Aetna and Optum agree to preliminary 'dummy code' billing case settlement

Aetna Life Insurance Company and OptumHealth Care Solutions are closing to settling a federal class-action lawsuit over how they labeled administrative fees.

Aetna managed a self-funded health care plan for the Mars Inc. candy company, and it hired Optum to provide the chiropractic care, physical therapy services and occupational therapy services covered by the plan.

Sandra Peters, who participated in the Mars plan and serves as the lead plaintiff in the case, and other plaintiffs have accused Aetna and Optum of violating Employee Retirement Income Security Act fiduciary requirements by using “dummy billing codes” to disguise Optum’s administrative fees as health care provider charges.

The plan participants, Aetna and Optum told the U.S. District Court for the Western District of North Carolina Wednesday that they have agreed to the central terms of a settlement to resolve the litigation and are preparing a term sheet describing the settlement terms.

Chief U.S. District Judge Martin Reidinger ruled Thursday that the parties must file a settlement memorandum describing the terms of their “agreement on a settlement in principle” by Dec. 4.  The parties can ask for the memorandum to be handled confidentially without filing a separate motion asking the court to keep the filing private, according to Reidinger’s order.

Related: Aetna & Optum ‘dummy code’ scheme runs afoul of ERISA fiduciary duty

Representatives for the plan participants declined to comment on the preliminary settlement agreement.

Representatives for Optum were not immediately available to comment. A representative for Aetna said the company is pleased with the progress on the matter. “We’re now preparing a final agreement to be submitted to the court for preliminary approval,” the representative said.

The plan: Aetna hired Optum to run the Mars health plan. Optum has said in court filings that Aetna asked it to “bury the administrative fee” within the claims process, by using dummy codes to make the Optum fees look like medical expenses, according to a summary included in an appeals court opinion.

Peters, the wife of a Mars employee, used the plan to pay for care from 2013 through 2015. She sued in 2015, after seeing that her explanation of benefits notices included provider charges not billed by the providers.

The litigation: Peters argued in a suit filed with the district court in June 2015 that Aetna and Optum had violated ERISA by using the dummy codes. She sought class-action status.

In 2019, the district court ruled against Peters, finding that, because of other plan terms, she had not shown that a class of plan participants had really been harmed financially by the arrangement.

In 2021, a three-judge panel at the 4th U.S. Circuit Court of Appeals reversed part of the district court’s ruling and let Peters proceed on some of her claims. Later that year, the full panel of 4th Circuit judges declined to provide a rehearing involving all of the 4th Circuit judges.

Optum filed an appeal with the U.S. Supreme Court. The Supreme Court decided in 2022 not to take up the case.

The case returned to the district court in North Carolina, and the court certified a class consisting of participants or beneficiaries of ERISA health plans insured or administered “for whom coinsurance responsibility for a claim was assessed using an agreed rate between Optum and Aetna that exceeded the provider’s contracted rate with Optum for the treatment provided.”

The court also certified a class involving participants or beneficiaries of ERISA health plans “administered by Aetna for which plan responsibility for a claim was assessed using an agreed rate between Optum and Aetna that exceeded the provider’s contracted rate with Optum for the treatment provided.”

The judge scheduled a trial for Jan. 13, 2025, and approved a class notice in May 2024.

The judge later scheduled a pretrial conference for Dec. 18. If the parties do not file a memorandum describing the terms of their preliminary settlement agreement by Dec. 4, the pretrial conference is set to stay on the calendar and occur as scheduled on Dec. 18.

What it means: The Peters case is already affecting how benefit plan vendors and administrators think about their obligations under ERISA to identify charges and attribute any charges to the correct plan participants, plans and providers.

Some other, related ERISA disputes have involved “cross-plan offsetting,” or efforts by ERISA market players to use reductions in provider payments coming from one health plan to compensate for what an administrator or employer believes to be excessive payments to the provider coming from a separate plan.

The litigation could create opportunities for employers and their benefits advisors to identify and challenge other questionable billing items, but it could create headaches for employers with any plans that have been helped by offset payments from other plans.