A Year Later . . . Montanile Remembered, Lessons Learned
By:  Christopher M. Aguiar, Esq.

Things were going so well.  In the game of subrogation cases being heard by the Supreme Court of the United States, self-funded benefit plans under the purview of ERISA were on a roll.  First, it was Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356 (2006), then U.S. Airways v. McCutchen, 133 S. Ct. 1537 (2013). Some even considered Great West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002) to have been unfairly viewed as a loss for the subrogation industry because despite a decision against Great West Life, it provided the blue print followed by Mid Atlantic Medical Services, Inc. to elicit the favorable decision that led to the recovery in Sereboff.  As is the case in most games, momentum can be lost in the blink an eye.

Often times, when the momentum is heavily in one’s favor, the successors eventually let their guard down.  Enter Montanile v. Board of Trustees of Nat. Elevator Industry Health Benefit Plan, 136 S. Ct. 651 (2016). Montanile was the victim of an accident with a third party who was driving under the influence of alcohol.  Montanile’s benefit plan paid approximately $120,000 in medical claims arising from the accident.  Following the accident, he sued the driver of the vehicle and obtained a settlement in the amount of $500,000.  Settlement negotiations between Montanile and the Plan broke down and his attorney warned the Plan that he intended to disburse the funds to Montanile.  The Plan did not respond until almost seven months later when it filed a lawsuit in which the Plan argued that even though Mr. Montanile had spent some or all of the settlement funds, the Plan still had a right to the funds.  The Supreme Court disagreed, stating that the Plan would have had an equitable right if it had “immediately sued to enforce the lien against the settlement fund then in Montanile’s possession” and that suing Montanile to attempt to attach his general assets was a legal remedy not available to the Plan under ERISA 502(a)(3).  Id. at 658.

Immediately following the period when the Court announced that it would be granting certiorari and hearing arguments in Montanile, subrogation experts rationalized what they had hoped would be the outcome; mainly, that the highest court in the land would not put forth a decision that effectively allowed plan participants to take the money and run – but we all knew better, and the Court affirmed our fears; that the Plan’s equitable remedy may be extinguished when funds are disbursed.

In the almost fourteen months since Montanile, there has not been much movement.  The case has been cited in several briefs and other cases, but there is nothing of a significant nature to report. That said, in the interest of keeping the issue fresh in everyone’s mind and not allowing the importance of a benefit plan’s third party recovery rights take a back seat, let us take the opportunity to recall the keys to a successful recovery program and some best practices – many of which have received favorable treatment in the few cases that have addressed the problem created by Montanile.

Plan Language

Perhaps the most important thing to remember is that Montanile did not actually change the law.  Plan language continues to be the most important consideration in determining whether a plan has a right to 100% reimbursement.  Regardless of whether the funds have been disbursed to the participant and/or whether they have been spent on non-traceable assets, if a plan’s language is inadequate, the plan will not be able to enforce its right to a full reimbursement.  Montanile did not change the decision in McCutchen, which clearly stated, “In a §502(a)(3) action based on an equitable lien by agreement—like this one—the ERISA plan’s terms govern. Neither general un-just enrichment principles nor specific doctrines reflecting those principles—such as the double-recovery or common-fund rules invoked by McCutchen—can override the applicable contract.” 133 S. Ct. at 1540.  Ensuring your plan’s language is as strong as possible remains imperative to maximizing recoveries.

Investigation is the Key

The Supreme Court in Montanile disagreed with the Plan’s assertion that its equitable remedy should be enforceable regardless of the whereabouts of the settlement fund and did not appear to have any pity for the burden on the Plan to protect its right.  The Court stated:
… The Board protests that tracking and participating in legal proceedings is hard and costly, and that settlements are often shrouded in secrecy.  The facts of this case undercut that argument.  The Board had sufficient notice of Montanile’s settlement to have taken various steps to preserve those funds.  Most notably, when negotiations broke down and Montanile’s lawyer expressed his intent to disburse the remaining settlement funds …unless the Plan objected …. The Board could have – but did not - object.  Moreover, the Board could have filed suit immediately, rather than waiting half a year.

