Retroactive Adverse Benefit Determinations

Consider the following scenario. You provide treatment to your patient. Your billing department submits a claim to the insurance carrier, and the carrier pays the claim. Your billing staff applies the insurance payment and invoices the patient for his/her respective portion. Your patient pays the invoice and your billing staff closes out the account for that encounter. Then, a letter from the insurance carrier arrives in the mail.  After all of the this, the insurance carrier demands repayment on the claims they initially determined to be valid.  To make matters worse, the insurance carrier may have already taken the money back by offsetting other patient claims compensable by that insurer.  What protections does the practice have in confronting this situation?

[Note: where applicable, the information provided below assumes that the practice has complied with all of the insurance carrier's claims filing guidelines and denials are not administrative or technical denials of a claim.]

Protections under ERISA

The Employee Income Security Act, commonly known as ERISA, was enacted in 1974.  The purpose behind the ERISA legislation was to protect employee rights in their employer-sponsored benefit plans.1 ERISA governs employee benefit plans that provide medical, surgical or hospital care, through the purchase of insurance or other methods. 2 ERISA sets forth substantive regulatory requirements for employee benefit plans, along with mechanisms to provide access to Federal courts, sanctions, and exclusive remedies. 3
ERISA does not require employers to provide employee benefit plans. 4 Rather, it establishes certain uniform protections for employee benefit plans when those plans are offered. 5 It is important to note that ERISA does not govern all insurance plans. 6 For plans that it does regulate, the ERISA scheme maintains uniformity by superseding and taking precedence over any state laws which govern benefit plans. 7 Specifically, it supersedes applicable state law in three areas:  (1) laws mandating employee benefit structures or their administration; (2) laws that regulate ERISA plans; and (3) laws providing alternate enforcement mechanisms other than those provided by ERISA. One enforcement mechanism arises under section 502(a) of ERISA. 8 This provision permits a plan beneficiary to bring a civil action to "recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan." 9 If ERISA is applicable to the insurance plan, its protections should be examined when challenging an insurer's benefit determination.

Adverse Benefit Determinations

Under ERISA, benefit denials are termed "adverse benefit determinations."  In ERISA parlance, this means "[a] denial, reduction, or termination of, or a failure to provide or make payment (in whole or in part) for, a benefit, including any such denial, reduction, termination." 10 An adverse benefit determination is also a "[f]ailure to provide or make payment that is based on a determination of a participant's or beneficiary's eligibility to participate in a plan. . ." 11 For group health plans, this also includes a "[d]enial, reduction, or termination of, or a failure to provide or make payment (in whole or in part) for, a benefit resulting from the application of any utilization review. . ." 12 Adverse benefit determination also applies to the denial of any treatment because the plan considers it to be "[e]xperimental or investigational or not medically necessary or appropriate." 13

Generally, adverse benefit determinations must be made within 90 days of the health plan's receipt of the claim, unless special circumstances exist which necessitate an extension of time. 14 Adverse benefit determinations for group health plans are to be made "within a reasonable period of time, but not later than 30 days after receipt of the claim." 15 Prior to the expiration of this 30 day period, the time to make an adverse benefit determination may be extended one time for up to 15 days. 16 The notification must provide the specific reason(s) for the adverse determination, referencing the specific plan provisions upon which the insurer's determination is based. 17 The notice must provide the plan beneficiary with a description of any additional material or information necessary to satisfy the claim and an explanation of why such material or information is necessary. 18 The insurer must furnish a description of the plan's review procedures and the applicable time limits. 19 The health insurance plan procedures must provide the beneficiary with a "[r]easonable opportunity to appeal an adverse benefit determination to an appropriate named fiduciary of the plan, and under which there will be a full and fair review of the claim and the adverse benefit determination." 20 After the receipt of an adverse benefit determination notification, the plan must provide claimants with at least 60 days to appeal the decision. 21 ERISA requires the notification to include a statement of the claimant's right to bring a civil action under section 502(a) of the ERISA Act following an adverse benefit determination that is under review. 22

