assets by a fiduciary or co-fiduciary of the Plan, in this case United, to the use of another and his own use, to ultimately pay to United’s own account is absolutely prohibited under ERISA statutes. Regardless, Defendants and United recklessly conspired, orchestrated and authorized to this kind of self-dealing and embezzlement even while being under active investigation by the Department of Labor and after repeated detailed alerts and notices from Plaintiff regarding the aforementioned.” according to the Court Documents.

In the Compliant, the Plaintiff makes the following:


The Plaintiff, as a statutory defined Claimant with a valid and unchallenged Assignment of Benefits, is entitled to ERISA rights ―to bring a civil action under section 502(a) of the Act following an adverse benefit determination on review‖ after Plaintiff has legally and administratively exhausted any and all appeal remedies.14 Therefore the Plaintiff is entitled to pursue Benefit claims: (i) to recover benefits due for already approved claims but abstracted and converted by the Defendants’ co-fiduciary, United; (ii) breach of fiduciary duty claims under 29 U.S.C. § 1132(a)(2) in violation of 18 U.S.C. § 664, 29 U.S.C. § §1104, §1105, §1106(b)(1)(d); injunctive relief to enjoin the Defendants from engaging in prohibited transaction 29 U.S.C. § 1132(a)(3); and (iii) injunctive relief to permanently remove the Defendants Cynthia Radovich and Lesley Dale from serving as fiduciaries to the Plan permanently under 29 U.S.C. § 1132(a)(3).” according to the Court Documents.

Avym Corp. announces a timely new ERISA Compliance Forum on May 17, 2016. At this new ERISA Compliance Forum, through Pittsburgh Business Group on Health (PBGH) Legislative Updates Forum, we will brainstorm, assess and demystify the potential impact of this unprecedented ERISA lawsuit for all interested parties.  PBGH is “The only employer-led, non-profit coalition of large, mid-size, and small organization representing various business segments including private and public employers, government and academia.”

According to industry estimates, the total dollar amount at issue nationwide is tremendous. Successful industry overpayment recoveries have reached into the billions of dollars nationwide over the past 5 to 7 years and involve many large carriers.  Thus recoupment through offsetting, when used as an anti-fraud initiative, has become an increasingly popular source of revenue for some insurers. While there is a need for anti-fraud initiatives in healthcare today, it is critical that every health plan comply with all applicable federal laws, ERISA and PPACA claims regulations, as well as statutory fiduciary duties. Insurers and Health Plans must comply with all applicable federal laws, ERISA and PPACA claims regulations, as well as statutory fiduciary duties before recouping one single dollar.

Over the past 6 years, Avym has closely followed decisions from the Supreme Court and federal appeals courts on ERISA prohibited self-dealing against ERISA plan TPA’s for managed care savings.

This latest lawsuit against a self-insured plan and plan administrators, for alleged plan assets embezzlement by the ERISA plan’s third party claim administrator (TPA), comes less than 6 months after a Cigna administered self-insured plan was sued in federal court for similar violations.

The Court Case info: True View Surgery Center One L.P., v.Chicago Bridge And Iron Medical Plan, Chicago Bridge And Iron Company, And Dennis Fox, Case #: 3:15-CV-00310, filed on Oct. 29, 2015, in the United States District Court For The Southern District of Texas.

In the Oct 29, 2015 lawsuit filed by OON provider True View Surgery Center, against the Cigna administered ERISA plan, the Plaintiff alleged in part:

“Specifically, in spite of the glaring conflict of interest and inherent breach of fiduciary duties, Defendants agreed to an unlawful compensation structure that financially rewards Cigna for wrongfully denying and underpaying benefits claims. Under this backdrop, together Defendants and Cigna concocted an intricate scheme to transfer and embezzle plan funds. Transfers are first concealed by processing out-of-network claims under a fabricated Preferred Provider Organization (PPO) “contractual obligation,” even though Defendants and Cigna are fully aware that no such contract exists. Then, Defendants and Cigna knowingly implemented a system to willfully and wrongfully refuse payments to the out-of-network provider under a sham “fee-forgiveness” protocol. As a result of the wrongful claims denials, the transferred plan funds are ultimately misappropriated by Cigna, who then fraudulently pays itself with the plan funds, falsely declaring the embezzled funds as compensation generated through managed care and out-of-network cost containment “savings,” when in truth the claims were never paid and the plan beneficiaries were left exposed to personal liability for their unpaid medical bills.”

On Oct 21, 2015, in a separate but similar lawsuit filed by an ERISA plan against a separate ERISA plan TPA, the Plaintiff alleged in part:

“MagnaCare represented to Plaintiffs in a written contract between the parties that providers of diagnostic laboratory and ancillary services had “accepted” a “fee schedule” which included a “management fee” for MagnaCare. In fact, the providers had never “accepted’ a fee schedule containing a “management foe” for MagnaCare. Rather, the providers had agreed to a fee schedule, which was a fraction of the amounts collected by MagnaCare from Plaintiffs. MagnaCare – without disclosure to Plaintiffs or the providers – simply misappropriated the difference between what Plaintiffs paid MagnaCare and what MagnaCare negotiated to pay the providers.” 

Court case info: UNITED TEAMSTER FUND, et al v. Magnacare Administrative Services, LLC et al, Case 1:13-CV-06062-WHP-FM, First Amended Complaint (FAC), filed on Oct. 29, 2015, original Complaint, filed on august 27, 2013,  in United States District Court Southern District Of New York.

These lawsuits come on the heels of the Oct. 20, 2014 U.S. Supreme Court decision to deny all appeals on a BCBSM’s $6.1 million fraud judgment for a self-insured ERISA plan by the U.S. Court of Appeals for the Six Circuit, upholding the decision by the District Court for the Eastern District of Michigan.

On May 14, 2014, the federal appeals court (Sixth Cir. 2014) upheld the district court’s $6.1 million decision for Hi-Lex, a self-insured ERISA plan, against BCBSM for violating ERISA in prohibited transactions and fiduciary fraud, according to court documents.

Hi-Lex Controls, Inc. v. Blue Cross Blue Shield of Michigan, (SC Case #. 14-168, 6th Cir. Case #: 13-1773, 13-1859).

These cases together with the pending ERISA cases listed below, offer insight into the healthcare industry’s prevalent overpayment offset wars:  

Peterson, D.C. et al v. UnitedHealth Group Inc. et al, U.S. District Court, U.S. District of Minnesota (DMN) CIVIL DOCKET FOR CASE #: 0:14-cv-02101-PJS-BRT,

Riverview Health Institute v. UnitedHealth Group Inc. et al, U.S. District Court, U.S. District of Minnesota (DMN), CIVIL DOCKET FOR CASE #: 0:15-cv-03064-PJS-BRT

These new ERISA embezzlement cases are part of a growing trend consistent with the court’s Hi-Lex decisions. This lawsuit in particular should serve as a warning and wake up call for all Plan Administrators to continually monitor their TPAs in accordance with the Plan Administrator’s statutory fiduciary duties and to discharge its duties with respect to a plan solely in the interest of the participants for the exclusive purpose of providing benefits to them.

For over 6 years, Avym Corp. has advocated for ERISA plan assets audit and embezzlement recovery education and consulting. With new Supreme Court guidance on ERISA anti-fraud protection, we are ready to assist all self-insured plans recover billions of dollars of self-insured plan assets, 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.



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