A Historic Opioid Settlement Could Present Opportunities for Insurers to Seek Reimbursement By: Brady Bizarro, Esq. On November 1, 2022, major media outlets reported that the nation’s three largest retail pharmacies – CVS, Walgreens, and Walmart – had agreed in principle to pay $13.8 billion in damages in a settlement to resolve thousands of claims related to the opioid epidemic. Due to the uniquely insidious nature of opioid addiction and the truly devastating scale of the crisis, hundreds of thousands of Americans have lost their lives, families have been shattered, and governments and health insurers alike have spent tens of billions of dollars on rehabilitation and increased claim costs. If this settlement proceeds, as appears very likely as of this writing, insurers, including self-funded plan sponsors, could have new opportunities to recover funds on behalf of their plan participants. Readers may recall earlier settlements related to the opioid crisis, totaling tens of billions of dollars, that were reached between many state attorneys general and drug manufacturers, including Purdue Pharma. This settlement is notable not only for its size but also because it would be the first nationwide deal reached with retail pharmacies. The claims at issue were brought by states, localities, and tribal entities. Why would these pharmacy chains agree to settle such claims? This is mostly because evidence emerged in various trials, during the discovery process, that executives at these companies ignored repeated warnings from their own pharmacists that their dispensing actions were fueling the opioid crisis. According to the Centers for Disease Control and Prevention, prescription opioids can be up to 50 times more powerful and addictive than heroin. In 2021, as many as 100,000 Americans died from drug overdoses. Not all of these deaths were caused by prescription painkillers, but the vast majority of them were caused by opioids, both synthetic opioids and prescription opioids. The recent COVID-19 pandemic and the burgeoning nationwide mental health crisis have caused overdose deaths to spike in recent months; a trend which the data suggests will continue into next year. The economic toll of the opioid crisis cannot be overstated. In late September, the Joint Economic Committee of the U.S. Congress release a detailed report revealing that the opioid crisis has cost the country nearly $1.5 trillion in economic losses in 2020 alone. For health insurers, the cost has skyrocketed over the past few years, reaching well into the tens of billions of dollars. The scope and size of opioid-related claims may not be entirely obvious, even to seasoned industry veterans, and so they are worth reviewing here. A 2018 report from BioMed Central (BMC) concluded that “[i]ndividuals with high-risk prescription opioid use have significantly higher healthcare costs and utilization than their counterparts, especially those with chronic high-dose opioid use.” This study’s findings are in line with numerous other studies conducted by esteemed medical research institutions, including the Johns Hopkins Bloomberg School of Public Health. The BMC report demonstrated that the average claim cost for an employee who is prescribed a single opioid increased by a factor of four to eight. The specific claim costs the authors focused on were addiction treatment, rehabilitation, emergency room visits, death, and obviously, increased prescription drug costs. The most recent data available from Peterson-Kaiser Family Foundation, going back to 2016, reveals that the cost to large employers has jumped significantly, to $2.6 billion in 2016, up from $300 million in 2004, a more than nine-fold increase. Put another way, FAIR Health, which owns and continuously updates a database of more than 21 billion claims from privately insured individuals, concluded back in 2015 that “on average, private insurers and employers providing self-funded plans paid nearly $16,000 more per patient for those with diagnoses of opioid abuse or dependence than for those with any diagnosis.” As the human and economic tolls have come increasingly into focus, it should be no surprise that thousands of lawsuits have been filed against drug manufacturers, physicians, pharmacies. Litigation related to the opioid crisis is likely to continue for many years in suits brought by individuals, government entities, and insurers all of stripes. Indeed, there are numerous law firms working together to assemble litigation teams to help insurers recoup opioid-related costs. One obvious way to do this is for insurers to become part of nationwide opioid litigation, joining these cases (or initiating them) as plaintiffs. Another, perhaps less obvious way, is on the back end, in the form of subrogation. Many, if not most, of the thousands of lawsuits related to the opioid crisis will eventually end in settlements. For health insurers, this result, depending on the terms of the settlement, and any applicable law, may actually be more beneficial as it relates to recovering claim costs than relying on a judgment imposed by a court. For one thing, health insurers, especially smaller self-funded plans with limited resources, are not likely to be able to join most