Montanile at 662.

The Court’s statements here seem to indicate a pretty clear burden on plans to engage in their own investigations and take any and all steps necessary to protect their interests though it does seem to leave the door open for some flexibility in its decision in a situation where perhaps the facts are different.  For example, would the Court have ruled differently if the Plan did not “have sufficient notice” of Montanile’s settlement?  This appears to have been the case in AirTran Airways, Inc. v. Elem, 767 F. 3d 1192 (2014).   In Elem, the attorney ultimately obtained a settlement of over $500,000 against the responsible driver but told Air Tran that the settlement had been for the insurance policy limit of $25,000.  He then inadvertently sent a copy of the $475,000 check of which he had neglected to advise Air Tran. In this case, there appears to have been overt acts to deceive the Plan with regard to the settlement.  Would the Court have ruled the same way if faced with these facts?  

Regardless, to avoid situations like this, the Plan MUST HAVE an effective investigation unit.  All too often investigations are halted based on an insufficient self-report.  Everyone can agree that a participant that falls down the stairs at home does not present a recovery opportunity; but what if that person’s “home” is a rental apartment and the “fall down the stairs” resulted from a broken stair and faulty railing in the main hallway?  If the investigation unit is ill-equipped to ask the right questions or identify when someone is masterfully crafting answers to avoid the question without lying, a plan will miss recovery opportunities.

And the Key to Investigation is Data

A high quality investigation unit is a pivotal part of any recovery process, but access to a plan’s data is where it all begins.  The Court’s decision in Montanile effectively put a ticking clock on a plan’s recovery rights.  The earlier a plan is involved, the better chance it will have to be aware of potential recovery opportunities and on top of the availability and whereabouts of the potential recovery funds.  The most effective way to do that is to both be able to access claims data and also be able to expertly analyze and identify opportunities in the data.  When paired with the most cutting edge technology and resources, data can be utilized to find out about recovery opportunities quickly and put a plan in the best position to succeed.

Funds Disbursed? … All May Not Be Lost …

Certainly, Montanile threw subrogation professionals a bit of a curveball, but most of us knew this curveball was in the arsenal.  Ensuring that you can trace the funds is always the best option; but since Montanile, some courts have reminded us that even if the funds are disbursed, a plan may still have some options.  First, the Supreme Court in Montanile held that a plaintiff can “enforce an equitable lien only against specifically identified funds that remain in the defendant’s possession or against traceable items that the defendant purchased with the funds.... A defendant’s expenditure of the entire identifiable fund on non-traceable items ... destroys an equitable lien.” Montanile, at 658.  For the Plan to lose its right of recovery, the participant must spend the money on items that cannot be traced.  So, if the participant purchases a car, property, or asset of some sort, the plan may still be able to enforce its right.

Further, even if the funds are disbursed, the Plan may have a claim for accounting or disgorgement of profits.  In Homampour v. Blue Shield of California Life and Health Insurance Company, the Northern District of California stated the following:

Montanile does not entirely foreclose plaintiffs' claim. Plaintiffs have not alleged how or from what funds plaintiffs seek to recover disgorgement of profits. It is possible that plaintiffs will present evidence demonstrating that the profits they seek to disgorge are specifically identifiable and within defendants' possession.

Slip Copy, 2016 WL 4539480 at 8

Finally, even in a circumstance where a plan’s equitable remedy is completely lost, the plan may still have a legal remedy under a breach of contract theory.  In Unitedhealth Grp. Inc. v. MacElree Harvey, Ltd.., the U.S. District Court for the Eastern District of Pennsylvania noted that “assuming Ms. Neff had at that point already dissipated the settlement recoveries, then, pursuant to Montanile, the Plan could seek legal redress against Ms. Neff for breach of contract.” Slip Copy, 2016 WL 4440358 at 7,

Conclusion

Subrogation, like many cost containment options, is complicated.  Understanding the legal framework, the differences between the remedies that may be available, the advantages and drawbacks to the different options and utilization of different remedies, and having all the resources to recover effectively can be incredibly burdensome.  It requires experience, technical aptitude with data, and access to legal resources necessary to protect the plan’s rights.   Montanile served as a painful reminder, but all is not lost.  A plan can take steps to protect itself, maximize its recovery dollars, and ensure compliance with its fiduciary duty to enforce the terms of the plan and ensure its viability.

