How to Appeal Denied Claims from Self-funded, Employer-sponsored Health Plans

Are you at risk for denied claims from Self-funded, Employer-sponsored Health Plans?

These cases come through the front door contracted directly or indirectly through a side door, namely a Preferred Provider Organizations (PPOs) and Health Maintenance Organization (HMO) contracts or a TPA or ASO agreement? 

Can you mitigate this risk better? The answers are Yes and Yes.

Managed Care contracts typically state a few hints that many contract reviewers (physicians, office managers, hospital and ASC executives, physical and occupational therapists, DME companies, home health agency owners, and their “consultants” etc.) simply overlook. The reasons span lack of training and experience to oversights because many reviewers don’t understand the rules behind plain English words being used in certain contexts.

Context is everything in contract analysis. The word contexts means “the circumstances that form the setting for an event, statement, or idea, and in terms of which it can be fully understood and assessed.” When I teach managed care contract review, I am not teaching basic reading comprehension. I teach the workshop participants “how to read the words in the context of certain laws, regulations, precedents and case laws and the perspective of the payer; those at risk for the payment of a “claim”. I first teach that “claim” is a verb. It is the presentation of their “assertion” that the provider of service has performed work and has earned money and now demands their due. So many reviewers interpret the word claim as a noun…a thing you send electronically or on paper as an invoice. While it can be both, context differentiates the interpretation.

Healthcare providers and suppliers don’t necessarily want to take on a second job of reviewing contracts to get paid. They view contract negotiation as a means to an end. They want to grant access to insured plan subscribers in volumes of more than one single patient at a time, and get paid an amount they deemed reasonable that they’ve negotiated in advance. They aren’t looking to gouge anyone or be greedy, they just want to practice medicine or provide a medically necessary or elective service as requested by the patient, submit the claim as a courtesy to the patient, and get paid timely and accurately. If they must follow rules and conditions of a contract, then so be it. The incur the costs and the risks that accompany the agreement to participate in the network that receives referrals of patients to network providers.

But with HMO and PPO organization contracts, especially those drafted as “all payer” contracts, there are many contexts to consider that affect interpretation. In the case I am going to focus in this article, that context is the Employee Retirement Income Security Act of 1974, also known as ERISA.

While reading these all payer agreements, the paragraphs they tend to dismiss as “boilerplate” or overlook out of ignorance are some of the most important paragraphs to consider. Rarely does anyone teach the providers what to look for and how to review a contract to prepare for plan participation. So they give a cursory glimpse at the words, assume they understand the words in context, not knowing what they don’t know, and direct their attention to the page that mentions the fees they are asked to accept and sign and hope for the best.

In reviewing the words on the page, one of the first places to look and read carefully is the “Recitals” section. Usually this appears immediately after the Preamble (the section that describes the parties to the Agreement). The wording usually states:

WHEREAS, Health Plan contracts directly or indirectly with Payers, employers, individuals, insurers, sponsors and others, to provide, insure, arrange for or administer the provision of Covered Services;

You’ll see this language in contracts of U.S. HMOs and PPOs that “lease” their “product” (the network of providers under contract) for a monthly network access fee, paid on a per-employee-per month (“PEPM”) basis. This amount is paid regardless of if there are claims against the plan benefits or not. I specifically state U.S. because many readers may be surprised to know that managed care exists outside the U.S., but ERISA does not.

But if you are a reader outside the USA and contracted with a self-funded health benefit plan of a multinational employer headquartered in the USA, either directly or indirectly through another insurance company or an international PPO, this article will also provide some insights for you that may be helpful. That’s because the expatriates and local nationals who may work for the company may also be protected under the ERISA rules depending on how their benefits are administered and insured. The matter is further complicated when Treaties of Friendship Commerce and Navigation exist which often provide that nationals and corporations and associations of one of the countries within the territories of the other country are to have broadly enumerated rights and privileges with respect to organization of and participation in corporations and associations of the host country in accordance with the host country’s applicable laws and regulations under the same terms as nationals and corporations and associations of a third country. Which rules and standards apply and how? That’s a topic for another day.

So, back to the U.S. context: Without the monthly lease arrangement, the self-funded or self-insured employer (yes, there’s a difference) plan administrator (an individual with fiduciary duties) would have to contract directly with the providers. This is a new and growing trend, by the way. Self-funded and self-insured employer are permitted to form their own network and do their own credentialing and privileging and audit and adjudicate and pay their own claims. But since most don’t know how and lack the resources to do so, they have no other option but to pay the leasing fee to access established discounts of providers through these leasing arrangements.

