Can A TPA Force The Sale Of A Tie-In Product Under ERISA?

Can a third party administrator force a client ,who is subject to ERISA , to purchase a product as a condition to administer claims or renew an existing Administrative Services Agreement, a product for which the TPA receives renumeration from or has ownership interest?

Some businesses  force the sale of a tie-in product in order for the consumer to buy the main product. For instance, a car maker may force a buyer to have the battery or other product from a company they own or influence, and thus get an additional profit center.

Under ERISA, that kind of tie-in is a whole category of “prohibited transaction” known as “self-dealing”, and can land you in jail. It is all for the protection of plan participants and to be sure that plan assets are used in the most prudent way in every transaction.

If a TPA, for example,  requires the use of an audit firm from which they receive a kickback instead of another audit firm equally qualified yet less expensive,  would this be an ERISA violation?

A self funded health plan is composed of many moving parts.  Unbundling services to get the best value is unquestionably an important duty required of fiduciaries.  In reality, however, many self funded employers rely on their TPA to subcontract services while never questioning cost components individually to any significant degree.

 

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