When you think of personal injury attorneys, you may imagine men in trench coats with cheesy tag lines with inflated promises, and commercials with ambulances blaring in the background. Fortunately, I do not like trench coats, my tag lines are only sometimes cheesy, and ambulances terrify me.
While attending law school, I worked for an attorney who became a state legislator, which meant I was forced to learn the ins and outs of running a practice in a very short period of time. That experience ultimately left a bad taste in my mouth for opening my own firm. Eventually, after graduating law school, I started my career as a junior associate in the personal injury firm down the street and became the partner’s main resource for research… and coffee.
Working there opened my eyes to new experiences, such as the opportunity to practice law with a team of partners and senior associates. We met once a week and strategized on how to win the most amount of money for our clients and, obviously, for the firm. Sometimes those two goals conflicted with each other and we would work to find a resolution that would make sense for all parties involved.
Interestingly enough, that typically meant negotiating with healthcare providers and health insurance plans. In my tenure with this firm, I may have come across at least five (5) liens from private self-funded benefit plans. After much negotiation and push back from the plans, each of them were resolved. But it was not until I left that world that I realized how little personal injury attorneys actually know about the Employment Retirement Income Security Act (ERISA), self-funded health plans, and how they function in our world.
Overview of the Law:
In 1990, the United State Supreme Court ruled in FMC Corp. v. Holliday,1 that state law will not prevent a private self-funded plan governed under ERISA from obtaining reimbursement. Additionally, the Court ruled that any state law that is contrary to ERISA would be preempted if the Plan’s language so provides or there is a clear contradiction to the federal law.
For years, this law went unchallenged until 2006, when Mr. and Mrs. Sereboff were involved in a motor vehicle accident, and the Mid Atlantic Medical Services Employee Health Plan paid related claims in the amount of $74,869.37.
The Sereboff’s eventually settled their personal injury claim for $750,000.00 and did not reimburse the self-funded Plan. The Plan eventually filed suit in the U.S. District Court for the District of Maryland, claiming a right to collect from the Sereboffs under § 502(a)(3) of ERISA.
The Court ruled in Sereboff v. Mid Atlantic Medical Services2 that the federal courts have subject matter jurisdiction over actions where an ERISA-covered Plan seeks equitable relief. The Court further ruled that if an ERISA-covered Plan has paid medical benefits arising from an act or omission of a third-party for which a plan participant obtains a settled or jury award, the Plan has a right to right to enforce the terms of the Plan Document pursuant to ERISA 502(a)(3), for equitable relief.
Shortly after, the Supreme Court held again in US Airways, Inc. v. McCutchen3, that the terms of an ERISA-covered Plan would be enforced as written, despite any contrary state law or equitable principle.
This was a landmark decision as it clarified that the “common fund” and “made-whole” doctrines could be disclaimed by an ERISA Plan in their Plan Document language. Whether adopted by state statute or relying on common law, neither of these doctrines can be used to defeat the Plan’s right of full reimbursement as long as there is clear language in the Plan Document disclaiming the application of these principles.
Most recently, the Court decided in Montanile v. Board of Trustees of Nat. Elevator Industry Health Benefit Plan4, when a participant in an ERISA plan dissipates a third-party settlement on non-traceable items, the plan fiduciary may not bring suit to attach the participant's separate assets5. In other words, the Plan is only entitled to “their” money, but if it cannot be traced in an asset that was paid for with that money, then the Plan cannot sue for the member’s general assets.
Decisions to Settle and Negotiate Liens by Personal Injury Attorneys:
While working for the trench coats, I realized that large insurance carriers, such as Blue Cross, United, etc., were willing to settle without much work and negotiation. At that time, it was easier to settle those liens than trying to work out a balance with a provider and proved to be more financially sound for the member.
After negotiating with many private self-funded Plans, I realized they were, and still are, the most difficult to negotiate. Attorneys will advocate zealously for their clients, whether they are victims of a horrific car accident case, or for the Plans themselves.
I received a letter not too long ago, from a lien resolution company in California, that was fifteen pages long, filled with arguments for the Plan to reduce their lien. Interestingly enough, after doing a quick internet search, it happens to be a string of arguments that many plaintiff attorneys are making to work through the private self-funded Plans governed by ERISA.
Some of these arguments are easy to argue away, such as the common fund and made-whole arguments, especially if they are disclaimed in the Plan’s language.
The attorney from the lien resolution company was representing a member and their attorney, for reimbursement and subrogation claims. He sent me exactly what the member’s attorney had requested for a reimbursement, and interestingly enough, the Plan had previously refused to reduce their interest. He made many arguments throughout those 15 pages and frankly only two stuck out to me.
