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Understanding your Fiduciary Responsibilities

Prohibitive Transactions

The Employee Retirement Income Security Act (ERISA) includes certain prohibited transaction rules to prevent dealings with parties who may be in a position to exercise improper influence over plan assets and to prevent plan fiduciaries from taking actions with respect to a plan that involve self-dealing and/or conflicts of interest. A party in interest is defined by ERISA to include any plan fiduciary (administrator, officer, trustee or custodian).


Take for example the Landmark case Hi–Lex Controls vs. BCBSM on the issue of whether BCBSM functioned as an ERISA fiduciary and whether BCBSM's actions amounted to self-dealing. In 1993, BCBSM implemented a new system whereby it would retain additional revenue by adding certain mark-ups to claims paid by its Administrative Services Only (ASO)Clients clients. These fees were charged in addition to the “administrative fee” that BCBSM collected from Hi–Lex under a separate portion of the ASO. A bench trial followed in which the district court found that Hi–Lex's claims were not time-barred and that BCBSM had violated ERISA's general fiduciary obligations under 29 U.S.C. § 1104(a). The district court also awarded pre—and post-judgment interest. Blue Cross was a fiduciary because it exercised authority or control over plan assets when it unilaterally paid itself undisclosed fees from the assets of the Hi-Lex health plan. A $6 Million dollar fraud settlement was awarded to Hi-Lex Controls.


Transactions between plan and fiduciary

No fiduciary who has authority or discretion to control or manage the assets of a plan shall permit the plan to hold any employer security or employer real property if he knows or should know that holding such security or real property violates section 1107(a) of this title

A fiduciary with respect to a plan shall not:

(1)deal with the assets of the plan in his own interest or for his own account,

(2)in his individual or in any other capacity act in any transaction involving the plan on behalf of a party (or represent a party) whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries, or

(3)receive any consideration for his own personal account from any party dealing with such plan in connection with a transaction involving the assets of the plan.


Taking charge of the plan

Many employers, including those being sued, believe they are already doing what they are supposed to do. However, engaging an experienced third-party administrator or relying on another provider for direction does not alleviate the employer’s responsibility. As the fiduciary of the plan, the employer is responsible for everything—including the actions of other providers of the plan, whether they are fiduciaries or not.


Putting the Pieces to Compliance together

Although there are no “silver bullets” to protect employers, plans, and fiduciaries from litigation, employee benefits professionals can improve the chances that their company’s benefits programs will avoid litigation and defeat any legal challenges that may arise. The path to reducing legal exposure begins with a sound understanding of the ERISA defined roles of plan-related personnel. 

Due to recent ERISA lawsuits, employers are scrambling around and asking questions on whether they should be concerned. A federal appellate court will soon weigh in on whether UnitedHealth’s method of reimbursing medical providers violates ERISA, which is the federal law that, among other things, governs employer-sponsored health plans. Specifically at issue in Peterson v. UnitedHealth is United’s practice of cross-plan offsetting.


Cross-plan offsetting is the recouping of alleged overpayments to a provider for services rendered to patients in an employer-sponsored health plan by withholding payments due to the same provider for services rendered to patients in a different employer-sponsored health plan.the majority of plans from which United recouped overpayments were self-funded plans, while all of the plans that made overpayments were fully insured. According to the lower court, every one of these offsets put money in United’s pocket, and most of that money came from the pockets of sponsors of self-funded plans, resulting in participants in the recouped fromself-funded plans being denied benefits (benefits to which United admitted these participants were entitled).

In March 2017, Judge Alfred V. Covello ruled in favor of surgical center defendants and against Cigna, barring Cigna from recouping self-insured plan assets based on alleged 'overpayments' which were predicated on Cigna's 'legally incorrect' interpretation of ERISA plans 'exclusionary language.'


Reviewing your administration agreement is the first step and may help reduce exposure. Our sole interest is to protect fiduciaries plan assets and mitigate risk. Here are a few suggestions on what sections you should review.

  1. Who is assigned authority to perform claims administrative services and pay claims for benefits under the Plan as well as the authority to act as the appropriate fiduciary under Section 503 of ERISA to determine appeals of any adverse benefit determinations under the Plan. Administrator or Employer?

