Why should financial executives at hospitals care about ERISA? The Employee Retirement Income Security Act of 1974 came about because in the mid-1960s the Studebaker automobile company went bankrupt and the retired employees lost their retirement benefits. Congress passed this law to assure other retirees that this would not happen to them. So how is this relevant to hospital financial executives?
The SPD and ERISA become very relevant for hospital financial executives when dealing with patients who are covered by an employer's self-funded plan. Somewhere between 50 and 75 percent (it varies from state to state) of the people with commercial insurance cards are covered by a self-funded employer program where the insurance carrier is only processing the claims — the employer is paying the bills.
Although ERISA requires reimbursement at levels outlined by the SPD (for example, 80 percent of charges), reimbursement for many patients covered by self-insured plans actually falls below SPD levels. This is because the self-insured organizations contract with an insurer to access its network of providers at discounted rates, and the insurers then contract with hospitals at rates lower than the SPD. Hospitals, rather than carving out higher reimbursement levels for employees of self-insured organizations, accept the terms for all patients — both those for whom the insurer assumes the risk and those for whom the insurer is simply administering the plan. This one-size-fits-all approach is much easier to administer, but it is much less favorable for the hospital. By negotiating with insurers to receive full SPD rates, hospitals can significantly increase their bottom lines.
However, virtually all hospitals that enter into a contract with a commercial insurance carrier agree to not "balance bill" patients. This means the hospital is prohibited from asking Joe to make up the remaining charges. Therefore, Joe hasn't really been harmed. He pays his 20 percent, and the difference between the 80 percent that Apex was supposed to pay and the 50 percent it actually paid is not billed to anyone; it's essentially lost revenue for the hospital.
It's fairly obvious that hospitals that are able to obtain SPD reimbursement levels will increase their net revenue. However, a big question for hospitals is: How do they get SPD rates?
This is to the hospitals advantage for two key reasons:
So, let's return to the Apex example. The provider could assemble all of a payor's denials for Apex employees going back the last nine and a half years and check to see if the denials are supported by the SPD. Under assignment of benefits, Apex is obligated to provide providers with the SPD, which will define what is covered and what is not covered. For each claim that has a denial that is not supported by the SPD, calculate the difference between gross charges and what was paid. Typically, the sum you arrive upon is how much Apex owes you. Apex owes you this sum because the discount negotiated by the carrier was dependent upon the carrier paying for the services outlined in the SPD. If the carrier did not pay approve the services received by the patient according to the SPD, there should be no discount (unless in rare cases where you have a contract that says you give discounts without any requirements on the part of the carrier).
ABC Insurance may also be liable because it has acted as the plan administrator. Under the Supreme Court's decision in CIGNA Corp v. Amara, the Court, in referring to Amara's employees says: "CIGNA's notice violations caused it employees sufficient injury to warrant legal relief."
The real value in this exercise is to use this as leverage with the insurance company to obtain SPD rates. Approach ABC Insurer and explain you have a claim against their client Apex for a certain amount of dollars because of ABC's mishandling of the various claims you have assembled. Because insurer's act in their own self interest, it's likely they'll want to avoid your going after Apex. Be aware though that the person you are negotiating with may not be overly familiar with ERISA, so be ready to explain ERISA rules and your ability to pursue the funds.
Since ERISA is a federal law, it preempts state law when the two overlap and are not in agreement. However, settlements under ERISA are less common than settlements under state law because ERISA is often less attractive to plaintiff attorneys; the attorneys' fees and punitive awards are usually smaller under ERISA than in state courts. And since the assignments have only been available since 2003, there hasn't been much history with ERISA claims compared to state court claims against insurance carriers.
Next, explain to the representative that you don't want to have to go to the plan administrator at Apex to demand back payments, and that you don't want to be the one to inform Apex's plan administrator that his or her insurance carrier has made him or her personally liable for both civil and criminal penalties under ERISA.[3] Use this leverage to request the carrier amend your agreement so that you are paid according to the SPD parameters for its self-funded clients. Patients who are covered by policies underwritten by the carrier will be paid according to the current agreement, but those patients whose insurance is just being administered by the carrier will be paid according to their employer’s health benefit plan parameters.
In most cases, that change in payment should result in a double digit increase to your bottom line! While the process can be an arduous one, there is such a financial upside that providers should consider whether these steps can be replicated by their own organizations.