He titled one “Deficiencies in the Plan Documentation”6; in which he alleged that the Plan administrator must properly disclose any reimbursement provision to Plan beneficiaries in the Plan document.
He opined that the Ninth Circuit, 29 C.F.R. 2520.102-2(b) requires that “(1) the description of summary of [a] restrictive provision must be placed in close conjunction with the description or summary of benefits, or (2) the pages on which the restrictive provision is described must be noted adjacent to the benefit description.”7
The Court ruled that a reasonable Plan participant should not have to read every provision of a Plan’s documentation in order to ensure they have read every restrictive provision.8 The Court invalidated an inconspicuously-placed provision where the limitations for third party liability and out-of-pocket maximums were separated from the Plan’s description of benefits by multiple unrelated plan provisions, without cross-references or indexing.
Our client’s Plan had the reimbursement provision entirely isolated from other provisions of the Plan’s documentation, and as such, would be invalidated by the Ninth Circuit.
The second argument cited was titled “Out of Pocket Maximum.”9 Here, he alleged that the Plan Document provided that individual beneficiaries would not pay more than a specific amount toward medical expenses. He explained that the “Out of Pocket Maximum” should be a defined term, but in this document, it was not. He also pointed out that the Plan Document does not define the terms “reimbursement”, “subrogation”, “lien” or other terms relevant to the third-party provision.10
As a former plaintiff’s attorney, I can understand and appreciate the zealous advocacy that this attorney was providing to his client. It is difficult to balance all the interests especially when the common understanding is that the insurance companies have an abundance of money and that this lien interest would not break the bank.
In reality, after explaining the concept of self-funding and paying claims out of the pool of money for all members that pay their premiums, attorneys tend to appreciate the advocacy we provide on behalf of these Plans. These are not big bad insurance companies, as many people perceive; these are usually smaller companies, with the hope of keeping the risk low, and claims paid. The opportunity for reimbursement for third party claims keeps the premiums low for the members, a concept that eventually attorneys or members understand completely.
After reviewing these arguments with other attorneys in our office, we agreed that we should amend our major medical template to include these definitions and add references to certain places in our Flagship Plan document, in order to avoid these sorts of arguments from other attorneys in the future.
Specialists in plan document drafting and subrogation attorneys will be able to review your plan document to ensure we address all of the arguments to meet the needs of self-funded groups and their members.
1FMC Corp. v. Holliday, 498 U.S. 52 (1990)
2Sereboff v. Mid Atlantic Medical Services, 547 U.S. 356 (2006)
3US Airways, Inc. v. McCutchen, et al., 133 S.Ct. 1537 (2013)
4Montanile v. Board of Trustees of Nat. Elevator Industry Health Benefit Plan, 135 S.Ct. 651 (2016),
5Id. at 655
6John J. Rice, Esq, LTR #3 to Phia - Clariza (2018)
7Spinedex Physical Therapy USA Inc. v. United Healthcare of Arizona, Inc. (9th Cir. 2014) 770 F.3d 1282, 1295
8Id. at 1296.
9John J. Rice, Esq, LTR #3 to Phia - Clariza (2018)
Transparency in healthcare, and pricing of care, has been a hot topic – especially for those in our industry – for quite some time. That flame has been fed recently by an increase in regulatory and legislative attention. About one year ago, a bipartisan group of Senators unveiled their intention to launch a healthcare price and quality information transparency initiative, and the feedback has been all over the map.
I recently published a blog post regarding failed attempts at transparency in retail. The two examples I shared therein I’ve also described below. The response I received was passionate – from support, to opposition; it seems as if everyone feels “something” when it comes to “transparency.” Before you read any further, let me state clearly and unequivocally that I am a staunch supporter of transparency – as a concept, as well as a tool to be used in our never-ending quest to minimize costs while maximizing benefits in health coverage and care. Like so many other useful tools, however, transparency in overabundance or without other key ingredients will not only fail to move the needle (as it relates to the cost of health care) but may result in an increase in spending.
To get you up to speed, the examples of transparency (gone wrong) that I love to share are as follows –
Exhibit A: JC Penny’s. Recall in 2011, when JC Penny’s made what most experts have deemed a catastrophic, strategic mistake, regarding its pricing strategy. What horrific miscalculation did the retail giant make? It replaced “sales” (a/k/a “discount”) and “coupons” with everyday low prices. JC Penny’s told consumers: “Hey! We aren’t going to bamboozle you by inflating prices, and then throwing arbitrary discounts at you. Instead, we’ll offer you fair prices without any games.” This was one example where transparency failed miserably.
