Guest Column

Providers have recourse when MCOs don’t pay

Don’t be afraid to challenge claims denials

By Elizabeth E. Hogue, Esq.
Burtonsville, MD

Home care providers and patients remain concerned about the decisions that managed care organizations (MCOs) and other payers make about whether to pay for care. Both groups often perceive that the true decision-makers about treatment may be payers, not providers. This perception has resulted in a number of lawsuits against payers related to payment denials.

One of the defenses claimed by some payers has been that providers and patients are not allowed to sue them for these complaints because their claims are pre-empted by the Employee Retirement Income Security Act (ERISA), a federal law that governs employee benefit plans. Specifically, payers argue that the claims of providers and payers are matters of state law. Consequently, some payers have argued that the federal statute that governs ERISA controls the outcome of such claims even though the statutes may be silent on issues related to these claims and precludes providers and patients from suing payers.

In the case In Home Health Inc. v. Prudential Insurance Co. (CA 8 No. 95-3974, Dec. 2, 1996), a home care provider claimed that Prudential, as the third-party administrator for a group health plan, negligently misrepresented a patients’ coverage status.

Specifically, In Home Health claimed that Prudential falsely informed the provider that a patient covered by one of the employee benefit plans it administered had not reached the plan’s $1 million lifetime maximum benefit limit. In reliance on this information, the agency provided services to the patient worth $40,000.

Retrospective denials not uncommon

This is a familiar dilemma for providers. Staff members routinely verify the eligibility of patients for services under benefit plans. In response, it is common for payers to indicate that patients are eligible for services under particular benefit plans. Based upon this verification, providers routinely initiate and continue to provide needed services. Subsequently, payers retrospectively may deny payment on the basis that patients, in fact, were ineligible for the benefits they claimed and that were verified by the payer. Providers, understandably, are extremely concerned about this type of retrospective denial because thousands of dollars may be lost despite precautions taken by staff.

Nonetheless, the position of many payers is that providers must bear the loss even though the payer acknowledges that it initially verified the eligibility of the patient. They often point out that they may lack accurate information for a variety of reasons. For instance, payers and administrators frequently claim that employers do not always inform them promptly when patients are no longer employed or are disenrolled for other reasons.

In Home Health was on the receiving end of a retrospective denial of this type. This provider decided that it would not sit still for this kind of treatment from Prudential and sued to collect the payments due for services that were provided.

During the trial, the judge dismissed the provider’s complaint. Prudential claimed that ERISA pre-empted the provider’s claim. The judge reasoned that, if the provider’s claim was granted, the money paid to it would have an economic impact on the plan by requiring payment of benefits beyond its coverage limits.

Appeals court reversed lower court’s ruling

The appeals court, on the other hand, reversed the decision of the trial court and sent the case back to the lower court for further consideration. In doing so, the court first noted that the majority of appeals courts that have ruled on this issue have decided that ERISA does not pre-empt such claims.

The court also based its decision to reject Prudential’s argument of pre-emption by ERISA on the fact that In Home Health’s suit was that of an independent entity seeking damages for alleged misrepresentation, not plan benefits on behalf of a plan beneficiary. As such, any damages paid would come from Prudential as the third-party administrator, not the plan itself. The court further said that just because an ERISA plan is involved in a case, that does not automatically mean that the claims are pre-empted.

In addition, the court noted that the provider’s claim of negligent misrepresentation would not affect any provision of the ERISA plan involved, nor would it impose new administrative duties on Prudential. It also would not affect relationships between the primary parties to the ERISA plan or have any adverse economic impact on the ERISA plan itself.

The court also based its decision on the fact that the underlying legislative purpose of ERISA is to protect the interests of employees and their beneficiaries in employee benefits. If the court adopted Prudential’s arguments, according to the judge, providers may be reluctant to render services unless beneficiaries pay in advance. Such a result clearly would defeat congressional intent.

ERISA pre-emption claims likely to be rejected

This last argument may point providers in the direction of future resolution of this issue of ERISA preemption. Specifically, courts likely are to continue to reject claims of pre-emption by payers in the future. The ERISA statute was enacted by Congress long before the role of payers changed so dramatically. The court’s analysis that the ERISA statute was never intended to address issues such as those raised by the provider in this case is very strong. In short, providers do have recourse when MCOs and other payers fail to pay their claims. They should not hesitate to pursue their interests.

[Editor’s note: A complete list of Elizabeth Hogue’s publications is available by contacting Elizabeth E. Hogue, Esq., 15118 Liberty Grove, Burtonsville, MD 20866. Phone: (301) 421-0143. Fax: (301) 421-1699. E-mail:]