Article
Source: LinkedIn
Article
09.11.15
Debtors that self-fund for their employees’ health care claims, rather than purchase insurance or health plan coverage for their employees, and that fall behind in the payment of those claims before coming under bankruptcy protection, may face special challenges when seeking to resolve pre-bankruptcy health care claims and arrange for orderly claims payment thereafter through third party administrators (“TPAs”) who prove to be uncooperative. Pre-insolvency planning is key to making certain that an employer with a self-funded health benefits plan can be more secure in its ability to have its employees’ claims paid timely and continue to benefit from favorable financial terms and downstream contractual arrangements afforded by the TPA.
Self-funded employers often arrange by an “administrative services only” or “ASO” contract to have a TPA process and pay covered health care claims for employees and their dependents. The ASO contract typically requires the employer to deposit funds into a designated bank account from which the TPA draws to pay health care claims as well as the TPA’s own compensation. Reflecting the growing importance of managed health care arrangements, ASO contracts often provide also for the TPA to provide a variety of health care utilization management services to employers, including access to a network of contracting health care providers who have agreed to extend discounted rates to employers who have ASO contracts with the TPA.
The standard ASO contract allows the TPA to suspend processing claims and providing other services at any time that the employer fails to maintain sufficient funds in the account, and then to terminate the contract if the employer fails to make appropriate catch-up deposits within a specified period of time. After the contract terminates, the employer must find a “successor TPA” to assume responsibility for processing and paying claims. While ASO contracts typically are quite clear as to when the TPA may suspend its services, they are often less clear about when the employer’s right to the benefits of the TPA’s provider contracts ends, and when and how a terminating TPA will provide to the successor TPA the information required for the TPA to process and pay claims received following the terminating TPA’s suspension of service.
During the period of the suspension and for several months following a termination of the ASO contract, the terminating TPA will continue to receive health care claims for the employer’s health plan beneficiaries. Depending on how long the TPA suspends service before it terminates the ASO contract, the employer may be left with substantial pre-bankruptcy claims that remain unprocessed and unpaid. The employer will need the terminating TPA to transfer those claims, and related eligibility and other information, to the successor TPA in useful formats without unreasonable delay and on an ongoing basis for at least several months. However, some ASO contracts are vague about the TPA’s post termination obligations to share information and transfer claims.
In addition, ASO contracts can be vague about when the TPA may terminate the employer’s rights to receive the benefit of health care providers’ negotiated rates. Discounts vary from provider to provider and from market to market, but a provider’s billed charges may be multiples of its contract rates. Without the discounts the TPA arranged, the debtor may be required to pay far more to resolve affected claims. In a recent case, we represented a debtor that had a strong claim that it was entitled to the discounts for several months’ worth of unprocessed claims. In that case, the ASO contract broadly obligated the terminating TPA to provide all necessary information to the successor TPA, but the terminating TPA was extremely reluctant to do so because of the confidential and proprietary nature of the rates it had negotiated with health care providers, and of certain of those providers’ objections to having their negotiated rates disclosed to a competing TPA.
Purchasers of ASO services from TPAs should be aware of the risks posed by the uncertainties of bankruptcy and ensure that appropriate provisions appear in their ASO contracts to provide certainty about post-filing benefit claims processing and continued access to the TPA’s provider networks and negotiated rates.
Pillsbury’s Health Law—Insolvency & Restructuring LinkedIn group highlights the legal and practical issues confronting health-related businesses as they deal with operational and financial challenges both in and out of court. We invite you to visit the group page and become a member so you can follow more content like this post.