Federal Court Allows Self-Insured Health Plan’s ERISA Lawsuit Against Cigna for Self-Dealing and Prohibited Transactions

Federal Court Allows Self-Insured Health Plan’s ERISA Lawsuit Against Cigna for Self-Dealing and Prohibited Transactions

Federal judge allows ILWU-PMA, a self-insured health plan, to move forward in lawsuit against Cigna and Carewise for allegedly engaging in “prohibited transactions” and “self-dealing” by entering into “auto-discount agreements with providers for which it received a portion of the amount discounted”

As healthcare admin fees increase, more and more self-insured health plans are looking to engage in out of network “cost containment” or third party “repricing agreements” with out of network provider claims, in an effort to lower costs or save money.However, plaintiff’s allegations in this and other recent cases, shed light on possible abuses that take place disguised as legitimate practices.

On Dec 22, 2015, a Northern District of CA Federal court ruled in favor of a self-insured health plan and allowed an ERISA lawsuit to go forward against Cigna and third party fee negotiating company, Carewise (formerly called SHPS Health Management Solutions, Inc.). Cigna and Carewise were sued by the ILWU-PMA Welfare Plan Board of Trustees and ILWU-PMA Welfare Plan, for alleged ERISA “prohibited transactions” and “self-dealing”

Case info: ILWU-PMA Welfare Plan Board of Trustees v. Cigna and Carewise, U.S. District Court for the Northern District of CA Civil Docket for Case #:C15-cv-02965-WHA, Filed 12/22/2015.

This lawsuit against Cigna in ERISA healthcare claims disputes comes on the heels of another recent lawsuit against a different Cigna administered self-insured ERISA plan client, CB&I and its Plan Administrator, Dennis Fox, who were sued for alleged ERISA plan assets embezzlement, deceptively concealed through “fake PPO (CO) discounts” and Cigna’s “fee forgiveness protocol scam”.

TPA’s tactics of engaging in prohibited transactions, self-dealing or applying non-existent or “fake” PPO discounts can expose the plans and plan administrators to costly litigation as well as civil criminal liability. As these lawsuits become more prevalent, self-insured health plans should be aware of possible embezzlement or conversion of plan assets and act accordingly.

According to industry experts, and as illustrated in the Hi-Lex case, a BCBS survey was conducted and found that 83 percent of its self-insured clients were completely unaware of the hidden fees. Other documents revealed a course of conduct designed to conceal evidence of the company’s wrongdoing. Based on the foregoing, all self-insured health plans nationwide should look to recover at least $30 to $45 billion in Plan Asset refunds from the past 10 years of successful plan assets TPA/ASO anti-fraud recoupments and managed care savings in the private sector.

According to the court documents in the ILWU-PMA v. Cigna case:

The Board’s…claims allege Carewise engaged in prohibited transactions under ERISA. Specifically, claims four and five allege that Carewise engaged in self-dealing as a plan fiduciary by entering into auto-discount agreements with providers for which it received a portion of the amount discounted”… “Moreover, by implementing auto-discounts, rather than negotiating claims on a case-by-case basis, Carewise received compensation for fee-negotiation services it never actually performed. Plaintiffs have adequately alleged that Carewise received unreasonable compensation for negotiation services it did not perform. Accordingly, Carewise’s motion to dismiss the plaintiffs’ sixth claim is hereby DENIED.

The court goes on to say:

The Board’s sixth claim alleges that Carewise engaged in a prohibited transaction in violation of Section 1106(a)(1)(C) of Title 29 of the United States code. Section 1106(a)(1)(C) generally prohibits transactions between an ERISA plan and a “party in interest” although Section 1108 allows such transactions for “services necessary for the establishment or operation of the plan, if no more than reasonable compensation is paid” for services rendered by the party in interest. Section 1002(14)(B) defines a “party in interest” as “a person providing services to [a] plan

Interestingly, ILWU-PMA Coastwise Trustees, Cigna, TPA Zenith American Solutions and TC3 Health were all slapped with a class action lawsuit in mid 2015 for various ERISA violations. According to that complaint, the ILWU-PMA and Plan’s own independent fact finder confirmed there were “286,000 unprocessed claims” at one point and the “backlog became worse, with about 90,000 new claims each month” added to the backlog.  The suit also alleges that the plan attempted to  “delay processing of legitimate claims, increasing interest income for the Plan’s fund” as well as create the “misimpression that the PMA Trustees have been diligent in the exercise of their fiduciary obligations”, according to court documents.

In accordance with these lawsuits and national epidemic of self-insured health plan assets embezzlements, self-dealing and prohibited transactions, Avym Corporation (Avym) announces cutting edge, unconventional Fiduciary Overpayment Recovery programs for private self-insured health plans. In 2011 private health insurance funded approximately 33% and Medicare funded approximately 21% of the $2.7 trillion national healthcare expenditure. Approximately 82.1% of all large health plans (>500) are self-insured. Avym’s innovative new programs consist of:

  • The Fiduciary Overpayment Recovery Specialists (FOR) training program which is designed for private self-insured plans.
  • The Fiduciary Overpayment Recovery Contractor (FORC) program which is designed to create partnership networks nationwide to immediately offer FOR programs to self-insured plans.

These groundbreaking programs are unique and unlike any other traditional health plan overpayment auditing programs and are designed to recover alleged overpayments, regardless of the reason including allegations of fraud, that have been recouped by the TPA’s but have not been restored or refunded to the ERISA plan assets as required under ERISA statutes and fiduciary responsibilities.

Over the past 6 years, Avym has closely followed the decisions from the Supreme Court and federal appeals courts on ERISA prohibited self-dealing against ERISA plan TPA’s for managed care savings. These new ERISA embezzlement cases are just the initial impact of the court’s Hi-Lex decisions. This lawsuit in particular should serve as a warning and wake up call for all Plan Administrators to continually monitor their TPAs in accordance with the Plan Administrator’s statutory fiduciary duties and to discharge its duties with respect to a plan solely in the interest of the participants for the exclusive purpose of providing benefits to them.

Avym Corp. has been at the forefront and advocated for ERISA plan assets audit and embezzlement recovery education and consulting. Now with the Supreme Court’s guidance on ERISA anti-fraud protection, we are ready to assist all self-insured plans recover billions of dollars on behalf of hard-working Americans. To find out more about Avym Corporation’s Fiduciary Overpayment Recovery Specialist (FOR) and Fiduciary Overpayment Recovery Contractor (FORC) programs click here.




Sheldon Weinhaus

But look at the 8th circuit decision issued today — 1/8/16 — which holds in effect that it’s solely a contractual arrangement with no fiduciary entanglements or commitments by third party advisers and servicers. Caffree v. Principal Life Ins Co, 206 US App Lexis 214.

Leave a Reply

Your email address will not be published. Required fields are marked *