Archive for September 4th, 2012

ERISA – Is Saving $667,817 Fullfilling A Fiduciary Duty?

Tuesday, September 4th, 2012

ERISA – Employee Retirement Income Security Act of 1974 provides the basis of most employee benefit legislation. This federal legislation allows for and sets guildelines regarding a group’s ability to self-fund their benefits. ERISA governs most group health plans.

A responsible plan fiduciary must engage in an objective process to assess the reasonableness of the fees charged in light of the services provided and a responsible plan fiduciary must act solely in the interest of plan participants and with an undivided loyalty to beneficiaries.

So the question begs – is a plan fullfilling it’s fiduciary duties when accessing  a PPO contract as a third party beneficiary only,  and prohibited from reviewing PPO contracts with specified providers and waiving most if not all audit rights (PPO Letter) ?

Many have found that the answer is probably no.

We recenty reviewed a full year’s worth of hospital claims on a group of approximately 200 employees to determine the relationship between billed charges and paid amounts, and what Medicare  and several selected PPO networks would have allowed.

We reviewed 20 in-patient hospital admissions and 27 out-patient hospital claims. In the aggregate, total billed hospital charges were $2,018,665.

PPO allowed was $1,163,817 for a discount of 42.35%. (The PPO discount was 42.59% in-patient and 41.28% outpatient).

Medicare allowed was $396,988 for a discount of 80%.

The PPO allowed represents 293.16% of Medicare. Inpatient  was 280.05%  and outpatient was 367.65% of Medicare.

Is this Plan engaging in an objective process to assess the reasonableness of medical fees through this evaluation? The answer may be yes. To fullfill his fiduciary duties, the Plan must decide if  paying hospitals  300% – 400%  of Medicare  is reasonable and in the best interests of the plan participants.

Editor’s Note: In lieu of continuing on a PPO plan, this client changed their plan document to reflect hospital reimbursment of 125% of Medicare.  Had they paid 125% of Medicare instead of relying upon purported PPO discounts, they would have saved $667,817 last year,  plus another + $10,000 in PPO access fees.