In Case Challenging Health Insurer Recoupment Practices, Judge Issues Permanent Injunction on Behalf of Zuckerman Spaeder LLP Client

On Monday, May 19, 2014, the Hon. Matthew F. Kennelly of the U.S. District Court for the Northern District of Illinois issued a permanent injunction against Independence Blue Cross (IBC), a Pennsylvania-based Blue Cross Blue Shield (BCBS) entity, following a March 31 ruling in favor of the Pennsylvania Chiropractic Association (PCA). PCA is represented by New York-based Zuckerman Spaeder LLP partners D. Brian Hufford and Jason S. Cowart, whose novel legal theory led to the multiple precedent-setting decision and today’s permanent injunction.

At issue in Pennsylvania Chiropractic Association, et al. vs. Blue Cross Blue Shield Association, 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.

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 on March 31, 2014, was a complete victory for Zuckerman Spaeder’s client and created 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 set several significant precedents: it was the first case in which an association prevailed at trial on these types of ERISA claims; it was the first time a court held that an insurance plan that provides for direct payments to in-network health care providers causes those providers to be “beneficiaries” under ERISA; and it was one of the first—if not the first—decision to hold following a trial on the merits that repayment demands are “adverse benefit determinations,” triggering ERISA protections.

The court’s permanent injunction requires IBC to reform its recoupment practices within 150 days, and includes a number of procedural requirements to clarify its decision.

“This permanent injunction further solidifies overall progress toward reforming recoupment practices across the country,” 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.” 

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.