lawsuits on the front end. Even if a self-funded plan was able to track down and join a particular lawsuit in any given state, it is exceedingly unclear to what extent a health insurer’s claims will be prioritized in any given judgment, especially since the families of victims are almost certain to receive the lion’s share of any financial compensation, followed closely by federal, state, local, and tribal governments. A large share of the money received in most opioid-related settlements is paid out to government entities and designated to be invested in drug rehabilitation programs and efforts to respond to the ongoing opioid epidemic. Another, often equally substantial share, is reserved to establish victim restitution funds. True, victim restitution funds can be set up as a result of court judgments, but those set up pursuant to settlement agreements are often less restrictive. In most cases, when a victim restitution fund is established, whether by judgment or settlement, self-funded health plans have legitimate opportunities for recovery against amounts received by victims. Arguably, plan sponsors have a duty to pursue recovery opportunities against victim restitution funds, when practical. Even within the context of opioid-related litigation and settlements, plan sponsors have a fiduciary duty to act prudently with plan assets. This means that plan sponsors should be looking to employ legal, practical means of recovery for the billions of dollars they have collectively spent on opioid-related claim costs. In fact, there have already been examples of recoveries obtained by victims of the opioid crisis from trusts established after bankruptcy proceedings for opioid manufacturers, and there will undoubtedly be many more examples going forward as a result of settlement agreements. One such example involves Mallinckrodt Plc, an opioid manufacturer that filed a Chapter 11 bankruptcy proceeding in 2020, in the U.S. Bankruptcy Court for the District of Delaware. Mallinckrodt’s Chapter 11 Plan of Reorganization took effect on June 16, 2022. As part of that Plan, the Court approved the establishment of the Mallinckrodt Opioid Personal Injury Trust. The Court also drafted procedures by which funds from the Trust could be dispersed, accounting for subrogation and reimbursement claims. In this, what would be the first-of-its-kind settlement with nationwide pharmacy chains related to the opioid epidemic, it is likely that a victim restitution fund will be established. If it is, it would present a new opportunity for plan sponsors to recover some of the claim costs they have incurred throughout the opioid epidemic. It will also likely serve as a blueprint for future settlements with pharmacy chains as long, arduous legal battles continue to play out. In Subrogation: Superior Contract Language Matters By: Scott Byerley, Esq. The United States Congress enacted the Employee Retirement Income Security Act ("ERISA") in 1974 to protect employees and place requirements on pension and health care plans. The legislation arose from the discourse and fallout that occurred after Studebaker-Packard (Studebaker), an automobile manufacturer that was very poorly fiscally managed, closed its plant in South Bend, Indiana, effectively eliminating employee pensions for thousands of employees. The problem wasn’t a new one or limited to Studebaker’s closure, which came about in 1963, but rather a systemic one: the lack of corporate accountability in financial reporting and management of pension and health care plans poses significant risks, prompting Congress to protect employees nationwide.  Since that time, ERISA qualified employer-sponsored pension and health care plans preempt state laws and, as such, are exclusively regulated by ERISA (and the resultant federal cases that interpret ERISA throughout the jurisdiction of the United States). To be clear, ERISA is by no means a simple piece of legislation, and courts have often been called to interpret provisions of the statute in relation to employer-sponsored pensions, health plans and their respective beneficiaries. In fact, over the past six decades, the U.S. Supreme Court has made several landmark rulings on health care subrogation cases, specifically impacting the interpretation and understanding of ERISA’s reach in this area, as well as its restrictions on both employers and employees. This article will focus on health care subrogation from an employer’s perspective under ERISA, highlighting key ERISA requirements and outlining the best way to protect the assets of an employer-sponsored fund expressly in the plan’s contract with the plan member. From the outset, when a confirmed ERISA plan member has been injured due to an accident potentially caused by a third-party (someone other than the plan member), it is important to gather as much information about the accident and the plan as possible. As an employer-sponsored plan, it should be easy to determine of which plan the member is an active participant and accordingly eligible for benefits. However, for employees of larger organizations, there may be different plan designs and coverage options, so it is always best to confirm exactly which plan the member is participating in and therefore which plan they are eligible for benefits under when an accident or injury has occurred. It is important to note, however, that not all health care plans are ERISA plans. ERISA, as will be discussed in depth below, has granted protections to plans and plan beneficiaries that improve a plan’s ability to recover against a responsible third-party if the right steps are taken to protect the plan. First, in order to qualify as an ERISA plan and to maintain a cause of action under ERISA, § 502 (a) (3) (B)  , the plan needs to be defined as an “employee welfare benefit plan” or “employee pension benefit plan.”  