New ERISA Decision Aids Defense of Insurance Post-Payment Reviews
Federal Court Says ERISA Completely Preempts Breach of Contract and Fraud in the Context of Post-Payment Reviews and Audits
Physicians, chiropractors and other health care providers now have a strong defense in fighting insurance post-payment reviews and audits. On October 27, 2010, the U.S. District Court for the District of Rhode Island, in the case of Blue Cross and Blue Shield of Rhode Island v. Jay S. Korsen and Ian D. Barlow, 1:09-cv-00317-l (U.S. Dist. of R.I., Oct. 27, 2010), held that ERISA completely preempts state law causes of action for breach of contract and fraud in the context of post-payment reviews.
In that case, plaintiff, Blue Cross and Blue Shield of Rhode Island (BCBSRI), filed suit against Jay S. Korsen, D.C. and Ian D. Barlow, an occupational therapist, alleging that defendants purposefully miscoded services which resulted in an overpayment of over $400,000.00 for services that were not covered by "the applicable Blue Cross/Blue Shield of Rhode Island subscriber contracts." Specifically, Blue Cross alleged that between 2003 and 2009, defendants treated patients using motorized massage equipment, but then coded the services as "mechanical traction" in order to obtain compensation for an unauthorized service. Blue Cross discovered this alleged miscoding when it conducted an audit of the practice. In essence, Blue Cross indicated that the services were not medically necessary, as there was a lack of published peer reviewed literature to support its efficacy.
Blue Cross brought the case in state court and alleged the state law causes of action of breach of contract (for breach of their provider agreements) and fraud. Defendants removed the case to federal court, alleging that Blue Cross' state law claims are completely preempted by the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001, et seq.
The Court concluded that the state law claims for breach of contract and fraud were completely preempted under ERISA. The Court used a two-part test established in a prior Supreme Court case to determine: (1) that BCBSRI acted as a fiduciary under ERISA; and (2) that the provider agreement does not constitute an independent legal duty violated by defendants' actions. As such, the Court stated, "it is undeniable that what constitutes proper coding derives from Blue Cross' right to pay only for services covered by the ERISA plans."
Since the court determined that the breach of contract and fraud claims were completely preempted, the Court converted those claims to an ERISA §502(a)(3) claim. Under §502(a)(3), BCBSRI is limited to equitable remedies under ERISA. This is a monumental decision, since prior court decisions substantially limit an insurance company's right to seek the return of overpayments under ERISA.
Health care providers should seek legal counsel to assist them with responding to insurance post-payment reviews and recoupment in light of this court opinion. Of course, the best way to deal with insurance post-payment reviews or audits is to avoid them altogether by adhering to strict health care compliance. Experienced legal counsel in ERISA matters should be consulted.
Check back for future blog postings regarding court decisions that limit insurance companies' right to seek the return of overpayments under ERISA. The Martin Law Firm is a health law firm located in Blue Bell, Montgomery County, PA. The Martin Law Firm represents health care providers for matters involving health care compliance, Medicare audits and appeals, insurance post-payment reviews and general business matters. Contact The Martin Law Firm to speak to an experienced health care attorney today.