"Limiting a Payer's Ability to Unilaterally Deduct or Offset Disputed Amounts from Future Payments"


"Limiting a Payer's Ability to Unilaterally Deduct or Offset Disputed Amounts from Future Payments"

Here's some helpful advice on fighting back against unjust reimbursement practices

Gil Weber, MBA

Adapted with permission from Podiatry Management
© Copyright, 2006. All rights reserved.
August 2006

On occasion, an insurer or other third-party payer will overpay a claim, and, obviously, sometimes it will underpay. Both sides are entitled to be "made whole" if the over- or underpayment was, in fact, an error per the agreed fee schedule. That's fair and equitable.

Unfortunately, all too often for reasons other than a fee schedule error a payer will simply notify the physician that it has paid a claim in error and, without proper or, perhaps, without any substantiation of the assertion, will take back money. That's unfair.

Today I'm seeing contracts presented to physicians wherein the doctors are asked to agree that the payer can offset any such payments against future compensation. It's incredible to me that physicians would agree to such an open-ended proposition – one that could have dire adverse financial consequences.

Especially in those circumstances where a payer confirmed eligibility and then authorized covered services it is outrageous for the payer to retroactively deny eligibility, remove itself from all financial responsibility, and tell the physician to go chase the patient or some other insurer for payment. It's disingenuous for any payer to take the position that if your staff does all the right things, and jumps through all the right hoops verifying eligibility and filing the claim, it can still deny payment by saying long after the claim was paid that the eligibility data it supplied, and upon which you relied, was wrong.

The payer's arrogant position is clear: "Sorry, not our problem. And by the way, if we already sent you the money we're going to take it back."

Well that's outrageous and it's wrong! By the time a payer informs you that it's taking back money the patient could be long-gone, and it may be way after the filing deadline for any other insurer, assuming you're even able to identify another.

You should not agree to contractual terms that would put you at open-ended, retroactive risk every time staff confirms eligibility; but many payers do put physicians at such risk because they know they can get away with it. One of the nation's largest insurers is now sending new contracts around the country with some onerous wording that you should know about. Here is a sample. (Note: in this contract the covered person is called a "Customer.")

7.6 -- Retroactive Correction of Information Regarding Whether Patient is a Customer. Prior to rendering services, Physician will ask the patient to present his or her Customer identification card. In addition, Physician may contact <Plan> to obtain the most current information on the patient as a Customer.

However, Physician acknowledges that such information provided by <Plan> is subject to change retroactively under the following circumstances: (1) if <Plan> has not yet received information that an individual is no longer a Customer; (2) if the individual's Benefit Plan is terminated retroactively for any reason including, but not limited to, non-payment of premium; (3) as a result of the Customer's final decision regarding continuation of coverage pursuant to state and federal laws; or (4) if eligibility information <Plan> receives is later proven to be false. If Physician provides health care services to an individual, and it is determined that the individual was not a Customer at the time the health care services were provided, those services shall not be eligible for payment under this Agreement and any claims payments made with regard to such services may be recovered as overpayments under the process described in section 7.10 of this Agreement. Physician may then directly bill the individual, or other responsible party, for such services. (Note, see below for the wording of this referenced section 7.10.)

Just Say "No!"

I urge podiatrists to take a firm stand against payers who would send out contracts with wording of this sort, telling those payers that payments will not be refunded for authorized covered services when the error was entirely the payer's, its affiliates, or its employer-clients. Further, physicians should never agree that a payer may take back such payments, nor offset such payments against future payments. In other words, podiatrists should take the position that once eligibility is confirmed and the doctor provides covered services in reliance of that authorization, the payment is final. After that if there is a problem it should be the payer's responsibility to resolve the financial mess with the employer, or with the non-eligible patient.

Of course you might agree to a limited list of retroactive adjustments if and only if certain conditions were present – for example if a claim was paid as primary but it is later determined that the payer was actually the secondary insurer. In such case you would refund as appropriate after receiving proper substantiating documentation, but the payer should never be allowed to simply take back the money in the form of an offset.

Payers Will Go Ballistic

Payers will not like this demand. They will try to bully you on the issue, and will say that they are not responsible. Payers will point fingers in all sorts of directions, but they are the ones who have the data, and they must be willing to represent (affirm) to you that their data is accurate. Otherwise, how can you afford to treat any patient if every one of your claims is subject to unrestricted, retroactive cancellation by a payer at any time in the future?

In addition, a payer may tell you that it must reserve the right to take-backs/offsets against future payments. However, in some states these are not allowed.

So how might you get around this problem of take-backs and offsets? Here are two strategies you can try.

Fighting Back

A)  The best thing is to get a payer to agree that it will "do the right thing" by accepting financial responsibility for its errors, those of affiliates, or its employer-clients. Here is an example of the sort of language that is physician-friendly. Show this sample language to your attorney. With his/her edits and approval submit it for inclusion in your Provider Agreements.

<Insert plan name> shall have no obligation to pay for any services provided to a Member without a valid authorization. However, if <insert plan name> provides erroneous eligibility information to Physician, and if benefits under the benefit plan are provided to a Member, <insert plan name> shall reimburse Physician for any benefits provided to such Member.

Payers typically will not take kindly to this sort of language for it makes them accountable. However, this language is now in place in contracts between ophthalmology practices and one of the nation's largest vision plans, and there is no valid reason similar language can't be extended to other medical specialties. It is fair and reasonable, but without question it is also aggressive on the physician's part.

I think you must be aggressive on this matter of stopping or significantly limiting a payer's ability to retroactively dodge financial responsibility. If not held accountable, many payers will take your practice to the cleaners every chance they get.