Primary network lease arrangements

As a part of the lease agreement, the PPO or HMO contracts with the plan administrator and sets forth certain rules for using the network. One of the provisions in the contract is that the plan administrator authorizes its claims payment service to pay the rates contracted by the network. These rates are discounted to previously agreed prices with the providers for the services that are covered by the plan. 

Wrap networks (that fill in gaps in the primary network arrangements)

In the marketplace, plan administrators sometimes sign contracts with other networks for “one off” discounts if they feel the primary network’s discounted rate is too high. The one-off arrangement works as follows: The plan administrator “shops” the final payment rate by accessing a discount from another network and simply pays a “percentage of the savings” on that network rate.

So, for example, the provider charges $100 for a service. The primary network (“A”) discount is 10%. But the plan administrator learns that another network (“B”) has negotiated a better discount of 22% off for the same service with the same provider.  If the claim is paid under the primary lease (“A”), the payment is $90. If the claim is paid under the secondary (the wrap) network (“B”) and the amount of the savings is $22, they usually pay between 28-32% of savings to use the rate on a one-off basis. So, the net payout on that claim if the percentage of savings fee is 28% would be $84.16 of which the provider is paid $78 instead of $90. In this case, Plan B keeps $15.84 for itself. 

Sometimes, plan administrators will set up three or more of these one-off access arrangements which results in multiple logos that show on the subscriber identification card. 

Few states regulate where logos are to be placed on the card and or cause card issuers to indicate which logo signifies the primary network and which are these secondary occasional use access arrangements. The poor soul charged with the duty to register the patient and decipher the card must guess which logo to use to register the patient. If they choose incorrectly, there’s a high likelihood that the claim will be problematic later. That’s because they may choose the logo that pays 90%, but the claims processor will shop the rates when the claim arrives and decide which discount to use and reprice the claim payout to the lowest rate that they can legitimately access. 

When the payment comes in at $78, the revenue management follow up person in the provider’s office starts the appeal process to get the other $12. It will never materialize but hundreds of dollars in salary overheads and effort will be invested in collecting the $12 that was rightfully deducted, all because the provider didn’t realize when the contract was signed that this rate shopping was something they enabled by oversight or ignorance.

For this reason, many healthcare providers establish a small balance write off policy internally that is not advertised. They apply the policy when the amount to be chased isn’t worth the effort.

Payers know this happens and in the latest Blue Cross Blue Shield contract I reviewed for a client, the payer had the audacity to set the amount to $50. A whole lot of $50 small balance write offs each day can leave a mark on revenues! I vetoed this policy in my review. There’s no law or regulation that gave BCBS the right to even go there! Imagine if the rest of us could tell the grocer, “Oh sorry, I am about $50 bucks short today. Can you just put my items in the bag and let me go home anyway?” Yeah, right! Next in line?

What’s worse is that the clients previous consultant had gone through the contract and simply changed it to $25! Why they didn’t strike the entire provision is beyond my comprehension. A business rule applied at the sole and absolute discretion of the provider as a courtesy is one thing. Putting the provision in the contract switches the courtesy to a performance requirement. Then the payer knows it can get away with it and simply set the claims payment rules for that contract to trim off dollars on any claim. That’s wrong on so many levels. My mom always said, “if you owe a nickel, pay a nickel.” When I ask for five dollars from my husband to pay a household expense for which I am responsible, but a little short, I hear my mom’s voice in my mind’s ear every time. Now I’ll see this contract provision in my mind’s eye too.

Non-participating providers face different challenges

Non-contracted providers expect that they will be paid 100% of billed charges for their services. That’s not correct, but most don’t realize it.

Non-contracted providers often fail to take into consideration that the employer may limit the amounts to be paid by the plan.

In the case of ERISA regulated plans, the plan administrator is permitted to establish what they deem “usual, customary and reasonable” (UCR). The plan sets these rates by consultation with industry analysts, or as simple as arbitrary and capricious determination of what they decide they’ll pay as a benefit maximum. It’s their choice. But in many cases, they fail to detail these rates and policies in their plan documents. That’s where the appeal tactics can pivot. Yesterday, I published an article on how UCR is set by health plans. Read it.

When a non-contracted provider marks a claim that they agree to “Accept Assignment” they are in essence accepting the “assignment” of the usual reasonable and customary amount that the plan administrator deemed as the UCR allowable and that they agree to hold the patient accountable to that amount and not more. Therefore, if they balance bill the patient the difference between the allowable UCR and their fee, they’ve agreed to the discounted rate. In this scenario, there is no standing to appeal for more money. The out-of-network provider has no standing to bring its claim in court because it has suffered no “injury in fact.” They accepted assignment to their detriment.

