EXPERTS DISPUTE ZAYAS-CORTEZ VERSION OF BISD VS. HEALTHSMART

By Risk Managers.us
(Many of us are confused by the esoteric world of life and health insurance. The article below written by insurance experts shows how a simplistic approach to this subject has resulted in the Brownsville Independent School District getting embroiled in a legal battle it cannot possibly win but will probably result in hefty legal costs to the district taxpayers.)

An article in the Brownsville Herald dated 9/4/2010, titled “BISD takes HealthSmart to court over employee health plan costs,” Trustee Ruben Cortez (Member- Nov 2006) and Trustee Rick Zayas (Member- November 2008) were quick to come to conclusions.
“The increase (in cost) was so vast that you had to either be ignorant or purposely not paying attention to not notice that something was obviously wrong,” Zayas said. Mr. Zayas had been acting as a Plan Fiduciary during the later part of HealthSmart’s tenure.
Plan Fiduciaries have a duty to be responsible stewards of the BISD’s Plan’s assets, jointly funded by employees and the district, i.e. taxpayers. Mr. Zayas, albeit belatedly, appears to be exercising his duties for the first time.
Basic questions need answers; who was monitoring the program during the Healthsmart tenure? Who reviewed and approved the HealthSmart contract prior to the Plan’s effective date? Were the monthly HealthSmart billings audited? Or did BISD pay bills without question? Were the HealthSmart billings compared to their proposal offer during the process to gain the business, and was it compared to the contract approved by the Board of Trustees? Were the Plan Fiduciaries acting in the best interests of the Plan or were they negligent in their duties?
The Brownsville Herald article noted “HealthSmart was overcharging the district approximately $15,000 per month for disease management. The contract called for a fee of $2.49 per diseased member. HealthSmart was charging the fee for each of BISD’s approximately 7,700 employees. BISD’s insurance consultant discovered the discrepancy, which CTI confirmed.”
Yet, a careful review shows that this “overcharge” may not have been an overcharge at all.
In a report dated November 24, 2008, for the period of October 1, 2007 – September 30, 2008, prepared by HealthSmart (formerly known as American Administrative Group (AAG), titled “Total Cost Breakdown” the figures shown for UR, LCM, DM are as follows:
Month Amount Employee AVERAGE
Oct-07 $39,807 7058 $5.64
Nov-07 $39,880 7071 $5.64
Dec-07 $40,309 7147 $5.64
Jan-08 $40,585 7196 $5.64
Feb-08 $41,618 7379 $5.64
Mar-08 $41,959 7375 $5.69
Apr-08 $41,629 7381 $5.64
May-08 $41,725 7398 $5.64
Jun-08 $41,759 7404 $5.64
Jul-08 $41,838 7418 $5.64
Aug-08 $42,131 7470 $5.64
Sep-08 $42,960 7617 $5.64

If the so called “overcharge” of $2.49 is accurate, then why did the BISD not catch this significant financial billing error?
A review of RFP # 09-150, Request for Proposal for Third Party Administration (TPA)-Services for the Self-Insured Group Health Plan and Stop-Loss Insurance included a breakdown of fees for TPA services being provided by HealthSmart.

Utilization Review (UR) – $2.15 PEPM
Large Case Management (LCM) – $1.00 PEPM
Disease Manage (DM) – $2.49 PEPM
Total – $5.64 PEPM

“PEPM” stands for Per Employee Per Month.

Mr. Cortez was quoted in the article “We’re going after them to get out money back.” Unfortunately Mr. Cortez may have not done a thorough job on his homework here. He appears to be basing his comment on the HealthSmart contract which shows the disease management monthly charge as “per diseased member.”
However, this is an obvious clerical error no one discovered for years.
Disease management fees are routinely charged on a PEPM basis as a standard industry practice.
The article cited a quote from the BISD outside auditor who wrote “ HealthSmart “engaged in gross deviations from accepted industry customs and practices by renegotiating discounts with the PPO and charging an access fee in addition to a 30 percent fee of the ‘savings’ on a claim-by-claim basis, … essentially dealing beneath its corporate umbrella and basically paying itself twice at the expense of BISD.”
This statement may tend to lead the reader into believing that something illegal or out of the ordinary occurred during the HealthSmart tenure. One must be careful in forming opinions that may have no basis in fact. A careful review of the audit and the HealthSmart Administration Agreement may bring answers that would preclude a lawsuit loss before a jury.
The audit report stated HealthSmart reported that 3% of paid claims totaling $906,876 were classified as “Out-of-Network” claims.

Non-PPO Paid Claims
Billed Charges $ 3,489,504.00
Ineligibles $ (2,017,028.00)
Co-Payments $ (3,350.00)
Deductible $ (327,579.00)
Co-Insurance $ (234,528.00)
PPO Savings $ (147.00)
Paid $ 906,872.00

Outlined in the recently issued audit report, which this lawsuit is based, BISD wrote checks in the amount of $558,334 (2007-2008) made payable to HealthSmart for Out-of-Network and Network claims negotiations.
Month after month, it appears that checks were written for services without any type of internal audit or reconciliation or review of the contract. An additional amount of $641,421 was paid during the 2008-2009 contract year for a total of $1,199,775 over a two year period.
Not included in the Brownsville Herald article, but mentioned in the recently released audit was an “untouchable” 66.5% discount off billed charges offered by HealthSmart.
Could it be that when something is discounted by 66.5% it is because the original price is too high to begin with? Rising health care costs along with better discounts seems paradoxical. The audit states that for every 1% loss in discount, there is a loss of savings in the amount of $700,000 to the district. Is this statement supportable?
“I feel proud that we held strong to our convictions to get rid of HealthSmart. Now it is projected that BISD will save $7 million in its first year with MAA.” Zayas said.
Actually, the “claim savings” will be much higher than this, approximately $10 to $15 million. That is due to claim lag. During the first three months of the current Plan, little or no claims are incurred and paid. A 90 day claim lag is normal. To characterize claim lag as a Plan savings would be misinformed.
There is no question that medical claims for the BISD self-funded health plan are increasing. Could that be due to local health care providers charging more? And, do area medical care providers agree to take less money from one PPO network than another? These are questions that need to be addressed with facts and not opinions.
The Brownsville Independent School District, with a budget approaching half a billion dollars, would do well to hire a full-time risk manager. An experienced in-house risk manager would have provided sound guidance for the BISD and thus prevented an expensive and time consuming lawsuit. That alone would have paid for his salary and that of his staff.
It appears that the Brownsville Independent School District’s self-funded employee welfare plan has been without proper oversight and sound plan management.
The BISD lawsuit against HealthSmart is going to answer a lot of these questions, and more. Politics should have no play in the courtroom.