Don’t Leave Fox Guarding Employer Plan

A cautionary tale where a self-insured employer health plan implemented a reference-based pricing mechanism…………………

Published on March 10, 2020

By Mark Flores

Vice President and Co-Founder at AVYM Corporation

If it sounds too good to be true, it probably is.

In the ever-changing employer healthcare landscape, there has been an increasing group of professionals espousing “new solutions” that purport to offer substantial savings to self-insured employer health plans, particularly with out-of-network claims. One of the issues with many of these “new solutions” is that very few vendors/entities agree to accept fiduciary responsibility and the accompanying liabilities.

One of those “solutions” involves reference-based pricing (RPB). While relatively few employer plans have adopted RBP, some employers are considering this “new solution” under the impression that there are no other alternatives.

Employer health plans considering any of these “new solutions” should factor in the substantial risks before implementing any of these provisions plan wide, lest they are left facing lawsuits from their own members as well as medical providers.

This case offers a cautionary tale to self-funded employer health plans, where a self-insured employer health plan implemented a reference-based pricing mechanism. The case is Central Valley Ag Cooperative v. Leonard, No. 8:17CV379, 2019 WL 4141061, D. Neb. The plaintiffs, a self-insured health plan, Central Valley AG Cooperative Healthcare Plan and its plan sponsor and fiduciary, Central Valley, (collectively the “Plan”) filed the lawsuit against their own third party administrator and medical claim reviewers, asserting claims for breach of fiduciary duty under ERISA as well as self-dealing.

The Plan alleged that the vendors created a systematic reimbursement scheme that financially benefitted themselves at the expense of the members.

In summary, the Plan accused the vendors of cutting claims payments so low, substantially lower than contracted rates, that Plan members were hit with extremely high balance bills from medical providers that did not accept the RBP rates. This led to lawsuits against the Plan by medical providers and possible lawsuits against the plan by its own members.

Although the self-insured employer plan and plan sponsor agreed to the new pricing structure, according to court records, “claims payments to health care providers under the Plan virtually ceased. Providers complained the Plan was not paying them for services rendered to Plan participants”. The plan also alleged their own plan members were harmed and “subjected to collection efforts by physicians and other providers.” The complaint also alleged that “Several providers refused to render further services to Plan participants, their spouses, and their dependents.” Amazingly the Plan also alleged that it had “lost benefits from its stop-loss insurance carrier due to the extended claim disputes.

Ultimately, the court ruled against the Plan, leaving the Plan on the hook for costly litigation fees.

This case serves as a very important warning to self-insured health plans regarding “new solutions” where unscrupulous vendors will promise monumental savings with no adverse effects or balance billing to Plan members.

While there are many legitimate vendors providing valuable services, RBP at its core represents a zero-sum game, in that savings to employers have to come from somewhere, in this case, either the hospital, through negotiated reductions or the employees, through balanced billing.

Consequently, key decision makers should also be aware of overreaching promises such as “universally accepted fee schedules” and “total compliance” with state and federal laws.

Ultimately, legitimate vendors should be willing to accept fiduciary responsibility and all the liability that comes with it. Self-Insured Employer Health Plan Administrators, Plan Sponsors, and key decision-makers would do well to heed the old adage: if it sounds too good to be true, it probably is.

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