Distinctions involving Adverse Benefit Determinations: The Right to Payment versus Rate of Payment

ERISA distinguishes between "rate of payment" issues and "right to payment issues."  For a participating provider, fee schedule disputes (i.e., underpayment on a CPT code) do not necessarily involve ERISA. 23 Payment terms arise under the provider agreement.  Underpayments present a "rate of payment" issue, when a participating provider is involved. 24 The participating provider agreement creates a contractual duty that is independent of ERISA.  This type of payment dispute is a matter of contract law, where the underlying provider contract controls the payment provisions.  Therefore, state law, and not ERISA, would most likely determine the outcome where the claims originate from this legal duty. 25 However, for providers who are not participating, underpayments may implicate ERISA.  Between a non-participating provider and an insurance plan, there is no contract governing payment terms or fee schedules.  In the absence of a provider contract, the insurer does not have any independent contractual duties relative to the provider's claims. 26 An out-of-network provider's claims are likely based on the ERISA rights of the plan beneficiaries, and not on the rate of payment. 27

"Right to payment" issues are created when an insurer fails to honor the patient's benefit or when the insurer denies the patient's claim. 28 Both of these situations constitute adverse benefit determinations.  When a benefit exists, and the insurance company does not pay that benefit, ERISA is implicated.  The right to payment is not a contract issue; it does not raise independent contractual duties outside of ERISA.  This falls squarely within the regulatory scheme of ERISA. 29 The insurer's failure to honor plan benefits triggers ERISA's notification and appeal protections.  Federal law preempts any applicable state law in resolving the matter.  In assessing which course of action to take, the provider must determine whether the insurer's action has created a rate of payment issue, or one involving the right to payment.

Billing disputes between the carrier and provider with respect to whether the provider billed using the proper CPT code does not necessarily implicate ERISA. In this instance, the insurers denial of a claim because the of the provider's submission of the wrong CPT code does not equate to an adverse benefit determination if the provider is able to rebill for the service using the correct code.  Similarly, the insurer's denial of a claim based on missing information on the claim form is not an adverse benefit determination if the provider is able to resubmit the claim.  These two situations are examples of "technical" or "administrative" denials.

Does the Insurer's Action Constitute an Adverse Benefit Determination

Some insurer actions are clearly adverse benefit determinations.  For example, an insurer's conclusion that the patient's treatments were not medically necessary constitutes an adverse benefit determination.  The following insurer actions represent adverse benefit determinations: concluding that a plan beneficiary is not eligible; denying a covered benefit; determining that a benefit is not covered; limiting or reducing the available benefit because of a pre-existing condition; and finding that a treatment is experimental or investigational all represent adverse benefit determinations. 30 There may be other circumstances that exist which cloud the issue as to whether the insurer's action amounts to an adverse benefit determination.Because an adverse benefit determination triggers ERISA, it is important to know when that determination has actually been reached. 

According to one insurer, their practice of demanding repayments from a provider does not constitute an adverse benefit determination where no funds were recovered. 31 After repeatedly receiving the repayment demands, the provider sued the insurance carrier, invoking the protections afforded under ERISA.  23 The insurer claimed that their practice of sending letters to providers indicating that the provider was overpaid did not trigger ERISA notice and appeal rights. 33 Secondly, the insurer contended that the letters did not present any threat of depriving the plan beneficiary of any benefit. 34 The insurer also claimed that their demand letters arose out of their independent duty under state law to combat fraud. 35 The insurer attempted to have the court dismiss the provider's ERISA claims.  The court, however, was not persuaded by the insurer's arguments, and allowed the case to proceed.  The disposition of this case is presently pending.