To be able to appeal successfully, they must submit the claim and refuse to “accept assignment.” I don’t think people learn this in medical and dental provider settings. If they did, they would not spend so much wasted effort and expense to appeal for more money when they caused the problem they are attempting to appeal.

Reference based pricing: a new trend implemented by self-funded, self-insured and other payers

There’s a new trend in deeming UCR allowable fees. It is called “reference-based pricing”. The term refers to a referential peg at a certain percentage of the Medicare Maximum Allowable amount. Again, the plan administrator may set the amount pegged to any percentage or multiple of the Medicare fee schedule published each year or even some other referential pricing system they choose.

With these three background scenarios, let’s move on to how one goes about the process of appealing denied claims or lower than anticipated claims payments.

Authorized Representative Designation

Authorized Representative designation involves a document signed by the health plan participant that purports to assign to the medical provider the participant’s legal rights. The document serves to appoint the provider (or its designated agency) as the participant’s “authorized representative” and “assignee” under the Employee Retirement Income Security Act (ERISA) and the plan.

In February, 2019, the U.S. Department of Labor (DOL) released an information letter addressing an entity’s ability to act as an authorized representative for participants and beneficiaries in ERISA group health plans. The letter responds to an inquiry made on behalf of an entity that serves as a “patient advocate and healthcare claim recovery expert for plan participants and beneficiaries, both at the initial application stage and when claimants appeal adverse benefit determinations.”

The letter explains that the DOL’s claims procedure regulations set forth minimum requirements for employee benefit plan claims procedures under ERISA. Under the regulations, participants and beneficiaries have the right to appoint authorized representatives to act on their behalf in connection with an initial claim, an appeal of an adverse benefit determination, or both. A plan cannot preclude claimants from designating an authorized representative of their own choosing, but generally may establish reasonable procedures for determining whether an authorized representative has been designated. (A special rule for urgent care claims requires plans to recognize any health care professional with knowledge of a claimant’s medical condition as the claimant’s authorized representative.)

Any procedures for designating an authorized representative must be set out in the plan’s claims procedures and in the SPD (or a separate document that accompanies the SPD).  the letter notes that when an authorized representative has been designated to act and receive notices on a claimant’s behalf, the plan should direct communications and notices to the authorized representative unless the claimant directs otherwise.  

The document is a simple one or two paragraph reduction to writing of the beneficiary’s intention to have someone who knows more about medical billing and benefits to help them get the claim paid. Most providers don’t even know that this form exists or is required to get a response from the health plan’s administrator or payment processor.

It generally reads as follows: 

“I appoint this individual, [name or facility representative], to act as my representative in connection with my healthcare benefits claim or asserted right.

I authorize this individual to make any request; to present or to elicit evidence; to obtain payment and or appeals information; and to receive any notice in connection with my claim, appeal, grievance or request wholly on my behalf. I understand that personal medical information
related to my request may be disclosed to the representative indicated below.”

To close the loop, have the representative accepting the form and accompanying the patient through the process countersign as “Accepted by: with the date entered.

This document then serves as a cover letter. It accompanies an assertion of the plan participant’s claim and an appeal of a denied benefits or higher payment. The letter goes on to request copies of a lengthy list of plan-related documents and alleges that the plan administrator, the plan sponsor, the plan’s third-party claims administrator, the insurance carrier and/or the plan itself have violated ERISA and other federal or state laws relating to plan administration or the participant’s benefits claim. The assertion may or may not be true, but many attorneys and authorized representatives fail to do the necessary research first before sending the nasty-gram shakedown letters.

The proper way is to first ask for the documents required to see what the benefit amount is, any limitations on UCR, any limitations on Authorized Representative appointments, any differences in benefits when a non-participating provider is used who is not contracted with any of the plans leased networks, and if the service is a Covered Service for a Covered Condition under the plan. Only when you have all this information can you draft the assertion that more money is due from the plan than what you were paid, if anything.

So, assuming you’ve been designated as the Authorized Representative and have a properly executed form, you make your request pursuant to ERISA Section 104(b)(4), any participant or beneficiary (or their personal representative) may submit a written request for copies of the following plan materials:

  1. The formal plan document, including all amendments
  2. The latest updated summary plan description, including all summaries of material modifications
  3. The latest or final annual report (if any)
  4. An applicable collective bargaining agreement (if any)
  5. The trust agreement (if any)
  6. Any other contract instrument under which the plan is established or operated

Under ERISA Section 502(c)(1), plan sponsors have 30 days to provide the requested material or face potential penalties of up to $110 per day payable to the participant or his/her designated representative. But you must be designated as the authorized representative to get this. Once you get the requested materials back, you do your research and then “step in the shoes” of the plan beneficiary to make your appeal.

