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May 2016

REFUND?! What a provider should do when health plans want refunds on paid claims

Breaking Away is one of my all-time favorite movies. In the 1979 film, there is an all-American scene with four young Indiana University guys pushing a red Corvette back to the used car dealership lot.

As the ‘Vette is being pushed, the used car dealership owner, Ray Stoller, quickly confronts the preppy-attired guys. The upset student who purchased the lemon car pleads to Ray, “All I want is a refund.”

Ray, played by the great character actor Paul Dooley, replies with the classic response, “Refund?! Refund?! Refund?!” For emphasis, the scene quickly cuts to Ray in his bed screaming the same thing. “Refund?! Refund?!”  At his bedside, a house-calling physician calmly prepares a sedative shot for Ray.

Often, providers are struck with the same reaction as Ray when a payor pushes a previously paid claim back to the provider’s business office via a letter asking for a refund.

But what should a provider do when this happens?

Recently, our law firm received an award for our provider client in a hospital v. major health plan underpayment case. Despite a positive result, there was a secondary issue involving refund requests and interest owed by the hospital made by the health plan.

This issue is becoming more common in arbitration. This most recent case involved the issue of interest on the refund requests the health plan had allegedly sent to the hospital. The arbitrator ruled that the health plan is owed interest if refund requests are not contested regardless of whether or not there is an offset provision in the health plan’s contract with the provider. The health plan argued it cannot offset self-funded claims with other self-funded claims because there are issues of comingling funds.

The key here is that the hospital must submit refund contest letters. It is imperative to clearly say “no refund” to the health plan. Documentation of a dispute is a big step in negating the possibility of having to pay interest down the road.

Healthcare experts point out that overpayments to providers may occur for a variety of reasons. A health plan may simply make a calculating mistake and pay a provider more than the contracted amount for a service. Or a provider may be paid for a service that was not covered under the patient’s health insurance policy.

In many states, an insurer may pursue most overpayments for no more than a couple of years. However, self-insured companies, which are those that pay their own employees’ health claims directly rather than buy insurance for that purpose, are not bound by such state laws.

A provider must set up a mass response system for any health plan refund request. A key step would be for the provider to create a spreadsheet of all refund letters from the health plan every 25 days. Then, once a month, the provider should send one response letter, incorporating the spreadsheet of refund requests. This provider action will preserve the right to contest the overpayment.

What is perfectly clear is the financial ramifications of hospitals not responding to health plan refund requests. Whether the alleged overpayment by the health plan is valid or not does not matter when it comes to the clock starting on the interest owed to the health plan.

In the recent arbitration, the arbitrator ruled that the contract language addressed the provider’s responsibilities. First, if the health plan overpays a claim, the hospital has 30 working days to refund the overpayment. If the provider contests the overpayment request, it must do so within 30 working days of receiving notice.

In this case, the provider argued that the contract mandated that the health plan offset any alleged overpayments. The arbitrator disagreed and said the health plan has the option to either offset or submit the claim to arbitration. The arbitrator then ruled that the interest on these uncontested refund requests would commence 60 working days after the provider receives notice from the health plan.

An entirely separate issue involved the definition of “working days,” which ultimately was ruled to be the equivalent of “business days.” But that is a blog for another day.

To mitigate additional financial damage, it is imperative for a provider to always challenge in writing any and all refund requests. So instead of just saying “Refund?!” like Ray Stoller, put it clearly in writing in a timely manner – NO REFUND – and make sure the health plan receives it.

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