Repayment demands based on fraud present a different issue entirely.  In the instance of fraud allegations, the insurer is generally attempting to recover the entire benefit paid to the provider.  An insurer's repayment demand based on perceived fraud is a retroactive determination involving a dispute over "benefits due" when it involves specific claims.  ERISA provides the exclusive remedy only where the "claims are derived entirely from the particular rights and obligations established by the plan." 36 That is, for ERISA to be applicable, a specific beneficiary with benefits arising under a benefit plan must be at issue.  The insurer may bring fraud allegations against the provider under state law where the claims are independent of any benefit belonging to a plan beneficiary.  For example, an insurer may claim that the provider systematically renders services which defraud the insurer. (e.g., a general practice of billing for services not rendered).  In those instances, state fraud statutes may give rise to a duty independent of ERISA, which could allow state law, rather than ERISA, govern the dispute. 37 The resolution of fraud claims may depend on the provider's conduct, rather than the terms and conditions of the beneficiary's ERISA plan. 38 However, where recoupment of previously paid benefits appears to be an effort by the insurer to enforce the plan's terms for specific beneficiaries, ERISA may govern an insurer's efforts. 39 Facts and circumstances will dictate whether Federal or state law applies.

Retroactive Benefit Denial

A retroactive benefit denial is a situation where the insurer has approved the performance of a benefit and then subsequently makes an adverse benefit determination relating to that benefit. Under ERISA, any determination that a claim should not be paid in full constitutes an adverse benefit determination. 40 These retroactive adverse benefit determinations, without adhering to the notification and appeal processes, violate the protections afforded by ERISA.  Beyond making a demand for repayment, some insurers go a step further and "offset" previously paid benefits against other claims compensable by the insurer.  The recoupment of previously paid health benefits may creates a "right to payment" issue falling under ERISA. 41 Prior to offsetting future insurance payments or making repayment demands, the insurer should comply with ERISA protections requiring a "full and fair review." 42 However, if the provider agreement clearly indicates that the provider is ineligible to deliver the service or procedure and it was paid in error, ERISA may not be implicated. 43

"Mistaken authorization" is another premise under which an insurer might attempt to retroactively deny or recoup payments.  Provider agreements generally dictate the authorization procedures that the provider must follow in order to receive payment.  Arguably, insurance plans have a duty to their participating providers to provide complete and accurate information via the provider's verification of benefits.  Medical providers rely on the benefit authorizations and pre-approvals they receive from the insurance carrier to reasonably determine that payment will be forthcoming.  Provider agreements define "covered services" for which the insurer will reimburse when performed by the provider. With respect to the plan beneficiary, however, covered services are defined under the ERISA plan, not by the provider agreement.The insurer's retroactive assertion that authorization was "erroneous" places the provider in a precarious position.  If unsuccessful the appeals process with the insurer, the provider could do nothing, and absorb the loss.  In the alternative, the provider could attempt to pursue the insurer under two potential courses of action - under ERISA or under state law.

Provider's Options

Medical providers are not beneficiaries of an ERISA plan.  The ERISA plan is a contract that is independent of any participating provider agreement that may exist between the insurer and the medical provider.  Ordinarily, a person who is not a party to a contract would not have any rights under that contract.  With patients and medical providers, the patient's assignment of benefits confers rights to the medical provider under the patient's health care plan.  Under an assignment of benefits, the medical provider stands in the shoes of the patient, and may seek to enforce payment of the patient's benefits. 44 Through a valid assignment, the provider may avail itself to the applicable ERISA protections on behalf of the patient. 45

Under section 502 of ERISA, the provider could challenge the insurer's retroactive denial of coverage for services rendered based on erroneous information.  A number of courts have held that ERISA governs a provider's claims for benefits where the insurer's representations have "the effect of orally modifying the express terms of an ERISA plan and increasing plan benefits for participants or beneficiaries who claim to have been misled." 46 In plain language, this means that the insurer's representations could create a benefit in situation where ordinarily no benefit would exist. ERISA also governs causes of action alleging an insurer's improper processing of claims for plan benefits. 47

