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Retroactive Adverse Benefit Denials Under ERISA

By Franklin J Rooks J. PT, MBA, Esq.


The insurer’s denial of previously authorized benefits is one of the most frustrating experiences for a medical practice’s billing staff.  But, on the frustration scale, there is another insurance company practice that can push it over the top: retroactive benefit denials that occur after the insurance company has already made payment.  From the insurer’s perspective, a retroactive denial made after the provider has received payment results in an overpayment to the provider, which must be repaid.  To make matters worse, insurance carriers sometimes recoup their payments in ways that create billing system nightmares.  Instead of asking the provider to write a check to the insurer for “improperly” paid benefits, some insurers use “negative remittances.”

Negative remittances are where an insurer takes back a benefit payment by offsetting other compensable claims.  Negative remittances are generally cumbersome for providers because they require several billing system adjustments involving more than one patient account.  Recoupment of prior payments is not unique to group health insurers.  Medicare also has a recoupment process for overpayments.[1] With Medicare, the provider receives demand letter, and recoupment cannot begin until 41 days after the provider’s receipt of that notice.  Similarly, for patients covered under an ERISA plan, notice and appeal rights are also required.[2] The insurer cannot just unilaterally recoup benefits by offsetting the benefits due on another patient’s account.    [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.]


The Employee Income Security Act, or ERISA, was enacted in 1974 to protect employees’ rights in their employer-sponsored benefit plans.[3] ERISA does not require employers to provide employee benefit plans.[4] Rather, it regulates them. For covered plans, ERISA sets forth substantive regulatory requirements, along with mechanisms to provide access to Federal courts, sanctions, and exclusive remedies.[5] ERISA protects employees’ benefits through uniformity.  These protections supersede and take precedence over any state laws which govern benefit plans.[6] Specifically, ERISA 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.[7] ERISA allows plan beneficiaries 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.”[8] If applicable to the insurance plan, the practice should examine ERISA’s protections when challenging an insurer’s recoupment of previously paid benefits.

Denials: 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.”[9] 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. . .”[10] 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. . .” [11] 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.”[12] All of the preceding trigger ERISA protections.

There is a limited period in which the insurer can make an adverse benefit determination.  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.[13] 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.”[14] Prior to the expiration of this 30 day period, the insurer may extend its time to make an adverse benefit determination by up to 15 days.[15] 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.[16] 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.[17] The insurer must also furnish a description of the plan’s review procedures and the applicable time limits. [18]

The insurer must provide appeal rights.  The beneficiary is entitled to a “[r]easonable opportunity to appeal an adverse benefit determination . . . under which there will be a full and fair review of the claim and the adverse benefit determination.”[19] After the receipt of an adverse benefit determination notification, the claimant has at least 60 days to appeal the decision.[20] ERISA also 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. [21]

Recoupment: Compliance with ERISA

Under ERISA, any determination that a claim should not be paid in full constitutes an adverse benefit determination.[22] A retroactive benefit denial is an insurer’s adverse determination that the patient’s benefits should not have been paid.  Retroactive adverse benefit determinations, without adhering to the notification and appeal processes, violate the protections afforded by ERISA.  Some insurers, however, contend that a repayment demand letter alone does not constitute an adverse benefit determination.[23] Where no funds are recovered or offset, some insurers may claim that overpayment letters alone do not trigger ERISA’s notice and appeal rights.[24] But, when recoupment efforts go beyond making a repayment demand and result in the offsetting of other compensable claims, the insurer must comply with ERISA protections requiring a “full and fair review.”[25] However, if the provider agreement clearly indicates that the provider is ineligible to deliver the service, and it was paid in error, ERISA may not be implicated.[26] State law may govern in this instance.

“Mistaken authorization” is another basis 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.  Medical providers rely on the benefit authorizations and pre-approvals they receive from the insurance carrier to reasonably determine that payment will be forthcoming.  Arguably, insurance plans have a duty to their participating providers to generate complete and accurate information via the provider’s verification of benefits.  The insurer’s retroactive assertion that authorization was “erroneous” places the provider in a precarious position.  If unsuccessful in the appeals process with the insurer, the provider could do nothing, and absorb the loss.  Or, the practice could pursue the patient.  Nothing in ERISA prohibits a provider from billing patients for services that are not covered under the benefit plan.[27] But, the provider’s contract may contain language prohibiting such recourse.   In the alternative, the provider could attempt to pursue the insurer under two potential courses of action – under ERISA or under state law.   ERISA also governs the provider’s allegations of an insurer’s improper processing of claims for plan benefits.[28]

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

ERISA distinguishes between “right to payment” issues and “rate of payment” issues.   “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.[29] Both of these situations constitute adverse benefit determinations.  A claim denial can be prospective or retrospective. The insurer’s prospective or retrospective denial of plan benefits triggers ERISA’s notification and appeal protections.  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.[30]

In contrast, “rate of payment” issues are contractual in nature.  The participating provider agreement creates a contractual duty that is independent of ERISA.  For a participating provider, fee schedule disputes do not necessarily involve ERISA.[31] An insurer’s recoupment of overpayments based on the contractual fee schedule is not a denial of benefits.  This type of payment dispute is a matter of contract law, where the underlying provider contract controls the payment provisions. ERISA’s notification and appeals processes are not controlling.  State law, and not ERISA, would most likely determine the outcome where the claims originate from this independent legal duty.[32] However, for providers who are not participating, underpayments or overpayments may implicate ERISA’s protections.  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.[33] An out-of-network provider’s claims based on the underpayment of a claim likely raises a “right to payment” issue under ERISA.[34] In assessing which course of action to take, the provider must determine whether the insurer’s action has created a “right to payment” issue or one involving the “rate of payment.”