Don’t Let Your LOAs Leave You DOA
By: Kelly E. Dempsey, Esq.

Imagine a scenario where an employer has a long-time reliable employee that suddenly has a stroke of bad luck and is diagnosed with stage four cancer after being relatively asymptomatic and having never been diagnosed with cancer previously. The employee works with a team of medical professionals to come up with a game plan for beating this terrible disease. The employee quickly begins what will hopefully be life-saving treatment as soon as a game plan is mapped out. The claims start rolling in and the treatment starts taking its toll. The employee starts missing an hour here and there for appointments – and then a few hours for appointments and sickness –and then full days of work during treatment. When the employee is at work, the employee struggles to perform normal job functions and the employee is now unable to work because the rigorous chemotherapy regiment.

The employee decides it’s time to take a leave of absence to focus on treatment. To the dismay of the employee, though, the employee doesn’t have any additional leave available under The Family and Medical Leave Act (FMLA), since the full allotment of FMLA leave was recently exhausted while the employee and the employee’s spouse were finally bringing home their new adopted baby that they had waited so long for. Is this pulling at your heart strings yet?

The employer recalls that sometime in 2016, the U.S. Equal Employment Opportunity Commission issued guidance on a leave associated with The Americans with Disabilities Act (ADA)¹ . Ah ha! The employer tells the employee they have just the solution – take a leave under ADA and the employment and leave situation can be re-evaluated in a few months. The employer tells the employee not to worry about anything except becoming cancer-free; the health plan coverage will continue as long as the employee needs it, even though the last of the employee’s paid time off is exhausted and no additional FMLA is available. In other words, the employer, via its health plan, is taking care of its employee, as so many employers try so hard to do. The employee is then signed up for the short-term disability policy which will help replace some income during the leave, and the employee is all set – there is continuing health plan coverage and some income replacement to boot. All is well.

Fast forward in time. Three months have passed, and the employee is making miraculous recovery. The employee is not ready to come back to work yet, but things are looking up and the employee is respected to return to work at some point in the near future. With the end of the health plan year approaching, the employer is attempting to get its ducks in a row for renewal season, which includes a stop-loss policy renewal. The cancer treatment claims are continuing to roll in and, as expected, the dollars keep adding up – but unfortunately, as anticipated, stop-loss is going to become a factor before renewal (ugh).

Claims are filed with the stop-loss carrier and all the typical supporting documents are provided. During the stop-loss carrier’s review, the carrier starts scratching its head. This individual has been on a non-FMLA leave of absence for over three months. The health plan document discusses FMLA and COBRA, but no other types of leave. Why was this employee still on the plan? Why was COBRA not offered when plan coverage seems to have terminated? The stop-loss carrier questions the employer and requests additional documentation to support eligibility; the carrier even generously says the employee handbook is acceptable. As everyone knows, the stop-loss policy is underwritten based on the plan document alone; anything contained within the employee handbook is entirely separate from the plan document and the stop-loss underwriting generally won’t take into account anything within the employee handbook. The employer thinks “boy, am I lucky!” *queue the suspenseful music*

The employer pulls out the employee handbook and skips to page 42 – Employer Leave Policies. The employer starts reading, “In addition to FMLA, employees that have exhausted paid time off and FMLA may be eligible for an additional extended leave of absence; referred to as non-FMLA leave. This non-FMLA leave is created to comply with the ADA’s requirement to provide a leave of absence as a reasonable accommodation and will be offered in addition to FMLA. Thus the non-FMLA leave will not run concurrently with FMLA. Additional information regarding how to request this leave and the additional requirements associated with this leave is further detailed herein:”