Again, if you accepted assignment you not only accepted that the plan would pay you instead of the patient, but you also accepted the assigned amount the plan deemed usual, reasonable and customary as the full rate, reduced by any copayment, coinsurance or deductible set forth in the benefit design that is payable by the participant. Assuming you collected that total amount from the plan and the patient, you are not able to get more money if you feel that the payment is too low.

The only way to be able to balance bill for the remaining amount is to be an out-of-network provider who contracts directly with the patient (or the plan) for financial responsibility for 100% of billed charges and refuse to accept assignment. An in-network, participating provider cannot balance bill because the contract with the network prohibits the provider from doing so, regardless of any side deals they may make with the patient to pay the difference.

Other pesky little details you should know

Since there aren’t many classes to learn about ERISA plans in the context of healthcare revenue management, let me share a few other rarely understood issues that can affect your chances of success with your appeal.

Anti-Assignment Shield

One of the most effective ways plan administrators can to deal with nastygrams from providers demanding more money is to shield their self-funded health plan through an anti-assignment provision in plan documents. 

Although ERISA does not prohibit a plan participant from assigning benefits to a provider, case law holds that anti-assignment provisions in a plan that prohibit a participant from assigning their right to payment of benefits to a non-participating provider as enforceable. In these cases, the provider renders the service, bills the plan, accepts assignment and expects the money to come to the provider directly. Then the plan pays the patient. Why did they do that? Because the plan has the right to including an anti-assignment provision in plan benefit design that prevents a provider who has received an assignment from stepping into the shoes of the participant and being able to sue the plan under ERISA. 

But even worse, it may also mean that the plan administrator may not be required to respond to the provider’s demand letter unless the provider has been appointed as the participant’s authorized representative under Section 503 of ERISA. 

You see, ERISA imposes mandated time frames for responding to benefit claims and appeals, as well as for responding to written requests from participants or their authorized representatives for certain plan-related documents that are required to be disclosed under ERISA. But if the provider doesn’t submit the Authorized Representative designation letter, the clock doesn’t start ticking away at the time limit under ERISA Section 502(c)(1).

Kennedy vs Connecticut General 

ERISA plan administrators may also amend or write their original health plan documents rules and policies to Incorporate a comprehensive benefits exclusion for charges incurred by a participant when the participant is not obligated to pay out of pocket, is not billed by the health care provider or would not have been billed but for the coverage of such charges under the terms of the plan. This means that if you have a policy in your medical practice, hospital or hearing aid company that you’ll accept only what insurance pays and waive copayments and deductibles that are the responsibility of the patient, you may not get paid at all. The case law that drives this includes Kennedy vs Connecticut General. seeU.S. Court of Appeals for the Seventh Circuit – 924 F.2d 698 (7th Cir. 1991) Argued Jan. 15, 1991. Decided Feb. 7, 1991.

In this case, the master policy covers a percentage (e.g.80%) of specified expenses, and the employee must put up the other 20%. Co-payments sensitize employees to the costs of health care, leading them not only to use less but also to seek out providers with lower fees. The combination of less use and lower charges (together with the 20% reduction in insured payments in the event care is furnished) makes medical insurance less expensive and enables employers to furnish broader coverage (or to pay higher wages coupled with the same level of coverage).

Therefore, if the patient does not have to pay their 20%, the plan need not pay its 80%.

CIGNA wanted Kennedy’s assurance that the bill reflected 80% of Kennedy’s reasonable and customary charge to patients. When a provider routinely waives co-payments, a fee stated as 80% of the charge is a phantom number. Instead of charging $100, collecting $20 from the patient and $80 from the insurer, the provider may announce a fee of $125, waive the co-payment, and collect $100 from the insurer. This gaming of the system happens often with out of network providers.

Years ago, a band of consultants around the country started recommending “out-of-network” strategies and tactics of this sort to providers. The providers quit their managed care contracts and the games began.

In the Kennedy case, Kennedy tried to sue CIGNA for non-payment. CIGNA removed the case to federal court, as it could because the claim necessarily rests on the Employee Retirement Income Security Act (ERISA). Franchise Tax Board of California v. Construction Laborers’ Vacation Trust, 463 U.S. 1, 103 S. Ct. 2841, 77 L. Ed. 2d 420 (1983). See also Ingersoll-Rand Co. v. McClendon, — U.S. —-, 111 S. Ct. 478, 485-86, 112 L. Ed. 2d 474 (1990).

