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Insurance Companies Seeking to Nullify Innocent Third-Party Creditor Rights
PRACTICE STRATEGIES
Legal Issues
Insurance Companies Seeking to Nullify Innocent Third-Party Creditor Rights Lance R. Plunkett, J.D. ptometrists often wonder what to do when they receive a letter from an insurance company demanding a refund of monies mistakenly paid out by an insurance plan on behalf of a patient. Most often these letters allege that the patient was not entitled to any coverage under the plan because the patient had previously stopped paying the
O
“Innocent third-party creditor rights” can be an important concept if a practitioner is asked to refund payment mistakenly made by an insurance company on behalf of a patient.
premiums required to maintain coverage. What can an optometrist do? Must the money received by the optometrists be refunded to the insurance plan? If the optometrist is an innocent third-party creditor, the short answer to the foregoing question is “no,” the optometrist need not refund any money. However, this requires a bit of explanation as to what constitutes an innocent third-party creditor. Also, bear in mind that insurance companies and managed care plans are now fighting back against traditional innocent third-party creditor rights, lobbying state legislatures to alter those rights to require refunds when they otherwise would not have
(Lance R. Plunkett, J.D., is the counsel for the AOA and director of the AOA State Government Relations Center. Opinions expressed are those of the author and not necessarily those of AOA.)
been allowed. Practitioners need to be certain they are not in one of those states in which innocent third-party creditor rights have been taken away by legislation, often legislation that a state optometric association may not have paid much attention to when it was being proposed, due to its esoteric subject matter. An innocent third-party creditor is, in this case, an optometrist who is owed a debt by a patient, and who has the debt paid to him or her by a third party (insurer/managed care plan) under all the following specific circumstances: (1) the insurer/managed care plan made the payment solely due to the plan’s own mistake; (2) the optometrist made no misrepresentation to induce the insurer/managed care plan to make the payment; and (3) the optometrist acted in good faith, without prior knowledge or notice of the insurer/managed care plan’s mistake, when he or she received the payment. Under these precise circumstances, the optometrist is deemed to be an innocent creditor vis-à-vis the third-party insurer— hence the term, “innocent third-party creditor.” In all other circumstances, the optometrist is going to have to refund the money received from the insurer/managed care plan, because the optometrist would not qualify as an innocent thirdparty creditor. The normal rule of law in matters of restitution is that money paid out by mistake is fully recoverable by the entity that made the mistake. This is so even if the mistake was the product of either outright stupidity or legal negligence on the part of the entity that paid the money. The bedrock principle is that the person who received the money by mistake is not entitled to be unjustly enriched at the expense of the entity that made the mistake. However, there is an exception to this basic rule of law that has been accepted by a num-
410 OPTOMETRY
VOLUME 76 / NUMBER 7 / JULY 2005
PRACTICE STRATEGIES
MODEL LETTER Address of Collection Agency or the Company Involved (with copy to the other, as needed) Re: Collection Action Taken Against Dr. Dear
:
I am writing in response to your letter requesting that I return monies paid on behalf of an employee of (employee’s company name). According to this correspondence, the employee was not entitled to insurance benefits from the company insurance plan (explanation such as “non-payment of premiums”). I am writing to due to request that you cease and desist from contacting me regarding monies the company insurance plan may be owed by the company’s employee. I further request that you terminate immediately any collection actions initiated against me. I am not the company’s debtor, but am a creditor against whom no collection action can lie. It is inappropriate for you to contact any optometrist regarding matters that solely involve the company and its employee. In situations in which the optometrist is not a contractor with the company, or any affiliated benefit-related company, any such requests for reimbursement properly should be addressed directly to the company’s employee. As I am not in any way under contract