Who Do I Need to Sue to Get a Decent Cup of Coffee? Jittery Fiduciaries Consider Options as Health Plan Litigation Froths Up
By Ben Conley & Caroline Pieper on July 12, 2023
POSTED IN EMPLOYEE BENEFITS, FIDUCIARY GOVERNANCE, HEALTH & WELFARE PLANS, PLAN ADMINISTRATION LITIGATION
Seyfarth Synopsis: In light of a recent focus on price transparency, claims data, and hidden fees in the health plan world, employer-sponsored health plans have been bringing their fight to the courtroom in an effort to lower costs and demonstrate good fiduciary governance.
In the wake of the Consolidated Appropriations Act, as well as newly-issued transparency regulations, employers sponsoring group health plans now have access to (or should have access to) a bevy of data not previously available in the notoriously secretive space of health plan pricing. As predicted, this new era of information transparency has spurred a small but growing stream of lawsuits. Surprisingly though, the plaintiffs in these suits are plan sponsors (or their committees) in their role as plan administrator, as opposed to plan participants, and the defendants are health plan third-party administrators rather than the plans themselves. In light of these recent lawsuits, this post focuses on fiduciary considerations for health plans in this new era of fee and price transparency.
While each lawsuit filed to date has unique aspects, they all generally allege some combination of the following:
- Failure to adequately and fully disclose payment data as required by law;
- Imposition of hidden and unreasonable fees;
- Breach of fiduciary duty; and
- Claims mismanagement and overpayment.
Because these lawsuits were filed recently, courts have not ruled on whether some or all of these allegations have merit. It is also unclear whether the plaintiff companies in these lawsuits are aware of a unique issue associated with the fee and pricing transparency or claims administration of their own health plan, or if there was another motivating factor driving the lawsuits. Notably, we are aware of public statements by prominent ERISA class action plaintiffs’ counsel who have suggested that they intend to “take the fight” to the welfare space in light of the new publicly available claims data. So, it is possible the companies filing these lawsuits are attempting a preemptive strike to try to shield themselves from a potential breach of fiduciary duty claim down the road.
Regardless of the motivation, there are a few overriding principles worth considering as plan sponsors/fiduciaries consider their next steps in this evolving landscape:
- Governance Matters. While plan sponsors have historically made strides toward implementing good governance practices on the retirement plan side (i.e., establishing a committee, performing periodic RFPs, monitoring service providers, auditing claims), those same principles and practices demonstrate fiduciary prudence on the health benefit side. While ERISA does not require that fiduciaries always find the lowest fee, catch every claim overpayment, or predict the future, it does require that fiduciaries act prudently and monitor the performance of their plans’ service providers. It can be more challenging to demonstrate that a fiduciary has met these standards in the absence of a thoughtful governance structure.
- Market Check. There are only a handful of large TPAs with a network sufficient to cover an employer with a nationwide presence. Nonetheless, plan fiduciaries should periodically consider whether their current TPA offers competitive pricing and adequate service levels. This can be accomplished through a full-blown RFP, or through a consultant-driven market check. And to be clear, ERISA does not dictate that plan fiduciaries select the TPA with the best pricing. There are a host of factors that fiduciaries can consider in their review (including, but not limited to, service quality, network adequacy, member experience, etc.).
- Revisit Contractual Protections. The healthcare landscape has undoubtedly changed in the last three years, as have the ways third-party administrators make money. For instance, the transparency regulations require that health plans (typically via their TPAs) disclose a host of data via machine-readable files. Health plans cannot enter into contracts with TPAs that contain gag clauses. The No Surprises Act caps balance billing for certain types of claims (and TPAs have made corresponding changes to their “shared savings programs” which generate TPA fees based on negotiation of non-network claims). Consultants and brokers are now required to disclose any fees they receive directly or otherwise via a disclosure provided to the plan at renewal. The list goes on. In light of these changes, plan sponsors/fiduciaries should consider whether their contracts allows the fiduciary to fully engage in its oversight responsibilities. Seyfarth is ready to assist in this regard.
Finally, it is important to understand that while there are some similarities between the healthcare and 401(k) landscape, there are also many differences. As the market currently exists, there remains a lack of transparency and/or available alternatives amongst the major TPAs. Moreover, contrary to participant usage of a 401(k) plan, each health plan participant uses the plan in a very different manner, so the class action risk that exists on the 401(k) side is less readily apparent on the health plan side. That’s not to say that litigation is never appropriate, but there are many interim steps a plan fiduciary could consider before going that route.
Nonetheless, good fiduciary governance remains a best practice, so plan fiduciaries should continue to monitor developments in this space (including litigation trends) and seek out opportunities to mitigate that risk where available.