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Home > Blog > Self-Funded Plan Service Providers Are Not ERISA Fiduciaries Where They Do Not Exercise Discretion Over the Payment of Claims

Self-Funded Plan Service Providers Are Not ERISA Fiduciaries Where They Do Not Exercise Discretion Over the Payment of Claims

In Cent. Valley Ag Coop. v. Leonard, No. 19-3044, __F.3d__, 2021 WL 317215 (8th Cir. Feb. 1, 2021), Central Valley Ag Cooperative (“Central Valley”), which sponsored two different self-funded health care plans, brought ERISA claims (among other claims) against various defendants who either marketed or administered those health care plans. The two plans at issue include a 2015 Medical Bill Review (“MBR”) system and a 2016 Reference Based Reimbursement (“RFR”) system that defendants administered and made payment recommendations to Central Valley.

Central Valley alleged that defendants breached their fiduciary duties and engaged in prohibited transactions in the form of undisclosed “kickback” payments. The district court granted summary judgment in favor of all defendants and awarded them attorney’s fees. Central Valley appealed and the Eighth Circuit affirmed.

The court considered whether any of the defendant service providers were ERISA fiduciaries and if so, whether they breached a fiduciary duty. Service providers involved in marketing or administering benefit plans under ERISA may become fiduciaries if they have discretionary authority or control over management of the plan or have control over the disposition of the plan’s assets, or if they have discretionary authority or responsibility over the plan’s administration. The district court determined, and the Eighth Circuit agreed, that defendant Claims Delegate Services, LLC (“CDS”) was a fiduciary but that it did not breach any fiduciary duty. CDS is a fiduciary because under the RBR system it made benefit determinations on hospital and facility claims. The breaches of fiduciary duties alleged by Central Valley are not related to CDS’s role as a fiduciary, so the fiduciary duty claim against CDS fails.

With respect to the MBR system, defendant The Benefit Group (“TBG”) was not a fiduciary because it did not exercise control over plan assets when it made payments to providers because Central Valley retained possession and control over all plan assets. TBG just cut checks in the amount approved by Central Valley. Defendants TBG and Anasazi Medical Payment Solutions, Inc. (“AMPS”) did not exercise control over plan assets by making undisclosed “kickback” payments because the court found that the payments were disclosed and did not create a fiduciary relationship. These defendants also did not possess the requisite discretion over the amount of compensation that they received to become fiduciaries.

With respect to the 2016 RBR system, TBG and AMPS did not exercise discretion over the payment of claims. There is no prohibited transaction under ERISA over the alleged kickback payments because the contract allowed TBG to receive additional fees from various entities, including CDS.

Lastly, the court affirmed the award of attorneys’ fees to defendants because Central Valley waived an argument by not raising it below.

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