The black box: A cautionary anecdote
Out-of-network medical claims aren't just a headache for employees. They can also be a hassle for employers--and their TPAs.
A third-party administrator (TPA) client of ours, and its client (a self-funded health plan governed by state law rather than by ERISA) recently finalized what turned out to be a year-long arbitration process.
This particular TPA is owned by a large insurer. The TPA itself is “independent” in the sense that it’s not an ASO, and has relative freedom to administer benefits as it pleases, but it is nonetheless 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, which is ideal, but the network rates are always arbitrary, and often the discounts are small (but that’s another story for another day).
Related: Education gaps present opportunity for brokers and TPAs
Let’s take a trip back eighteen months, to the beginning, to see what happened, and what other plans and TPAs can learn from the situation.
The plan language
In the relatively rare instance when a group serviced by this large carrier-owned TPA incurred an out-of-network claim, the TPA relied on the plan language stating that claims would be paid at a Usual and Customary (or U&C) amount. To paraphrase, the term was defined as an amount the TPA deems reasonable and in line with market standards. There are some issues already cropping up from this language, right off the bat.
The first is that this definition of U&C doesn’t really say a whole lot. In theory, this definition would give the plan the right to determine almost any U&C amount based on any factors, and the plan can interpret the term “market standards” any of a dozen ways; the end result is that this definition doesn’t actually explain how the plan will come up with the U&C rate.
The second is that it’s not even the plan that is given the authority to determine the U&C rate, but the TPA! There are statements elsewhere within the plan document (and within the Administrative Services Agreement between the TPA and the group) where the TPA disclaims all fiduciary duties of any kind – but a U&C definition that explicitly gives the TPA the right to unilaterally determine the amount frustrates any fiduciary disclaimer (which is yet another story for yet another day).
The repricing
This TPA has one particular group that has recently expanded to add a satellite office in a very rural part of the state, which is newly-developed, and accordingly doesn’t have many in-network providers quite yet. There are doctors there–but they haven’t yet entered into contracts with the network. One member in particular visited an ambulatory surgical center for a covered procedure; everything was above-board, the patient walked away happy, and the TPA easily adjudicated the claim as payable, based on the terms of the plan document.
Since the provider was out-of-network, there was no network contract and therefore no set network rate, and so the TPA applied the plan document’s U&C provision.
The TPA sent the claim to its parent company (the large insurer), which repriced the claim and returned a number to the TPA, and the TPA administered payment to the provider for that amount (less coinsurance and remaining deductible). The claim got paid, and no one thought twice about it.
The appeal
Well…almost no one thought twice about it. Two weeks later, the TPA received correspondence from the provider. The provider asked for an explanation of why that particular amount was paid, and asked the plan to reconsider at a higher amount, since the plan’s allowed amount was only around 25 percent of the claim. The TPA responded with a form letter explaining the plan document’s U&C provision, and saying that the claim was repriced accordingly. The appeal noted that if the provider has additional questions about the repricing, it can contact the TPA’s parent company.
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 out with a repriced amount, but with no explanation as to how that amount has been determined. We can see what goes in, and we can see what comes out, but we can’t see how the input turns into the output.
The provider was not satisfied with that answer. It filed another, much more forceful appeal, and demanded to see a copy of the repricing. The provider also took exception to the TPA’s direction of the provider to the large network, which had actually performed the repricing; to paraphrase, the provider asserted that it 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 for the plan’s payment is not appropriate.
The EOB
The provider argued that the explanation of benefits was deficient. This state’s adverse benefit determination rules follow suit with ERISA’s, requiring that a claimant must be notified of the reason a claim has been denied and must be given a reasonable opportunity for full and fair internal review of a claim. The regulations require that a group health plan provide, among other things, the specific reason for the denial, and reference to the specific plan provisions upon which it has been based. This particular EOB, however, noted only that this line item was partially denied due to “Non-participating provider claim priced at U&C.”
