Home > Blog > Blog > Fiduciaries > First Circuit Holds Health Plan’s Third-Party Administrator Is Not an ERISA Fiduciary with Respect to Overpayments to Medical Providers

First Circuit Holds Health Plan’s Third-Party Administrator Is Not an ERISA Fiduciary with Respect to Overpayments to Medical Providers

In Massachusetts Laborers’ Health & Welfare Fund v. Blue Cross Blue Shield of Massachusetts, No. 22-1317, 2023 WL 3069637 (1st Cir. Apr. 25, 2023), a dispute between the Massachusetts Laborers’ Health & Welfare Fund and its third-party administrator (“TPA”), Blue Cross Blue Shield of Massachusetts (“BCBSMA”), the First Circuit considered whether BCBSMA was an ERISA fiduciary with respect to its alleged misconduct of overpaying providers and wrongfully collecting excessive recovery fees to the detriment of the Plan. The district court granted BCBSMA’s motion to dismiss the Fund’s ERISA claims under Rule 12(b)(6) on the basis that BCBSMA lacked fiduciary status. The First Circuit affirmed.

The Fund is the administrator of the multi-employer self-funded health plan (“the Plan”) that contracted with BCBSMA to help administer the Plan as a TPA. Their agreement was set forth in an administrative services agreement (the “ASA”). BCBSMA is also a preferred-provider organization (a “PPO”) that negotiates favorable rates with a network of healthcare providers. This negotiation is independent from the relationship between BCBSMA and the Fund, though participants in the Plan get the benefit of the discounted rates. Medical providers submitted claims to BCBSMA, which then “repriced” the claims after a medical necessity and utilization review. BCBSMA then sent the claims to the Fund for payment. The Fund entered the claims in their system to determine eligibility and availability of benefits. The Fund decided whether the claims are covered under the Plan and determined the deductibles and copayments. When BCBSMA received the Fund’s approval, BCBSMA would remit the claim payment to the medical provider. The Fund paid BCBSMA an administrative charge in a fixed dollar amount. Because BCBSMA paid providers before billing the Fund, the Fund paid BCBSMA a “working capital amount” for estimated claim payments. They would settle any under or overpayment in one-month intervals. The ASA also provided a process and payment method for BCBSMA pursuing recovery of overpaid claims. If reprocessing a claim was not administratively practical or reasonable, then BCBSMA could negotiate a settlement with the provider. The Fund sued BCBSMA after an audit revealed that BCBSMA overpaid providers by over $1.4 million dollars in a two-year period. The Fund also claimed that BCBSMA obtained partial recoveries via provider settlements even though it was administratively practical and reasonable to reprocess the claims for full recoveries. These settlements allegedly undercompensated the Fund.

The Fund sued BCBSMA asserting three claims under ERISA and four state-law claims. With respect to the ERISA claims, the Fund argued that BCBSMA was a functional fiduciary by 1) exercising discretionary authority or discretionary control respecting management of the Plan, and 2) exercising authority or control respecting management or disposition of the Funds’ assets. See 29 U.S.C. § 1002(21)(A)(i). The court rejected these arguments.

First, the Fund argued that BCBSMA exercised discretionary control over the management of the Plan by applying already negotiated rates to claims submitted on behalf of the Plan’s participants and controlling the recovery and settlement operations. The court found that BCBSMA lacked discretionary authority with respect to the management of the Plan. The Administrative Services Agreement (ASA) and the Summary Plan Description (SPD) required BCBSMA to apply payment rates according to schedules that had already been negotiated with providers. BCBSMA’s alleged failure to abide by the ASA would give rise to a breach of contract claim but not a breach of fiduciary duty claim. While the ASA did give BCBSMA the ability to exercise some judgment in determining whether to reprocess or settle an overpaid claim with the provider, this “discretion” does not involve Plan management. The court found that it was a “broader business decision[] that simply affected the Plan and its participants.” The court relied on the Department of Labor’s interpretive bulletin noting, a “person who performs purely ministerial functions … within a framework of policies, interpretations, rules, practices and procedures made by other persons is not a fiduciary.” 29 C.F.R. § 2509.75-8(D-2).

Second, the Fund argued that the working capital amount was a Plan asset and that BCBSMA exercised “authority or control respecting management or disposition” of the working capital amount. The court assumed, without deciding, “that the working capital amount did remain an asset of the Plan, and that, as the Fund alleges, the working capital amount (as opposed to other funds) was actually used by BCBSMA to pay claims on behalf of the Plan’s participants.” The court found that the Fund failed to plausibly allege that BCBSMA exercised any authority or control over the payment process beyond the “mere exercise of physical control or the performance of mechanical administrative tasks” since “the ASA unambiguously gave the Fund full control over claims eligibility determinations and thus the authority to approve the transmission of claim payments.” Because BCBSMA could only make claim payments with the Fund’s authorization, and the Fund determined appeals of denied claims, BCBSMA lacked authority respecting the disposition of the working capital amount.


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*Please note that this blog is a summary of a reported legal decision and does not constitute legal advice. This blog has not been updated to note any subsequent change in status, including whether a decision is reconsidered or vacated. The case above was handled by other law firms, but if you have questions about how the developing law impacts your ERISA benefit claim, the attorneys at Roberts Disability Law, P.C. may be able to advise you so please contact us.

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