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ERISA & Fiduciary explanation for the Medical Community

I've been approached by several doctor, hospital, and medical groups asking for advice to you seeking ways to get the amounts you bill to health plans paid in full as quickly and with as little second-guessing as possible.

We understand your frustration over the Medicare squeeze, and your desire to open dialogue and understanding with payors such as SPBA is commendable. However, the discussions have shown that there are serious gaps in your awareness of the laws and restraints involved for employee benefit plans (and those who manage and interact with them).

First, let me explain who and what SPBA is. SPBA is the national association of independent Third Party Administration firms (TPAs) who administer client employee benefit plans (much as your independent CPA firm might keep your books or your outside law firm serves as your general counsel).  IMPORTANT:  TPAs are not, themselves, the payor, so unlike an insurance company (who gets to keep any unspent money), TPAs have no vested interest in paying you less. However, the laws and responsibilities I will be discussing very directly and firmly apply to TPAs. TPA firms administer the benefits of over half of all U.S. workers in non-federal plans. SPBA is unique. Our member TPAs have clients plans using all types of funding and representing every size and format of employment. That is why the government officials frequently turn to SPBA to brainstorm and reality-checks about how laws & regulations impact workers and employers.

As I talk to doctors, hospitals, and other medical groups there seems to be the assumption that all non-government health payments come from "insurance companies". Thus, many of you seem to feel that it is simply a battle of wits between yourselves and what you perceive as stingy mean-spirited insurance company or Blue Cross Blue Shield clerks. Not so!! In fact, today, the vast majority of employee benefit plans are ERISA plans...and the majority of those are not run by insurance companies. Most ERISA plans are run by TPAs. (ERISA = Employee Retirement Income Security Act of 1974). Since most TPAs deal with ERISA plans and/or are subject to ERISA fiduciary requirements, I will focus on that.

ERISA is best understood as a consumer law. It sets forth extremely tough fiduciary standards to protect plan assets and "prudent" (a key ERISA term) payments to legitimate beneficiaries. Fiduciary standards are so tough, in fact, that they often are tougher than common business laws and routine customs of insurance companies. Under ERISA, the overwhelming goal of everyone involved is to maximize the size and security of plan assets and assure secure (but the lowest possible expenditure of plan assets) payments to legitimate plan participants (covered individuals). (Important clarification: The TPA is not the official "fiduciary".  Uncle Sam demands that anyone who has any discretionary authority over plan assets must adhere to the same selfless standards as the official fiduciary.) Fiduciary penalties are not just monetary. They can also include jail.

Keeping in mind ERISA's absolute demand that everyone involved be able to prove that ERISA plans get the best possible ("prudent") deal, and increasingly tough scrutiny and penalties, let's look at an example a medical provider might face.

Example: A few of the doctors and medical groups to whom I've spoken mentioned their intent to "manage" diagnosis and other codes with the stated intent "to maximize reimbursement". If "manage" means at all stretching the truth in order to increase the cost above the absolute minimum, you are a "knowing participant" guilty of a breach of fiduciary duty. The Department of Labor has already won three or four such cases against doctors and medical groups.

We understand the frustration you feel. I hear doctors and medical providers proudly stating as fact that "No one can tell me how to practice medicine!"  We in the employee benefits community used to believe that about ourselves too. However, we soon learned that "big brother" has no qualms about telling us who to cover, for what services, and apply 20/20 hindsight judgement whether the fee paid to a TPA was "prudent".  So, TPAs are not subjecting you to anything more than the ERISA standards TPAs must meet.  There are hundreds new laws, regulations, interpretations, and major court cases every year dictating what employee benefits must offer, how, and at what price. Thus, while I have zeroed in on ERISA in this letter, there are many other laws and regulations which also slow or limit payments made to you.

This letter is not adversarial. You in the medical sector and we in the employee benefits/insurance community are the mechanism of the private employee benefits system (and thus most of the private health coverage). In that respect, we are partners against socialized medicine. Thus, this candid letter is offered in friendship and cooperation from the TPAs with whom you deal (even though we realize that the messenger who reports bad news is never popular). However, it is also to alert you that this is no battle of you as the "good" versus the "evil" of stingy green-eye-shade TPAs gremlins who arbitrarily haggle over every penny. The haggling...and success at haggling the lowest possible cost from you...is a serious Federal requirement of everyone involved!