An insurer may claim that ERISA procedures are inapplicable by contending that the terms of the provider agreement control repayment and recoupment.  ERISA's language appears to be contrary to that assertion. 48 To the extent that ERISA does not control, the provider could elect to pursue state law claims under a negligent misrepresentation theory if recoupment is based on erroneous or mistaken authorizations.  A number of courts have held that providers may maintain state law claims against an insurer based on erroneous verifications of coverageand erroneous information pertaining to the existence and extent of coverage. A provider's state law claim may be appropriate not because of the patient's coverage, but because there is no ERISA coverage. 49 A key distinction that must be made is whether the insurer's decision is actually an adverse benefit determination or an interpretation of the terms of the provider agreement. 50


Providers should always attempt to clarify, understand and resolve claims issues by dealing with the insurance carrier.  ERISA protections are only available for plans that are, by statute, ERISA plans.  Otherwise, state law governs.  If the plan falls under ERISA, the medical provider may challenge the insurer's adverse benefit determination and take advantage of all of the notification, denial substantiation requirements, and appeal rights. The provider should attempt to understand the insurer's reasoning behind its repayment demands to determine whether it constitutes an adverse benefit determination. The provider may have a cause of action for the insurer' actions regarding an ERISA beneficiary that may be brought under a state law claim if certain facts and circumstances exist.  Providers should recognize the distinction between disputes arising out of the right to payment versus the rate of payment.  For participating providers, "rate of payment" issues may implicate state law because of the existence of a contract.  For non-participating providers, where no contract exists, the payment dispute may fall into the "right to payment" category and implicate ERISA. 

Franklin J. Rooks Jr., PT, MBA, Esq. is a physical therapist and practicing attorney in Philadelphia, Pennsylvania.  Prior to his practice of law, Frank was a founding partner of PRO Physical Therapy, a Wilmington, Delaware based operator of physical therapy clinics.  This article is not legal advice.  This article is intended to provide only general, non-specific legal information.  This article does not cover all the issues related to the topic discussed.  The specific facts that apply to your situation determine the outcome.  This article does not create any attorney client relationship between you and the author.  Frank can be contacted at

