The Core Question: Who Decides?

David 0:00

In an industry built on trust but riddled with conflicts, ethics may be the real differentiator. Who's actually making principal decisions when it costs them something? We'll find out on this episode of Shift Shapers.

Meet Adam Russo And Setup

Announcer 0:15

Change either energizes or paralyzes. The choice is yours. This is the Shift Shapers Podcast, bringing the employee benefits industry interviews with individuals and companies who are shaping the industry's shifts. And now, here's your host, David Saltzman.

David 0:35

And to help us answer that question, we're joined by our old friend Adam Russo, Chief Legal Officer at the FIA Group and a leading voice in self-funded health plan space. But he also helps organizations navigate ethics, compliance, fiduciary responsibility when the decisions actually matter. So with that, welcome back, Adam. How are you doing?

SPEAKER_03 0:55

I'm doing great, David. Thank you so much for having me back. You know, it's been so long, I figured, man, I must have really bombed the last time.

Plan Sponsors’ True Fiduciary Role

David 1:01

Never, never. Can't happen. Can't happen. So let's let's start like from the very top. From your perspective as an attorney who works closely in the self-funded health industry ecosystem, why has professional ethics become such a central issue for TPA's brokers and consultants right now?

Compliant Plan Docs That Aren’t Compliant

SPEAKER_03 1:18

You know, it's funny you bring this up, right? This is a topic that I have had, I would say the last 15 years of my professional life have been trying to get anyone to listen, talking about fiduciary duties. I mean, the the crazy part is if you walked up to an employer, any employer that has been self-funded, I'm not talking about for one year, not talking about they just recently joined a captive, but an employer, you know, with 500 employees who've been self-funded for, let's say, a decade, and you go up to them, ask them one simple question, you go, who makes the claim decisions for your health plan? For your employees, the ones you care about, and obviously you get to know a lot of their family members, who is making a decision as to whether or not to pay a claim, how much to pay, what vendors to use or not use, etc. And every employer, nine out of ten, will answer my administrator, my TPA, my ASO, my carrier, my broker. And I'll sit there and say, no, you do. You're the plan sponsor. The plan sponsor is the one that's making the decision. Ultimately, at the end of the day, when you have a million-dollar claim and you have someone in accounting with some rare disorder, and they need special, specialized, you know, treatment, pharmaceuticals, specialty drugs, et cetera, maybe a major surgery, the decision as to whether or not to pay and how much to pay is yours, not the TPA's, no one else. And people will look at me like I'm crazy and they'll say, well, you hear this all the time, right? If it quacks like a duck, and if it walks like a duck, it's still a duck. And that's what is the rub in our industry is that even though you'll go to an employer and ask that question, who is responsible for payment of your claims? Who's responsible for being prudent with planned assets? That's what we're talking about here. It's money. Okay. It's employee money, hardworking, you know, hard work, you're hard-working employees. You know, obviously they pay into the health plan in many situations. The employer is putting their money into the health plan. So the employer thinks it's the administrator that makes the decisions. But then if you walk up to any administrator, and this is why I always tell TPAs, be careful of what you wish for in lawsuits with a deposition or anything like that. If I brought in the claims manager for any third-party administrator across the country that has any amount of, I'll even say they have 20 years' experience, they've been at that same administrator for 20 years, and now they're the manager of claims. And I walk in as the attorney and I ask a very basic question to, let's say, Mary, her name's Mary, all right? Mary, you've been here for 20 years. You obviously know everything that goes on in this shop. Mary, who makes the decision as to whether or not to pay a claim? And Mary will sit there proudly and say, I do. So even though the plan document is guiding what's supposed to happen, how much is supposed to pay, not pay, what's covered, what's excluded, Mary, because let's be honest, 99, probably more than that, 999 times out of a thousand, the administrator is making, is processing the claims, making the claim decisions based on what the plan document says. But in everyone's mind, the employer is just paying, and the administrator or the carrier are the ones who ultimately make the decision. And finally, after me warning about this for years, over the past few years, we've seen more and more lawsuits, fiduciary breaches. What do you do with my money? We've seen this, as you know, David, in the 401k world for decades, lawsuits. If one tenth of the stuff that I see on a daily basis happened instead of the health plan in the 401k plan, people would be in jail. But because it's the health plan and you have this mindset that it is what it is, you know, the hospital is being reasonable, this is what we're supposed to pay, it changes people's mentality, and people look at healthcare unlike anything else that they do or deal with in their everyday lives. So that's a big part of it. But the biggest part, and the biggest reason you're seeing this really become a huge talking point today is because claims are getting more and more expensive. You know, as Einstein said, the definition of insanity is doing the same thing over and over again, expecting a different result. Well, most of most of the people listening to this will have just gone through a renewal. What's changed? Nothing. Every year, same thing. Copays go up, deductibles go up, out of pockets go up, or and or benefits get reduced. So we're seeing it play out on a larger scale. And unfortunately, the way things have been going, the way processes are internally, the mindset, employers thinking that they're not responsible for these decisions, you know, all this is coming to a roost.

