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Medical letter

February 1991

Dear Medical Provider,

There is often unnecessary misunderstanding and ill-will between medical providers and payors of employee benefit plans over what is the appropriate amount that may be charged. This letter is to point out that your argument is not with the Third Party Administration (TPA) firm, plan trustees, employer or even insurer. Everyone (including you) are forced by Federal law to assure that the employee benefit plan pays the lowest possible cost. Thus, your fight is with Congress and the Federal government...not the rest of us. The Department of Labor news release on the back of this sheet shows what happens if a plan pays you more than the Federal government feels was necessary. The Department of Labor has also brought several successful cases directly against medical providers they felt were charging plans more than the minimum. This example was a simple consent order...but penalties often include huge fines and jail terms.

It is called fiduciary duty under ERISA. Fiduciary duty requires that the sole goal is to maximize the security and size (and thus minimize the expenditure from) the plan assets...and also maximize the security of legitimate payments to legitimate plan participants. There are two kinds of fiduciaries who must obey the law. The actual plan trustees, of course, are the "official" fiduciaries. However, Congress greatly expanded the range of those who take on fiduciary responsibility in the Omnibus Budget Reconciliarion Act of December 1989 (OBRA). It is called the "knowing participant" rule. Essentially, it says that anyone who knew or should have known (including the medical provider) that the plan and/or patient wasn't getting the best possible deal is guilty of a breech of fiduciary duty. Thus, if you sometimes charge $100 for a procedure or service (such as under Medicare), but you charge $300 to an employee benefit plan participant...you, the TPA, the employer, and plan trustees could all be guilty of a breech of fiduciary duty because you all know or should have known that $300 was not the lowest possible rate for that procedure. Thus, unless the plan and those acting on its behalf refuse to pay you more than the minimum...they would be guilty (like the example in the news release, which happens to cover only the case againt the plan trustees).

I realize that this probably comes as quite a shock, and you feel in a squeeze between Medicare cuts and now ERISA. However, the basis of the law goes back to 1974, and there is tremendous new interest and pressure on the Department of Labor from the press, Congress, and the other agencies of Government to enforce fiduciary responsibility. To that end, the Department has just added 100 new enforcement investigators. Congress also passed a mandatory penalty to be imposed by the Department of Labor and an additional 20% penalty (which usually means that you would have to pay the government 120% of whatever they think is inappropriate expense paid by the plan).

This letter is to help explain that you and the TPA and the plan are not combattants against each other, and there's no use spending time and money getting angry at each other when you're all subject to the same requirements with the same goal (lowest posible expenditure of plan assets). If there is a disagreement between you and the plan over the appropriate amount of payment, the safest way to avoid a breech of fiduciary duty is to request an opinion letter from the Department of Labor to verify that everyone involved won't later be found guilty. You should write a letter requesting an opinion letter on the specific facts of the situation, which you should then provide in detail. Address your letters to: Robert J. Doyle, Associate Director and Chief of Regulations & Interpretaions, Pension & Welfare Benefits Administration (PWBA), U.S. Department of Labor, Room N5646 Frances Perkins Building, 200 Constitution Avenue, NW, Washington D.C. 20210.