Duty to Audit Claims
Please see the following interesting the memoranda of law written by Richard T. Hirsch, Esq., VP of Business Development and House Counsel Ican Benefit Group, LLC, as is was constructed for the Ican’s TrueFACS division.
To: TrueFacs, LLC
From: R. T. Hirsch, House Counsel
Date: January 5, 2011
RE: Executive Summary of “Group Health Plans-ERISA duty to Audit Claims”
Memorandum of Law from McKenna Long &Aldridge LLP.
The Employee Retirement Income Security Act of 1974, as amended (“ERISA”) provides that a person or entity exercising any discretionary authority, control or responsibility with respect to the administration or management of an employee benefit plan or the disposition of the assets of the plan is a “fiduciary” with specific fiduciary duties under ERISA (a “Fiduciary”). These duties are among the highest in law, adherence is strictly required and the consequences of noncompliance are harsh and may include personal liability as well as civil penalties imposed by the U.S. Department of Labor (the “DOL”) and even criminal sanctions. A company with a self-insured group health plan (a “Plan Sponsor”) is considered a Fiduciary. In light of what is at stake if a Fiduciary breaches its ERISA duties (as discussed below), Plan Sponsors should always make some level of independent medical bill auditing an integral part of their self-insured group health plan’s policies and procedures.
The duty to act in conformity with plan document s requires a Plan Sponsor to ensure that the administration of claims is consistent with the plan documents and instruments. The duty of loyalty or “exclusive benefit rule” requires that a Plan Sponsor ensure that expenses paid with plan assets (including employee contributions) are reasonable and not excessive, and that a Plan Sponsor know the costs of the services that it procures and apply due diligence to minimize costs relative to the value of services obtained. The duty of prudence requires a Plan Sponsor to be careful and thorough in selecting and retaining service providers, and to proactively monitor and evaluate the performance of tasks that are delegated to such providers and confirm that such performance complies with the governing plan documents and applicable law.
A Plan Sponsor may hire and delegate responsibilities to an insurance company (e.g., Aetna, Cigna, BC/BS, etc) as an administrative service organization (an “ASO”). However, even if this results in the ASO being a Fiduciary, the Plan Sponsor continues to have independent fiduciary duties and is responsible for monitoring the actions and performance of the ASO. And, if both the Plan Sponsor and ASO are responsible for a breach of duties, the Plan Sponsor can be held fully liable without any right of contribution or indemnity against the ASO under ERISA.
In a frequently cited case, trustees of an ERISA plan (the “Trustees”) delegated fund management duties to another fiduciary who later misappropriated plan funds (the “Delegate”), and the Trustees were held on summary judgment to have breached their own individual fiduciary duties of prudence because they: (i) had little involvement with managing the fund; (ii) did not exercise enough oversight of the Delegate; (iii) never independently investigated the handling of the fund; (iv) failed to adopt any procedure for reviewing the checks written from the fund; and (v) relied exclusively on meeting with and reviewing an accountant’s audits and legal counsels advice regarding the Delegate’s management of funds. Furthermore, the court held that the insurance company that had issued D&O coverage was not liable in the policy because it never would have issued the policy in the first place if the Trustees had satisfied their fiduciary duties and accurately disclosed how the fund was being managed. Obviously, the holding in this case has major implication for any Plan Sponsor that hires an ASO to process and pay group health plan claims and does not monitor and investigate how that ASO pays claims.
The above mentioned case shows clearly how the right type of medical bill auditing can help a Plan Sponsor to satisfy and document the satisfaction of its ERISA duties. However, most Plan Sponsors incorrectly believe that their ASO is properly policing the medical bills the ASO is paying for the plan because that ASO says that they “audit” claims. Regretfully, what virtually all ASO’s actually do is not true auditing of medical bills, but rather simple process reviewing that does not offer a Plan Sponsor any meaningful protection with regard to its fiduciary duties under ERISA. This internal process by an ASO (a “Process Review) generally involves the review of a very limited number of paid claims simply to determine if: (1) the claim was paid on an eligible member; (2) the claim was paid for an eligible service; (3) claim came from a credible/recognized/properly licensed and credentialed provider; (4) bill was submitted in a proper and recognizable format (e.g., UB-04 or HCFA); (5) the proper discount level under the plan agreement has been applied in paying all of the charges billed. Even if an ASO is paying claims only for eligible members and services and at the right discount rate, any prudent Plan Sponsor needs to confirm that an ASO is only paying on valid bills. But, Process Review does not address whether or not the billing is correct in the first place!
Why? Simply because networks are the most valuable component of the ASO’s product/service offering and protecting network/provider relationships (i.e., not challenging their billing) is more important to an ASO’s profitability that protecting client employer plan assets (i.e., controlling plan costs and expenses).This significant conflict of interest is almost never acknowledged, but it is very real and an unavoidable problem, and it makes true bill auditing by independent professionals (rather than internal Process Review by ASO) absolutely essential!
True medical bill auditing provides comprehensive accuracy, compliance, pricing and payment analysis (“ACP reporting”), and the reasonability of Plan Sponsor reliance on independent ACP Reporting is not called into question due to any conflicts of interest. Only this type of audit will show whether payment is being made only on clean medical bills that are free from improper/impermissible charges for services or supplies that were: (i) not actually provided; (ii) not clinically appropriate or warranted, (iii) a “never event” that was only required because of the improper action or failure to act on the part a provider or facility, (iv) billed in excess of reasonable and customary pricing: (v) double billed; (vi) mislabeled due to keystroke or ministerial error; (vii) non-routine/ non-billable; or (viii) otherwise not compliantly billes and/or coded.
ACP Reporting can clearly demonstrate and document that a Plan Sponsor has properly satisfied its own fiduciary duties, and its obligation to monitor and conform that an ASO delegate is meeting its fiduciary responsibilities, by enabling the Plan Sponsor to: (i) identify abd remedy overpayments and billing inconsistencies so that plan assets are only used to pay necessary and reasonable expenses, (ii) review and evaluate ASO performance to show that it is prudently retaining the ASO and ensuring that the fees paid for ASO services are appropriate, (iii) demonstrate prudent supervision and instruction of its ASO agent and the establishment of controls and safeguards against future inconsistencies, and (iv) show its efforts to act in conformity with the plan documents and to confirm that its ASO is performing its delegated duties in a manner that is consistent with its service agreement and the plan documents and instruments.
[NOTE – Per outside counsel, laws other than ERISA under which Plan Sponsor could have an obligation to audit, or would increase its likelihood of compliance by auditing the medical bills paid by its group health plan, include: Sarbanes-Oxley Act of 2002; Workers’ Compensation Law; Government Contracts Law (e.g., Cost Accounting Standards/Federal Acquisition Regulation rules/ False Claims Act); Medicare and Medicaid Funding Rules; Breach of Contract under Stop loss/ Directors’ & Officers’/Fiduciary insurance Coverage; early Retiree Reinsurance Program established in the Patient protection and Affordable Care Act, as amended by the Health care and Education Reconciliation Act of 2010; and general laws of “corporate waste” and other state laws, including those imposed on state local health programs.]
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