David 6:37

Well, and what what they don't understand, just to use your example, if there's some kind of specialty care that's required for Susie and they go ahead and approve it, even though it's beyond what's currently in the plan document, they've just effectively changed their plan document. Right. Because the next time that care is required by John, they're going to have to pay for it. And they don't understand that. It's another reason why decisions need to be made as far up the tree with the plan sponsor as you can.

SPEAKER_03 7:00

And David, the craziest part, I'll give you a little example. What I'll again, no names, all names, all titles are all being changed. I love how they say that at the beginning of a movement. Right. The bottom line is this it starts with the plan. Let's say everyone knows their role. So everyone knows the plan is written, it's compliant. So the administrator's job is to follow the terms of the plan. The members' job is to look in the plan and see, here's my co-pay deductibles, et cetera. But do you have any idea, David, what percentage of plan dogs are actually compliant? And the problem is, is that every year it's getting so much more complicated. Whether it's the NSA, whether it's IDR, whether it's COBRA changes, whether it's ERISA changes, you know, state mandates, whatever it might be. So what happens is you'll have a plan doc that's saying, should this be covered or not? Everyone's following the rules precisely, but the plan is not compliant. It happened recently with a large carrier in a state that's not too far away from here where a it was like a$500,000 procedure was not being covered. We got the final appeal, and when we looked at it, luckily, one of my attorneys said, wait a second, I thought that that state passed a law two years ago that now covers this expense. And guess what? A 100-person carrier legal department couldn't, whether it's they didn't have time, whether they just missed it, I don't know why. But they were following the rules in the plan, but the plan wasn't following the rules of the actual state. So all these claims, we're talking about hundreds of claims were being denied because the plan wasn't compliant with the law. So it starts there, and there's a reason why, David, you'll see many times, it will be April. And you're wondering, when am I going to get my restated plan document? And the problem is people just can't keep up with all the regulatory changes, whether good or bad. And some of the rules that we have in place are just a waste of money and time. But that's really the beginning, the crux of how this whole problem started.

Compliance Versus Ethics In Practice

David 9:20

So there's a lot of organizations that think of ethics and compliance as the same thing. How do you help clients distinguish between simply being compliant and truly operating with an ethical decision-making framework?

SPEAKER_03 9:32

So it's funny, it's a, it's a, it's not funny, it's a sad situation, right? But compliance is obviously being compliant with whatever law, whatever contracts that you sign. It's pretty basic. Okay, I'm gonna keep it as simple as I can. So if I want to be compliant with, if I'm a self-funded ERISA plan, I have to be compliant with ERISA. Great. Now, there are also some rules that will apply to me. Even though I'm an ERISA plan, I have a separate contract with the network that does not fall under ERISA. I have a separate contract with my PBM, it does not fall under ERISA. But yet when an employer hears, because they're told this, right? They're fed this, here's why you want to sell fund. You know, you have federal law protecting you. You have to worry about what the state say. And people take that as, you know, gospel. So even if they have violated a contract that literally falls under state law, the first defense is we're ERISA plan. And I'm like, uh yeah, it has nothing to do with your plan document. This is a separate contract that you signed. So ERISA doesn't apply. So compliance to me is black and white for the most part. Ethics is a whole different world. And I could tell you that, you know, when I started my company 26 years ago at the age of 26, I learned a valuable lesson. I'll never forget this. So I go to my first presentation ever, and I was uh presenting to a small third-party administrator in New Jersey, doesn't even exist anymore, and I'm showing the CEO and his team. Here's how much money we're gonna save you. Savings, savings, savings. We're gonna save three times more. We're gonna do this five times better. All the things. Because I'm thinking in my mind, my company is a cost-containment company. That the more I can save your clients, the more opportunity I will get to serve, right? And the first thing that comes out of this guy's mouth is how much money am I making? And it just changed everything. I realized at that point, sure, savings are important, but the first thing many organizations want to know is not how much money you're gonna save my clients and their hardworking employees, but how much are you gonna pay me? What is my cut gonna be? And unfortunately, it's the law of the land. It's literally how our industry works. I mean, I have some situations where if you said to me, Adam, what's your fee? And I go, 25%. People assume I'm getting 25% of whatever I save. But if you actually look at all the different entities that want a piece of that, admin fee here, another admin fee here, data feed fee, et cetera, I'll end up with 6%. And 19% is just bureaucracy, red tape, going to different parties to make everyone happy. And that's a big part of why we're seeing costs go up. But ethics, you know, I would tell you, if they had a course on ethics and they just brought everyone in from our industry and said, okay, you're gonna take this exam, I'd be surprised if 10% could pass. Just because it's just the industry that we're in, it's the world that we're in. You know, I don't want to call it a kickback by any means, but in so many situations, you know, if you look at really what's behind the expenses, the fees, etc., I don't think most people realize just how many different hands are in that cookie jar.