The employer’s wheels start turning: okay, this ADA leave doesn’t run concurrently with FMLA – great, that helps, but where’s the part about continuing health plan coverage? That must be in this handbook somewhere. The employer starts frantically turning pages looking for those magical words “employees are entitled the health plan benefits during a non-FM LA leave of absence.” But alas, no such wording is contained within the 163-page employee handbook.  The employer’s internal dialogue starts racing. “How can this be? We never meant for our employees to be out sick and not have health coverage. Doesn’t the ADA say we have to provide coverage to employees while they’re out on leave?” So you ask, “What now?” The bottom line is that there is no stop-loss reimbursement for the cancer claims, and quotes for renewal just added a few extra zeros.       

No need to review the gory details in depth – but one can imagine what happened during the plan and stop-loss renewal. The employer’s bank account is looking bleak, as are the proposed stop-loss renewal rates. The employer starts shopping other options despite having been with the same stop-loss carrier for years.  All the while, the employer just thinks “How did I end up here? All I wanted was to take care of my employees and give them the best benefits possible. Where did I go wrong?”  

It’s intuitive to think that a leave of absence from employment is coupled with a continuation of health plan coverage, especially if the leave is illness related; to the dismay of many, however, a continuation of coverage (other than COBRA) isn’t always coupled with a leave of absence. As shown in the scenario above, many employers struggle to align their health plan documents with their employee handbooks (and other internal policies) which subsequently increases the potential for a gap to arise between all the relevant documents. While most federal and state laws do not require a continuation of coverage, employers can choose to provide the benefit of continued coverage – but if the employer wants to ensure stop-loss reimbursement, the terms of continuation of coverage need to be clearly spelled out not only in the employee handbook, but also in the health plan document. The health plan document is key to showing proof of continued coverage, especially in a situation where stop-loss is relevant.

Many employers don’t even realize they have gaps between their policies and the health plan documents until it’s too late. All it takes is one large medical event - a cancer claim, an ESRD diagnosis, premature twins, a transplant – to discover that the documents the employers has aren’t airtight, and may not even align with the employer’s intent.

In summary, most employers need to do some homework. Go back to the office and take a look at the health plan document and the employee handbook. Do the two documents reference the same types of leave? Do the documents clearly indicate when coverage under the health plan is maintained during a leave? Do the terms of these documents meet the intent of the employer? What does the stop-loss policy say about eligibility determinations? Can the handbook be used to document eligibility in the health plan? What (if any) changes need to be made to minimize or eliminate gaps, to the extent possible?

Don’t let large unexpected claims leave you dead on arrival. Do the leg work now, and figure out what needs to be done to avoid being caught by surprise.

Kelly E. Dempsey is an attorney with The Phia Group. She is one of The Phia Group’s consulting attorneys, specializing in plan document drafting and review, as well as a myriad of compliance matters, notably including those related to the Affordable Care Act. Kelly is admitted to the Bar of the State of Ohio and the United States District Court, Northern District of Ohio.

[1] https://www.eeoc.gov/eeoc/publications/ada-leave.cfm

Air Ambulance: Heads in the Clouds
By: Jon A. Jablon, Esq.

Health plans, third-party administrators, brokers, consultants, and stop-loss carriers are a bit baffled by air ambulance fees. Many are outraged or appalled or disgusted as well – but it seems that the overwhelmingly common feeling is sheer confusion over how this type of billing is permissible.

In all other markets – construction, textiles, grocery, you name it – the ordinary legal doctrine is that if there is no agreed-upon price for the goods or services, the seller may only charge the reasonable, fair market value of the delivered service or item. Admittedly, in most markets, prices are agreed upon beforehand – but in the long history of business, there have been enough instances of services rendered without agreed-upon pricing that courts have seen fit to devise controls for just those occasions.

