Core Contract and Document Provisions for Self-Insured ... · its self-insured group health plan....

© Copyright 2016, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.© Copyright 2016, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.

Linda R. MendelVorys, Sater, Seymour and Pease LLP

[email protected]

October 7, 2016

Core Contract and Document Provisions for Self-Insured Group Health Plans

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Request for Proposal (RFP)

• The employer will probably work with a consultant on the RFP process for a third-party administrator (TPA) for its self-insured group health plan.– Employer can include key contract provisions in the RFP.

– Employer can ask for sample contracts during the RFP process.

• Provider network and fees are often key in TPA selection.

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Contract Review

• What is your role as employee benefits counsel?– Primary responsibility for contract review?

– Coordinating with the procurement group or part of a team with in-house counsel, where you focus on elements specifically relevant to group health plan administration?

• Statement of work.– What has the vendor agreed to do?

– Tasks not assigned to the vendor will need to be performed by the employer or another vendor.

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Administrative Services Agreement

• Selected provisions in an administrative services agreement (ASA):– Claims, appeals and external review.

– Indemnification.

– Term and termination.

– Provision of documents and materials.

DISCLAIMER: Examples in this presentation are illustrative and are not taken from specific contracts or documents.

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ASA – Claims, Appeals and External Review

• Most employers want zero involvement (except when eligibility is an issue).

• Watch out for attempt by TPA to deny fiduciary responsibility for claims and appeals. Examples:– All final determinations as to a participant’s entitlement to

benefits under the Plan are to be made by the Plan Sponsor.

– The decision about whether to pay any claim, in whole or in part, is within the sole discretion of the Plan Sponsor.

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• TPA should accept responsibility for deciding claims and appeals.– All final determinations as to a participant’s entitlement to

benefits under the Plan are to be made by TPA, including any determination upon appeal of a denied claim for Plan benefits.

• This makes the TPA a functional fiduciary but you may also want an explicit acceptance of fiduciary status.– Plan Sponsor appoints TPA as an ERISA fiduciary under

the Plan for purposes of making initial benefit determinations and payment and deciding appeals.

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ASA – Standard of Care

• ERISA § 404(a)(1)(B) standard of care:– …a fiduciary shall discharge his duties with respect to a

plan…with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.

• Reflected in the ASA:– In connection with its specified fiduciary powers and duties

hereunder, TPA shall observe the standard of care and diligence required of a fiduciary under ERISA.

– TPA will perform the services provided for under this Agreement with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.

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• Delegation of discretionary authority.– Plan Sponsor’s delegation to TPA includes the authority,

responsibility and discretion to: make factual determinations and to interpret the provisions of

the Plan; conduct a full and fair review of each appeal of a claim which

has been denied; decide appeals of urgent care claims, non-urgent pre-service

claims, concurrent care claims, and post-service claims; and notify a participant or participant’s authorized representative of

its decision. TPA will conduct such activities within timeframes and in a manner consistent with ERISA.

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• TPA should arrange for external review.– TPA contracts with three independent review

organizations (IROs) that meet the Affordable Care Act external review requirements. Participants may request review of eligible claims by an IRO which will be selected by TPA among the contracted IROs on a random basis.

– Check for separate charge for each external review.

• The plan document and summary plan description (SPD) should clearly direct claims, appeals, and requests for external review to the TPA.

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• Performance guarantees related to claims and appeals.– Timing and accuracy of claims.

– Based on the plan or the TPA’s book of business?

– Audit rights?

– Financial penalty or option for correction?

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• Consider adding a provision to the agreement (or the business associate agreement) to the effect that the TPA will use standardized electronic data interchange (EDI) transactions.– Example:

TPA agrees that if it (or its agents and subcontractors) conducts electronic transmissions on behalf of the Plan for which the Secretary of Health and Human Services has established a “standard transaction,” TPA (and its agents and subcontractors) shall comply with the requirements of the Standards for Electronic Transactions (45 CFR Parts 160 and 162).

