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What happens when TPA & Stop-Loss disagree on a claim amount?

By SPBA President Fred Hunt – October 2008

Hypothetical scenario for this discussion:  TPA pays broken arm claim for $500.  Stop-Loss says $500 was too much, and they will only credit $350 towards Stop-Loss reimbursement.  What are the ERISA ramifications??

I tease that DOL's standard response to any general question is, "It depends on facts & circumstances."  However, let me give the same caveat, and say that I am not a lawyer; SPBA does not give legal advice; and, frankly, the way benefits issues progress through the legal system often generates head-scratching outcomes. With that said, let me mention a couple of factors you should consider.

First, if it ends up in litigation, what a court decides, and which courts (state or federal) have rightful jurisdiction in many benefits & ERISA-related scenarios leaves me scratching my head, and knowledgeable benefits lawyers often grumble that the court didn't understand the relevant aspects of the jurisdiction issue they were deciding.  So, don't assume there is an absolutely clear judicial path.

The most vital factor in figuring an answer is if the Stop-Loss policy is owned (paid by & named beneficiary) by the plan assets....or by the employer/plan sponsor.  If it is owned by the plan sponsor, it has only thin connection to ERISA.  Its status is like the employer's liability or fire insurance.  If the Stop-Loss is owned by the employer/sponsor, then payment of plan responsibilities is coming from the employer/sponsor no matter what, and the Stop-Loss is merely an external back-up for the employer/sponsor's general finances...even if the employer normally immediately directs Stop-Loss reimbursements to pay plan costs.  So, DOL & ERISA have little interest in employer-owned Stop-Loss).

If the Stop-Loss premium is paid from what DOL would consider plan assets  (see SPBA warning about why 99% of plans need separate trust accounts, not just a segregated checking account owned by the employer or TPA), then DOL & ERISA are VERY interested in how the Stop-Loss operates, because plan assets paid for it, and plan assets will be directly impacted by the level of reimbursement.

Generally, situations when the Stop-Loss disagrees with the TPA and says that less should have been paid can seem like a Catch 22.  ERISA, and presumably the admin agreement, direct the TPA to administer the plan as-per the plan language.  DOL does not want or expect the TPA to make (and DOL, itself, refuses to make) "medical" decisions.  The problem is that COMPETITIVE pressures expect TPAs to ride herd on providers and (in effect) decide if the procedures & prices are prudent.  That seems to be expecting the TPA to make "medical" decisions, and DOL has traditionally taken an inclusive view of what it considers "medical" decisions.  Of course, if the claim is not legitimate for non-medical reasons such as ineligible person or something like vanity cosmetic surgery that is not covered, that is a plan-interpretation decision, not a "medical" decision.

DOL views who has ERISA fiduciary duty and how much by how much discretionary authority the TPA or other entity has under the admin agreement.  So, most TPAs have some fiduciary duty because they exercise the discretionary authority routinely for such things as deciding if a person & claim is eligible (according to the plan language) and other plan functions.  On the other hand, the TPA does not have discretionary authority to make medical decisions or unilaterally change the plan, etc.   The plan sponsor or trustee is always the ultimate authority administrator/fiduciary.   Interestingly, I understand that some Stop-Loss who were taking some aggressive decision-making positions about how much a plan would be reimbursed (thus impacting plan asset amounts) were advised by their legal counsel that DOL could consider them fiduciaries, so they quietly backed off.

Of course, it is always tempting to second-guess medical procedures & prices.  As noted, the TPA (or anyone not a qualified medical entity) has is viewed as having questionable credibility to make "medical" decisions, and their "medical" decision would only be applicable as it then leads to the decision of how it impacts what the plan language dictates.  Anyone arguing "medical" decisions needs to have convincing medical credentialing & credibility to overcome the assumption that the on-site provider made a wrong decision based on what was known at the time.

ERISA fiduciary gives two main duties: (1) To protect and spend the plan assets in a prudent manner, PLUS,  (2). To be sure that the beneficiary got everything promised to him in the plan language.  So...the real crux of many of these kinds of second-guessing arguing price....may actually center on the fiduciary responsibility of not impeding the right of the beneficiary to get what he was led to believe would be paid under the plan language.  So while cheaper would seem like it helps the protect-assets might fail in the serve-beneficiary category.  So, cheaper is not automatically better under ERISA

An interesting arena of this general issue is unfolding right now.  For decades, everyone has been paying for provider goofs (such as an operation on the wrong body part or a sponge left in the patient or hospital-acquired infections).  Does that make all plans guilty of breach of fiduciary duty?  No.  On October 1, 2008 Medicare (and many insurers, and we hope TPAs) will start not paying (and not being billed) for "Never Happen Events" (things that should never have happened).  So, for the first time, the Never Events will be (hopefully) specifically spotted and those costs not payable.  If Stop-Loss/TPA disagreements fall into this category of claim,  "Never Events" protocols kick in, not ERISA.

So, if patient John Doe received care that his doctors decided was correct for his situation, and the charge was $500 which seems reasonable to a "prudent man", then ERISA is satisfied. 
So, going back to the original hypothetical question, if a Stop-Loss carrier says that it should only have been $350, or that a $100 different procedure would have been sufficient, it would seem to be a contract or policy language question, not ERISA.  So, the key point would be precisely what does the language of the Stop-Loss policy say it will pay and with what conditions?  That becomes an issue between the Stop-Loss carrier and the owner of the policy.  Whether the owner is the plan or the employer company triggers whether DOL & ERISA fiduciary has a role. 

Note if the S-L is plan-owned in such a situation: If there is some kind of language or provision in the Stop-Loss policy which allows the Stop-Loss carrier to only credit or reimburse what IT believes is appropriate, then any difference of opinion is a policy dispute.  If that provision or language badly impacts the plan assets or a plan participant, DOL would look to the TPA and/or plan sponsor and (in effect) say, "Why did you select that policy???"  That raises the question of whether the TPA or sponsor failed in their fiduciary duty.....not the Stop-Loss...because signing the policy agreed to the provision.  (Moral of the story:  Read Stop-Loss, PPO, and all documents VERY carefully.)

So, summarizing, most disagreements about whether the doctor made the right medical decision about care and how much was paid (assuming no glaring irregularities) are contract interpretation issues....just like when your car goes to the repair shop, and you and the insurance company argue over replacement parts and was the price more than another body shop.

Again, this is not legal opinion.  My intent is simply to clarify what are open avenues and what are dead ends.  Too many people look to ERISA, which is often a dead end on such disputes.  Also note that this same thought pattern applies to PPO and all other kinds of contracts & services which TPAs or sponsors may arrange for a plan or participants.  Read carefully before signing.

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