Repayment Demands Based on Fraud

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.”[35] 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.[36] The resolution of fraud claims may depend on the provider’s conduct, rather than the terms and conditions of the beneficiary’s ERISA plan. [37] 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.[38] Facts and circumstances will dictate whether Federal or state law applies.

Provider’s Options

Medical providers are not beneficiaries of an ERISA plan.  An ERISA plan 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.[39] Through a valid assignment, the provider may avail itself to the applicable ERISA protections on behalf of the patient.[40]

The provider should insist on the insurer’s compliance with ERISA’s protections.  A paper trail should be maintained to document all of the provider’s efforts in resolving the disputed claim.  The provider should also document all of the insurer’s actions as well.  Failing resolution between the provider and the insurer, the provider could challenge the insurer’s retroactive denial of coverage under section 502 of ERISA.  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.”[41] In plain language, this means that the insurer’s representations could create a benefit in situation where ordinarily no benefit existed.   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.

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.[42] 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 the insurer’s 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 coverage and erroneous information pertaining to the existence and extent of coverage.[43] A provider’s state law claim may be appropriate not because of the patient’s coverage, but because there is no ERISA coverage.  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.[44]


Providers should always attempt to clarify, understand and resolve claims issues by dealing directly 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.



About the author: 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.  ERISA is an expansive area of the law.  This article is intended to provide only very 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 fjrooks@gmail.com


[1] See The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Section 935; 42 U.S.C. § 1395ddd(f).

[2] Not all plans are covered under ERISA.

[3] H.R. Rep. 93-533, 93rd Cong., 2nd Sess. 1974.

[4] 70 C.J.S. Pensions § 19.

[5] See Aetna v. Davila, 542 U.S. 200, 208 (2004).

[6] 29 U.S.C. § 1144(a).

[7] Arizona State Carpenters Pension Trust Fund v. Citibank, 125 F.3d 715, 723 (9th 1997)

[8] 29 U.S.C. § 1132(a)(1)(B).

[9] 29 C.F.R. § 2560.503-1(m)(4)

[10] Id.

[11] Id.

[12] Id.

[13] 29 C.F.R. § 2560.503–1 (f)(1).

[14] 29 C.F.R. § 2560.503–1 (f)(2)(iii)(B).

[15] Id.

[16] 29 C.F.R. § 2560.503-1(g)(1)(i)(ii)

[17] 29 C.F.R. § 2560.503-1(g)(1)(iiI)

[18] 29 C.F.R. § 2560.503-1(g)(1)(iv)

[19] 29 C.F.R. § 2560.503-1(h)

[20] 29 C.F.R. § 2560.503–1 (h)(2)(i).

[21] 29 C.F.R. § 2560.503-1(h)

[22] 29 C.F.R. § 2560.503-1(m)(4).

[23] 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.

[24] Id.

[25] 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.”

[26] 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.”

[27] Central States Southeast and Southwest Areas Health and Welfare Fund v. Pathology Laboratories of Arkansas, 71 F.3d 1251, 1253 (7th Cir. 1995)

[28] Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 48 (1987).

[29] 29 C.F.R. § 2560.503-1(m)(4)

[30] Id.

[31] See Pascack 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.”

[32] Id.

[33] 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.

[34] Crossroads of Texas v. Great West Life and Annuity Insurance Co., 467 F.Supp.2d 705, 710 (S.D. Tex. 2006).

[35] Horizon Blue Cross Blue Shield v. East Brunswick Surgery Center, 623 F. Supp. 2d 568, 578 (D. N.J. 2009).

[36] Aetna Health Inc. v. Health Goals Chiropractic Center, 2011 WL 1343047 at * 6(D.N.J.)

[37] Id.

[38] Sereboff v. Mid Atlantic Medical Services Inc., 547 U.S. 356, 361 (2006).

[39] Horizon Blue Cross Blue Shield v. East Brunswick Surgery Center, 623 F. Supp. 2d 568, 575 (D. N.J. 2009).

[40] 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”

[41] Memorial Hospital System v. Northbrook Life Insurance Co., 904 F.2d 236, 245 (5th Cir. 1990).

[42] 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]

[43] See Hospitals 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).

[44] See Pennsylvania Chiropractic Ass’n v. Blue Cross Blue Shield Ass’n, 713 F. Supp. 2d 734 (N.D. Ill. 2010).


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