Exhibit B: Payless. If you want to buy some sneakers from Payless, you’d better do it soon. Payless ShoeSource, Inc. is closing for good. I’ve never shopped at Payless myself, but they hold a special place in my heart by virtue of something they did in November of 2018. Yes indeed; it was only a few months ago that they supported my theory that transparency without quality awareness is not only useless, but potentially dangerous. Payless opened a fake luxury store, dubbed “Palessi.” At this “boutique,” they displayed shoes (for which they normally charge $20 at their Payless stores), with price tags that ranged up to $600+ (a 1,800% markup). Shoppers saw the higher prices and assumed that – if it costs more, it must be better.
Another example of transparency that not only fails to reduce spending, but increases it, is also tethered to healthcare. Unlike many other expenses about which we industry members are dealing, (expenses for which the lion’s share of the cost is borne by the benefit plan and as such, the patient has no “skin in the game”), one example of healthcare costs for which plan participants are fully responsible to pay is over the counter pain medication. Enter any retail pharmacy and you’ll see brand name medication, and identical store brand drugs, sharing shelf space. The store brand is clearly marked with a lower price than the brand name drug – who’s price is also clearly labeled. Additionally, both medications list the ingredients on the package; identical ingredients and percentages. This is the ultimate cross-roads between healthcare, patient skin in the game, and transparency. So, of course people buy the store brand drug – it’s the same drug, costs less, and the patient is financially responsible to pay the price. Transparency works, right? Wrong! People overwhelmingly purchase the branded drug.
I’ve said it before, and I’ll say it again – people want the most expensive option. People don’t want to pay for the most expensive option, but they want to have the most expensive option.
Look no further than the credit crisis bankrupting so many Americans. Credit cards made it so easy for people to buy more than they could afford, because they made it “feel” like it was someone else’s money.
People inherently want the most expensive option, because they are convinced price is an indicator of quality. Additionally, luxury purchases are a status symbol.
So we (human beings) want the best. We assume the most expensive option must be the best option – ever hear someone say, “you get what you pay for?” Additionally, we want other people to think we have the best (a/k/a the most expensive) stuff as well. The only roadblock is that we don’t always have enough money with which to buy the best (most expensive) stuff. Drat.
But, when someone gives me a magical “card” and that “card” grants me access to deeper pockets than my own, I can now use that “card” to buy the best (a/k/a most expensive) stuff. The fact that I will tomorrow be asked to pay for that “stuff” later (either in the form of credit card payments … or … [assuming my metaphor didn’t go over your head] insurance premiums) won’t stop me from running up an unaffordable bill today.
Transparency did nothing to stop people from getting themselves into credit card debt. Transparency will do nothing to curb people’s health care spending, and I actually foresee it making things worse. Consider the proposals to have drug prices on TV advertisements. I’m watching the Patriots beat another opponent, when a commercial for Viagra pops up; (pun intended). The commercial ends by telling me the cost of the drug is $400. Next, a commercial for Cialis appears, and tells me that drug costs $600. Well – don’t I and my spouse deserve the best? Cialis it is!
I’d like to say that I am the first to spot these phenomena, but I’m not. In 2016, the Journal of the American Medical Association published a study1 that supports my assertion that transparency on its own doesn’t lead to savings. In this study, two employers offered web-based tools to their employee plan participants, providing them with “transparent” healthcare prices. It empowered these participants to compare prices and “shop around” for their care. The result? The tools were rarely accessed, despite the introduction of high deductibles. In fact, as a side note, the high deductibles caused more participants to seek more costly care, in an effort to burn through the out of pocket maximum as quickly as possible. Additionally, for the reasons already discussed earlier, researchers discovered that the participants with access to pricing ended up picking the more expensive options, more often than participants without access to pricing.
This report supports my theory above that patients always apply the type of rational behavior upon which traditional economic theory is based, especially when they are shopping for health care. Rational behavior and economics would anticipate that a consumer will buy a less costly option unless the more expensive option includes additional features worth the added expense to the consumer. That attitude, however, fails to take into account people’s need to “be seen” as affluent (and flaunt non-existent wealth), as well as their unfounded belief that if something costs more it must be better, and is worth the added expense. Consider, for instance, the blind taste tests where a person is given two glasses of wine, and they are told one is a $100 glass of wine, and the other is a $10 glass of wine. Without fail, the drinker claims the more expensive wine is better tasting – even though (you guessed it) the wine in the glasses is the same wine!