Transparency, Compensation, And Trust

David 13:17

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SPEAKER_03 15:03

You know, I see it all the time, right? I mean, it's a small, you know, people will say, well, insurance is, you know, 16% of the overall economy and it touches everything and every and everybody. But what I realized was it's still a small world when it comes to the expertise and the stuff that we're doing on a daily basis. And I try to explain to when a when a broker or consultant or advisor comes to me and they go, and they're asking for advice, right? Especially as somebody young who's maybe new in the game, and they'll ask me, and I'll say, just be as transparent as you possibly can be. But be also be open to as many options for reimbursement or compensation as you possibly can be. And let me give you an example of what I mean by that. So let's say we have a, I had a broker last year who represents a you know very blue-collar municipality in Ohio. And this broker was able, by working with us and other organizations, you know, that we help strategize, over 30% reduction in spend. Same population, same plan design, it's a union plan. So it's not like you just go in there, it's not cutting out benefits, but it's just looking at alternative methodologies of what providers to go to, how to a better way to get the medication, whatever it might be. 30% reduction. So everyone's happy, right? They're like, wow, this guy's a this guy's great. There, his company's amazing, you're a genius. And then one council member said, Um, excuse me, sir, your fees were about three hundred thousand dollars last year. Remember, this gentleman's company saved probably close to fifty million dollars in expenses on the health plan. And instead of looking at how much was saved on the health plan, the councilman goes, you're getting$300,000 and you're representing this blue-collar city, and you think that's ethical? You think that's reasonable? And his answer in front of the entire board was yes, because my contract specifically says I'm paid based on my performance. If I save you X amount of dollars, I get paid X, I get paid Y. If I came back to you and said, yeah, co pay is gonna go up, you know, deductibles going up, your overall plan expenses, just like any other plan, is gonna go up 5-10%, my fee would have been zero based on the contract I signed. So instead of punishing me for getting paid too much, the reason I'm being paid so much is because of how much I have saved you. Now, all of it's transparent, but there are times, my friend, where if you are really, really good at your job, and I'm gonna pat myself on the back and say my company, the Fiat Group, is very good at what we do, there have been situations where we have taken bills that are a million dollars, reduced them so low, and got full and final agreement on payment that my fee is actually higher than what the provider was being paid for the services. That is not a good look. That's why it's very important, and I'm seeing this expand, having caps in place regarding one-off claims, situations like the one I just described. But too often in this industry, the response to the question of, are you being transparent, you know, in regards to what your compensation is, your fee structure, et cetera, and the answer would be yes, of course I'm transparent. Look at page 27, addendum B, and in an eight font, it says specifically how long to be paid, and it's in an asterisk. That's not transparency in my mind. So there's one thing to be transparent under the law. Um, another answer to that is being transparent when it comes to business ethics. You might get away with it for a year or two, but eventually, if you can't tell your client exactly what you're charging and why you are do what you are do in the face without blinking, then you're gonna have a problem.

What A Fiduciary Mindset Looks Like

David 19:27

So let's shift a little bit and talk about the F word, not not that one. The term fiduciary I was thinking about fiduciary. I knew you were. What were you thinking about? I would my mind goes right to the gutter, as you know. Um, it's my second favorite word that starts with F after Friday. Um the term fiduciary is used frequently, and more and more today. I mean, there's some there's some advisors who hadn't ever heard the word fiduciary five years ago, and now they're hearing it a lot, and it's becoming a scary landscape for them. They're getting named in lawsuits and et cetera. What does a true fiduciary mindset look like in day-to-day decisions, especially, especially when sometimes, as you pointed out, the financial incentives may point elsewhere?

