New Jersey District Court Declares Cross-Plan Offsetting a Violation of ERISA

By David A. Zarett, Esq.
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It has become commonplace for physicians and medical practices to face audits and payment reviews by commercial health insurers and third-party administrators (“TPAs”) under an ERISA plan. If an overpayment is identified, it is not unusual for the carrier or TPA to recoup the funds allegedly owing. One of the tactics used in recovering the alleged overpayments has become known as “cross-plan offsetting.” Simply put, cross-plan offsetting occurs when overpayment amounts allegedly due by a provider as a result of an audit under Plan A, are offset against payments otherwise owing to the provider under (a separate) Plan B. 

Very recently, a federal district court in New Jersey issued a decision, Lutz Surgical Partners PLLC, et al v. Aetna Inc., et al, Case No. 3:15-cv-02595 (BRM)(TJB) (D.N.J, June 21, 2021), holding that Aetna’s cross-plan offsetting was a violation of several sections of ERISA. (Click here to view case text).

The 52-page decision in Lutz is quite extensive, and addresses a variety of issues, including the proper parties to the lawsuit, standing, waiver and unique ERISA related legal issues, all of which are outside the scope of this Legal Alert. On the distinct issue of the legality of cross-plan offsetting, the Court reasoned that when a TPA serves in a fiduciary/trustee capacity for multiple plans, each plan is considered a separate entity and the TPA’s fiduciary obligations run separately to each. The Court continued that offsetting payments due from Plan A to a provider, in order to recoup alleged overpayments due from the provider to Plan B, violated the separate nature of the fiduciary obligations owing to each plan. Thus, the court ruled that Aetna’s cross-plan offsetting violated Section 406(b)(2) of ERISA, which prohibits plan fiduciaries from acting in “any transaction involving the plan on behalf of a party… whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries.”  In addition, the court determined that Aetna violated Section 404(a) of ERISA, which provides that ERISA fiduciaries must discharge their duties with respect to a plan “solely in the interest of the participants and beneficiaries and … for the exclusive purpose of… providing benefits to participants and their beneficiaries.”  Indeed, the Court recognized that, “failing to pay a benefit owed to a beneficiary under one plan, in order to recover money for the benefit of another plan [through cross-plan offsetting] may constitute a transfer of money from one plan to another,” all in violation of ERISA. 

While there are several other legal decisions that have touched on this issue, Lutz appears to be the first court decision to squarely hold that cross-plan offsetting violates ERISA. We doubt this will be last court opinion on the matter. 

About the Author: David A. Zarett is a founding member of Weiss Zarett Brofman Sonnenklar & Levy, P.C., and heads up the Firm’s Litigation Department. Mr. Zarett has extensive experience litigating a variety of cases in state and federal courts, which includes disputes with commercial health insurance carriers regarding plan participation and payments. If you have questions about any these issues, or other legal matters uniquely affecting healthcare providers, please reach out to David A. Zarett, Esq. at dzarett@weisszarett.com or (516) 926-3301.

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