Moreover, the ERISA-governed plan must be established by the plan sponsor and maintained by a “written instrument.”  Lastly, while almost all private employer plans are subject to ERISA, church, governmental and state plans are generally excluded.  For the sake of subrogation claims, once the employer or its recovery agent has confirmed the plan is governed by ERISA, then the plan fiduciaries, plan participants, and beneficiaries must look to § 502(a)  to determine the applicable causes of action. Moreover, ERISA § 502 (a)(1)(B) allows a “participant” or “beneficiary” to bring an action (1) “to recover benefits due under the plan,” (2) “to enforce rights under the terms of the plan,” or (3) “to clarify his/her rights to future benefits under the terms of the plan.”  The § 502 (a)(1)(B) claim may be brought in either state or federal court.  ERISA § 502(a)(3) allows a “fiduciary, participant, or beneficiary” (1) “to enjoin any act or practice which violates the terms of the plan,” or (2) “to obtain other appropriate equitable relief to either redress violations or to enforce the provisions of ERISA or the terms of the plan.”  With respect to actions brought under ERISA § 502(a)(3), the statute grants federal courts exclusive jurisdiction over these claims.  An employer or its recovery agent should be careful to confirm the ERISA status and to not make the costly mistake of trying to treat a fully insured health plan the same as a self-funded ERISA plan. To be clear, a fully insured health plan exists when the employer has purchased a group insurance policy from a health plan, insurer, or HMO to cover the health care claims that arise under the plan. The other defining feature of a fully insured health plan is that state law would apply to its reimbursement rights.  Since health care subrogation law varies from state to state and is often more restrictive to a plan’s recovery rights than ERISA federal law, every attempt to clarify the ERISA status and preemptive rights should be made. It’s often not easy to tell by the outward observance of plan operations, without delving into the plan documents and founding instruments of the plan. In short, a self-funded ERISA plan is a plan sponsored by the employer and funded by contributions directly from its employees.  In most scenarios, self-funded plans contract separately with a third-party administrator ("TPA") to administer claims under the plan (although the claims are funded and paid with the employer’s and employee’s contributions alone and not by any purchased insurance policy). Utilizing a TPA is allowed under ERISA because although the TPA assists the plan in processing and paying claims, it is still the self-funded plan that bears the risk for the claims.  Furthermore, self-funded plans also preempt state laws (not federal) that relate to employee benefit plans or regulate insurance.  To determine the employer plan’s rights, the contract between the plan (employer) and the beneficiary is the first place to look.  The contract, the Master Service Agreement ("MSA") or Summary Plan Description ("SPD"), typically includes a provision which outlines the rights of each party to the contract under multiple benefit related scenarios, including payment of claims and/or responsibility for payment of claims or reimbursement of monies paid for claims when an injury or accident has occurred that may be deemed the responsibility of a third-party. Once you have the document, be prudent in making sure that it is the actual plan document that governs the benefits being paid and is not simply an SPD. In Cigna v. Amara, the Court found that the CIGNA SPD was not a “plan document,” as it was only a summary and therefore did not properly outline all applicable plan provisions of an actual “plan document.” Moreover, the Court held that only the terms of a plan (MSA and/or plan document) are enforceable, not the terms set forth in summaries.  