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Be Careful About Paying Claims: Health Plan Denied Reimbursement for Mistakenly Paid Claim

Posted in Court Cases, Plan Administration, Welfare Plans

Previously I had written about instances where a retirement plan was able to recoup overpayments from a pensioner when the payments were made as a result of a mistaken calculation.  As I said then, plan administrators should be wary about relying on ERISA as a guarantee that they could recoup overpayments.  Sure enough, the 7th Circuit, in Kolbe & Kolbe Welfare Plan v. Medical College of Wisconsin, a self-funded plan was denied reimbursement for paying claims for a child that was ultimately determined to be ineligible as a participant.

Factually, this case arose from the birth of a newborn child.  The employee participant did not provide the plan administrator with necessary proof to establish that the child met the criteria in the plan for eligibility.  The plan ended up paying $1.7 million in claims to the hospital for treatment to the child and, sure enough, the child turned out to be ineligible for treatment (although it took almost a year for the plan to confirm that fact).  The plan made a demand to the hospital to refund the payments and the hospital refused.  The plan sued the hospital and the Court denied the reimbursement.

In denying the plan’s claims against the hospital, the Court essentially affirmed that even though the child was not eligible as a participant, there was no valid claim against the hospital.  No claim for “unjust enrichment” could survive because services were rendered, and a breach of contract claim could not survive because, even though there was a provider agreement in place, it did not obligate the provider to reimburse the plan simply because the plan neglected to determine eligibility before the payment was made.  So the hospital got to keep the money and the plan was left with nothing more than a possible claim against the individual participant.

What this case demonstrates is that while reimbursement might be an option, who the plan can get reimbursement from can be a problem.  The hospital may have received the payment, but it was not the right party for the plan to pursue.  So in order to avoid situations like this, plan administrators should be very wary of paying claims for individual that are not clearly eligible for benefits under the terms of the plan.  Follow eligibility rules to the letter and don’t make payments until all enrollment conditions are satisfied.  Don’t assume you can get the money back from any source.  As this case shows, a mistake in payment can be very costly so avoid making them.