And yet…air ambulance charges are frequently between 600 and 800 percent of Medicare rates for the same flight – and sometimes far, far more. In fact, one recently crossed my desk billed at over 2,600% of Medicare rates. That’s right – a whopping twenty-six times what Medicare would have paid for the same flight.

The disclaimer is that Medicare rates are not directly relevant to these flights, but instead used as a benchmark to inform what might be the fair market value, since unfortunately there isn’t much else to go on. Unlike many other medical providers, though, there seems to be a trend in the air ambulance billing industry where balance-billing is the norm, and many air ambulance providers have the devil-may-care willingness to bill patients which triggers the outrage and disgust that so often has health plans paying upwards of 90% of egregious balances to protect their patients.

Add to the egregious billing the notion that many flights are not medically necessary or otherwise appropriate to begin with, and it becomes clear that we have a problem on our hands.

At Northshore International Insurance Services, Inc.’s 26th Annual Medical Excess Claims Conference regarding Air Ambulance Claim Cost Containment Strategies, Jeff Frazier – a partner at Sentinel Air Medical Alliance, a firm specializing in curbing air ambulance costs – answered quite a few questions, including the following² :

Question: Why is air ambulance ordered for someone who does not really need the service?

Answer: About 20% of the patients using air ambulance services really need the service. In a lot of cases, patients are not transported to the nearest hospital due to overflight or relationships between the facility and the air ambulance provider.

Question: How do you determine medical necessity?

Answer: Review of transport notes or ambulance run reports primarily to determine medical necessity. Sometimes notes from the hospital are also reviewed.

Question: Why do payors cave?

Answer: Fear of the provider balance due billing the patient.

Balance-billing is a major concern of all benefit plans that pay benefits at an amount not tethered to billed charges, which is an increasing trend. If not for balance-billing, it seems likely that all plans would pay objectively reasonable rates rather than percentages of billed charges.

“Taking Patients for a Ride” Article

A recent (April 6, 2017) Consumer Reports article penned by Donna Rosato – entitled “Air Ambulances: Taking Patients for a Ride³ ” – highlights some real-life scenarios in which air ambulance billing practices have proven to be, in a word, abusive. Aside from citing two separate sources quoting the average air ambulance flight at about $7,000 and about $10,000, the article notes that:

Rick Sherlock, president and CEO of the Association of Air Medical Services, a trade group, says that many air-ambulance patients are on Medicare or Medicaid, and that those programs pay $200 to $6,000 per transport. So, Sherlock says, air-ambulance operators must collect more from people with private insurance to make up the difference.

It should be questioned how equitable or ethical it is to jack up prices for one consumer because the provider has chosen to accept less money for another consumer. An air ambulance provider can always refuse to contract with CMS and choose to not accept Medicare or Medicaid – so to complain about not being paid enough seems a bit petulant.

Airline Deregulation Act

Further challenges are presented by the Airline Deregulation Act of 1978. Through this federal law, states are prohibited from regulating non-hospital affiliated air ambulance providers. That is, this law does not apply to the University of Whatever Health System’s own proprietary air ambulance services, since those are considered to be an “extension” of emergency services as opposed to a separate air ambulance provider – but the law does apply to FlyingAirTaxiMedicalAmbulance Co., Inc., since it is independent of an emergency room and is its own “carrier.”

Through the years there have been proposed changes to the federal Act to account for the disastrous effects it has on air ambulance consumers and health plans, but we’re not quite there yet.

Interestingly, many air ambulance carriers have resorted to quoting the Act when attempting to justify their billing – or at least when attempting to refute reasonable settlement requests. It seems that the most prevalent argument is against any notion of fair market value; the fact that state law is preempted with respect to air ambulance billing practices is cited as the reason that fair market value is not relevant to the carrier’s billing. But, although rooted in state contract law, is it reasonable to suggest that an implied contract for services is “state law,” sufficient to be preempted or overridden by the federal Airline Deregulation Act?

