Trying to Get Access to Critical Drug on Temporary, "Exception Basis" Under Self-Insured Plan

[401 Chaos]

Looked around and did not see a similar thread on this issue but apologies if addressed elsewhere and I missed.

Looking for some qucik help on this one.  Employer has self-insured health plan.  One participant depends on prescription drug to stay alive.  The drug is covered under the formulary and normally no issue; however, the drug is in short supply currently and the one network pharmacy for the plan cannot provide on a reliable basis.  The drug can, with some effort, be found elsewhere, including at retail, but is out of network.  Network provider (ASO insurance company) has suggested coverage be extended at member's current benefit level to cover purchases at any pharmacy that has drug available for temporary period while supply is so restricted.   Provider wants employer / plan sponsor to sign an exception form agreeing to cover all costs and also to hold provider harmless, etc.  Employer is eager to help and ok with exception generally and picking up the additional drug costs.  (The added costs have not been great thus far.  They will also clear with their stop loss provider.)

Part of the hold harmless agreement, however, has Plan acknowledge that making benefit exceptions for the group health plan could violate provisions of state and federal law, including ERISA, the Code, HIPAA, COBRA, etc. and result in significant penalties and adverse tax consequences, etc.    Here the member at issue is not a highly compensated individual and the exception being made is tied just to the lack of consistent supply for the drug with the plan's pharmacy network.  The drug is covered under the plan and so not an exception in and of itself.  The Plan / Employer is just trying to find a way to provide a critical drug that it has otherwise promised to provide. 

Plan wants to know if there really are material discrimination concerns or other significant penalties or adverse tax consequences here that could arise.  That seems unlikely but welcome others' thoughts and experiences.

[Brian Gilmore]

The main issues I see here are:

1. The ERISA plan precedent; and
2. Stop-loss coverage.

As you noted, the stop-loss piece is as simple as ensuring this approach won't jeopardize the plan's stop-loss coverage for this individual.  They should get written approval from the stop-loss provider to confirm.

As to the precedent, ERISA requires that employers administer and maintain the plan pursuant to its written terms.  Within this framework, employers should not make “exceptions” to act contrary to plan terms because doing so could be a breach of fiduciary duty.  Rather, employers can exercise their discretionary authority to interpret plan terms when making a plan benefit determination.  Employers that approve coverage in these situations have therefore interpreted the plan’s terms to be flexible enough to accommodate coverage for the benefit at issue.

An employer’s broad interpretation of the plan’s terms beyond the standard denotation to permit coverage effectively acts in the same manner as a plan amendment because the employer must then apply that approach consistently for all similarly situated employees. In other words, a health plan benefit “exception” to approve coverage for a benefit creates an ERISA plan precedent requiring the plan to offer coverage for all employees and dependents in similar circumstances.  An employee or dependent denied benefits in similar circumstances (e.g., the same type of out-of-network claim) would have a potential claim for ERISA breach of fiduciary duty or claim for benefits.

How broadly or narrowly the precedent applies in practice is a matter of interpretation based on the specific facts and circumstances of the exception. Employers should keep in mind that an aggressive argument as to the narrowness of the precedent’s scope could always be challenged by the DOL or a participant lawsuit if it were unreasonable.

I think they would be in a good position here to take the position that this interpretation to permit OON Rx coverage at the in-network rate applies only in the context of a drug shortage in-network.  In other words, that this precedent wouldn't extend beyond that relatively limited scenario.  But they might consider actually amending the plan to specify this type of OON coverage for all participants (i.e., where there's an in-network shortage) for avoidance of doubt.

I've written about this issue more here if you're interested: https://www.newfront.com/blog/addressing-employee-health-plan-exception-requests-part-ix

 

[401 Chaos]

Thanks, Brian.  This is super helpful. 

Roger that on the stop-loss.  They are already in motion on getting written confirmation (following prior informal approval) from the stop-loss provider.  (Stop loss is provided by the same insurance company / network administrator of the plan.)

