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Third Party Administrator of Health Plans Settles with DOL for $16 Million over Fee Disclosure and Claims Processing Issues

The U.S. Department of Labor alleged that, in addition to charging a per-employee monthly fee, which was disclosed, a third party administrator (“MagnaCare”) charged employer-provided health plans an undisclosed markup above the actual amounts paid by MagnaCare to ancillary medical service providers such as labs and radiology and imaging services. The plans paid MagnaCare the full amount, and MagnaCare remitted the lower actual charges to the providers and retained the undisclosed markup, which MagnaCare called a “network management fee.” By operating under this fee arrangement and charging an undisclosed fee that was not approved by plan fiduciaries independent of MagnaCare, the DOL alleged MagnaCare breached its fiduciary duties and committed prohibited transactions under ERISA. In addition, the DOL alleged that MagnaCare did not fully comply with the Affordable Care Act’s “prudent layperson standard” because MagnaCare did not inform participants with diagnosis codes that were not on MagnaCare’s “ER list” that… Continue Reading

The Federal Circuit Declares Upon Further Review – it’s Very Obvious

On July 26, 2017, in Soft Gel Technologies, Inc., v. Jarrow Formulas, Inc. (Appeal No. 17-1051, Fed. Cir. July 26, 2017), the Court of Appeals for the Federal Circuit (“the CAFC”) affirmed the Patent and Trial Appeal Board’s (PTAB) rulings from three inter partes reexaminations invalidating numerous claims of three patents assigned to Soft Gel Technologies, Inc. (“Soft Gel”) on obviousness grounds. The CAFC, in affirming the PTAB, applied various canons of obviousness law to refute Soft Gel’s position, specifically emphasizing that an obviousness rejection cannot be overcome by attacking references individually, and that only a reasonably expectation of success, rather than absolute predictability of success, is required as a basis of motivation to combine references. Soft Gel Patents Each specification of the Soft Gel patents (“U.S. Patent Nos. 8,124,072 (“’072 patent”), 8,105,583 (“’583 patent”), and 8,147,826 (“’826 patent”)) describes a method for dissolving a substance commonly referred to as… Continue Reading

UPDATED: Energy Bankruptcy Reports and Surveys

Oil Patch Bankruptcy Monitor: includes details on oil and gas producers that have filed for bankruptcy since the beginning of 2015 – most recent update July 31, 2017. Oilfield Services Bankruptcy Tracker: includes details on middle-market oilfield services companies that have filed for bankruptcy since the beginning of 2015 – most recent update July 31 2017. Midstream Report: includes details on the midstream companies that have filed for bankruptcy since 2015 – most recent update July 31, 2017.

Court Issues Stay on Proceedings in Challenge to ACA Section 1557 Nondiscrimination Regulations

The federal district court for the Northern District of Texas recently granted a stay on proceedings in the case of Franciscan Alliance, Inc. v. Price, pending reconsideration by HHS of the final regulations (the “Nondiscrimination Regulations”) it issued under Section 1557 of the Affordable Care Act (the “ACA”). Section 1557 of the ACA prohibits discrimination in certain healthcare programs and activities on the basis of sex and other protected traits. The Nondiscrimination Regulations specify gender identity discrimination and sexual stereotyping as forms of sex discrimination. In Franciscan Alliance, eight states and three religiously affiliated healthcare providers challenged two aspects of the Nondiscrimination Regulations. In December of 2016, the court issued a preliminary nationwide injunction enjoining HHS from “enforcing its expanded definition of sex discrimination” under the Nondiscrimination Regulations. (Please see our prior blog post discussing the court’s decision to issue the injunction and note that Sylvia Burwell was the Secretary… Continue Reading

IRS Issues Guidance on Changes to Opinion Letter Program for Pre-Approved Plans

In Revenue Procedure 2017-41, the IRS modified requirements for pre-approved plans to receive continuing favorable opinion letters on periodic submission cycles. Importantly, the programs for “master and prototype” plans and “volume submitter” plans are combined and replaced with a single program involving standardized and nonstandardized plans. This new program expands the type of plans that can receive an opinion letter. Some of the major changes include allowing employee stock ownership plans (ESOPs) to have 401(k) features and allowing cash balance plans with an interest rate based on the actual return on plan assets (but not on the actual return on a subset of plan assets). In addition, the beginning and ending submission dates for the third cycle for defined contribution plans are modified to begin on October 2, 2017, and end on October 1, 2018. View Revenue Procedure 2017-41.

