The settlement resolves a lawsuit in which the DOL alleged that the TPA breached its fiduciary duties and committed prohibited transactions when it retained and did not disclose “network management fees” consisting of the difference between amounts charged to plans and amounts paid to health care providers……………..
TPA Agrees to Pay Millions to Clients and the DOL to Resolve Health Plan Fee Litigation
EBIA August 3, 2017
Consent Order: Acosta v. MagnaCare Admin. Servs., LLC, 1:16-cv-07695-DAB (S.D.N.Y., July 13, 2017); DOL News Release (July 25, 2017)
In a settlement with the DOL, a third-party administrator (TPA) has agreed to pay at least $14.5 million in repayment of fees to its ERISA health plan clients and $1.5 million in civil penalties to the DOL. The TPA will also modify various business practices. The settlement resolves a lawsuit in which the DOL alleged that the TPA breached its fiduciary duties and committed prohibited transactions when it retained and did not disclose “network management fees” consisting of the difference between amounts charged to plans and amounts paid to health care providers. The TPA’s claims adjudication practices were also at issue. According to the DOL, the TPA was a fiduciary by virtue of setting its own compensation and because it adjudicated claims. Here are highlights of the settlement:
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- Changes to fee arrangements. The TPA must offer its existing and new plan clients a fixed fee option and allow them flexibility to change their fee arrangements in the future. For clients that do not select a fixed fee arrangement, the TPA must provide Internet access to schedules detailing the fee (or range of fees) associated with each medical billing (CPT) code, the right to switch to a fixed fee option, and the right to terminate the agreement in the event of a fee increase. Ninety days’ advance notice is required for any fee increase.
- Disclosures to clients. Specified language must be included in contracts, batch bills, and reports to clients explaining the network management fee and other elements such as a client’s termination rights. Batch bills must clearly indicate management fees charged per claim and in the aggregate, and clients with electronic claims processing must receive a quarterly report showing a similar breakdown. The TPA must furnish existing clients with a report of fees covering the last three years and permit them to inspect its records during business hours. And it must annually communicate each client’s cumulative fee for Form 5500 reporting purposes.
- Changes to claims processing. The TPA must implement new claims procedures to ensure compliance with ERISA (including health care reform’s enhanced requirements). The DOL specifically identified as problematic the TPA’s application of the “prudent layperson” standard for assessing whether a situation involves an “emergency medical condition,” and its policies relating to subrogation and recovery from third parties. Under the settlement, the TPA must offer to reprocess certain previously denied emergency-related claims and report reprocessing results to the DOL. Required modifications to its subrogation and reimbursement procedures include allowing clients to opt in or out of subrogation services and offering to reopen certain appeals.
EBIA Comment: TPAs may wish to revisit their fee structures and related disclosures in light of DOL actions like this and challenges brought by plans (see, for example, our Checkpoint article). In addition to a significant financial layout, this TPA is facing substantial time and effort to revise its contracts and procedures. For more information, see EBIA’s ERISA Compliance manual at Sections XXVIII.C.3.a (“Disclosure of Fees and Expenses”), XXVIII.D (“Prohibited Transactions Under ERISA § 406”) and XXXVII.H (“Civil Penalty Assessments”). See also EBIA’s Self-Insured Health Plans manual at Sections XXIII (“Selecting, Engaging, and Monitoring Service Providers”) and XXV.E (“Subrogation and Reimbursement: Legal Rules and Plan Language”), and EBIA’s Health Care Reform manual at Section XII.B.4 (“Coverage of Emergency Services”).
Contributing Editors: EBIA Staff.
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