Over the last several years, the word “transparency” has becomethe new it word in the benefits industry. Unfortunately, manyemployers have allowed payers, PBMs and TPAs to define this wordfor them and, as such, it’s become a meaningless term, much like“all natural” or “organic” in the food industry.

True transparency can be achieved, but it needs to start with aspecific definition that has a measurable standard applied to it.In light of the DOL’s recent hardline stance on the subjectof plan sponsor obligations under ERISA (GAP Stores and others haverecently been sued in breach of fiduciary lawsuits), I believe thatthe new safe haven transparency standard for plan sponsors must be“fiduciary-level transparency.”

ERISA fiduciary responsibilities

According to the DOL website:

The primary responsibility of fiduciaries is to run the plansolely in the interest of participants and beneficiaries and forthe exclusive purpose of providing benefits and paying planexpenses … In addition, they must follow the terms of plandocuments to the extent that the plan terms are consistent withERISA. They also must avoid conflicts of interest. In other words,they may not engage in transactions on behalf of the plan thatbenefit parties related to the plan, such as other fiduciaries,services providers, or the plan sponsor.

Fiduciaries who do not follow these principles of conductmay be personally liable to restore any losses to theplan, or to restore any profits made through improper useof plan assets. Courts may take whatever action is appropriateagainst fiduciaries who breach their duties under ERISA includingtheir removal.

Under ERISA laws, the people responsible for running the healthplans are bound by fiduciary duties. Failure to uphold those dutiescan result in a lawsuit being filed against the people ororganizations responsible for overseeing the benefits plans.

In a one-on-one conversation with a DOL representative, I asked outrightwhether the DOL would begin to enforce fiduciary rules for plansponsors even when they are acting in a status quo manner (hired areputable consultant, had a data warehouse, etc. but weren’tapplying fiduciary standards to their data). The response was“ignorance is not an excuse.” In other words, plan sponsors can’tafford to not know what’s happening in their plan and must be ableto account for the relative value received for the money beingspent on benefits and improve on this wherever possible.

Part of the trouble for plan sponsors comes in completing andfiling their 5500 with the IRS, where part of thecriteria is to report whether a service provider received anyindirect compensation and if so, how much. Unless employers haveabsolute, fiduciary-level transparency, there’s absolutely no waythey can answer that question. Furthermore, if they reply “no,”they are almost certainly wrong!

Misaligned incentives and confusinglanguage

There are few things as irrefutable in this world as people andorganizations following their own incentives. With that in mind,it’s impossible to reconcile how payers, PBMs and TPAs, all of whommake more only when the health plan spends more, can ever beexpected to act in a manner consistent with the rules to which planfiduciaries must adhere. The incentives are simply not aligned.Plan sponsors can no longer assume their vendors and, by extension,their service providers are acting in a way that would stand therequired test of fiduciary as defined by ERISA. Unless plansponsors hold their vendors to this standard, they stand in the gapalone.

A quick look at vendor contracts and the commonly used languagecan tell you much of what is happening and why a health plan isn’ttransparent. Two quick examples are:

1.) PBM contracts built around averagewholesale price (AWP) language — AWP is a meaninglessterm, as proven by the fact that there may be dozens of AWPs for agiven drug on any given day, all of which have different prices,which makes the word “average” lose its meaning completely. Theonly way to know for sure is to have an optimal pricing analysisperformed. This will tell what you paid versus what you could havepaid. If you adhere to the strict interpretation of ERISA language,this simply cannot continue to happen. Fortunately, there aresolutions to this which allow you to be in fiduciary compliancewithout any changes to formularies or pharmacy networks. Even moreexciting, you will save significant dollars just by modifying thislanguage and stopping this practice.

2.) Focus of payer contract is around“network discount”— Virtually every plan we analyze isastonished at the differences in cost within the same network forthings like MRIs, colonoscopies, and non-emergency surgicalprocedures. Again, this makes terms like network discountsmeaningless.

For example, one client of ours paid an annual high of $8,746and a low of $382 for a lumbar spine MRI in the same network. Now Iask you, how much does a 33 percent network discount mean when youpaid 23 times more for the same service?

Proactive care coordination by someone other than the payerwhose network you are accessing is a sure-fire way to reign in thiswaste, improve outcomes and get the better price more often.

Solutions

In order to verify that their plan is in compliance, plansponsors need a data partner who can apply these standards to theirclaims and pharmacy data in a real-time manner and assist incorrecting irregularities and inefficiencies through proactive planmanagement. This partner should also be able to assist in gainingrestitution when vendors aren’t transparent about undisclosed and“hidden” fees or have business models that are designed to increasetheir profit at the expense of the plan when there are alternativesthat could save significant dollars. Many of these solutions canhappen through refinement of vendor contracts where many of thesepractices are “allowed” via confusing language, but awareness isn’treached until a fiduciary level analysis is conducted. These rulesalso apply to egregious practices related to network performanceand pricing, wide variance in cost and quality in certainprocedures, etc. where the payer is assumed to be exerting thesecontrols and “normalizing” the network but is simply not acting inthe best interest of the plan.

Revolutionizing the benefits consultingbusiness

A friend of mine works for a large national accounting firm.During a conversation with him on this subject several months agohe said “this is the equivalent of what Sarbanes Oxley did for ourindustry in 2002. It fundamentally changed our entire industry’sfocus and direction forever.”

For plan sponsors, the movement towards fiduciary-leveltransparency is logical, necessary and now driven by markets forceswhich make it inevitable. It is now also poised to usher in a wholenew market approach for benefits consultants and an entire newgenera of real-time data analysis and proactive planmanagement.