Many courts have opined that such requirements are designed to convey reasons and explanations, rather than simply conclusions. The provider had not (yet) quoted any legal doctrine to support this, but stated it informally, in the correspondence contending that the provider hadn’t been given any actual explanation. The EOB remark code, however, does objectively appear to be a conclusion rather than a reason, and unfortunately the plan document does not provide 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 a different body of law), a remark this generic would neither be literally compliant with the text of the regulations, nor satisfy the intent of the regulations (which is to provide the claimant with information sufficient to file a meaningful appeal on the merits, or ultimately file suit to enforce benefits).
The TPA was a bit surprised at the provider’s lack of acceptance of its prior explanation, and issued another denial that said the same thing as the first. (After all, what more is there for the plan to say in this situation?) The provider responded again, noting that not only does the plan language not identify how claims will be repriced, but the repricing didn’t even identify how the claim was repriced. It only identified the fact that the claim was repriced – but the how remained a mystery, and the provider demanded an answer.
The arbitration
The TPA deemed the provider’s most recent response to be the second and final appeal, so it responded without providing an answer, simply saying, essentially, that the provider has exhausted its appeals and it could pursue “external” remedies as outlined in the plan document, but any further internal appeals would be ignored. Since the plan in question wasn’t an ERISA plan, the provider decided to invoke the plan’s arbitration clause.
The provider served an arbitration demand on the plan, as well as its TPA, broker, and stop-loss carrier. After some infighting, it was determined that the broker and stop-loss carrier had no involvement and should be dismissed from the arbitration. The TPA and plan, though, remained. The provider’s main point was that the plan and TPA had arbitrarily repriced the claims, with no explanation of how that amount was determined. The provider didn’t allege that the plan or TPA had violated the plan document, simply because the plan document was too vague to violate in this regard, but the provider did assert that the plan document and EOB were deficient 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 the arbitration under the theory that the provider hadn’t presented any evidence for what it feels would have been correct repricing. The arbitrator didn’t love that argument, however, and responded by suggesting that the provider could not possibly have provided such evidence, since neither the EOB nor the plan document explained what the pricing should have been based on, so the provider was never actually told.
The result
Fast forward to the present. After months upon months of producing documents, writing briefs and making arguments, the arbitration was over. The arbitrator rendered its decision. The arbitrator decreed that it would be equitable for the plan to pay an amount that complied with the ACA’s “greatest of three” rule. This is a separate body of law, but the provider argued–and the arbitrator ultimately agreed–that it is a reasonable way to determine appropriate payment. The plan has been ordered to recalculate its U&C payment based on that amount–and somewhat humorously, the arbitrator also suggested that the plan change its U&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 between the plan and fiduciary with respect to making determinations of the plan’s U&C amount. The arbitrator echoed some established law in noting that the act of repricing claims is ministerial and does not in itself give rise to fiduciary duties, but – and here’s where it gets really interesting – when the TPA is charged with actually determining the factors that go into the repricing, rather than simply following plan language, the TPA has done more than simple ministerial repricing, and has transcended to the level of exercising discretion.
If that isn’t enough, stop-loss denied the portion of the payable expense that was above the original repriced amount. According to the carrier, they agreed that the original repriced amount was the appropriate payable rate pursuant to the plan document and the stop-loss policy. The group was ordered to pay far more than that, and lacked stop-loss coverage for the additional payment.
Epilogue: The aftermath
Less than a week after the arbitration ended, the TPA informed us that the group had hired counsel and sent the TPA a demand. The group was requesting indemnification based on the TPA’s role in the repricing and inclusion of that plan document language. Essentially, the group blamed the TPA for causing the group to pay more than the group reasonably expected to pay. According to the group, it had every reason to believe that it would only have to pay the repriced amount, and not a penny more. But obviously that’s not how the situation shook out.
No matter what happens, it’s an unfortunate situation–but this is going to have a really interesting finale. Whether it ever makes it to a courtroom is anyone’s guess.
Jon Jablon joined The Phia Group’s team in 2013. As the director of Phia Group Consulting’s Provider Relations Team, Jon assists TPAs, brokers, stop-loss carriers, and other entities with disputes related to both in- and out-of-network claims, various claims payment methodologies (including reference-based pricing), appeals, medical bill negotiation, and much more.
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