Your employer clients should not get too comfortable about having avoided employee lawsuits over how they have managed their medical and pharmacy benefit plans, nor should you become complacent about the growing need for transparent pricing of your services.
Experts warn lawsuits are imminent and liken them to the ERISA class-action complaints many faced related to 401(k) plan or pension benefit management practices and fees paid to third-party administrators.
The umbrella of laws under the
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The CAA clarifies that
Most employers know how much they are paying in direct administration fees to their vendors, but they do not know what other fees, surplus, or revenue may be collected (and hidden) through medical and prescription drug claim payments. They also may not know how much indirect compensation is being paid (e.g., a percentage of their drug costs or spread pricing). Not knowing the indirect compensation may be a violation of the employer's fiduciary duty to their employees.
Law firms are beginning to solicit plaintiffs with targeted messaging aimed at employees of large employers like Walgreens, Target and State Farm to join them in class-action lawsuits. Other employers should assume these ads will eventually target their employees. One major
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Employers should be able to provide an audit trail that demonstrates they did more than accept one of the vendors' many excuses not to give them required direct and indirect fee disclosures and data the CAA gives employers the right to obtain. Vendors may say data is proprietary, subject to HIPAA, or they may point to contract provisions that limit or prohibit auditing of claims data.
However, contracts typically specify that vendors have an obligation to comply with the law, including regulations around providing employers with data fields concerning charged and paid claim amounts. The obligation to comply with federal and state law overrides any contract provisions that may limit access to data, particularly if those provisions are being used to interfere with or limit the vendor's statutory or regulatory obligations.
Other than auditing of a few "randomly selected" claims by the carrier administrating the claims to ensure they were paid correctly, some employers are not using independent, non-conflicted sources to fully review their plans for prudent administration. This may leave them vulnerable to lawsuits.
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In addition, those relying on their long-term employee benefit consultants to audit their plans may face challenges that indicate a need to change to a new strategy. For example, a consultant may complete an audit resulting in the employer having to decide what to do about a vendor keeping 38% vs. 6% of rebates or taking 36% on spread without disclosing that to the employer. Keeping 6% may be reasonable compensation, but if it is 38%, the employer shouldn't have to "discover" this due to lack of disclosure.
If the consultant conducting the audit was also involved in the contractual negotiations that led to such harmful gaps, the employers should not be paying them to disclose the very gaps they were responsible for creating. In addition, a benefits consultant should assist in assuring that outdated contractual audit provisions that limit the number of claims that can be reviewed, the scope and frequency of reviews are replaced with explicit language requiring carrier cooperation with the employer's independent ongoing claim review firm of choice. If this has not been addressed, the employer is left severely restricted on its ability to meet fiduciary obligations.
Benefits personnel have an obligation to warn their legal counsel and C-suite that the risk of lawsuits does exist and to take affirmative steps to prepare for, or even prevent, lawsuits. The same thinking applies should they go as far as sue vendor partners for not providing the information and data necessary for the employer to discharge fully its obligations to its employees. This is already happening today as evidenced by lawsuits brought by
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Employers should use caution around managing their prescription drug benefits designs. Many pharmacy benefit managers (PBMs) and carriers are persuading plans to exclude essential pharmacy benefits so the plan can leverage pharmaceutical company drug assistance programs to pay for the drugs.
Some employers are using alternative funding programs that encourage plan coverage exclusions of targeted high-cost drugs to facilitate use of associated financial assistance programs available for uninsured or underinsured patients. Since the drugs are excluded from coverage, the member qualifies as uninsured. These programs are known to cause delays in members initially getting essential care while waiting for approvals of alternative funding and interruptions in care when alternative funding reaches the maximum funding level. This leaves the member uninsured or needing to seek a plan exclusion waiver. It is a matter of time before these delays and interruptions cause members to call out employers for placing cost savings above patient safety.
In addition, when funds from financial assistance programs are not applied to an employee's deductible or out-of-pocket limits, this type of strategy may cause them to defer other medical care or drug treatments and may be illegal based on recent legislation.
Employers also must understand the drivers for how a drug formulary is developed. If rebates from the manufacturers to the carrier or PBM are used to bargain for exclusive coverage of the manufacturer's drugs, this may favor cost-savings over safety and efficacy and can place the employer at potential legal risk. In addition, when drugs on formulary are primarily chosen based on rebates, it can potentially lead to patients receiving less than effective drugs for their treatment.
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Today's employer clearly needs to reduce its risk of litigation or liability. Here are some important action steps to help your clients prepare for this new regulatory climate:
- Gain contractual ongoing access to employer data to include all monies paid from the plan or members of the plan to the carrier or PBM or a health care provider, as a direct or indirect result of a covered member's claim for services covered under the plan.
- Remove restrictive contractual audit provisions and insert requirements of ongoing collaboration between the carrier or PBM with an independent vendor of choice.
- Hire an independent data analytics company not affiliated with existing carriers, service providers or consultants to conduct ongoing audits of all monies paid from the plan or from members of the plan to the carrier, PBM or a health care provider as a direct or indirect result of a covered member's claim for services covered under the plan.
- Correct all undesirable audit findings that could directly or indirectly cause harm to plan members or the plan.
- Document the procedures used to audit the plan, findings, action steps taken to correct undesirable findings and follow up to ensure corrections were completed and successful.
- Analyze company data for fraud, waste or abuse; financially quantify the impact of findings on the plan and plan members and implement a mutually agreeable plan for recovery of losses.
- Review all contracts for gag clauses and problematic terms that lock the employer into agreements or restrict their ability to independently assess performance.
- Meet with an ERISA attorney and internal legal counsel to discuss potential liability and market lawsuits to both raise awareness and preparation.
- Meet with risk-management and leadership teams to raise awareness and ensure the plan is protected in the event legislation or litigation affects the plan.
- Create an ongoing performance review scorecard for all third-party service providers to ensure ongoing compliance with the CAA and other regulations.
It's not a matter of if, but when, employers will potentially face employee lawsuits related to the management of their medical and pharmacy benefit plans. It's critical employers use the CAA to their benefit and take steps now to prepare for and mitigate their litigation risks. By the same token, benefit brokers and advisers face a significant opportunity to embrace calls for greater transparency, and in the process, solidify client relations.
