Blue Cross Blue Shield Sued for Mismanagement of Plan Assets
Human resources, company executives and consultants have a lot of fear factor thrown at them these days. Not all of the doomsday is applicable, however, any good steward of a health plan needs to keep themselves informed. Sticking your head in the sand or claiming ignorance will never work out well for your professional career, your company or the members you are responsible for, especially as new lawsuits bring to light existing risks.
The class action lawsuit filed against Johnson & Johnson was the first of its kind and it changed consultants’ conversations with employers overnight. While the Johnson & Johnson case ultimately fizzled on the basis of legal standing, the Tiara Yachts v. Blue Cross Blue Shield of Michigan case recently took the spotlight and it’s a good one. If you have a network, you’ll want to read up and learn from it. There are matters of legal procedure that most will find boring, but the heart of the lawsuit is one every plan sponsor needs to be aware of.
Case History
The case history is not as sexy as the headline but, to appreciate where we are and what is to come, I think it’s important to understand.
Tiara Yachts first sued BCBSM alleging a breach of fiduciary duties under ERISA for the overpayment of claims based on flip logic and implementing the Shared Savings Program (SSP). In short, BCBSM’s flip logic is the intentional design used when processing claims for out-of-state providers, reimbursing the provider however much it charged rather than at the Host Blue’s lower rate (what was a promised benefit to Tiara Yachts). The SSP was then used to recoup overpayments, resulting in payment to BCBSM for the recovered amounts.
Tiara Yachts Wins Appeal, BCBSM Is Fiduciary
It is important to understand that, at the outset of a case such as this one, the court is determining whether the plaintiff (Tiara Yachts) has proper standing and a case that can proceed to the merits on its pleadings (the case as stated in the filings prior to discovery). It is not actually deciding the merits.
Because Tiara Yachts brought two claims under ERISA against BCBSM, the district court’s initial determination hinged on whether BCBSM was in fact a fiduciary in its services on behalf of the plan. If not, then the case fails procedurally without moving forward to determine the merits of the allegations. The district court held that BCBSM was not a fiduciary; Tiara Yachts appealed.
Tiara Yachts was successful in its appeal, reversing the district court’s decision and determining that BCBSM was in fact functionally operating as a fiduciary. This allows the case to proceed forward on the merits, allowing the parties to move into the discovery phase of the litigation.
Key Takeaways
While we wait to see what further facts are revealed, the underlying allegations provide significant insight for employer plans and what they should be looking for (or looking to avoid). Here, Tiara Yachts took the offensive approach as a fiduciary, making its selected vendor answer for the alleged mismanagement of plan assets. This entire situation serves as an educational opportunity for self-funded plan sponsors. Below are three lessons Tiara Yachts vs. BCBSM can teach us about managing plan assets properly.
Lesson 1 – Understand any limitations on information you can obtain from the administrator.
Plan sponsors typically do not have access to the contractual provisions of the network it leases. Yes, they have access to claims level details and payments, but this is distinct from the terms of the contract.
Here are the questions you should ask:
- What thresholds exist to review coding and billing prior to pricing (outside the auto-adjudication process)?
- What level of claim details are required to determine pricing?
- Under what circumstances does the administrator require an itemized bill for inpatient claims? For medical records?
- What methods does the administrator use to review coding and billing?
- What review processes mentioned above are prepayment versus post-payment?
Lesson 2 – Ask what triggers a shared savings-type model to ensure incentives align for both plan fiduciary and administrator.
Scrutinize the overpayment recoupment services and compensation structure. It has been standard that administrators charge a fee for the work associated with the recoupment on overpayments. As we see in the Tiara Yachts case, it was BCBSM’s own processes that resulted in the overpayment.
Lesson 3 – Utilizing a variety of methodologies for claims payments related to the billed charge (or a correlated factor) may create inconsistencies and waste; the plan should maintain rights to review and dispute as a fiduciary.
Ongoing oversight is critical for the plan fiduciary. Even if an administrator is deemed a fiduciary, the plan remains responsible for oversight and ensuring that administrator performs. While the Consolidated Appropriations Act allows us access to information we previously struggled to obtain, it has not been successful in truly delivering transparency to claims pricing. In part, this is true because seeing what was paid is not synonymous with understanding how it was paid. The complexities that are typical of a health system contract within a network create layers that often make auditing or analyzing this data difficult. To avoid this obstacle, look for solutions that simplify claims pricing to a consistent and transparent approach to remove these challenges entirely.
At the end of the day, being a fiduciary of a health plan means acting in the best interests of members. Tiara Yachts vs. BCBSM underscores how crucial oversight and transparency are in fulfilling that role. This case will certainly not be the last we see, but watching how each case unfolds will help employers better manage their plan.