Fifth Circuit Holds Disability Benefit Offset Inappropriate Because of Ambiguous Language in Summary Plan Description

Verizon maintained a long-term disability plan (the “LTD Plan”) insured through MetLife, who had the discretionary authority to interpret the LTD Plan and to adjudicate claims. In 2007, an employee became eligible to receive benefits under both the LTD Plan and a Verizon pension plan due to disability, and the employee elected to take his full pension benefit as a lump sum and then roll it over into an IRA in a direct trustee-to-trustee transfer. The LTD Plan’s summary plan description (the “SPD”) contained language stating that a participant’s long-term disability benefits “may be reduced by other sources of disability income,” including “pension benefits from a Verizon pension plan, if the beneficiary elects to receive them.” MetLife offset the participant’s monthly disability benefit by the amount of the pension benefit he had rolled over into his IRA. The participant appealed countering that because he would not actually receive any of… Continue Reading

The DOL’s Expanded Fiduciary Rule Applies to Health Savings Accounts

The DOL’s final fiduciary rule (the “Final Rule”) went into effect on June 9, 2017 after several delays. The Final Rule clarifies when a person who provides investment advice becomes a fiduciary to a plan for purposes of ERISA and the Internal Revenue Code. Under the Final Rule, the term “plan” explicitly includes health savings accounts (“HSAs”). While employers typically have little direct HSA involvement beyond engaging an HSA service provider (e.g., a trustee or custodian) and forwarding payroll contributions, the Final Rule does raise issues for employers to consider: Employers should review the products and services offered by their HSA service provider to HSA participants and determine if the service provider is a fiduciary as defined in the Final Rule. If applicable, the employer should consider including an affirmative acknowledgement in its HSA provider services agreement to the effect that such provider is a fiduciary under the Final Rule… Continue Reading

Second Circuit Upholds Equitable Reformation in Connection with Intentionally Concealing Wear-Away Period from Plan Participants

Foot Locker converted its traditional pension plan to a cash balance plan. In doing the conversion, Foot Locker provided smaller initial benefits which resulted in a wear-away period until the new plan’s benefits actually equaled the value of the traditional pension plan’s accrued benefits. Foot Locker went to great lengths to conceal the wear-away from participants, including in the subsequent SPD that excluded any description of the wear-away or any indication that the conversion would cause a benefits freeze. Consequently, participants were not aware that their benefits had been frozen. The district court found violations of ERISA §§ 102 and 404(a) and equitably reformed the plan under ERISA § 502(a)(3). On appeal, Foot Locker did not challenge the ERISA violations but argued the district court erred in (i) holding the participants’ claims were not barred by the applicable statute of limitations; (ii) holding that individualized proof of detrimental reliance was… Continue Reading

Plan’s Limitations Period for Judicial Review of Benefit Denial Not Enforceable

A federal district court in the Tenth Circuit recently held in William G. v. United Healthcare that the six-month limitations period for filing a lawsuit challenging a benefits denial under a self-funded, employer-sponsored group health plan subject to ERISA, which was imposed by the terms of the plan, was unenforceable against the plaintiff who was a plan participant. The court determined that the benefit denial notices related to the participant’s claim for benefits did not disclose the plan’s limitations period as required by ERISA’s claims regulations. Despite the fact that the plan’s limitations period was specifically set out on three pages in the plan’s summary plan description, the court followed precedent in other courts and interpreted ERISA’s claims regulations to require disclosure of the plan’s limitations period as part of the description of the plan’s review procedures that must be included in benefit claim denial notices (including notices regarding claims… Continue Reading

Texas Supreme Court Provides Guidance On The Recoverability Of Judgments Entered Against An Insured By Third-Party Plaintiffs

In a much anticipated decision, the Texas Supreme Court has given direction to policyholders and third-party plaintiffs on the circumstances under which a judgment entered against the policyholder will be recoverable from the judgment debtor’s insurer.  The case is important to insureds defending against third-party claims because it offers instruction on how to transfer liability appropriately to an insurer for an adverse judgment.  The decision is equally important to plaintiffs seeking to maximize recovery of judgments against parties, whose greatest asset may be a liability policy. In Great American Insurance Company v. Hamel, 2017 WL 2623067 (Tex. June 16, 2017), homeowners obtained a judgment against a builder for defective workmanship in a bench trial held after the homeowners agreed with the builder not to pursue the builder’s owner or the owner’s personal assets in satisfaction of a judgment entered against the builder.  After trial, the builder assigned all claims against… Continue Reading

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