  2. Define duties under "Claims administrative services"? (List the services that connects to the monthly fee you pay your administrator). Tip: Does it include Recovery? Does it expressly state "solely responsible for negotiating rates with Providers or auditing Providers?

  3. Under "Obligations of Employer", does it state the following:

  • Employer has the discretionary authority and control over the management of the Plan and all discretionary authority and responsibility for the administration of the Plan? Yes or No?

  • Administrator does not serve as "plan sponsor", "plan administrator" or as the Plan's "named fiduciary". Yes or No ?

  • Employer retains all final authority and responsibility for the Plan and its operation. Yes or No?

4. Under "Claim Payment" section, regarding <claim adjustments>, does your agreement allow the administrator to charge you for credit adjustments (Refunds)? If so what is that fee? Does the fee apply to all improper payments collected? (i.e. duplicate payment or administrator processing error)

5. Under "Recovery" section, does your agreement state that Administrator shall pursue recoveries related to Paid Claims processed under this Agreement, Including claims processed during Claims Runout Period. Yes or No ?

6. Under "Recovery" section, does it state that administrator or its selected vendors may perform periodic audits of Provider and Vendor contracts and other Claims audits to determine if Claims were accurately paid. Yes or No? Tip: does it state that they have the right to "reduce future reimbursement to Provider or Vendor in lieu of a lump sum settlement". Yes or No? Does it allow administrator to calculate proportionate share of net recovery based on total payments made across entire book of business? Yes or No? Tip: key word <proportionate>

7. Under "Recovery" section, does it state Administrator shall credit Employer net recovery amounts after deduction of fees and costs not later than 5 months (150 days) following the receipt of such recovery amounts. Yes or No? After 150 days, interest calculated based on federal reserve rate goes into effect at time of the payment? Yes or No? Is there a maximum timeline. Yes or No?

8. Under "Recovery" section, does it state Administrator is not required to readjudicate Claims or adjust Members' cost share payments related to the recoveries made from a Provider or a Vendor. Yes or No?

9. Under "Recovery" section, does it state the Administrator in no event will be liable to credit Employer for any recovery after termination date of this Agreement and any Claims under the Runout Period shall be retained by the Administrator. Yes or No Tip: All plan assets recovered under internal or external recovery becomes property of the administrator

10. Under "SERVICES INCLUDED IN THE ADMINISTRATION FEE" Section does it include the following

  • Claims processing services

  • Coordination of Benefits

  • Complaints and Appeals processing

  • Medicare crossover processing

  • Recovery Services


CAN YOU ANSWER

11. How much fee compensation did your administrator receive specific to recovery of the improper payments administered under your administration agreement terms? $_____________. How much fee compensation did the vendor receive $____________, what is the name of that vendor ____________________. Did you receive a report that provides tracking of all plan assets recovered and associated fees paid? Yes or No?

12. Of the total amount collected/recovered, how much did the plan participant overpay $_____________and what has been returned of this amount to the plan Participant $_________________.

If you are unable to answer, questions 11 and 12 and you want to know the answer, simply ask your administrator today, that goes for any aforementioned question in this article. If you don't know ask, its a good start. ClaimInformatics offers insights into which plans are most likely to be at risk, as well as provide suggestions on known fiduciary risk defined within archaic administrative services agreement.

ERISA litigation is around the corner, self dealings, prohibitive transactions, conflict of interest. So whether you are a plan sponsor; the plan administrator; any named fiduciaries, CEO and members of the board of directors, we recommend you start off by reviewing your ASO agreement today and perform a review of your claims data. 


ClaimInformatics offers insights into which plans are most likely to be at risk, as well as provide suggestions on known fiduciary risk defined within archaic administrative services agreement. That’s a starting point!


About the author

Dawn Cornelis is co-founder of ClaimInformatics, providing a new technology solution to fix improper payments of healthcare claims. As a pioneer in audit and recovery for the past 25 years, Dawn has been on a mission to bring payment integrity, transparency and value to the industry, employers and consumers.