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ASA – Indemnification

• Financial protection from losses attributable to the other party’s conduct.– TPA wants a “gross negligence” standard.

TPA will indemnify and hold Plan Sponsor harmless against any and all losses, liabilities, penalties, fines, costs, damages, and expenses, that Plan Sponsor incurs (including reasonable attorneys’ fees) which arise out of (a) the gross negligence or willful misconduct of TPA, TPA’s employees and TPA’s agents, subcontractors, and representatives; or (b) a material breach of this Agreement.

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• Financial protection from losses attributable to the other party’s conduct.– Plan sponsor wants a “negligence” standard.

– The parties may compromise on different standards for different activities.

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• TPA may ask for a limitation on its liability.– Example:

TPA’s cumulative liability for any actual or alleged losses, claims, suits, controversies, breaches, attorneys’ fees, or damages for any cause whatsoever arising out of, based on or relating to this agreement, whether based upon breach of contract, tort (including negligence), warranty, indemnity or any other legal theory, shall not exceed the total amount of the fees actually paid under this Agreement by Plan Sponsor to TPA during the twelve months immediately preceding the Plan Sponsor’s claim.

– Typically negotiable.

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• TPA may ask for a limitation on its liability (cont’d).– Exception for fraud and willful misconduct.

DOL Opinion Letter 2002-08A: – The Department believes, however, that provisions that purport

to apply to fraud or willful misconduct by the service provider are void as against public policy and that it would not be prudent or reasonable to agree to such provisions.

Example:– Notwithstanding the foregoing, nothing in the preceding

sentence shall limit TPA’s liability for its criminal conduct; fraud; conduct found by a tribunal of competent jurisdiction to constitute gross negligence; or the breach of any confidentiality obligation, including, but not limited to, HIPAA.

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• Check for disclaimer of warranties. – EXCEPT AS EXPRESSLY SET FORTH IN THIS

AGREEMENT, TPA DOES NOT MAKE AND HEREBY DISCLAIMS ANY REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, REGARDING ANY OF THE SERVICES TPA PROVIDES OR ARRANGES TO PROVIDE UNDER THIS AGREEMENT.

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ASA – Term and Termination

• Typical ASA has an initial term of three years, renewable for additional one-year terms.– Under what circumstances can the TPA charge additional

fees or adjust fees during a term? What if the Plan is amended?

What if the law changes in a way that impacts the TPA’s duties?

How much advance notice does the TPA have to give of an increase in fees?

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• Under what circumstances can a party terminate the ASA during a term?– How much advance notice would a party have to give of

early termination?

– What fees would the plan sponsor have to pay in the event it wanted to terminate early?

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• Access to records at the termination of the relationship.– Example:

The TPA shall promptly transfer to a successor claims administrator, in a mutually agreeable electronic format and for no extra charge, such records as are needed for continuity of administration and the fulfillment of the Employer’s fiduciary duties to participants.

– Make sure business associate agreement (BAA) does not give the TPA the option to destroy data without plan sponsor’s consent.

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• HHS FAQ:http://www.hhs.gov/hipaa/for-professionals/faq/2074/may-a-business-associate-of-a-hipaa-covered-entity-block-or-terminate-access/index.html

– May a business associate of a HIPAA covered entity block or terminate access by the covered entity to the protected health information (PHI) maintained by the business associate for or on behalf of the covered entity?

– Answer: No.

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http://www.hhs.gov/hipaa/for-professionals/faq/2074/may-a-business-associate-of-a-hipaa-covered-entity-block-or-terminate-access/index.html



• HHS FAQ (cont’d):– For example, a business associate blocking access by a

covered entity to PHI…to resolve a payment dispute with the covered entity is an impermissible use of PHI.

– Finally, OCR notes that a covered entity is responsible for ensuring the availability of its own PHI. To the extent that a covered entity has agreed to terms in a business associate agreement that prevent the covered entity from ensuring the availability of its own PHI, whether in paper or electronic form, the covered entity is not in compliance with 45 CFR §§ 164.308(b)(3), 164.502(e)(2), and 164.504(e)(1).