with the company’s insurance plan, what the company plan is entitled to will be determined by the company’s insurance policy contract with its employee and applicable state law. Regardless, it does not involve me. Only the company’s employee can dispute or confirm that monies were improperly paid, and any refund would be due solely from the employee and not from his or her optometrist. It is widely held that an insurance carrier is not entitled to recover an overpayment made to an innocent thirdparty creditor when: (1) that payment was made solely due to the insurer’s mistake; (2) the mistake was not induced by a misrepresentation of the third-party creditor; and (3) the third-party creditor acted in good faith without prior knowledge of the mistake. See e.g., St. Mary’s Med. Ctr. v. United Farm Bureau, 624 N.E.2d 939 (Ind. App. 1 Dist. 1993); Time Ins. v. Fulton-DeKalb Hosp. Auth., 211 Ga. App. 4, 438 S.E.2d 149 (Ga. App. 1993); City of Hope Med. Ctr. v. Superior Court, 8 Cal. App. 4th 633, 10 Cal. Rptr. 2d 465 (Cal. App. 2 Dist. 1992); Lincoln Nat. Life v. Brown Schools, 757 S.W.2d 411 (Tex. App. 1988); Federated Mutual Ins. Co. v. Good Samaritan Hosp., 191 Neb. 212, 214 N.W.2d 493 (Neb. Sup. Ct. 1974); Mutual Benefit Life Insurance Co. v. Lindenman, 911 F.Supp. 619 (EDNY, 1995); New York Life Insurance Co. v. Guttenplan, 30 N.Y.S.2d 430; and Prudential Insurance Company of America v. Couch, 376 S.E.2d 104 (W. Va. Sup. Ct. of App. 1988). I trust that I will not hear from you on this matter again. Very truly yours,
Optometrist’s Signature
ber of states throughout the country, and that is the “innocent third-party creditor” exception. The exception holds that if the person who received the money was legitimately owed money for services performed, was unaware that a mistake had been committed either before or at the time of receiving payment, and had done nothing to induce the commission of the mistake, then this person is really not being unjustly enriched and need not return the money mistakenly paid. The recognition of the rights of innocent third-party creditors as a unique exception to the common law of restitution had been the modern legal trend in courts throughout the country. Now, however, some states, at the
behest of insurance companies and managed care plans, are nullifying those rights and overturning court decisions via legislation. A recent example of this occurred in March, 2005 in Arkansas, where insurance plans can now recoup monies erroneously paid on a claim to optometric providers by statute. Recovery or collection of erroneous payments may now be accomplished in Arkansas by reducing other payments currently owed to a health care provider, by withholding or setting off the amount against current or future payments, by demanding repayment from a provider for a claim already paid, or using any other manner that reduces or affects the future claim payments to a provider. 411
VOLUME 76 / NUMBER 7 / JULY 2005
OPTOMETRY
PRACTICE STRATEGIES
To assert your rights as an innocent thirdparty creditor in a state that still recognizes such rights, the model letter accompanying this article can be sent to an insurance company or managed care plan and to a collection agency if matters have already proceeded that far. The letter includes relevant legal citations to support the innocent third-party creditor exception. However, be aware that optometrists who have signed contracts with managed care plans or other insurance plans must be careful that their plan contracts do not nullify their rights as innocent third-party creditors. In the event a practitioner has signed a contract as a participating provider, the practitioner may have to refund the money received from the insurance or managed care plan because the practitioner may have waived some creditor’s rights. Check any plan contracts carefully, because it is easy
to hide such waivers among other plan contract provisions. It is perfectly acceptable legally for a plan to get you to contract away such rights by signing the plan contract. Finally, keep in mind that a mere assignment of payment by a patient to an optometrist does not operate to waive innocent third-party creditor status for the optometrist. Such a standard assignment of benefits does not by itself establish a sufficient contractual relationship between the patient’s insurance plan and the optometrist so as to defeat a claim by the optometrist of innocent third-party creditor status. And also keep in mind that government insurance programs like Medicare and Medicaid are not subject to the innocent third-party creditor defense. As is typical, government always gets what it is due.
