The primary responsibility of fiduciaries is to run the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and paying plan expenses … In addition, they must follow the terms of plan documents to the extent that the plan terms are consistent with ERISA. They also must avoid conflicts of interest. In other words, they may not engage in transactions on behalf of the plan that benefit parties related to the plan, such as other fiduciaries, services providers, or the plan sponsor.

Fiduciaries who do not follow these principles of conduct may be personally liable to restore any losses to the plan, or to restore any profits made through improper use of plan assets. Courts may take whatever action is appropriate against fiduciaries who breach their duties under ERISA including their removal.

Under ERISA laws, the people responsible for running the health plans are bound by fiduciary duties. Failure to uphold those duties can result in a lawsuit being filed against the people or organizations responsible for overseeing the benefits plans.

In a one-on-one conversation with a DOL representative, I asked outright whether the DOL would begin to enforce fiduciary rules for plan sponsors even when they are acting in a status quo manner (hired a reputable consultant, had a data warehouse, etc. but weren’t applying fiduciary standards to their data). The response was “ignorance is not an excuse.” In other words, plan sponsors can’t afford to not know what’s happening in their plan and must be able to account for the relative value received for the money being spent on benefits and improve on this wherever possible.

Part of the trouble for plan sponsors comes in completing and filing their 5500 with the IRS, where part of the criteria is to report whether a service provider received any indirect compensation and if so, how much. Unless employers have absolute, fiduciary-level transparency, there’s absolutely no way they can answer that question. Furthermore, if they reply “no,” they are almost certainly wrong!

Misaligned incentives and confusing language

There are few things as irrefutable in this world as people and organizations following their own incentives. With that in mind, it’s impossible to reconcile how payers, PBMs and TPAs, all of whom make more only when the health plan spends more, can ever be expected to act in a manner consistent with the rules to which plan fiduciaries must adhere. The incentives are simply not aligned. Plan sponsors can no longer assume their vendors and, by extension, their service providers are acting in a way that would stand the required test of fiduciary as defined by ERISA. Unless plan sponsors hold their vendors to this standard, they stand in the gap alone.

A quick look at vendor contracts and the commonly used language can tell you much of what is happening and why a health plan isn’t transparent. Two quick examples are:

1.) PBM contracts built around average wholesale price (AWP) language — AWP is a meaningless term, as proven by the fact that there may be dozens of AWPs for a given drug on any given day, all of which have different prices, which makes the word “average” lose its meaning completely. The only way to know for sure is to have an optimal pricing analysis performed. This will tell what you paid versus what you could have paid. If you adhere to the strict interpretation of ERISA language, this simply cannot continue to happen. Fortunately, there are solutions to this which allow you to be in fiduciary compliance without any changes to formularies or pharmacy networks. Even more exciting, you will save significant dollars just by modifying this language and stopping this practice.

2.) Focus of payer contract is around “network discount”— Virtually every plan we analyze is astonished at the differences in cost within the same network for things like MRIs, colonoscopies, and non-emergency surgical procedures. Again, this makes terms like network discounts meaningless.

For example, one client of ours paid an annual high of $8,746 and a low of $382 for a lumbar spine MRI in the same network. Now I ask you, how much does a 33 percent network discount mean when you paid 23 times more for the same service?

Proactive care coordination by someone other than the payer whose network you are accessing is a sure-fire way to reign in this waste, improve outcomes and get the better price more often.

Solutions

In order to verify that their plan is in compliance, plan sponsors need a data partner who can apply these standards to their claims and pharmacy data in a real-time manner and assist in correcting irregularities and inefficiencies through proactive plan management. This partner should also be able to assist in gaining restitution when vendors aren’t transparent about undisclosed and “hidden” fees or have business models that are designed to increase their profit at the expense of the plan when there are alternatives that could save significant dollars. Many of these solutions can happen through refinement of vendor contracts where many of these practices are “allowed” via confusing language, but awareness isn’t reached until a fiduciary level analysis is conducted. These rules also apply to egregious practices related to network performance and pricing, wide variance in cost and quality in certain procedures, etc. where the payer is assumed to be exerting these controls and “normalizing” the network but is simply not acting in the best interest of the plan.

Revolutionizing the benefits consulting business

A friend of mine works for a large national accounting firm. During a conversation with him on this subject several months ago he said “this is the equivalent of what Sarbanes Oxley did for our industry in 2002. It fundamentally changed our entire industry’s focus and direction forever.”

For plan sponsors, the movement towards fiduciary-level transparency is logical, necessary and now driven by markets forces which make it inevitable. It is now also poised to usher in a whole new market approach for benefits consultants and an entire new genera of real-time data analysis and proactive plan management.