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• Claims run-out.– Claims that are incurred but not reported (IBNR) as of the

end of the term of the ASA.

– ASA can specify: How long the TPA will continue to process claims incurred

prior to the termination of the ASA.

The fees paid for administration of the run-out.

Check whether the stop loss policy will cover the incurred but unpaid claims.

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ASA – Plan Documents

• How does the ASA tie the TPA’s services to the plan sponsor’s group health plan?– A document summarizing benefits can be referenced in

the ASA or included as an exhibit.

• TPA should represent that its processes are consistent with the Plan document. Example:– The services provided under this Agreement will be

performed in a manner consistent with the Plan document and ERISA.

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ASA – Plan Documents

• TPA may supply a document to the plan sponsor for the plan sponsor’s approval. Example:– TPA will provide Plan Sponsor a draft of a Benefit

Document for Plan Sponsor’s review and approval. Plan Sponsor is responsible for reviewing the draft Benefit Document within 30 days and determining whether it meets all of the Plan Sponsor’s legal and business obligations.

– A document produced by the TPA typically has an adequate description of covered and excluded services but may be deficient in other ways.

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Plan Documents

• Review of selected provisions of TPA-generated documents.– Identification of the plan document.

– Eligibility.

– Loss of eligibility.

– Payments to out-of-network (OON) providers.

– Claims, appeals and external review.

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Identification of the Plan Document

• Many vendor-drafted booklets state “in the event the SPD is inconsistent with the plan document, the plan document controls.”– In practice, an employer with a self-insured health plan:

May not have a separate plan document.

May have a plan document that is not updated when the vendor updates its booklet so that the booklet – and not the plan document – reflects the employer’s intended plan design.

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• Does a plan sponsor need a SPD and separate plan document for a group health plan?– CIGNA Corp. v. Amara, 131 S. Ct. 1866 (2011), regarding a

cash balance pension plan: We cannot agree that the terms of statutorily required plan

summaries (or summaries of plan modifications) necessarily may be enforced (under § 502(a)(1)(B)) as the terms of the plan itself.

– Board of Trustees v. Moore, 800 F.3d 214 (6th Cir. 2015). In Amara, however, it was clear that one document functioned

as the plan itself, that a different document functioned as the summary plan description, and that the two documents contained conflicting terms. Nothing in Amara prevents a document from functioning both as the ERISA plan and as an SPD, if the terms of the plan so provide.

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• Consider:– Combination SPD/plan document. Example:

This Summary Plan Description also serves as the official plan document of the Plan.

– Wrap plan document. Covers infrequently-changed administrative provisions; and

Incorporates by reference the SPD as from time-to-time updated and SMMs provided since the last SPD.

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• Form 5500 should match the plan as identified in the SPD.– Type of benefits.

– Plan year.

– Plan number.

• Other places to check for consistency:– Employee handbook may include a description of benefits.

– Summary of Benefits and Coverage (SBC).

Even if the TPA produces both the SPD and SBC, you may want to suggest that the plan sponsor check for consistency.

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• The document produced by the TPA may need to be supplemented if:– Prescription drugs are administered by a separately-

contracted pharmacy benefit manager (PBM).

– The health plan includes a wellness program.

• Question provisions that look potentially problematic under the Mental Health Parity and Addiction Equity Act (MHPAEA).

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Eligibility

• SPD is supposed to include “The plan's requirements respecting eligibility for participation and for benefits.” 29 CFR §2520.102-3(j).– TPA-generated document may be vague. Examples:

See your human resources department for information on your effective date of coverage.

- or -

Employees regularly scheduled to work 30 hours per week are eligible.

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Eligibility

• What if the plan sponsor intends to limit eligibility to employees who qualify as full-time under the ACA 30-hour standard (ACA 30-hour FT employees)?