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1 H.R. Rep. 93-533, 93rd Cong., 2nd Sess. 1974.
2 29 U.S.C. § 1002(1).
3 See Aetna v. Davila, 542 U.S. 200, 208 (2004). 
4 70 C.J.S. Pensions § 19.
5 Id.
6 See Plitt, Steven, The Insurance Industry and Insurance Relationships,       1A Couch on Ins. § 7:5.
7 29 U.S.C. § 1144(a).
8 Arizona State Carpenters Pension Trust Fund v.Citibank, 125 F.3d 715, 723 (9th 1997)
9  29 U.S.C. § 1132(a)(1)(B). 
10  29 C.F.R. § 2560.503-1(m)(4)
11 Id.
12 Id.
13 Id.
14 29 C.F.R. § 2560.503-1 (f)(1).
15 29 C.F.R. § 2560.503-1 (f)(2)(iii)(B).
16 Id.
17  29 C.F.R. § 2560.503-1(g)(1)(i)(ii)
18  29 C.F.R. § 2560.503-1(g)(1)(iiI)
19  29 C.F.R. § 2560.503-1(g)(1)(iv)
20  29 C.F.R. § 2560.503-1(h)
21 29 C.F.R. § 2560.503-1 (h)(2)(i).
22 29 C.F.R. § 2560.503-1(h)
23 SeePascack Valley Hospital, Inc. v. Local 464A UFCW Welfare Reimbursement Plan, 388 F.3d 393 (3rd Cir. 2004), citing Blue Cross of California v. Anesthesia Care Associates Medical Group Inc., 187 F.3d 1045 (9th Cir. 1999), holding  "Providers' claims, which arise from the terms of their provider agreements and could not be asserted by their patient-assignors, are not claims for benefits under the terms of ERISA plans."
24 SeePascack Valley Hospital, Inc. v. Local 464A UFCW Welfare Reimbursement Plan, 388 F.3d 393, 402 (3rd Cir. 2004). "The Hospital's right to recovery, if it exists, depends entirely on the operation of third-party contracts executed by the Plan that are independent of the Plan itself."
25 Id.
26 See Sportscare of America P.C. v. Multiplan, 2011 WL 223724 (D. N.J.), discussing that out-of-network provider's claims for underpayment fell under ERISA.
27 Crossroads of Texas v.Great West Life and Annuity Insurance Co., 467 F.Supp.2d 705, 710 (S.D. Tex. 2006).
28 29 C.F.R. § 2560.503-1(m)(4)
29 Id.
30 Routh, Paul, Reporting and Disclosure Requirements, Welfare Benefits Guide § 10:34.
31 See Association of New Jersey Chiropractors v. Aetna, 2011 WL 2489954 at *8 (D.N.J.). "[T]he Court is not persuaded that dismissal of Plaintiffs' ERISA claims is warranted at this time. While Aetna has raised questions as to the viability of Plaintiffs' ERISA claims, the Court concludes that a more complete factual picture regarding Aetna's "recoupment"/anti-fraud efforts is necessary to ultimately resolve the issue." Id. at *9.
References continued:
32 See Association of New Jersey Chiropractors v. Aetna, 2011 WL 2489954 at *8 (D.N.J.)
33 Id.
34 Id.
35 Id.
36 Horizon Blue Cross Blue Shield v. East Brunswick Surgery Center, 623 F. Supp. 2d 568, 578 (D. N.J. 2009).
37 Aetna Health Inc. v. Health Goals Chiropractic Center,2011 WL 1343047 at * 6(D.N.J.)
38 Id.
39 Sereboff v. Mid Atlantic Medical Services Inc., 547 U.S. 356, 361 (2006).
40 29 C.F.R. § 2560.503-1(m)(4).
41 See Levine v. United Healthcare Corp., 402 F.3d 156, 163 (3rd. Cir 2005). "Where. . . plaintiffs claim that their ERISA plan wrongfully sought reimbursement of previously paid health benefits, the claim is for "benefits due" and federal jurisdiction under section 502(a) of ERISA is appropriate.
42 29 U.S.C. § 1133(2)."[E]very employee benefit plan shall afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim."
43 Cf. Pascack Valley Hospital, Inc. v. Local 464A UFCW Welfare Reimbursement Plan, 388 F.3d 393, 402 (3rd Cir. 2004). Under a breach of provider agreement, a "[r]ight to recovery, if it exists, depends entirely on the operation of [provider agreements] executed by the Plan that are independent of the Plan itself."
44 Horizon Blue Cross Blue Shield v. East Brunswick Surgery Center, 623 F. Supp. 2d 568, 575 (D. N.J. 2009).
45 Pascack Valley Hospital, Inc. v. Local 464A UFCW Welfare Reimbursement Plan, 388 F.3d 393, 407 (3rd Cir. 2004). "Almost every circuit to have considered the question has held that a health care provider can assert a claim under § 502(a) where a beneficiary or participant has assigned to the provider that individual's rights to benefits under the plan"
46 Memorial Hospital System v. Northbrook Life Insurance Co., 904 F.2d 236, 245 (5th Cir. 1990).
47 Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 48 (1987).
48 See 29 U.S.C. § 1132(a)(3). "A civil action may be brought by a beneficiary to enjoin any act or practice which violates any provision of this subchapter or the terms of a plan." [emphasis added]
49 SeeHospitals and Clinics v. Archstone Communities LLC, 2011 WL 1748432  at * 3 (N.D. Cal.) See  Blue Cross of Cal. v. Anesthesia Care Assoc. Med. Group, Inc., 187 F.3d 1045, 1047 (9th Cir.1999); The Meadows v. Employers Health Ins., 47 F.3d 1006, 1011 (9th Cir.1995).
50 See Pennsylvania Chiropractic Ass'n v. Blue Cross Blue Shield Ass'n, 713 F. Supp. 2d 734 (N.D. Ill. 2010) where provider agreements contained broad "arising out of or relating to" language triggering arbitration clause in agreement for recoupment dispute.