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Diana L. Courson

Zuckerman Spaeder LLP Client Wins Precedent-Setting Trial Victory in Challenge to Health Insurer Recoupment Practices

March 31, 2014

On Friday, March 28, 2014, the Hon. Matthew F. Kennelly of the U.S. District Court for the Northern District of Illinois ruled in favor of the Pennsylvania Chiropractic Association (PCA) in a case against Independence Blue Cross (IBC), a Pennsylvania-based Blue Cross Blue Shield (BCBS) entity. PCA is represented by New York-based Zuckerman Spaeder LLP partners D. Brian Hufford and Jason S. Cowart, whose novel legal theory led to this multiple precedent-setting decision.

Commenting on the decision, PCA President Daniel Schatzberg, DC, DABCO called the court’s decision “a watershed moment for Chiropractic health professionals as we fight for fairness and transparency in health insurers’ increasingly aggressive and misdirected efforts to seek inappropriate recoupments from health care providers.” According to Mr. Schatzberg, “health insurers’ recoupment efforts, often times do not give the providers a fair process to appeal the insurers adverse decision, and this has had a devastating effect on many members of the PCA. Judge Kennelly’s decision represents an important step in ensuring that health insurance companies such as IBC are forced to comply with the law, not merely their self-serving interpretations of the law.”

Mr. Schatzberg closed by complimenting the legal team that represented PCA in the case. “For several years now, PCA has worked closely with attorneys Brian Hufford and Jason Cowart on these important legal issues. This decision is a testament to their dedication to their clients, their superior work ethic, exceptional legal acumen, and their commitment to standing up to ‘foul play’ within the mammoth health insurance industry. These attorneys not only do things right, but they also embrace doing the right thing. For that, we are profoundly grateful.”

In Pennsylvania Chiropractic Association, et al. vs. Blue Cross Blue Shield Association, et al., Mr. Hufford and Mr. Cowart brought suit on behalf of PCA in 2009 and argued the merits of the case at a bench trial in December 2013. At issue is the widespread practice of insurer “recoupments,” in which a provider submits a claim to a health insurer on behalf of one of its patients and the insurer determines that the claim is covered and pays the provider but later determines that claim should not have been paid. In order to recoup the alleged prior overpayment, the insurer refuses to pay subsequent claims submitted by the provider on behalf of different patients. To date, providers have had little recourse in the face of such recoupments, and insurers have used this tactic to recover billions of dollars every year.

The plaintiffs challenged this practice using a novel legal theory, developed by Mr. Hufford and Mr. Cowart, that health providers in these situations are “beneficiaries” as that term is defined by the Employee Retirement Income Security Act (ERISA) and that, as such, they are entitled to ERISA-mandated notice and appeal rights.

The court’s decision is a complete victory for Zuckerman Spaeder’s client and creates an important precedent for health care providers facing recoupments. In the decision, Judge Kennelly held that the defendant IBC’s recoupment “practices come nowhere near substantial compliance with ERISA’s notice and appeal requirements.” The decision sets several significant precedents: it is the first case in which an association has prevailed at trial on ERISA claims; it is the first time a court has held that an insurance plan that that provides for direct payments to in-network health care providers causes those providers to be “beneficiaries” under ERISA; and it is one of the first—if not the first—decision to hold that repayment demands are “adverse benefit determinations,” triggering ERISA protections.

“This decision is not only an important victory for PCA and its members, it is a significant step toward reforming recoupment practices nationwide,” said Mr. Hufford. “Judge Kennelly’s decision rejects the idea that health insurers can contract around ERISA and gives health care providers a new legal weapon when facing the widespread and highly questionable insurance industry practice of reversing previously approved claims.” 

In its decision, the court agreed to issue a permanent injunction and Mr. Hufford and Mr. Cowart will now file for briefs concerning the precise contours of that relief. 

Mr. Hufford and Mr. Cowart are the first lawyers in the country to challenge these issues in a systematic manner. They previously settled related cases against other BCBS entities on the eve of trial. Zuckerman Spaeder is currently involved in ongoing litigation regarding similar issues against United, Aetna, and other insurers.

Prior results do not guarantee a similar outcome.