When an accident or injury involves a member of an ERISA plan, the employer-sponsored health plan must have expressly stated its very strong recovery rights in the plan document, addressing key issues that have been litigated through the years, many of which have been decided by the U.S. Supreme Court. Moreover, the recovery provision addressing the plan’s rights when an at-fault third-party causes injury to the plan member is critical for determining the employer’s right to be reimbursed from any recovery made from said third-party for claims paid on the injured employee’s behalf. In U.S. Airways, Inc., v. McCutchen , a landmark U.S. Supreme Court case, the Court addressed the enforceability of a plan’s contract head-on when ascertaining each party’s respective rights when a recovery is made by an injured plan member. The case in McCutchen  arose, when James McCutchen, an employee of U.S. Airways, participated in and received benefits from the company’s self-funded health plan. Unfortunately, McCutchen, while covered under the plan, was injured in a motor vehicle accident, sustaining significant injuries that necessitated the plan paying $66,866 for medical treatment on his behalf. As a result of his injuries, McCutchen filed a lawsuit against the third-party who caused the accident. He subsequently recovered $110,000 from the third-party’s liability policy and his own underinsured motorist coverage. The plan (employer) sought from his recovery the amount which they had expended on his behalf, relying on the following plan language from the contract: If [the plan] pays benefits for any claim you incur as the result of negligence, willful misconduct, or actions of a third-party…[y]ou will be required to reimburse for amounts paid for claims out of any monies recovered from third-party, including, but not limited to, your own insurance company as a result of the judgment, settlement or otherwise.  The Court held that the “clear and unambiguous” contract language in the actual plan document/agreement between the employer and the employee controls a plan’s right to be reimbursed from the settlement against the at-fault third-party .  Key Issues that should be addressed and included in the plan language in support of the Employer’s recovery rights: The plan has a first priority right to recovery from the settlement/monies available to the injured plan member as a result of the accident or injury. The plan should require recovery from the plan member’s recovery or directly from the at-fault third-party regardless of whether the plan member has been partially or fully compensated for third-party injuries from the available total recovery. The member’s recovery shall not be construed as being only for pain and suffering and must include the medical claims paid by the employer. The plan will not participate in the common fund (paying for the employee’s personal injury legal fees) or in the ascertaining of the settlement or recovery on behalf of the member. The member shall bear sole responsibility for the costs of obtaining the recovery. What is expressly written in the plan document matters as where the plan is silent or ambiguous, the plan member will have an equitable defense where there is a “gap” in the language.  While McCutchen was a great result for those responsible for protecting the plan’s assets when a plan member has been injured because of a third-party accident, it does place a responsibility on the plan to have the proper recovery language expressly written into the plan document’s subrogation provision. Moreover, the plan must have clear and strong terms of reimbursement in its written contracts for when these accidents and injuries to the plan’s beneficiaries arise. Ignorance of the law or how to address it is no excuse. The language is either there or it’s not. If it’s not in the contract, then the employer may not be able to recover the benefits that it paid out for the accident. Additionally, in that instance of missing language, the Court allowed plan beneficiaries to argue equitable defenses against the plan’s alleged recovery rights.  So, what does all this mean for employers and sponsors of self-funded ERISA health plans? First, the plan has a fiduciary obligation to protect the fund, and, secondly, unlike when there is an insurance policy, this money is contributed by employees and set aside for them to actually “fund” the plan to pay for coverable claims from the “fund” when an employee/plan member requires medical treatment. It is the plan’s fiduciary responsibility to proceed in the best interest of the plan and its participants and beneficiaries to protect plan assets. By not having the right language in the contract with the employee, the employer may be unable to recover from the third-party settlement and subject itself to a claim for breach of its fiduciary obligation to ALL plan members of the fund for inadequately protecting plan assets. Indeed, this is a tricky landscape to navigate properly. For that reason and given what’s at stake for the plan, employers are strongly recommended to consult with experts to ensure they are doing all they can to protect plan assets in such matters that are often litigated by plaintiff’s attorneys seeking to maximize recovery for their client, the injured plaintiff/employee.  Sarah Steers, ERISA History, Jurist, (Oct. 4, 2013, 12:01 PM), http://www.jurist.org/feature/2013/10/erisa-history.php.  § 502(a)(3), 29 U.S.C. § 1132(a)(3).  29 U.S.C. § 1002 (3).  29 U.S.C. § 1102 (a)(1).  ERISA § 4, 29 U.S.C. 1003.  29 U.S.C. § 1132  ERISA §502(a)(1)(B), 29 U.S.C. §1132(a)(1)(B).  Id.  Id.  Id.  FMC Corp. v. Holliday , 498 U.S. 52 (1990).  John MacDonald, Health Plan Differences: Fully-Insured vs. Self-Insured, Employee Benefit Research Institute, www.ebri.org/.../ffe114.11feb09.fin .  Id.  FMC Corp., supra note 15.  U.S. Airways, Inc., v. McCutchen , 133 S. Ct. 1537 (2013).  Id.  Id . at 1543.  Id . at 1543.  Id.  Id.  Id.