– SPD should summarize the method the employer is using to identify ACA 30-hour FT employees. Monthly measurement method; or

Look-back measurement method.

– New employees expected to be ACA 30-hour FT employees.

– New part-time, variable hour, and seasonal employees.

– Ongoing employees.

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Eligibility

• Initial eligibility tracking full-time status under the look-back measurement method. Example:

If you are a new full-time employee, you are eligible to participate in the Plan on the first day of the month after you start work. A new employee is a full-time employee if the Employer expects the employee to have at least 30 hours per week.

If you are a part-time, variable hour or seasonal employee, your hours will be measured over a 12-month period. The initial 12-month measurement period starts after you are hired. If you have at least 1,560 hours (at least 30 hour per week) in the 12-month measurement period, you will be eligible to participate in the Plan during a 12-month period starting on the first day of your 14th

month of employment.

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Loss of Eligibility

• SPD is supposed to include the “circumstances which may result in disqualification, ineligibility, or denial…of any benefits that a participant or beneficiary might otherwise reasonably expect the plan to provide on the basis of the description of benefits…” 29 CFR §2520.102-3(l).

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Loss of Eligibility

• Termination of employment.– Does coverage end on the day of termination or last day

of the month of termination?

– Is the final employee contribution prorated?

– If the employee is rehired, does he or she need to complete another waiting period? Under Treas. Reg. §54.4980H-3(d)(6):

– 13 weeks with zero hours = new employee.

– Otherwise, the employee resumes status (ACA 30-hour FT or otherwise) he or she had before termination.

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Loss of Eligibility

• Leaves of absence.– TPA-generated document may limit coverage to periods

of FMLA. If the employer is using the look-back measurement

method to identify ACA 30-hour FT employees, will it continue coverage (and eligibility for coverage) to the end of the stability period?

What about a change in employment status (e.g., from traditional FT to traditional PT) during a stability period that an employee is classified as an ACA 30-hour FT employee?

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OON Provider’s Waiver of Cost Sharing

• SPD is supposed to include the “circumstances which may result in…forfeiture, suspension, offset, reduction, or recovery…of any benefits that a participant or beneficiary might otherwise reasonably expect the plan to provide on the basis of the description of benefits…” 29 CFR §2520.102-3(l).

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• North Cypress Medical Center Operating Co. v. Cigna Healthcare, 781 F.3d 182 (5th Cir. 2015).– North Cypress, an OON provider, billed Cigna (as TPA or

insurer of a plan) for its full charges and then waived a portion of the amounts patients should have paid in coinsurance.

– Example: North Cypress would submit a bill to the plan for $10,000.

The patient should pay $4,000 (40%) but North Cypress would collect only $2,000 (20%) and waive the other $2,000.

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• North Cypress Medical Center (cont’d).– Cigna plan provision:

[P]ayment for the following is specifically excluded from this plan:...charges which you are not obligated to pay or for which you are not billed or for which you would not have been billed except that they were covered under this plan.

– According to the Court: The inquiry is thus whether ordinary plan members who

read that [plan provision] would understand that they have no insurance coverage if they are not charged for coinsurance.

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• Consider a more direct statement of the impact of an OON provider’s waiver of cost sharing.– For example.

[P]ayment for the following is specifically excluded from this plan: .... charges for which an OON provider waives all or any portion of the copay, annual deductible or coinsurance amounts.

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• Consider a more direct statement of the impact of an OON provider’s waiver of cost sharing (cont’d).– Another example.

If an OON provider waives any portion of a copay, annual deductible or coinsurance amount, the amount otherwise payable to the OON provider will be proportionately reduced. For example, if your cost sharing is supposed to be $400 and the OON provider only asks you to pay $200, the amount that the Plan would otherwise pay the OON Provider will be reduced by 50%.

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Rx Coupon as a Waiver of Cost Sharing

• Manufacturer prescription drug coupons– Participant uses a coupon to “pay” his or her cost share

and the plan pays the balance of the cost. Undermines incentives for participants to use generic or

lower tier drugs.