Footnotes:
[1]Federal Register Volume 65, No. 225 page 70268 middle column subparagraph (g)
[2] Federal Register Volume 75, No.141 page 43356 leftmost column para (F)
[3] Title 29 U.S.C.§ 1131 and Title 29 Chapter 18 Subchapter I Subtitle B part 5 Sec.1140
Appeals Court Rules Health Plan Administrator Abused Discretion in Determining Discounted Rate was "Unreasonable," Case May Have Implications for OON Providers
Using ERISA to get higher reimbursement rates
While ERISA deals mainly with pension plan benefits, it also has a section that deals with health benefits. One of the ERISA requirements is that each employee that receives health benefits gets a document that outlines what those benefits are every year. This Summary Plan Description, or SPD, is supposed to explain in plain English what your health benefits are. It provides information on coverage levels and what is included and excluded in the plan; if a hospitalization service or benefit is not explicitly excluded, it is generally considered to be included. ERISA guarantees that the employees receive what is offered in the health benefits plan offered by the employer.The SPD and ERISA become very relevant for hospital financial executives when dealing with patients who are covered by an employer's self-funded plan. Somewhere between 50 and 75 percent (it varies from state to state) of the people with commercial insurance cards are covered by a self-funded employer program where the insurance carrier is only processing the claims — the employer is paying the bills.
Although ERISA requires reimbursement at levels outlined by the SPD (for example, 80 percent of charges), reimbursement for many patients covered by self-insured plans actually falls below SPD levels. This is because the self-insured organizations contract with an insurer to access its network of providers at discounted rates, and the insurers then contract with hospitals at rates lower than the SPD. Hospitals, rather than carving out higher reimbursement levels for employees of self-insured organizations, accept the terms for all patients — both those for whom the insurer assumes the risk and those for whom the insurer is simply administering the plan. This one-size-fits-all approach is much easier to administer, but it is much less favorable for the hospital. By negotiating with insurers to receive full SPD rates, hospitals can significantly increase their bottom lines.
An example: Apex
Let's look at an example. Joe works for Apex, and Apex's health plan covers 80 percent of charges for in-network hospitals and 60 percent of charges for out-of-network hospitals. Apex hires ABC Insurer to administer its plan. The managed care agreement ABC offers to the in-network hospital pays 50 percent of charges. ABC doesn't have a contract with Joe; it has a contract with Apex and with the hospital. In theory, Apex has not lived up to its part of the healthcare agreement because Joe has not received 80 percent coverage.However, virtually all hospitals that enter into a contract with a commercial insurance carrier agree to not "balance bill" patients. This means the hospital is prohibited from asking Joe to make up the remaining charges. Therefore, Joe hasn't really been harmed. He pays his 20 percent, and the difference between the 80 percent that Apex was supposed to pay and the 50 percent it actually paid is not billed to anyone; it's essentially lost revenue for the hospital.
It's fairly obvious that hospitals that are able to obtain SPD reimbursement levels will increase their net revenue. However, a big question for hospitals is: How do they get SPD rates?
How to obtain SPD rates
There are a couple of options available.- Going out-of-network. The first is to consider not contracting with the insurer and becoming an out-of-network provider. While this may not be viable for all hospitals, those that can maintain similar volumes out-of-network may increase their bottom line by going out-of-network if a significant portion of their patients are on self-funded plans. In the Apex example, the 60 percent of charges the hospital would receive as an out-of-network facility would be higher than the 50 percent available with the ABC contract, and the hospital could bill the patient for the remaining 40 percent of charges. Some hospitals, however, offer a prompt-pay discount which reduces the patient's out-of-pocket expense back down to 20 percent of charges.
- Using leverage to negotiate SPD rates with insurers. While challenging, hospital administrators do have some leverage available to them to negotiate for SPD rates from insurers that administer self-funded plans for employers. Administrators should attempt to renegotiate contracts so that the discounted rates apply only to the patients whose coverage is underwritten by the insurance carrier and not patients whose plans are simply administered by the insurer.
