Scott v. UnitedHealth Grp., Inc.

• Decision Date: 20 May 2021
• Docket Number: Case No. 20-CV-1570 (PJS/BRT)
• Citation: 540 F.Supp.3d 857
• Parties: Rick SCOTT, Royce D. Klein, James Morris, and Thomas Mangum, on behalf of themselves and all others similarly situated, Plaintiffs, v. UNITEDHEALTH GROUP, INC.; United HealthCare Services, Inc.; United HealthCare Insurance Company; and United HealthCare Service LLC, Defendants.
• Court: U.S. District Court — District of Minnesota

540 F.Supp.3d 857

Rick SCOTT, Royce D. Klein, James Morris, and Thomas Mangum, on behalf of themselves and all others similarly situated, Plaintiffs,

v.UNITEDHEALTH GROUP, INC.; United HealthCare Services, Inc.; United HealthCare Insurance Company; and United HealthCare Service LLC, Defendants.

Case No. 20-CV-1570 (PJS/BRT)

United States District Court, D. Minnesota.

Signed May 20, 2021

Karen L. Handorf and Julie S. Selesnick, COHEN MILSTEIN SELLERS & TOLL, PLLC; June P. Hoidal, Carolyn G. Anderson, and Ian F. McFarland, ZIMMERMAN REED LLP; and William K. Meyer, for plaintiffs.

Jonathan D. Hacker, Brian D. Boyle, Elizabeth L. McKeen, and Amanda L. Genovese, O'MELVENY & MYERS LLP; and Michelle S. Grant, DORSEY & WHITNEY LLP, for defendants.

ORDER

Patrick J. Schiltz, United States District Judge

Plaintiffs participate in employer-sponsored group health plans administered by defendants (collectively "United") and governed by the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq. Plaintiffs bring this action under ERISA to challenge United's practice of cross-plan offsetting—that is, United's practice of using the assets of one plan to recoup alleged overpayments made by a different plan.

This matter is before the Court on United's motion to dismiss for lack of jurisdiction. For the reasons that follow, the Court agrees with United that plaintiffs do not have standing because they have failed to allege an injury in fact. The Court therefore grants United's motion and dismisses this case without prejudice.

I. BACKGROUND

The health plans at issue in this case are "employee welfare benefit plan[s]" under ERISA. See 29 U.S.C. § 1002(1). The plans are self-insured, meaning that the plans use their own assets to pay claims for covered healthcare expenses. Am. Compl. ¶¶ 6, 51. Self-insured plans are funded by contributions from the sponsoring employer and payroll contributions from the participating employees. Am. Compl. ¶ 51. A self-insured plan is in contrast to a fully insured plan, under which covered healthcare expenses are paid by an insurer under the terms of an insurance contract purchased by the plan. Am. Compl. ¶¶ 51, 97, 99.

United acts as a third-party administrator for self-insured plans. Am. Compl. ¶¶ 57; 130–31. In that role, United accepts and processes benefit claims submitted by providers on behalf of plan participants, determines if the provider's services are covered by the plan, and uses plan assets to pay providers when required by the terms of the plan. Am. Comp. ¶¶ 57, 100.

In this lawsuit, plaintiffs challenge United's use of cross-plan offsetting¹ to recover alleged overpayments to healthcare providers. Cross-plan offsetting involves withholding a payment that is indisputably owed to a provider by a plan to "offset" a debt that the provider allegedly owes to a different plan on account of a prior overpayment. Am. Compl. ¶¶ 58–59. This Court has previously described the practice of cross-plan offsetting as follows:

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. 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).

Obviously, cross-plan offsetting dramatically expands United's ability to unilaterally recoup disputed overpayments from providers; as this Court has previously remarked, "[w]hen United and a provider dispute whether a claim was overpaid, cross-plan offsetting allows United to act as judge, jury, and executioner." Id. at 838. Cross-plan offsetting also benefits United in other ways. Most strikingly, the fact that United administers both self-insured plans (under which United—as administrator—uses the plan's assets to pay claims) and fully insured plans (under which United—as both administrator and insurer—uses its own assets to pay claims) puts United in the position of being able to recoup its own losses from assets belonging to self-insured plans. Id. at 839. In addition, most self-insured plans impose financial penalties or other liability on third-party administrators for wrongful disbursement or mismanagement of plan assets (such as by making overpayments); cross-plan offsetting relieves United from liability for these errors. Am. Compl. ¶¶ 101, 107.

United does a lot of cross-plan offsetting. In 2019, for example, United recovered $1.354 billion through cross-plan offsets. Am. Compl. ¶ 63. Plaintiffs allege that cross-plan offsetting violates ERISA, and they seek to bring a class action on behalf of all participants in all self-insured health plans that are administered by United and governed by ERISA. Am. Compl. ¶¶ 52, 173. United moves under Fed. R. Civ. P. 12(b)(1) to dismiss plaintiffs’ amended complaint for lack of jurisdiction.

II. ANALYSIS

A. Standard of Review

Defendants may make either a "facial" or a "factual" challenge to a court's jurisdiction under Rule 12(b)(1). In a facial challenge, the court "restricts itself to the face of the pleadings and the non-moving party receives the same protections as it would defending against a motion brought under Rule 12(b)(6)." Osborn v. United States , 918 F.2d 724, 729 n.6 (8th Cir. 1990) (citation omitted). In a factual challenge, the court does not accept the allegations as true, but instead receives evidence and makes factual findings. Id. at 730.

United is making both a facial and a factual challenge. As it is clear on the face of the amended complaint that plaintiffs lack standing, however, the Court applies the standard for reviewing motions to dismiss under Rule 12(b)(6). In reviewing such motions, a court must accept as true all of the factual allegations in the complaint and draw all reasonable inferences in the plaintiff's favor. Perez v. Does 1–10 , 931 F.3d 641, 646 (8th Cir. 2019). Although the factual allegations need not be detailed, they must be sufficient to "raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). The complaint must "state a claim to relief that is plausible on its face." Id. at 570, 127 S.Ct. 1955.

B. Standing

"Standing to sue is a doctrine rooted in the traditional understanding of a case or controversy." Spokeo, Inc. v. Robins , 578 U.S. 330, 136 S. Ct. 1540, 1547, 194 L.Ed.2d 635 (2016). Standing consists of three elements: "[(1)] an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision." Id. "To establish injury in fact, a plaintiff must show that he or she suffered ‘an invasion of a legally protected interest’ that is ‘concrete and particularized’ and ‘actual or imminent, not conjectural or hypothetical.’ " Id. at 1548 (quoting Lujan v. Defs. of Wildlife , 504 U.S. 555, 560, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992) ). The plaintiff bears the burden of establishing standing and must clearly allege facts demonstrating each element. Id. at 1547 ; Susan B. Anthony List v. Driehaus , 573 U.S. 149, 158, 134 S.Ct. 2334, 189 L.Ed.2d 246 (2014).

1. Breach of Fiduciary Duty

In Counts I through IV(a),² plaintiffs bring claims under 29 U.S.C. § 1132(a)(2) for breach of fiduciary duty, alleging that United's practice of cross-plan offsetting violates its duty of loyalty as well as ERISA's prohibitions on self-dealing, representing both sides in a transaction, and transacting with a party in interest. Am....