Looking at the impact of transparency on a broader scale, Professor David De Cremer of Cambridge University’s Judge Business School, published a fascinating article about transparency, and when it backfires.2 In it, he lists four negative side effects of transparency. He discusses how it: creates a culture of blame (people become hyper-focused on what they are seeing and reacting to it, rather than identify bigger picture issues, causes for those issues, and solutions); increases distrust (those whose work is constantly under the microscope feel micro-managed and unable to take risks); increases cheating (those who are constantly being watched begin to look for, and take advantage of, any opportunity to game the system when the albeit rare opportunity arises); and sparks resistance (people refuse to do any work that will be hyper-examined, protesting the lack of faith).
Finally, let’s not lose sight of the fact that not everyone agrees on what transparency in healthcare even is. Consider the Federation of American Hospitals which wrote to Congress that: “ …the healthcare price transparency initiative should focus on sharing out-of-pocket costs. Patients undergoing the same procedure could end up paying different amounts based on their health plan. Therefore, out-of-pocket cost information is more valuable to consumers … effective price transparency should involve the release of information that is clear, accessible, and actionable so that consumers easily can determine the cost of their premiums, deductibles, copayments, and non-covered services (out-of-pocket costs), prior to purchasing health insurance coverage as well as receiving medical services.” Yikes.
Dr. Niran S. Al-Agba, MD posted on the MedPage Today Professional “KevinMD Blog”3 – “Comprehensive transparency is only relevant if packaged in a reliable comparative context. Information regarding cost, value, and effectiveness should be readily accessible to patients enabling them to make meaningful comparisons across providers and specialists. However, choices must be incentivized properly, so they are not only empowered but also motivated to use the information to make informed choices.” I totally agree. Unless and until reliable quality measurements are included in the transparency discussion, and that information is delivered in such a way that the consumer will understand and appreciate that price has no relationship with quality, I fear “price transparency” on its own is not only a step too short, but potentially a step backwards, in Palessi boots.
Have you ever wondered whether you paid more for your flight than the person next to you on the airplane? What about whether you could be doing more (or less) to save money and time? I’m confident we all frequently ponder what we can do differently to save.
Whether big or small savings, we’re constantly looking for ways save money in all areas of our life. Dinner budgets, car insurance, clothes, general spending - you name it and surely, we have contemplated whether we can reduce that expense. But we also try to balance cost against convenience, expecting to save money and time. For example, we can click a couple of buttons on our phone and groceries appear at our doorstep two hours later, saving us both money and time.
Can we say the same for our self-funded plan documents? Regulatory changes and medical technologies are continually advancing. Why aren’t we applying these new technologies, endeavoring to save money and time, to our self-funded plans? It’s probably because we don’t know how to get started.
Hopefully this discussion will help provide a framework to allow employers and plans to implement new medical technologies and other time and cost savers! We will break down some steps to help simplify implementation of new regulations and technologies.
Step 1: Ask Questions!
When approached about a new idea ask this question - what problem are you trying to solve? Not only is it key to understand what problem the new idea, new regulation, or new technology would be solving, but it is imperative to first determine whether it is a problem that needs to be solved!
When it comes to savings, time is money too. As a result, the first part of an analysis should be ensuring that the full scope of the problem requiring resolution is realized. What is ‘costing’ the most … time, money, or both?
After understanding the extent of the problem, review whether the idea would mitigate or eliminate the problem. For example, assume Fictitious Company A has the proven and medically (and dentally) backed solution to effectively reduce the cost of elective cosmetic dental surgeries by 50% for a low monthly cost to the plan. An employer might think that would be fantastic, but after reviewing a copy of the plan document and summary plan description realized that elective cosmetic dental surgeries are excluded. In that example, even though real savings could exist, the solution does not solve a problem for the employer (i.e. with an exclusion the employer pays 0% for elective cosmetic dental surgeries).
Assume instead that the employer was hoping to remove the exclusion for elective cosmetic dental surgeries. Employer wants to offer this benefit to participants of the self-funded plan it sponsors but wants to control costs. The services offered by Fictitious Company A might be a perfect fit! Here, the idea solves a problem for the employer.
The next set of questions should aim to proactively troubleshoot barriers to implementation of the idea. How can hurdles be eliminated and what alternatives exist to address the concerns? Is there a way to take the hurdle and create an opportunity?
For example, many states are implementing paid family leave laws. For employers, the problem that needs to be solved here is investigating what must be done to comply, how must it be done, and how can it be financed. In addition to understanding what state regulations would apply, employers may wish to review their current plan materials. Does the employer currently have a policy in place that addresses the regulations? If not, can you make updates to existing benefits? Would this be a good opportunity to investigate whether establishing a self-funded benefit might solve the problem, while offering employer convenience and cost savings?
