A TPA sent the claimto its parent company, which repriced the claim, and the TPAadministered payment to the provider. No one thought twice aboutit. (Photo: Shutterstock)

A third-party administrator (TPA) client of ours, and its client(a self-funded health plan governed by state law rather than byERISA) recently finalized what turned out to be a year-longarbitration process.

This particular TPA is owned by a large insurer. The TPA itselfis "independent" in the sense that it's not an ASO, and hasrelative freedom to administer benefits as it pleases, but it isnonetheless closely tied to the insurer's behemoth of a network,and its groups therefore incur very few out-of-network claims.This, of course, reduces member noise to a negligible level, whichis ideal, but the network rates are always arbitrary, and often thediscounts are small (but that's another story for another day).

Related: Education gaps present opportunity for brokers andTPAs

Let's take a trip back eighteen months, to the beginning, to seewhat happened, and what other plans and TPAs can learn from thesituation.

The plan language

In the relatively rare instance when a group serviced by thislarge carrier-owned TPA incurred an out-of-network claim, the TPArelied on the plan language stating that claims would be paid at aUsual and Customary (or U&C) amount. To paraphrase, the termwas defined as an amount the TPA deems reasonable and in line withmarket standards. There are some issues already cropping up fromthis language, right off the bat.

The first is that this definition of U&C doesn't really saya whole lot. In theory, this definition would give the plan theright to determine almost any U&C amount based on any factors,and the plan can interpret the term "market standards" any of adozen ways; the end result is that this definition doesn't actuallyexplain how the plan will come up with the U&C rate.

The second is that it's not even the plan that is given theauthority to determine the U&C rate, but the TPA! There arestatements elsewhere within the plan document (and within theAdministrative Services Agreement between the TPA and the group)where the TPA disclaims all fiduciary duties of any kind – but aU&C definition that explicitly gives the TPA the right tounilaterally determine the amount frustrates any fiduciarydisclaimer (which is yet another story for yet another day).

The repricing

This TPA has one particular group that has recently expanded toadd a satellite office in a very rural part of the state, which isnewly-developed, and accordingly doesn't have many in-networkproviders quite yet. There are doctors there–but they haven't yetentered into contracts with the network. One member in particularvisited an ambulatory surgical center for a covered procedure;everything was above-board, the patient walked away happy, and theTPA easily adjudicated the claim as payable, based on the terms ofthe plan document.

Since the provider was out-of-network, there was no networkcontract and therefore no set network rate, and so the TPA appliedthe plan document's U&C provision.

The TPA sent the claim to its parent company (the largeinsurer), which repriced the claim and returned a number to theTPA, and the TPA administered payment to the provider for thatamount (less coinsurance and remaining deductible). The claim gotpaid, and no one thought twice about it.

The appeal

Well…almost no one thought twice about it. Two weeks later, theTPA received correspondence from the provider. The provider askedfor an explanation of why that particular amount was paid, andasked the plan to reconsider at a higher amount, since the plan'sallowed amount was only around 25 percent of the claim.The TPA responded with a form letter explaining the plan document'sU&C provision, and saying that the claim was repricedaccordingly. The appeal noted that if the provider has additionalquestions about the repricing, it can contact the TPA's parentcompany.

This is type of repricing is what we have referred to as the"black box" approach–where a claim goes into the box and pops outwith a repriced amount, but with no explanation as to how thatamount has been determined. We can see what goes in, and we can seewhat comes out, but we can't see how the input turns into theoutput.

The provider was not satisfied with that answer. It filedanother, much more forceful appeal, and demanded to see a copy ofthe repricing. The provider also took exception to the TPA'sdirection of the provider to the large network, which had actuallyperformed the repricing; to paraphrase, the provider asserted thatit is entitled to appeal to the plan, which is exactly what it did,and forcing it to go down a rabbit hole to get an explanation forthe plan's payment is not appropriate.

The EOB

The provider argued that the explanation of benefits wasdeficient. This state's adverse benefit determination rules followsuit with ERISA's, requiring that a claimant must be notified ofthe reason a claim has been denied and must be given a reasonableopportunity for full and fair internal review of a claim. Theregulations require that a group health plan provide, among otherthings, the specific reason for the denial, and reference to thespecific plan provisions upon which it has been based. Thisparticular EOB, however, noted only that this line item waspartially denied due to "Non-participating provider claim priced atU&C."

Many courts have opined that such requirements are designed toconvey reasons and explanations, rather than simply conclusions.The provider had not (yet) quoted any legal doctrine to supportthis, but stated it informally, in the correspondence contendingthat the provider hadn't been given any actual explanation. The EOBremark code, however, does objectively appear to be a conclusionrather than a reason, and unfortunately the plan document does notprovide a terribly helpful explanation either.

