Date: June 20, 2003
To: Jeff Turner, Esq. - DOL EBSA
From: Fred Hunt - SPBA President
Re: Veterans Administration accusation that ERISA plans & TPAs are "truant" in paying for charges, and are "hiding behind fiduciary duty".
As a follow-up to our phone conversation, I did some pretty intense research, and think I have identified the kinds of things that happen in 99% of the situations in which VA feels ERISA plans are "hiding behind fiduciary duty". Frankly, I was surprised that each one leads back to a problem within the VA itself or Congress. So, I am putting this in writing so that you all will have a record of these kinds of real-world situations, and I urge you to share it with VA, so that they can work towards making the needed corrections on their end. (For what its worth, we have tried to warn VA over the past decade that these kinds of problems would arise, but VA chose not to heed.)
First, as you and our members well know, but let me just state it for the background of the VA folks who will be using this, ERISA fiduciary duty requires that use of plan assets be done prudently. So, paying for something that the plan is not liable, or paying more than a prudent amount, or any other similar demand on plan assets is against fiduciary duty. You all at DOL as well as the courts have strenuously enforced fiduciary duty.
Let me say that both Medicare Secondary Payor (MSP) and VA Secondary Payor have been a Pandora's box of mix-ups, rule-conflicts & systemic problems within the government, carelessness, and attempted fraud (mainly by Medicare providers). Numerically, the greatest number of secondary-payor snafus arise because the medical provider (Medicare or VA) forgets or doesn't think to ask or include vitally important patient information such as complete employment & coverage status. I realize that they are busy providing medical care, but the clerical details end up dictating what happens afterwards. (More on this later about some specific VA weaknesses in this area which lead to the rejections.)
Most private plans have a general exclusion in the plan document of not paying for medical services furnished or funded by a government entity. This is intended to not be paying for free medical care such as in jail or city flu shots, etc. HOWEVER, with the passage of the secondary payor, and the Veterans Cost-shifting Law, plan documents made sure to emphasize or add wording to allow payment under the plan for any situation in which "law directs" payment for such government paid or provided services. So eligible costs Medicare & VA and other legally-directed governmental medical services (within the conditions of those laws) are allowed for payment under the plan.
My research came up unanimous noting two general areas that would account for about 99% of the rejected VA bills. One category is an internal government snafu, when VA should be billing Medicare instead, and the plan is not a primary payor in the first place. So, Congress needs to solve that problem. The second category is an assortment of VA billing & identification customs that abort payment by the ERISA plan (and presumably insurance companies too).
The biggest category deals with retirees who are age-eligible for Medicare, and just happen to have some form of retiree employer coverage as a secondary back-up for anything that Medicare does not cover. Medicare is legally responsible as primary payor in such cases. The secondary (employer) plan would rarely be triggered.
From what I read in the newspapers, VA's age demography and tightening rules about only having space for service-related conditions, I would imagine that the vast majority of situations is when the retired Vet on Medicare is the patient. I don't know the VA/Medicare rules about which of the two government agencies would pay for service-related injuries, but if there were non-service-related injuries, VA needs to bill Medicare. However, law does not allow one government agency to bill another, so VA's collection efforts are aborted by Congress at that point. (Blame Congress, not ERISA or TPAs.)
HOWEVER, we hear that sometimes VA (wrongly) decides to bill the employer plan instead. Since the employer plan's responsibility & liability does not start until Medicare (or any other primary payor) has paid its proper amount first (which would normally be the total amount of a VA bill)….it would not be "prudent" (the magic ERISA fiduciary trigger word) for the employer plan to just willy-nilly pay the bill, even if there were some wild hope that Medicare would reimburse the plan. (That would be like me asking IRS to pay my car repair bills now, because I might be getting a tax refund later from which they could try to deduct the money. The answer IRS would give to that idea is the same answer anyone with fiduciary duty for the plan would give.) So, from the private plan point of view, the conditions triggering any liability for the plan have not been met until the primary payor has done its duty. So, VA and Medicare need to get their act together.
The second broad category are billing & identification sloppiness by VA. This comes in many forms. Let me give some examples.
I am told that VA billing is inconsistent and (compared to private billing practices) sloppy in things like bundling and unbundling charges. In the private sector, bundling & unbundling is often an area of abuse….in which treatments are either "bundled" (to hide non-eligible services or charges) or "unbundled" making a separate charge for each minutia, with the effect of making the total cost much higher). So, plans & fiduciaries take great care in seeing precisely what a bill says. Some VA bills apparently arrive with just a person's name and number of days….no diagnosis or only something very vague.
The precision of the bill is especially important for VA patients. The law clearly exempts private plans from having to pay for service-related care. For the sake of example in the next few paragraphs, let's assume there is a patient who has service-related shrapnel wounds and happens to get an appendectomy while he is in the VA facility. VA should pay for the shrapnel, and the private plan should pay for the appendectomy.