SPEAKER_03 20:09

It goes back to so it's funny you say that, right? So we have over 30 attorneys here at my company. And what I try to explain to every attorney that works here, the attorneys that are become successful in this world that we're in, don't just have a legal mindset, they have a business mindset as well. They could they could do both. Because if you purely look at everything just based on what you legally can do, especially in a great area like Orissa, where because think about this. Think about the surgeries and the type of procedures that we could do now and compare that to 25, 30 years ago. So much more complications. There are so many more things that potentially could be investigatory or, you know, experimental, right? There's arguments there. You play those games. But at the end of the day, what I try to explain to people is how I define a fiduciary duty and making sure you're following the role of fiduciary is are you being prudent with plant assets? Is what you're doing reasonable when it comes to taking care of the plan? So, a good example. Let's say I have a subrogation case, right? A reimbursement situation where a plan member owes, uh, was$100,000 was paid in claims on behalf of a patient, a plan member. So that plan member, if they get a lawsuit, a settlement from a lawsuit, has the duty to reimburse the plan in full the$100,000. There are, I would say, 95 out of 100 times, there's not enough money in the settlement for that patient to reimburse the plan 100% of what the plan paid. Or if they did do that, the attorney, the patient's attorney is getting paid, the plan's getting their money back, but The patient, the person who was actually injured, is getting pennies on the dollar. And I will have conversations with plant sponsors, with employers, and say, Well, you're owed$100,000, but the entire settlement was for$100,000. So I think a good deal would be a you know 50-50 split. You get 50%, they get 50%. Let's just say. And the first thing that the attorney for the employer will say, well, we have a duty to be fiduciaries of the plan. And the plan document says that you have to pay us back 100%. And I'll say, okay, we could do that. What member is gonna agree just to turn over all the money to you? You're gonna have to sue. So now you have a lawsuit, cost money. You gotta pay an attorney, cost money. You gotta have bad media attention. You would now have a public record that you are suing. Let's just say this person was a long-tenued uh employee. Now you got a public record, and everyone in the town, everyone in that region, everyone in that area knows that you are suing one of your employees to get money back from their car accident. None of that looks good. So sure, you could spend$75,000 and three years later win the case, you'll get$100,000, bad publicity. The person can appeal, make the decision, but at the end of the day, net, you're making$25,000. Or take 50% right now and move on. What's prudent? What is the definition of prudence? And that's the cut, and that's the part that most people miss. It's not clearly black and white. It's a duty to be prudent. If I believe and I can prove that if I pay XYZ, broker, consultant, etc., a million dollars, but that broker is gonna save the plan 30 million. Is it unethical for that broker to charge a million and save 30? Or is it prudent for the plan to have that broker be paid a million dollars and save 30 million? These are all things that we're seeing evolve. And it's not black and white, but it goes back to what I said at the beginning of my long ramble statement. It's all about transparency, being open and upfront, right up front, and give examples of situations, how they're gonna be handled, how you're gonna be compensated. And if you do that, these issues won't come up later on.

The NSA, IDR, And Rising Costs

David 24:43

We've got a few minutes left before we have to close out. And so let's talk about the other F-word, which is the future. As regulatory pressure, litigation, public scrutiny increase, and we've talked about a few of these things. How do you see ethics shaping the future of the self-funded industry? And what should leaders be doing now to stay ahead of the risk?

