Eighth Circuit Joins Growing Trend to Bar Patient Standing in Cross-Plan Offsetting Costs, by Abbye Alexander, Esq., Christopher Tellner, Esq., and Henry Norwood, Esq., 6-5-2025

As the healthcare and benefits landscape continues to evolve, cross-plan offsetting has emerged as a subject of significant discussion—and increasing scrutiny—among plan sponsors, administrators, regulators, and courts.

Cross-plan offsetting is the health insurance claims practice of recovering an overpayment made to a provider for a patient covered by a health plan by underpaying the same provider for services rendered to a separate patient covered by a separate health plan.

While some view it as an administrative efficiency tool that can reduce costs and streamline overpayment recovery, others raise legal, fiduciary, and ethical concerns about whether the practice aligns with ERISA’s requirements and participants’ best interests.

Adding some clarity to this issue, an Eighth Circuit opinion last year added authority to the trend finding patients have no standing to challenge a health plan’s use of cross-plan offsetting. Cross-plan offsetting is the health insurance claims practice of recovering an overpayment made to a provider for a patient covered by a health plan by underpaying the same provider for services rendered to a separate patient covered by a separate health plan.

In practical terms, how does this work? The U.S. District Court for the District of Minnesota provided the following useful illustration:

Suppose that a patient named Andy is insured under a health plan administered by United. Andy sees Dr. Peterson for treatment of a sore neck. Dr. Peterson submits his bill to United. United pays $350 to Dr. Peterson. Later, however, United discovers that it should have paid only $200 to Dr. Peterson. In turn, United contacts Dr. Peterson, brings the overpayment to his attention, and asks him to return $150. If Dr. Peterson agrees that he was overpaid and returns the $150, the problem is solved. But if Dr. Peterson does not agree that he was overpaid and refuses to return the money, United has limited options for getting back its $150. In theory, United could initiate administrative or legal proceedings against Dr. Peterson. As a practical matter, however, United is unlikely to do so, as United would spend far more than $150 in pursuing the $150 overpayment.

Another option might be to engage in same-plan offsetting. Under this approach, United would wait until Andy or anyone else covered by Andy’s health plan is treated by Dr. Peterson. When Dr. Peterson submits a bill to United on behalf of that patient, United would deduct $150 from the payment that it would otherwise make to Dr. Peterson. From United’s perspective, however, same-plan offsetting presents a big problem: Dr. Peterson may never again treat Andy or someone who is insured under Andy’s plan. Dr. Peterson practices in New York City, a giant metropolitan area. Andy may work for a small company in a distant suburb, and he may be insured under a company-sponsored plan that covers only Andy and 20 other employees. The chances may be slim that Dr. Peterson will ever again treat someone who is insured under Andy’s plan. And thus, United may never have the opportunity to use same-plan offsetting to recoup its $150 overpayment from Dr. Peterson.

To get around this problem, United adopted the practice of cross-plan offsetting. Under this approach, United merely has to wait until anyone covered by any of the thousands of plans that it administers sees Dr. Peterson. Suppose, for example, that two weeks after treating Andy, Dr. Peterson treats Betsy, who is injured while on vacation in New York City. Suppose further that Betsy is insured under a plan that is administered by United and that covers Betsy and 50 of her co-employees (all of whom live in San Diego). When Dr. Peterson submits a bill to United on behalf of Betsy, United would deduct $150 from the payment that Betsy’s plan would otherwise make to Dr. Peterson and thereby recoup the overpayment that Andy’s plan made to Dr. Peterson in connection with his treatment of Andy (Peterson ex rel. Patient E v. UnitedHealth Grp. Inc., 242 F. Supp. 3d 834, 837 (D. Minn. 2017), aff’d, 913 F.3d 769 (8th Cir. 2019).

The Standing Issue

Cross-plan offsetting is increasingly being implicated in ERISA litigation. ERISA does not necessarily prohibit the practice. A key dispute in cross-plan offsetting litigation is whether patients have standing to dispute insurers’ use of the practice. Of course, if patients lack standing to challenge cross-plan offsetting, the field of potential plaintiffs in these actions is significantly limited. In the most recent opinion addressing the question, the Eighth Circuit joined other courts in ruling that patients do not have standing to challenge cross-plan offsetting.

No Standing to Challenge Cross-Plan Offsetting

In July 2024, the Eighth Circuit published its opinion in the case, Smith v. UnitedHealth Grp., Inc. The case involved members of an employer-sponsored health plan who brought suit against UnitedHealth, the plan administrator, alleging the plan underpaid the patients’ providers for certain medical procedures, utilizing cross-plan offsetting. UnitedHealth moved to dismiss the suit, arguing the members did not suffer any injury because the health plan was paid properly under the plan when including the overpayments previously paid. The patients countered that their providers were entitled to full payment pursuant to the health plan’s terms, regardless of any overpayments of other claims.

The Eighth Circuit agreed with UnitedHealth, holding that the patients were not entitled to a full payment of their claims “in cash.” Rather, the plan had discretion, pursuant to the express terms of the plan to utilize offsets in meeting its payment obligations under the plan. Accordingly, the court found the patients lacked standing to challenge UnitedHealth’s cross-plan offsets. The court dismissed the patients’ complaint.

Dismissal of Claims for Fraud & Negligent Misrepresentation Based on Cross-Plan Offsetting

Fast forward to February 2025, the Louisiana Court of Appeal, Fifth Circuit rejected a provider’s state law claims against a health insurer for fraud and negligent misrepresentation arising from the insurer’s alleged use of cross-plan offsetting. Specifically, the provider alleged it had contacted the insurer before treating certain patient-insureds and the plan allegedly pre-verified the patients’ coverage for treatment. Once the provider treated the patients, the insurer then offset amounts allegedly overpaid to the provider regarding patients covered by other insurance policies administered by the insurer. In the fraud and negligent misrepresentation causes of action, the provider sued, alleging the insurer knew or should have known it intended to offset the overpaid amounts when it pre-verified the patients’ coverage. The trial court granted the insurer’s objections and the appellate court affirmed, holding the provider had not adequately connected the pre-verification representations to the cross-plan offsetting (Louisiana Health Service & Indem. Co. v. Gupta, 24-264 (La. App. 5 Cir. 2/12/2025); 2025 WL 467822, *8-9).

Conclusion

The Eighth Circuit joined the Ninth Circuit and the U.S. District Court of Appeal for Minnesota in finding that patients lack standing to bring claims against their plans for utilizing cross-plan offsetting. The trend across jurisdictions is to prohibit patient challenges, which may encourage insurers to continue engaging in the practice and may prompt providers to raise challenges to the practice, but as demonstrated in the recent Louisiana decision, providers may also face hurdles in challenging cross-plan offsetting.

Authors: Abbye Alexander and Christopher Tellner, Co-Chairs of Kaufman Dolowich’s Managed Care/Health Care Practice Group, and Of Counsel Henry Norwood