Perhaps somewhat helpfully, the plan builds out a process for requesting exceptions in order to gain access to non-formulary or restricted-access drugs or devices when medically necessary and to request or gain access to clinically appropriate drugs not otherwise provided under the health plan.  The Administrator has suggested this exception process applies in the current case; however, upon a close reading of the plan's exception request procedures, it seems the exception protocol is more in cases where a member has tried a formulary-preferred or alternate drug and found that ineffective and so is seeking an exception to that coverage.  I'm not sure that is really the same thing as the current situation (which, arguably, seems less like an "exception" to me than agreeing to cover an otherwise excluded drug).  In any event, I think you are correct that best approach they can follow here is to work hard to make this as narrow of a precedent as possible but realize they are creating a precedent.

Of course, the exception form served up also makes clear that for purposes of the particular exception the employer assumes the rule as claims administrator (while the administrator remains the administrator under the plan's general exception request protocol.  The employer is, of course, not really set up to serve in that role but I think is comfortable doing so on the specific facts of this situation. 

 

 

[Chaz]

If the employer outsources the fiduciary responsibility to the TPA as a general matter, making this exception (even once) may make it more likely that, if things go south, that the TPA will claim that the ultimate fiduciary responsibility rests with the employer (in this but also in other future circumstances) and the TPA is merely performing ministerial acts.

I imagine that the employer can paper this over to minimize this risk but it is still a consideration.

[Brian Gilmore]

I agree if they were overriding the TPA's appeal determination that would challenge the appeals fiduciary status of the TPA and create the possibility of losing the Firestone deferential standard of review.  However, if they're preemptively directing the TPA to apply a consistent interpretation for all similar claims, I don't see that as a Firestone risk because it's not challenging the TPA's appeal determination.  It's exercising the employer's fiduciary role as plan administer to interpret plan terms, then directing the TPA to apply those interpretations consistently.

More details--

https://www.newfront.com/blog/addressing-employee-health-plan-exception-requests-part-ix

Issue #3: Preserving the Firestone Deferential Standard of Review

Employers that sponsor self-insured health plans have greater flexibility with respect to many aspects of plan administration than a typical fully insured plan.  However, a common misconception about moving to a self-insured health plan is that the employer will be able to make plan exceptions to approve employee appeals.  In the vast majority of self-insured plan arrangements, the employer does not have the authority under the plan terms to make appeals determinations. 

ERISA requires that appeals be determined by “an appropriate named fiduciary of the plan” to ensure a full and fair review of the claim and adverse benefit determination.  Employers sponsoring a self-insured health plan will almost always delegate the role of the named fiduciary for appeals to the TPA.  Such delegation is appropriate because, for example, employers in almost all cases do not want to be responsible for making medical necessity determinations (which would require an experienced medical professional’s judgment), or work within the confines of the strict ERISA appeals procedure timing requirements (which can be as short as 24 hours for urgent care claims).  It would generally not be practical or appropriate for employers to assume that role. 

ERISA’s fiduciary duties include the duty of prudence, requiring all actions be taken with the skill, prudence, and diligence of an expert in the context of plan administration.  An employer determining appeals without a comprehensive team of experts and sophisticated committee to make determinations could be exposed to a potential breach of fiduciary duty claim for not acting prudently in determining appeals.  Such an approach may also expose the employer to a potential breach of fiduciary claim for imprudently selecting and monitoring a TPA that does not act as appeals fiduciary.

Important Note: Employers always have the fiduciary duty to prudently select and monitor plan service providers.  If an employer becomes aware of a TPAs consistent practice of incorrectly determining claims and appeals, the employer will need to take action to address the failure by ensuring the TPA corrects its practices or by changing TPA vendors.