B)  If a payer balks at accepting blanket responsibility for its administrative errors or those of its affiliates and employer-clients, and wishes to preserve some measure of "wiggle room," here's other sample language you can use as the basis for a compromise. While it is not the ironclad suggestion above, it is, none-the-less, still fair to both sides.

This compromise allows a payer to deny payment after previously authorizing services, but only if the practice is informed promptly. If the notice period is kept short enough (an absolutely crucial consideration) then the practice still has a reasonable opportunity to identify other insurers or payers and submit a claim, or to seek payment from the patient who, hopefully, has not yet disappeared.

Have the wording reviewed by your attorney. Then ask the payer to insert it into your Provider Agreement.

Retroactive Eligibility Notification

Payer is obligated to pay Physician hereunder. However, if Payer learns that a Member is no longer eligible, Payer is not obligated to pay Physician for any services provided to such Member so long as Payer notifies Physician of the Member's ineligibility within thirty (30) days of the date of service {optional: within 30 days of the claim submission date}. In such event Physician may bill the Member.

Whatever strategy you employ, be resolute in fighting to change onerous provisions. Do not allow payers to offload the collateral financial damage of their eligibility verification errors onto your shoulders. Avoid allowing payers to tell you to go chase the patient or some other source of payment.

Establishing Fair and Balanced Contractual Protocols For Alleged Over- or Underpayments

Here's that additional, problematic language I promised from a national health plan's managed care contract.

7.10 -- Correction of overpayments or underpayments of claims. In the event that either Party believes that a claim has not been paid correctly, or that funds were paid beyond or outside of what is provided for under this Agreement, either party may seek correction of the payment, except that Physician may not seek correction of a payment more than 12 months after it was made.

Physician will repay overpayments within 30 days of notice of the overpayment. Physician will promptly report any credit balance that it maintains with regard to any claim overpayment under this Agreement, and will return such overpayment to Payer within 30 days after posting it as a credit balance.

Physician agrees that recovery of overpayments may be accomplished by offsets against future payments.

Problems Presented

There are multiple problems here. The section starts out well enough, stating that either party can seek redress for an incorrect payment. But then it slaps a 12-month "look-back" window limitation on the physician, but leaves an unlimited look-back for the payer. That inequality is unfair.

Further, it states that in the event the physician owes money to the payer, that money shall be repaid within 30 day; but it says nothing about how long the payer has to send underpayments to the physician. This inequality is also unfair.

Finally, the last sentence -- in which the physician agrees that the payer can take back (offset) monies it alleges have been improperly paid -- is a deal-breaker. Payers will insist that they have the right to take back money improperly paid. However, the wording of this agreement does not require the payer to document the validity of an alleged overpayment. But the physician is required to return the money. That's blatantly unfair.

Instead, here is suggested language to create a level playing field. Show this to your attorney. With review and approval present it to a payer for insertion into the Provider Agreement.


a) Request for Adjustment of Payment. Either party shall be entitled to request a payment adjustment if, within <insert number> days from the date of payment, it notifies the other party in writing of the overpayment or underpayment and provides documentation substantiating such claim.

b) Payment Disputes. The parties shall work cooperatively and in good faith to resolve payment issues on an informal basis within <insert number> days of the first notification of a request for an adjustment of payment, pursuant to paragraph (a) above. If this is unsuccessful, then any disputes concerning claims of overpayment or underpayment shall be resolved in accordance with the Plan's Grievance and Appeal Process referenced in the Provider Manual.

c) Payments Final. Except for those payments that have been submitted to the Grievance and Appeals Process in accordance with the foregoing, all payments shall be final.

d) Paying Adjustments. If the parties determine that Plan has underpaid Physician, Plan shall pay the underpaid amount to Physician within <insert number> calendar days of said determination. If the parties determine that Plan has overpaid Physician, Physician shall reimburse Plan for overpayment within <insert same number> calendar days of said determination.

e) No Offsets or Deduction Without Permission. In no event shall Plan offset overpayments against, or deduct overpayments from, any other payments it owes Physician unless Physician expressly permits Plan to do so.

As you can see, this language allows both parties to request a payment adjustment. Note that the window of opportunity in paragraph (a) should be kept short, preferably no longer than 30-60 days.

But it also requires documentation of any alleged over- or underpayment. It requires both parties to work cooperatively to resolve payment disputes. Most significantly, paragraph (e) clearly precludes the Plan from offsetting against or deducting from future payments without the doctor's permission.

These protocols are balanced and fair to both sides. If a payer rejects the suggested language then it is being disingenuous, and it's holding up a big yellow, perhaps red flag that says: "We reserve the right to mess with your payments anytime we want, even if it's our fault. If you don't like it, tough."

Remember; just say "No!"

These materials are intended to provide useful information about the subject matter covered. The author believes that the information is as authoritative and accurate as is reasonably possible and that the sources of information used in preparation of the materials are reliable, but no assurance or warranty of completeness or accuracy is intended or given, and all warranties of any type are disclaimed.

The materials are not intended as legal advice, nor is the author engaged in rendering legal services. The materials are not intended as a replacement for individual legal or professional advice. Information contained herein is presented only for illustrative purposes, and it should not be used to establish any fees or fee schedules, nor is it intended and it should not be construed as encouraging any user of the materials to take any action that would violate any state or federal antitrust laws, tax laws, or Medicare or Medicaid laws.

Gil Weber is a nationally recognized author, lecturer and practice management/managed care consultant to physicians and industry. He has served as Director of Managed Care for the American Academy of Ophthalmology.

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