Self-Funded Employer Suits Against Third Party Administrator May Be the Beginning of a Larger Trend
New laws and rules requiring greater transparency into the behaviors and reimbursements of insurers have given employees and employers a clearer picture of where their healthcare dollars are going. For example, the "Transparency in Coverage" rule, implemented in October 2020, required health plans and insurers to post rates they negotiate with providers and develop price transparency tools related to cost-sharing. The “Consolidated Appropriations Act”, passed in 2021, requires Third Party Administrators (TPAs) to provide notice of other compensation they receive to plan sponsors and restricts “gag clauses” that would otherwise allow TPAs to withhold information from plan sponsors.
We are beginning to see the effects of this new transparency play out through the court system, as employers and employees are taking notice of how their healthcare money is being spent and are increasingly resorting to litigation to express their displeasure.
On June 3, 2024, Huntsman International filed suit against Aetna claiming Aetna breached its fiduciary duties by approving and paying false, fraudulent, and improper claims, and by engaging in prohibited transactions. This lawsuit is the latest in a series of cases brought against Aetna in its role as a Third Party Administrator (TPA) that was filed by the law firm McKool Smith PC on behalf of a variety of “self-funded” employers.
Background
Large employers can choose to use their own funds and assets to pay the claims for their enrollees. In this “self-funded” or “self-insured” approach, the employer typically contracts with a TPA and the employer assumes the financial risk for providing the health insurance benefit, with the arrangements primarily being governed by the federal Employee Retirement Income Security Act (ERISA). This arrangement differs from a “fully-insured” plan, where the employer pays monthly premiums to the insurer for a standardized product, and the insurer bears the risk for all claims.
TPAs are organizations that perform various tasks for self-funded purchasers, such as managing employee enrollment and benefits, processing claims, providing customer service, and managing a network of providers, among other functions. Large health insurance companies, including Aetna, offer TPA services through divisions of their parent company.
Details of the cases brought against Aetna
McKool Smith has filed four separate cases against Aetna on behalf of Kraft Heinz, Aramark Services, W.W. Grainger, and Huntsman International. Not surprisingly, the cases have many similarities in their claims against Aetna.
The primary claim in all of these cases is that Aetna violated its fiduciary duties under ERISA, and that by approving payment for false, fraudulent, duplicative and improper claims, which are drawn from the employer’s funds, Aetna cost the employers millions in claims “that never should have been paid”. The cases state that “it is Aetna’s responsibility as TPA to identify instances where billing errors are apparent in a claim for reimbursement” and that Aetna was responsible for the approval and payment of “only those claims that are legitimate, not those that are fraudulent or otherwise improper and otherwise fail to satisfy the requirements of the Plans. All other claims for payment must be denied.” The cases also state that not recouping overpayments further breaches fiduciary duties.
Furthermore, the suits claim that Aetna used less rigorous claims adjudication standards for claims of self-funded employers than those it used for fully funded clients. Also, the suits claim that Aetna withheld medical claims data from the employers and only gave information for limited "cherry-picked" claims. Additionally, the suits accuse Aetna of using dummy billing codes to improperly cover the cost of subcontractor fees. Under their agreements with the employers, Aetna is allowed to use subcontractors to provide required services, but Aetna is not permitted to bill the employers for the services provided by subcontractors.
The lawsuits also claim that Aetna often underpaid physicians – taking a sum of money from the employer’s plan for a service, but paying the providers a lower amount – with Aetna keeping the difference.
Additionally, the suits claim that Aetna engaged in cross-plan offsetting, where Aetna would overpay providers using the employer's funds but then deduct the overpayment from the next payment to the same provider even if that payment came from someone else (either another self-funded plan or, according to the claims, most frequently one of Aetna's fully insured plans).
The suits note that the employers became aware of pricing discrepancies after recent federal transparency rules forced Aetna to publish contracted rates, which were lower than what Aetna was taking from the employers.
While three cases are still pending, Kraft Heinz has dropped its case as parties have agreed to arbitration.
Part of a larger picture
While these particular cases are all brought by one law firm against one common defendant, this type of case may become a trend. The legal strategy being pursued by McKool Smith could apply to any TPA, creating a blueprint for similar suits. As there is more required transparency around billing and reimbursement issues, there is a greater possibility that parties will notice discrepancies and irregularities.
Additionally, employers may consider bringing suits like this against TPAs and other benefit plan intermediaries as evidence that they are closely monitoring what is happening with their employee benefits. Recently, employees at Johnson & Johnson and Wells Fargo brought suits against their employers, claiming that the employers breached a fiduciary duty by overpaying on prescription drug programs, thereby failing to manage employee benefits programs adequately. The new transparency rules have put employers in a strange situation, as it gives them more opportunities to file suits against those they contract with for healthcare services, but also makes them a greater target for having suits filed against them by employees. Employers may be looking for ways to show that they are monitoring their benefits programs, and taking steps against intermediaries may help to prevent actions being taken against the employers.
These suits are likely to change how TPAs operate as well, as the TPAs are now aware that employers and employees are monitoring their behavior. This monitoring could force TPAs to manage claims better, possibly having a positive effect on healthcare costs.