412 OPTOMETRY
VOLUME 76 / NUMBER 7 / JULY 2005
Legal Issues
Insurance Companies Seeking to Nullify Innocent Third-Party Creditor Rights Lance R. Plunkett, J.D. ptometrists often wonder what to do when they receive a letter from an insurance company demanding a refund of monies mistakenly paid out by an insurance plan on behalf of a patient. Most often these letters allege that the patient was not entitled to any coverage under the plan because the patient had previously stopped paying the
O
“Innocent third-party creditor rights” can be an important concept if a practitioner is asked to refund payment mistakenly made by an insurance company on behalf of a patient.
premiums required to maintain coverage. What can an optometrist do? Must the money received by the optometrists be refunded to the insurance plan? If the optometrist is an innocent third-party creditor, the short answer to the foregoing question is “no,” the optometrist need not refund any money. However, this requires a bit of explanation as to what constitutes an innocent third-party creditor. Also, bear in mind that insurance companies and managed care plans are now fighting back against traditional innocent third-party creditor rights, lobbying state legislatures to alter those rights to require refunds when they otherwise would not have
(Lance R. Plunkett, J.D., is the counsel for the AOA and director of the AOA State Government Relations Center. Opinions expressed are those of the author and not necessarily those of AOA.)
been allowed. Practitioners need to be certain they are not in one of those states in which innocent third-party creditor rights have been taken away by legislation, often legislation that a state optometric association may not have paid much attention to when it was being proposed, due to its esoteric subject matter. An innocent third-party creditor is, in this case, an optometrist who is owed a debt by a patient, and who has the debt paid to him or her by a third party (insurer/managed care plan) under all the following specific circumstances: (1) the insurer/managed care plan made the payment solely due to the plan’s own mistake; (2) the optometrist made no misrepresentation to induce the insurer/managed care plan to make the payment; and (3) the optometrist acted in good faith, without prior knowledge or notice of the insurer/managed care plan’s mistake, when he or she received the payment. Under these precise circumstances, the optometrist is deemed to be an innocent creditor vis-à-vis the third-party insurer— hence the term, “innocent third-party creditor.” In all other circumstances, the optometrist is going to have to refund the money received from the insurer/managed care plan, because the optometrist would not qualify as an innocent thirdparty creditor. The normal rule of law in matters of restitution is that money paid out by mistake is fully recoverable by the entity that made the mistake. This is so even if the mistake was the product of either outright stupidity or legal negligence on the part of the entity that paid the money. The bedrock principle is that the person who received the money by mistake is not entitled to be unjustly enriched at the expense of the entity that made the mistake. However, there is an exception to this basic rule of law that has been accepted by a num-
410 OPTOMETRY
VOLUME 76 / NUMBER 7 / JULY 2005
PRACTICE STRATEGIES
MODEL LETTER Address of Collection Agency or the Company Involved (with copy to the other, as needed) Re: Collection Action Taken Against Dr. Dear
:
I am writing in response to your letter requesting that I return monies paid on behalf of an employee of (employee’s company name). According to this correspondence, the employee was not entitled to insurance benefits from the company insurance plan (explanation such as “non-payment of premiums”). I am writing to due to request that you cease and desist from contacting me regarding monies the company insurance plan may be owed by the company’s employee. I further request that you terminate immediately any collection actions initiated against me. I am not the company’s debtor, but am a creditor against whom no collection action can lie. It is inappropriate for you to contact any optometrist regarding matters that solely involve the company and its employee. In situations in which the optometrist is not a contractor with the company, or any affiliated benefit-related company, any such requests for reimbursement properly should be addressed directly to the company’s employee. As I am not in any way under contract with the company’s insurance plan, what the company plan is entitled to will