In other words, while the federal Act may supersede state laws aimed at regulating air ambulance providers (and others), the concept of fair market value is implicit in the non-contracted nature of air ambulance services. The issue is not one of some state law attempting to regulate air ambulances; fair market value has to do with the open market and general principles of contract rather than some particular state law.

The Airline Deregulation Act does not set a price or indicate what might be appropriate value. Instead, it dictates that individual states cannot pass laws to regulate the price of these flights. Fair market value is a general principal of contracting rather than some statutory price control, though; air ambulances are free to provide quotes up-front, but in most cases that is either not feasible or just not done. It seems that the general and basic principal of fair market value would still apply when no price is quoted or agreed-upon. The Airline Deregulation Act, after all, was passed to promote a free market economy rather than restrict it. It hardly serves to promote a free market when medical providers can gouge payors without warning.

One could even contend, somewhat ironically, that demanding surprise payment at an amount far in excess of the fair market value frustrates the very purpose of the same Airline Deregulation Act that these providers rely on to defend their charges.

Contract? What Contract?

Here’s where things get even more interesting. Independent air ambulance providers tend to be universally out-of-network. There are a couple of exceptions, but in general, it is near impossible to find an air ambulance provider (unrelated to a hospital) that has contracted with a PPO network to accept discounted fees – primarily due to the belief that the Act guarantees them their full billed charges no matter what, and that there’s no reason to join a network and accept discounted charges.

Regardless of that belief, another question worthy of consideration is whether the out-of-network flights can truly be considered non-contracted. Contracts are a funny thing and they come in many forms; while there is no contract to pay a certain specified rate or percentage of billed charges – indeed, a claim that would generally be considered a “contracted claim” – consider that the patient (if conscious and competent) almost always signs the provider’s “assignment of benefits” form. On that form, the patient says “if my insurance doesn’t pay you, in full, 100% of your bill, then I, the patient, agree to be responsible for the remainder.”

For some bizarre reason, courts in this country have indicated that the patient’s agreement to pay some unspecified amount supersedes any ordinary market properties. If the patient weren’t a patient but a homeowner, and a painter said “you will pay me what I bill you for this job” and the homeowner agreed, courts have always opined that while the consumer is of course responsible to compensate the painter for its service, the painter is responsible for billing only that which is reasonable – measured as the fair market value of the services. In the medical industry, though, there are very few (and largely ineffectual) statutory or common law pricing controls. Even the simplistic concept of fair market value, which is perhaps the most basic of all pricing principles, does not apply in ordinary cases. It goes without saying that this needs to be fixed.

What Can You Do?

Whoever you are – whether a health plan sponsor, third-party administrator, broker, MGU, reinsurer, or anyone else working in the self-funded industry – air ambulance charges are worrisome. If they don’t concern you…they should.

Negotiating claims can be an option, as is the case with other out-of-network medical claims, and there are also other, more novel solutions out there in the marketplace.

Just as programs have developed to assist payors in reducing dialysis billed charges, so are there companies and services that are specifically geared toward controlling air ambulance charges. Specialists in this field can provide assistance from a regulatory and financial standpoint – and ensuring proper utilization is also crucial to ensuring that payors are not gouged.

We urge payors to discuss options with a broker or consultant and ask about some of the solutions out there that have helped save health plans countless dollars of unreasonable and unnecessary air ambulance exposure.

About the Author

Attorney Jon Jablon joined The Phia Group’s legal team in 2013. Since then, he has distinguished himself as an expert in various topics, including stop-loss and PPO networks, focusing on dispute resolution and best practices. In 2016, Jon assumed the role of Director of The Phia Group’s Provider Relations department, which focuses on all things having to do with medical providers – including balance-billing, claims negotiation, PPO and provider disputes, general consulting, and more.


[2] http://www.niis.com/2015Conference/Air%20Ambulance%20Claim%20Cost%20Containment%20Strategies.pdf

[3] http://www.consumerreports.org/medical-transportation/air-ambulances-taking-patients-for-a-ride