Based on courts' interpretations of the federal regulations(which say the same thing as this state's, but are technically adifferent body of law), a remark this generic would neither beliterally compliant with the text of the regulations, nor satisfythe intent of the regulations (which is to provide the claimantwith information sufficient to file a meaningful appeal on themerits, or ultimately file suit to enforce benefits).

The TPA was a bit surprised at the provider's lack of acceptanceof its prior explanation, and issued another denial that said thesame thing as the first. (After all, what more is there for theplan to say in this situation?) The provider responded again,noting that not only does the plan language not identify how claimswill be repriced, but the repricing didn't even identify how theclaim was repriced. It only identified the fact that the claim wasrepriced – but the how remained a mystery, and the providerdemanded an answer.

The arbitration

The TPA deemed the provider's most recent response to be thesecond and final appeal, so it responded without providing ananswer, simply saying, essentially, that the provider has exhaustedits appeals and it could pursue "external" remedies as outlined inthe plan document, but any further internal appeals would beignored. Since the plan in question wasn't an ERISA plan, theprovider decided to invoke the plan's arbitration clause.

The provider served an arbitration demand on the plan, as wellas its TPA, broker, and stop-loss carrier. After some infighting,it was determined that the broker and stop-loss carrier had noinvolvement and should be dismissed from the arbitration. The TPAand plan, though, remained. The provider's main point was that theplan and TPA had arbitrarily repriced the claims, with noexplanation of how that amount was determined. The provider didn'tallege that the plan or TPA had violated the plan document, simplybecause the plan document was too vague to violate in this regard,but the provider did assert that the plan document and EOB weredeficient in their lack of specificity in this regard.

Put more simply, the provider challenged this "black box"repricing. The plan and TPA countered by trying to end thearbitration under the theory that the provider hadn't presented anyevidence for what it feels would have been correct repricing. Thearbitrator didn't love that argument, however, and responded bysuggesting that the provider could not possibly have provided suchevidence, since neither the EOB nor the plan document explainedwhat the pricing should have been based on, so the provider wasnever actually told.

The result

Fast forward to the present. After months upon months ofproducing documents, writing briefs and making arguments, thearbitration was over. The arbitrator rendered its decision. Thearbitrator decreed that it would be equitable for the plan to payan amount that complied with the ACA's "greatest of three" rule.This is a separate body of law, but the provider argued–and thearbitrator ultimately agreed–that it is a reasonable way todetermine appropriate payment. The plan has been ordered torecalculate its U&C payment based on that amount–and somewhathumorously, the arbitrator also suggested that the plan change itsU&C language to be more telling; not necessarily to use the"greatest of three" model, but to use … some explainable model.

The arbitrator's report also discussed the relationship betweenthe plan and fiduciary with respect to making determinations of theplan's U&C amount. The arbitrator echoed some established lawin noting that the act of repricing claims is ministerial and doesnot in itself give rise to fiduciary duties, but – and here's whereit gets really interesting – when the TPA is charged with actuallydetermining the factors that go into the repricing, rather thansimply following plan language, the TPA has done more than simpleministerial repricing, and has transcended to the level ofexercising discretion.

If that isn't enough, stop-loss denied the portion of thepayable expense that was above the original repriced amount.According to the carrier, they agreed that the original repricedamount was the appropriate payable rate pursuant to the plandocument and the stop-loss policy. The group was ordered to pay farmore than that, and lacked stop-loss coverage for the additionalpayment.

Epilogue: The aftermath

Less than a week after the arbitration ended, the TPA informedus that the group had hired counsel and sent the TPA a demand. Thegroup was requesting indemnification based on the TPA's role in therepricing and inclusion of that plan document language.Essentially, the group blamed the TPA for causing the group to paymore than the group reasonably expected to pay. According to thegroup, it had every reason to believe that it would only have topay the repriced amount, and not a penny more. But obviously that'snot how the situation shook out.

No matter what happens, it's an unfortunate situation–but thisis going to have a really interesting finale. Whether it ever makesit to a courtroom is anyone's guess.

Jon Jablon joined The Phia Group'steam in 2013. As the director of Phia Group Consulting'sProvider Relations Team, Jon assists TPAs, brokers, stop-losscarriers, and other entities with disputes related to both in- andout-of-network claims, various claims payment methodologies(including reference-based pricing), appeals, medical billnegotiation, and much more.

Read more: 

• 3 current challenges facing TPAs
• Five myths about reference-based pricing (and howto respond)
• Surprise billing: To arbitrate or not toarbitrate?