In the typical situation where the TPA is acting as the named fiduciary for appeals determinations, the employer should not override the final adverse benefit determination of the TPA.  An employer’s attempt to override the named appeal fiduciary’s (i.e., TPA’s) appeal determination could violate the requirement that appeals be determined by the named appeals fiduciary.  This violation could result in loss of the deferential standard of review in federal court for any claim for benefits brought in federal court. 

The deferential standard of review, known as the “Firestone standard” in reference to the seminal U.S. Supreme Court case Firestone Tire & Rubber Co. v. Bruch, provides that the participant can prevail on the claim in court only if the plan abused its discretion by acting in an arbitrary and capricious manner in making the adverse benefit determination.  This “Firestone standard” (sometimes referred to as “Firestone deference”) provides that the court will generally defer to the plan’s determination—even if the court might independently have come to a different conclusion—unless the determination was beyond the scope of a possible reasonable interpretation.

Where the “Firestone standard” does not apply, ERISA claims for benefits brought in federal court would be subject to the “de novo” standard of review with no deferential treatment.  Under the “de novo” standard of review, the court will make its own independent decision as to whether it agrees with the decision—without affording any deference to the plan’s determination. 

In other words, where the “Firestone standard” begins with the presumption that the plan’s determination was correct (and will overturn that determination only if the plan’s determination was clearly wrong), the “de novo” standard of review is a fresh and new decision by the court without any presumption that the plan initially made the correct determination.

An employer’s failure to have appeals determined by the named appeals fiduciary could therefore cause the “de novo” standard of review to apply in claims that reach litigation—thereby making it much more likely the plaintiff participant would prevail against the plan.

How to address the issue: 

Employers have two options where they disagree with the TPA’s (named appeals fiduciary’s) determination:

1. The first approach is to amend the plan for all participants to modify the plan terms and specifically cover or exclude the item or service at issue.  
2. Alternatively, employers have the discretionary authority to interpret plan terms on a consistent basis for all participants.  Employers can direct the TPA in writing to interpret the plan provision in a matter consistent with the employer’s understanding of those plan terms.  

Under either approach, the employer should first confirm the approach with the TPA (for administrative claim processing purposes) and stop-loss provider (for stop-loss coverage purposes) before proceeding.

 

[401 Chaos]

Many thanks to all.  Definitely not wild about the potential for making the employer the claims administrator on this particular exception and the potential for that to arguably be extended to other areas in the future as Chaz notes.  I don't believe that the intent of the Benefit Exception form provision that was served up was to possibly pull in the employer for everything going forward just because the employer is forced to serve as claims administrator for the exception. 

That said, we've tried to revise the language there to narrow the interpretation.  The employer here doesn't really have any choice--the drug in question is needed to keep the employee alive--so the employer is going to permit the exception.  It's just a matter of trying to limit the scope / reach of the precedent and potential damage to other areas in the process.  I very much appreciate everyone's input and assistance on this.

A related question that has come up this afternoon is with respect to the reach of the precedent.  Curious for thoughts on this but my view is that the precedent sort of always remains from the general perspective of something a similarly-situated participant could point to in demanding similar treatment in the future.  But is there any argument that the precedential / legal effect ceases after the plan is amended and restated for the next plan year?  Or at some other point in the future?  I think that's a bit of a specious argument, at least in many cases where plans just continue on with essentially the same plan design, plan documents, administrators, year-to-year with minor updates each year but essentially functioning as the same program.

Thanks again for the assistance.  

[Brian Gilmore]

My position would be that the precedent remains in place as long as the plan terms to which it relates remain in place.  At its core, the precedent is just the employer's interpretation of those terms.  I think they would need to formally change those plan terms to abrogate the precedent and have a new consistent interpretation going forward.

Again, all of the positioning here is designed to create an argument that you're not making an exception since the employer has a fiduciary duty and general ERISA obligation to follow the plan terms.  So anything that would question that by moving back and forth on interpretations would invite multiple other forms of potential scrutiny and liability.

You might try just amending the plan terms to incorporate coverage in this type of situation so there aren't any clouds overhead about the precedent and its scope.