be determined by the company’s insurance policy contract with its employee and applicable state law. Regardless, it does not involve me. Only the company’s employee can dispute or confirm that monies were improperly paid, and any refund would be due solely from the employee and not from his or her optometrist. It is widely held that an insurance carrier is not entitled to recover an overpayment made to an innocent thirdparty creditor when: (1) that payment was made solely due to the insurer’s mistake; (2) the mistake was not induced by a misrepresentation of the third-party creditor; and (3) the third-party creditor acted in good faith without prior knowledge of the mistake. See e.g., St. Mary’s Med. Ctr. v. United Farm Bureau, 624 N.E.2d 939 (Ind. App. 1 Dist. 1993); Time Ins. v. Fulton-DeKalb Hosp. Auth., 211 Ga. App. 4, 438 S.E.2d 149 (Ga. App. 1993); City of Hope Med. Ctr. v. Superior Court, 8 Cal. App. 4th 633, 10 Cal. Rptr. 2d 465 (Cal. App. 2 Dist. 1992); Lincoln Nat. Life v. Brown Schools, 757 S.W.2d 411 (Tex. App. 1988); Federated Mutual Ins. Co. v. Good Samaritan Hosp., 191 Neb. 212, 214 N.W.2d 493 (Neb. Sup. Ct. 1974); Mutual Benefit Life Insurance Co. v. Lindenman, 911 F.Supp. 619 (EDNY, 1995); New York Life Insurance Co. v. Guttenplan, 30 N.Y.S.2d 430; and Prudential Insurance Company of America v. Couch, 376 S.E.2d 104 (W. Va. Sup. Ct. of App. 1988). I trust that I will not hear from you on this matter again. Very truly yours,
Optometrist’s Signature
ber of states throughout the country, and that is the “innocent third-party creditor” exception. The exception holds that if the person who received the money was legitimately owed money for services performed, was unaware that a mistake had been committed either before or at the time of receiving payment, and had done nothing to induce the commission of the mistake, then this person is really not being unjustly enriched and need not return the money mistakenly paid. The recognition of the rights of innocent third-party creditors as a unique exception to the common law of restitution had been the modern legal trend in courts throughout the country. Now, however, some states, at the
behest of insurance companies and managed care plans, are nullifying those rights and overturning court decisions via legislation. A recent example of this occurred in March, 2005 in Arkansas, where insurance plans can now recoup monies erroneously paid on a claim to optometric providers by statute. Recovery or collection of erroneous payments may now be accomplished in Arkansas by reducing other payments currently owed to a health care provider, by withholding or setting off the amount against current or future payments, by demanding repayment from a provider for a claim already paid, or using any other manner that reduces or affects the future claim payments to a provider. 411
VOLUME 76 / NUMBER 7 / JULY 2005
OPTOMETRY
PRACTICE STRATEGIES
To assert your rights as an innocent thirdparty creditor in a state that still recognizes such rights, the model letter accompanying this article can be sent to an insurance company or managed care plan and to a collection agency if matters have already proceeded that far. The letter includes relevant legal citations to support the innocent third-party creditor exception. However, be aware that optometrists who have signed contracts with managed care plans or other insurance plans must be careful that their plan contracts do not nullify their rights as innocent third-party creditors. In the event a practitioner has signed a contract as a participating provider, the practitioner may have to refund the money received from the insurance or managed care plan because the practitioner may have waived some creditor’s rights. Check any plan contracts carefully, because it is easy
to hide such waivers among other plan contract provisions. It is perfectly acceptable legally for a plan to get you to contract away such rights by signing the plan contract. Finally, keep in mind that a mere assignment of payment by a patient to an optometrist does not operate to waive innocent third-party creditor status for the optometrist. Such a standard assignment of benefits does not by itself establish a sufficient contractual relationship between the patient’s insurance plan and the optometrist so as to defeat a claim by the optometrist of innocent third-party creditor status. And also keep in mind that government insurance programs like Medicare and Medicaid are not subject to the innocent third-party creditor defense. As is typical, government always gets what it is due.
412 OPTOMETRY
VOLUME 76 / NUMBER 7 / JULY 2005