Using ERISA rules regarding denials as leverage to obtain SPD rates
In addition to requiring reimbursement at SPD rates, ERISA also regulates denials of coverage. Specifically, ERISA defines a "denial" as any payment made at less than 100 percent of what is owed by that payor. When there is a denial, the payor is required to send a Notice of Adverse Benefit Determination explaining why the denial occurred. Explanations of Benefits and remittance advices do not meet the content requirements for a Notice of Adverse Benefit Determination.[1] If the Notice of Adverse Benefit Determination is not received in a timely fashion, the hospital is deemed to have exhausted its internal claims and appeals process, which means it does not have to go through any appeals process and instead can go directly to court to seek payment for the denied claims.[2]This is to the hospitals advantage for two key reasons:
- It is not uncommon for hospitals to improperly deny certain claims. In a study done by Harvard/RAND appearing in Health Affairs of 500,000 patients, it was discovered that 40 percent of denials for non-covered items were incorrect. That is, the items were not excluded on the SPD and should have been covered by the plan. Therefore, it is possible that up to 40 percent of denied claims for patients with administered plans should have been paid under the SPD.
- If there is no justification for the denial, the payor has not met the payment terms of the managed care contract. Therefore, the payor should not get the benefit of the discount in the managed care contract. So, in the Apex example, if even a single discounted charge on a $10,000 claim was improperly denied, the payor should have to repay the entire $8,000 owed, not the discounted $5,000 rate. Additionally, under ERISA, denials that do not include a NABD are considered as having exhausted internal appeals. Therefore, the provider could take the improperly denied claims straight to court to seek recovery from the payor. And, even more advantageous to the provider, ERISA allows you to seek recovery on improperly denied claims going back to Jan. 1, 2003.
So, let's return to the Apex example. The provider could assemble all of a payor's denials for Apex employees going back the last nine and a half years and check to see if the denials are supported by the SPD. Under assignment of benefits, Apex is obligated to provide providers with the SPD, which will define what is covered and what is not covered. For each claim that has a denial that is not supported by the SPD, calculate the difference between gross charges and what was paid. Typically, the sum you arrive upon is how much Apex owes you. Apex owes you this sum because the discount negotiated by the carrier was dependent upon the carrier paying for the services outlined in the SPD. If the carrier did not pay approve the services received by the patient according to the SPD, there should be no discount (unless in rare cases where you have a contract that says you give discounts without any requirements on the part of the carrier).
ABC Insurance may also be liable because it has acted as the plan administrator. Under the Supreme Court's decision in CIGNA Corp v. Amara, the Court, in referring to Amara's employees says: "CIGNA's notice violations caused it employees sufficient injury to warrant legal relief."
Renegotiating with the payor
Now, while you could take Apex to court for the additional funds, that's not the point.The real value in this exercise is to use this as leverage with the insurance company to obtain SPD rates. Approach ABC Insurer and explain you have a claim against their client Apex for a certain amount of dollars because of ABC's mishandling of the various claims you have assembled. Because insurer's act in their own self interest, it's likely they'll want to avoid your going after Apex. Be aware though that the person you are negotiating with may not be overly familiar with ERISA, so be ready to explain ERISA rules and your ability to pursue the funds.
Since ERISA is a federal law, it preempts state law when the two overlap and are not in agreement. However, settlements under ERISA are less common than settlements under state law because ERISA is often less attractive to plaintiff attorneys; the attorneys' fees and punitive awards are usually smaller under ERISA than in state courts. And since the assignments have only been available since 2003, there hasn't been much history with ERISA claims compared to state court claims against insurance carriers.
Next, explain to the representative that you don't want to have to go to the plan administrator at Apex to demand back payments, and that you don't want to be the one to inform Apex's plan administrator that his or her insurance carrier has made him or her personally liable for both civil and criminal penalties under ERISA.[3] Use this leverage to request the carrier amend your agreement so that you are paid according to the SPD parameters for its self-funded clients. Patients who are covered by policies underwritten by the carrier will be paid according to the current agreement, but those patients whose insurance is just being administered by the carrier will be paid according to their employer’s health benefit plan parameters.
In most cases, that change in payment should result in a double digit increase to your bottom line! While the process can be an arduous one, there is such a financial upside that providers should consider whether these steps can be replicated by their own organizations.
Footnotes:
[1]Federal Register Volume 65, No. 225 page 70268 middle column subparagraph (g)
[2] Federal Register Volume 75, No.141 page 43356 leftmost column para (F)
[3] Title 29 U.S.C.§ 1131 and Title 29 Chapter 18 Subchapter I Subtitle B part 5 Sec.1140
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