Currently, there may not be a way for a plan to detect the use of coupons. Entered as cash at point of service.

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© Copyright 2016, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.


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• EpiPen coupons. – Responding to a growing furor from consumers and politicians, the

pharmaceutical company Mylan said on Thursday that it would lower the out-of-pocket costs to some patients who need EpiPens, which are used to treat life-threatening allergy attacks.The company said it would immediately offer more financial assistance with co-payments for patients with commercial insurance and expand the number of uninsured patients eligible for free EpiPens.But the moves did not mollify critics of Mylan because the company did not lower the list price of the EpiPen, which has risen to $600 for a pack of two from about $100 in 2007.So the total cost to the health system, a cost borne largely by insurers, the federal government and school districts, will remain the same. Andrew Pollack, New York Times (8/25/2016).

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• It is illegal to use coupons for drugs covered by Medicare Part D. – When the item in question is one for which payment may

be made, in whole or in part, under a Federal health care program (including Medicare Part D), the anti-kickback statute is implicated. The anti-kickback statute makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce or reward the referral or generation of business reimbursable by any Federal health care program.

HHS Office of Inspector General Special Advisory Bulletin (Sept. 2014).

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• EpiPen coupon terms and conditions:

– Eligibility Requirements: This SAVINGS card can be redeemed only by patients or patient guardians who are 18 years of age or older who are a resident of the United States and its territories. Not valid for uninsured patients (except for commercially insured patients without coverage for EpiPen® Auto-Injector) and patients who are covered by any state or federally funded healthcare program, including but not limited to any state pharmaceutical assistance program, Medicare (Part D or otherwise), Medicaid, Medigap, VA or DOD, or TriCare (regardless of whether EpiPen® Auto-Injector is covered by such government program); if the patient is Medicare eligible and enrolled in an employer-sponsored health plan or prescription benefit program for retirees; or if the patient's insurance plan is paying the entire cost of this prescription. Void outside the US and its territories or where prohibited by law, taxed, or restricted.

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Amount Payable for OON Services

• SPD should include a description of “any cost-sharing provisions…provisions governing the use of network providers…and whether, and under what circumstances, coverage is provided for out-of-network services.” 29 CFR §2520.102-3(j)(3).– A plan will not cover the portion of an OON provider’s

charge in excess of what the plan determines is the usual, customary and reasonable (UCR) amount (may be called the “recognized” or “allowed” amount).

– OON provider may bill the participant for 100% of the difference between the charge and the UCR amount.

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• Narrower networks result in more OON claims. A clear formula for determining the UCR amount may reduce disputes.

• Ingenix database.– Used to be a common reference for UCR amounts.

– Allegedly flawed data, resulting in underpayments to OON providers.

– Use was discontinued in 2009 in connection with a settlement with NY AG that led to the creation of a successor database, FAIR Health.

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• Minimum allowed amount for emergency room services (i.e., emergency department of a hospital) under PHS Act §2719A is the greatest of:– Median amount negotiated with network providers for the

emergency service;

– Amount for the emergency service calculated using the same method the plan generally uses to determine payments for out-of-network services (such as the usual, customary, and reasonable amount); or

– Amount that would be paid under Medicare. 29 CFR §2590.715-2719A(b)(3).

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• Consider similar references for defining the amount payable to OON providers for non-emergency services.– Median amount negotiated with network providers.

Confirm TPA will release amounts when needed in connection with claims.

– Database (e.g., Fair Health).

– Amount that would be paid under Medicare (or some multiple of that amount).

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• We (as plan drafters) can limit the plan’s exposure but that may impose hardships on employees and their families.– The balance bills, also known as “surprise bills,” are

drawing the attention of patient advocates and legislators, among others, across the country. USA Today (3/18/2016).

