Compliance November 1, 2004

HMO Drug Copayments Upheld

January 23, 2003 (PLANSPONSOR.com) - A health maintenance organization (HMO) that charges prescription drug copayments higher than its costs doesn't violate the terms of its plans or breach its ERISA fiduciary duty.
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That was the ruling from the US 1 st Circuit Court of Appeals that upholds an earlier ruling by the US District Court for the District of Massachusetts, Washington-based legal publisher BNA reported.   The lower court found that HMOs weren’t legally wrong because their plan literature laid out required patient drug payments in detail.

According to the BNA report, HMO participants James Alves and Hillel Stavis sued five related HMOs. The plaintiffs alleged:

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  • The HMOs charged copayments for prescription drugs higher than their costs
  • Failed to disclose that they were charging more than their costs
  • Misrepresented the price they were paying for the drugs.

The district court also found that the HMOs did not breach their fiduciary duties to participants by not disclosing that they were collecting copayments higher than the drug’s cost. There can be no breach of fiduciary duty where an ERISA plan is implemented according to its written, nondiscretionary terms, the district court said.

The case is Alves v. Harvard Pilgrim Health Care Inc ., 1st Cir., No. 02-1817, 1/21/03.

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