If a bill comes just listing the number of days, and the plan calls the VA to ask what it is for, if the VA clerk would probably say "shrapnel wounds". The plan will, thus, believe that it is not a responsibility of the private plan. This could happen in a phone call or mail follow-up, or, since many computer systems react to the first diagnosis code, the computer may well be the source of not mentioning the appendectomy. With the advent of HIPAA EDI law's electronic bill-processing effective as of October 16 this year, more and more will be "decided" or directed by computers. So, VA's billing is going to need to be more and more alert to how computers identify services. Also, we find that many medical units have taken the new HIPAA privacy law to extremes of non-communication. The ERISA plan needs precise information to proceed.
If a bill comes in for the combined total amount (including both the shrapnel wounds and the appendectomy) in one lump sum, obviously, the private plan needs the VA to identify or segregate which costs are service-related and which are not. It would be contrary to fiduciary duty to just willy nilly pay for a portion of a bill for which the plan is not liable (the service connected). So, again, VA needs to be sure that it has very sophisticated division throughout its accounting process of what is service related and what is not.
There are other kinds of situations which might cause confusion or differences of opinion:
For example, since service-related is clearly a responsibility of the VA…..the plan fiduciaries must be prudent in evaluating whether they are being billed for something that is a complication or follow-up to the service-related injury (which would not be eligible for payment by the plan)…..or is it a separate situation, such as the appendectomy example (which the plan would pay). I understand that there is no shortage of medical opinion about what kinds of things relate back to military service and what kinds of things don't, so common sense and the facts & circumstances of each individual situation need to guide a prudent decision by the plan fiduciaries. (The responsibility for a prudent decision rests with the fiduciaries, not with VA.)
Another example would be if the non-service-related charge being billed by VA is for something that is not a covered benefit under the plan. For example, because of federal tax law, plans do not cover "vanity" cosmetic surgery. So, if a VET gets a beauty face lift or tummy-tuck, the plan would say no to that bill. (On the other hand, if a person were in a terrible accident and reconstruction was needed, that is not "vanity" cosmetic surgery.) I suspect that among Vets, situations arise in which honest opinions could differ about when something was "medically necessary" versus, kind or other good intentions that would not meet the IRS (and thus plan) judgement…and the issue of service-related would probably often arise in these cases as well.
Please note that the "vanity" cosmetic surgery is just one example of a kind of situation a plan might not cover. Plans have wide latitude in the design of the coverage (just as Medicare, Medicaid and insurers do.) So, for example, some plans do not cover injuries incurred while performing an illegal act or in certain dangerous activities. So, if a Vet coming to the VA for a service-related treatment robs a bank on the way and is shot in the process, or if he is injured while bungee jumping, and is treated for those non-servcie-related injuries, the ERISA plan (if it had an applicable exception to such coverage) would quite correctly refuse to pay for the non-covered situation (even though VA might assume it would be paid because it is non-service-related.) That's why most civilian hospitals call the plan to determine in advance what is and is not covered.)
So, Jeff, what all this comes down to is the test to which you all in DOL so often refer: "It depends on the facts & circumstances of each situation." I can see hundreds of scenarios in which an ERISA plan would say "no" to a bill from VA…..and have the ERISA fiduciary duty not to allow plan assets to go to something either not allowed under the plan or not a responsibility of the plan. All VA would remember is that they were told "no". However, as noted in this memo, almost all of the problems track back to VA itself.
I do have a compliment for the VA. Other than the billing mistakes described above, which are institutional in nature, I have heard no complaoints of fraud, abuse, or gouging. The civilian medical scene generates constant complaints in these areas. So, SPBA sees the VA as an honorable partner in this endeavor.
The reason for taking this much care with this response is that we know that their work and ours would be much smoother if they can correct the problems noted here. I empathize with VA. I remember talking with the head of VA when all this secondary payor started. He expressed fear that it would cost VA more to create the kind of pricing & billing system needed than VA would save by making the outside billings. He may be right.
Let me end on a personal note. I happen to be a decorated veteran, and I had an injury in the service. My medical paperwork got lost, re-lost, separated and who knows what else when it was transferred to the VA for evaluation. Without the paperwork and details, my claim was denied, and I ended up paying thousands and thousands of uninsured dollars out of pocket for my service-related injury. My reason for telling that is that if the VA wants me to respect and accept its need for precise paperwork when it is the payor, then the VA needs to show the same respect for the process & paperwork needs of ERISA plans.
P.S. - Though we have given our members long discussion of this law and responsibilities to VA, and have had VA speakers at our SPBA conventions to explain and solve any questions, and though I've had no indication of failures on the part of our people, I will send a heads-up fax to our members and give them a longer reminder in our next newsletter.