CIGNA also contended in the district court that ERISA does not allow providers of medical services to sue insurers. Under 29 U.S.C. § 1132(a) (1) (B) only a “participant” in a plan or a “beneficiary” is entitled to file suit to collect. 

CIGNA added for good measure that whether someone may transfer benefits to a third party, as the doctor and patient attempted as their tactic to get full payment from the plan, is a question of contract, and that the master insurance policy allows an assignment to a provider only with CIGNA’s consent, which it had withheld. 

CIGNA gave the district court three reasons why it had not paid Kennedy’s bill. One, it did not assent to the transfer; two, it believed that Kennedy had overstated his usual charges; three, Sec. 12(5) of the policy excused payment. 

Kennedy had two ways out. One was to say that even if his customary fee was not $2,150, it was $1,727 (80% of that), of which CIGNA should pay 80%. This 64% solution still left the patient without financial incentive to reduce demands on medical care or to shop around. CIGNA could have also argued that a fee of $1,727 was no more real than a charge of $2,150. It wanted assurance that the patient had given enough thought to the need for (and price of) this medical care to be willing to pay its share. Patients who pay nothing have no reason to moderate their demands for medical service, and providers using this tactic also tend to inflate their bills so that the 64% comes out to the target they seek as payment in full.

When I see this sort of shenanigan, I decline to engage as a consultant. I know better. I have been trained and worked as a health law paralegal which may be why I know these little pesky details.

The Kennedy-patient agreement relieved the patient of any obligation to pay. That triggered Sec. 12(5) of the policy, which relieved CIGNA of any obligation to pay. That in turn triggered the clause of the Kennedy-patient contract reinstating the patient’s obligation to pay. Once this occurs, Sec. 12(5) of the policy is no longer applicable. Thus, CIGNA had to pay. Once CIGNA became liable, the Kennedy-patient contract again relieved the patient of any legal obligation. Which in turn reactivates Sec. 12(5). What a loop!

Where one breaks this frustrating loop depends not on formal logic but on the function of the two contracts. The Kennedy-patient contract was designed to eliminate co-payments. The employers plan and CIGNA’s policy required co-payments in order to maintain incentives that hold down the cost of medical care. The loop could not be broken in favor of reimbursement without abrogating the co-payment requirement–a requirement that the ERISA employer had every legal entitlement to create. Therefore, Kennedy lost his case. If he desired to receive payment under a plan that requires co-payments, then he was required to collect those co-payments–or at least leave the patient legally responsible for them and make a reasonable effort to collect.

So, another angle that some providers attempt to play is to say they will pay the copay or patient responsibility. Why can’t the provider pay? The answer is contractual: Because the plan and policy say that the provider must create a legal obligation in the employee or dependent. And there is a good reason for this contractual solution. Allowing the provider to “pay” the co-payment to itself is just another way to describe waiver of co-payments, with the consequences I’ve explained.

Other contractual matters

There are a few other places in contracts that providers must review carefully:

The definitions of their managed care agreements.

  • Benefit Document means the Subscriber’s group or individual certificate booklet, schedule of coverage, benefit riders, or comparable contractual documents describing the scope and conditions of coverage under the Subscriber’s Health Plan.
  • Covered Services means those health services specified and defined as Covered Services under the terms of a Subscriber’s Health Plan.
  • Health Plan means any group or individual health benefits plan operated or administered by (1) [HEALTH PLAN], (2) a [Health Plan Affiliate] of another state, territory or country other than the United States appropriately licensed by the [Health Plan], (3) an affiliate of the [HEALTH PLAN]or (4) a subsidiary of a [HEALTH PLAN] of another state, territory or country other than the United States. The phrase “provided or administered” includes an insurance arrangement, an administrative service agreement, or an arrangement whereby an employer or welfare benefit plan contracts with [HEALTH PLAN] to utilize Providers that have contracted with [HEALTH PLAN]. The Provider understands that for administrative services agreements or arrangements whereby an employer or welfare benefit plan contracts with [HEALTH PLAN] to utilize Providers that have contracted with [HEALTH PLAN], [HEALTH PLAN] provides administrative services only and does not assume any obligation to fund payment of claims. The term “affiliate” describes any entity in which [HEALTH PLAN] has a material ownership interest or any entity that [HEALTH PLAN] controls.
  • Payer means an entity other than [Health Plan] that is financially responsible for payment for Covered Services provided to the Subscriber under a health benefits contract or program. 

I’ve redacted the plan name and replaced it with [HEALTH PLAN].

These terms then get used throughout the contract to describe who decides what will be paid, under which conditions, for which procedures, and essentially declares to the reader that Covered Services and payment amounts are a moving target under this “all payer” agreement.

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