– The [OON providers’] charges can be two, three, five or 10 times the amount of the negotiated rate. Erin Fuse Brown, assistant law professor, Georgia State University's Center for Law, Health and Society, The Tennessean (3/15/2016).

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• UFCW & Employers Benefits Trust v. Sutter Health, 241 Cal. App. 4th 909 (2015).– Court decided that a California statute, which was

intended to protect providers from undisclosed contract terms, could not be used to force undisclosed terms on payers (e.g., the duty to arbitrate disputes).

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• Sutter Health is now seeking a direct contractual relationship with plans.– Sutter Health, long accused of abusing its market power

in California, is squaring off against major U.S. employers in a closely watched legal fight over health care competition and high prices. Chad Terhune, Kaiser Health News (4/7/2016).

– Dozens of companies received a letter in recent months, via their insurance administrators, asking them to waive their rights to sue Sutter. If they don’t, the letter says, the companies’ employees who get care at Sutter will no longer have access to discounted in-network prices. April Dembosky, KQED News (8/15/2016).

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OON Provider Standing

• ERISA §206(d) prohibits assignment of retirement plan benefits but there is no parallel provision for welfare plans.

• For a welfare plan, the question of whether a participant may assign his or her rights to a OON provider is a matter of plan design.– With a valid assignment, an OON provider may bring suit

for benefits (ERISA §502(a)(1)(B)) as an assignee of the participant.

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• North Jersey Brain & Spine Center v. Aetna, Inc., 801 F.3d 369 (3rd Cir. 2015).– We hold that as a matter of federal common law, when a

patient assigns payment of insurance benefits to a healthcare provider, that provider gains standing to sue for that payment under ERISA § 502(a).

• Griffin v. Verizon Communications, Inc., No. 15-13525, 2016 WL 116598 (11th Cir. Jan. 12, 2016).– Although ERISA does not prohibit a plan participant or

beneficiary from assigning benefits to her provider, we have held that an anti-assignment provision in a plan, which limits or prohibits a plan participant or beneficiary from assigning her right to payment of benefits, is valid and enforceable.

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• Griffin v. Verizon Communications (cont’d)– Verizon plan provision:

You cannot assign your right to receive payment to anyone else, except as required by a “Qualified Medical Child Support Order” as defined by ERISA or any applicable state or federal law.... The coverage and any benefits under the plan are not assignable by any covered member without the written consent of the plan, except as provided above.

– Example: You may designate a representative to represent you in the

claims and appeals process. However, you cannot assign your benefits (or Plan payments for benefits) to anyone else without the consent of the Plan Administrator (except as required by a Qualified Medical Child Support Order or National Medical Child Support Notice).

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Claims, Appeals and External Review

• Claims and appeals provision should include:– Grant of discretionary authority.

– Delegation of discretionary authority to the TPA to decide claims and appeals.

– The period within which an initial claim must be filed.

– Need to exhaust administrative remedies.

– Statute of limitations.

– Consider including a venue provision.

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Claims, Appeals and External Review

• A venue selection provision may be enforceable.– Smith v. Aegon Cos. Pension Plan, 769 F.3d 922 (6th Cir.

2014), cert. denied, 136 S. Ct. 791 (2016).

– In re: Lorna Clause, No. 16-2607, (8th Cir. Dismissed Sept. 27, 2016).

– Example: Suits brought against the Plan must be brought in the

district court where the Plan is administered, which is the United States District Court for the Southern District of Ohio, Eastern Division.

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Subrogation and Reimbursement

• Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, 136 S. Ct. 651 (2016) did not change the general principles.– Disclaimer of the “make-whole” doctrine

The Plan’s right to subrogation and reimbursement applies regardless of whether the covered person is made whole.

– Disclaimer of the “common fund” doctrine. The Plan is not required to reduce the amount to which it is entitled

by a share of the litigation costs and attorneys’ fees.

– “First priority” equitable lien by agreement. The Plan’s rights to subrogation and reimbursement takes priority

over any other claims by or rights of any other party.

• Consider offset of future benefits.

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