SPEAKER_03 25:03

Great question. I'm happy you asked it, and I'm gonna give you an answer that you probably did not expect. In my mind, you have to look at, and most of the people listening to this, I'm assuming they're not just dialing in by accident. You know, the No Surprises Act and the IDRs and the entire NSA process has been nothing but a nightmare for self-funded employers. Let me give you an example. The NSA was created to act the no surprise, right? No surprise. So the members not surprised with some random bill that they thought is covered by the health plan. And it was supposed to reduce the overall cost, reduce the overall spend. All the NSA has done is made it more expensive. What do I mean by that? 90% of the time, when the claim goes into arbitration, the providers win. Nine out of 10 times national average. Now, at my company, and we are three times better than any industry number I've seen, we're winning at a rate of 50% of the time. I have a large Teamsters plan that just received their report last week. Crazy story. They had 175 cases, claims, go into the IDR process. They lost 175 cases. They did it with a single claim. And what people need to realize is the amount that's being paid to the providers is the full build charge. Not a discount. Nobody in the world pays a full bill charge. All you do is pick up the phone and in five minutes at least get 20% off. But that's what's happened. And to me, the fiduci that to me is the most blatant example of not being prudent with the plan's money. Because there is a 30-day negotiation window that you have before it goes to the arbitration process where it's baseball style arbitration, meaning there's no settlement. It's either what they want or what you want. That's it. And negligently, most carriers and administrators have no process of being able to identify which claims should be NSA claims, then actually having a process that follows different set of time frames, response times, process times, notification response times, all that, it's totally separate from Orissa. None of this technology, none of the software has even been built for all these things. But the providers have taken advantage of it. So if you are a Teamsters member and you're looking at next year, your claims go up by 6, 7%, 10%, whatever might be premium. And then you find out that the plan lost every single claim that went to arbitration because they did not follow the right process. What is that going to do when it comes to lawsuits? It's one thing, my friend David, when you say, well, you know, we're using a network. Everyone uses the network, and the network discounts 30%. It's reasonable. An argument can be made that it's reasonable because everyone else is doing it. It's the standard. Hard to argue that losing 100% of your arbitration cases costing hundreds of millions of dollars, in any way you can argue that you would be reasonable. And that to me is the future of litigation and why it's just going to compound all the fiduciary duties and breaches and risks we have now are going to get worse. And guess what? I've spoken to many of the individuals who created and implemented the NSA in DC. And you know what they'll tell you? Literally, they'll tell you right on a Teams call. They'll say, I'm embarrassed for what I implemented. Because nobody thought this was going to happen. But what happened was the providers are smart. They know, just like you know, David, if I'm an arbitrator and I have two parties, one is a doctor, and the other one is some claims processor, you know, making, you know,$50,000 a year, working at a TPA. The provider says, I should be paid$100,000 for my surgery. And the person on the other side goes, yeah, we offer them$10. Mentally, what is that arbitrator going to do? They're going to do what my mother does, what your family does, what your friends do. If the doctor tells you something, you believe it. And that's what's happened in this entire arbitration process and why I see more and more potential for even more fiduciary breaches, more lawsuits, because this is all just starting to happen now. I mean, the Pandora's box is just opening. And unfortunately, there's not, there aren't many administrators or employers who really have a grasp on how to correct this issue.

David 30:17

Well, and the firm that's doing a lot of the new lawsuits is the same firm that did the tobacco legislation lawsuits. And boy, they know how to do that stuff.

Arbitrators, Providers, And Losses

SPEAKER_03 30:25

And it's right. It's like if you look at if you look at history, they always find the newest thing, right? You have the tobacco, you have asbestos, now you have the forever chemicals. They're always looking for the next thing. And this is an obvious one, and one that, quite frankly, I'm surprised it's taken this long. But I'll be honest, I think it's long overdue. I do think it's important that we find a way to rein in costs and look at everybody. No one entity is to blame. You know, you can't just say blame the health insurance companies, you know, without also saying, why are these hospitals, why are these providers, why are these pharmaceuticals charging so much for these drugs? All of it has to be looked at. All of it has to have transparency. And unfortunately, even when Congress passes laws, you know, we have the hospital billing transparency rules where that was supposed to come into place in 2021, where you're able, you're supposed to be able to go into a hospital or go on their website and transparently see what they charge, cash what cash price for their top 300 procedures. 20, less than 25% of hospitals have complied. And where is the outcry? There is none. So unfortunately, I don't see this problem going away anytime soon, but it's organizations like mine, people like yourself, organizations, really good brokers that actually care about their employees and their employers and their clients that have to step in and fill that gap. And that's what we're doing.

David 31:58

And that's a great place to end our conversation for today. Adam Russo, chief legal officer at the FIA group. Adam, as always, thank you for a very interesting and passionate discussion. I appreciate you being here. Dave, thanks. Hopefully, I get invited back again, but not five years from now. No whining on this podcast. No whining. You all, my friend. You too, my friend. Thank you.

Announcer 32:18

The Shift Shapers Podcast is a production of Shift Shaper Strategies and may not be reproduced or quoted in whole or in part without our express written permission. Copyright 2020. All rights reserved.