The U.S. Department of Labor (DOL) and a third-party administrator that provides employee health benefit plans with access to a network of doctors, hospitals and other medical providers have reached an agreement in which the administrator has committed to improve its communications with health plans and to return certain fees.

According to the Department of Labor’s Employee Benefits Security Administration (EBSA), the plans paid fees for claims administration that the department alleged were not fully disclosed to the plans.

The agreement with MagnaCare LLC resolves alleged violations of the Employee Retirement Income Security Act (ERISA), and was negotiated in 2016. While the firm maintains the charges against it are unfounded, the U.S. District Court for the Southern District of New York has now approved the agreement.

Under the agreement, MagnaCare will return at least $14.5 million in network management fees to ERISA health benefit plans, “with possible additional payments of $4.5 million based upon business volume through 2019.”

“The Long Island-based company has also agreed to implement revisions to its disclosures to employee health plans and participants to provide greater transparency on fees and claims procedures,” EBSA reports. “It will also offer to adjudicate certain claims where participants may not have clearly understood the requirements for submitting documentation.”

Jonathan Kay, New York regional director for the EBSA, says the case serves as a reminder that a fiduciary must fully disclose fees to plan clients under federal law. “Benefit plans must receive accurate fee disclosures so that they can make informed decisions when selecting service providers,” he adds.

Background information provided by EBSA suggests the company did not fully disclose its network management fees and provided incomplete year-end summaries of its fees to certain plan clients. By doing so, they prevented these clients from filing accurate federal Form 5500 financial reports with the government, EBSA charged. The department also alleged that the administrator’s claims processing procedure “did not give plan participants and medical providers an opportunity to submit enough information for MagnaCare to determine whether hospital emergency room claims satisfied the prudent layperson standard.”

The prudent layperson standard requires certain plans to pay emergency claims if plan participants reasonably believe their condition requires immediate medical attention. Contemporaneously with the complaint, the department and MagnaCare filed a consent order resolving these allegations and memorializing their agreement.

In a statement to PLANSPONSOR, MagnaCare lays out its position on the matter: “We made a strategic decision to work collaboratively with the Department of Labor in order to come to an agreement to provide additional transparency to our customers, despite our position that the department’s claims were unfounded. This constructive approach enables us to move forward as the industry leader in fee transparency, and focus on continuing MagnaCare’s long tradition of providing our clients outstanding service, along with benefit plan administration and provider networks that offer access to high-quality health care services at competitive prices.” 

Additional details are in the complaint and consent order.