Assuming the answer is yes, the next step would be to investigate any impediments.
Step 2: Investigate Impediments
It’s important to investigate impediments to an employer’s or plan’s ability to successfully implement a valuable idea. This requires understanding what agreements should be in place, certain legal hurdles that could prevent taking further steps, and whether the claims systems would need changes to address the new technology or solution.
For example, assume a self-funded plan has many members seeking various chronic pain treatments. A progressive employer, looking to offer an alternative to high cost treatments, investigates medical cannabis. Coverage of this benefit would save the plan money. In this case, the employer is located in a state that has legalized medical cannabis. The employer decides to investigate modification of the plan design. Upon investigation, the employer uncovers that the addition of this benefit would be problematic. While legal at the state level, it is still considered a schedule I drug under federal law. As a result, it may not be prescribed for medical use (See Section II ‘General Requirements’ of the Practitioner’s Manual from documentation issued by the United States Department of Justice, Drug Enforcement Agency, Office of Diversion Control for additional information). With this discovery, the employer decides that while coverage may be beneficial, medical cannabis is not a prudent addition to the plan terms.
Alternatively, let’s assume that instead of medical cannabis the benefit that the employer wanted to cover was Chronic Pain Treatment B, a brand-new cutting-edge medical technology. Upon investigation, the employer identifies that there are no legal hurdles; however, it determines that this new medical technology is considered investigational and experimental. Not only does the plan have a current exclusion for items considered investigational and experimental, but an applicable stop loss policy would not provide reimbursement for related claims.
Now, assume the same facts as above, except the medical technology in this instance is not considered investigational or experimental. The employer would seek to determine whether any executed agreements would impact implementation. Would a new agreement need to be executed, would that agreement conflict with any existing agreements (i.e. stop loss policy, network agreement, PBM agreement, etc.)? Assuming no conflicts, the employer could implement the new solution or technology.
Step 3: Implementation
A solution free of impediments has been identified to solve a problem. Does implementation of the solution require a plan update? If so, does the solution create a new benefit or reduce a current benefit? Will the solution be implemented mid-year via an amendment or at plan renewal? Will other documents need to be updated as well, like the Summary of Benefits and Coverage (SBC)? Are there concerns about the Affordable Care Act (ACA) or the Employee Retirement Income Security Act (ERISA) timelines or rules?
For example, assume an employer wants to implement New Benefit C. This new (FDA-approved) technology will save patients and the plan both time and money. The new technology, however, is so new that claims systems have not been updated to accommodate this type of service. New Benefit C is offered in collaboration with a common medical treatment, but it is unclear how coding for New Benefit C would be handled. In this example, the administrator would need to be aware of how this would be identified to ensure correct processing. Simple adoption (or modification or removal) of plan language may not be enough; a review of how (or whether) a claim may be processed is also necessary.
Instead, assume an employer wants to offer more expansive leave of absence provisions for its employees. The employer modifies the employee handbook and has a staff meeting to address the new provisions. The employer, however, fails to address this policy change in the relevant plan materials, or with the stop loss carrier. As a result, implementation of the benefit may inadvertently create a coverage gap among stop loss coverage, the plan document, and the employee handbook. When implementing a new benefit, it is imperative to analyze the impact on other entities.
Step 4: Engagement
Engagement is going to help make the idea or solution successful. At this point, a problem was identified, a solution was envisioned, and implementation was completed. How can the employer or plan ensure the idea or solution is being utilized, since utilization is the key to success (i.e. savings)?
For example, assume an employer opted to add a new plan option to the current plan design at renewal. This new plan option includes direct primary care but will require participants to affirmatively elect that option. This plan option should not only be enticing for participants, but it has the opportunity to save the plan money. Since the employer’s participants are unaware of direct primary care the employer elects to hold an educational meeting. This session educates participants about direct primary care and what new and exciting benefits are be available under this new plan option.
In addition to educational meetings to inform participants of new benefits, employers can encourage engagement by financially incentivizing programs. For example, employers can reduce copays to encourage utilization of the new idea or solution.
Employers can also seek ways to encourage engagement outside of the plan design. For example, why not incentivize employees to ask questions about health benefit options available to them? An employer could create a program offering a reward if an employee voluntarily opted to chat with human resources about a planned treatment.
A combination of education, incentives (or penalties), and employee rewards can help employers ensure engagement in programs that are designed to protect participants and save the plan money.
Don’t let new advances pass by! Keep the plan in check and on trend with the latest and greatest healthcare innovations without sacrificing compliance. Follow this simple framework to ensure new ideas are successfully implemented so the plan, employer and members stay happy - and realize savings!