Breaking News: Mayo Clinic Sued for Fiduciary Breach on Health Plan

Last month, a long-time employee of the Mayo Clinic filed a class-action lawsuit against both the Mayo Clinic and its health plan administrator, Medica Health Plan Solutions (MMSI, Inc.). This case is similar to another recent noteworthy class-action suit, Lewandowski v. Johnson & Johnson, but has several novel aspects, and marks a growing trend of employees attempting to hold employers accountable for their fiduciary responsibility surrounding the health insurance benefits they offer to employees.

This case (SMO v Mayo Clinic) brings to light serious allegations under ERISA (the Employee Retirement Income Security Act of 1974) and RICO (the Racketeer Influenced and Corrupt Organizations Act), claiming that Mayo and Medica failed to act in the best interests of their health plan participants, especially concerning mental health care coverage for out-of-network services.

Key allegations

The central complaint stems from an urgent and personal matter: the plaintiff’s struggle to secure mental health care for their child. Despite following the provided protocols and using Medica’s member portal to locate an in-network provider, the plaintiff (only identified by their initials, S.M.O.) found no available options within a 50-mile radius. Given the understanding that out-of-network services would then be reimbursed at in-network rates—a common practice in situations with no in-network providers—S.M.O. proceeded to engage an out-of-network provider. However, Medica reimbursed these expenses at a substantially lower rate, imposing a hefty out-of-pocket cost on S.M.O.

When S.M.O. attempted to dispute Medica’s decision, they ran into a brick wall. The member portal that had shown no in-network providers was suddenly updated to display some available in-network providers. Additionally, S.M.O. was notified that they should have (in addition to leveraging the member portal) called Medica for support in identifying in-network providers (a requirement that was not stated in any plan documents).

The lawsuit goes on to outline several significant failures on the part of Medica, including:

• Failing to provide timely or adequate explanations of benefits (EOBs),
• Not adhering to the mandated timeframes for adverse benefit determinations as required by ERISA, and
• Not disclosing their methodology for calculating out-of-network reimbursement amounts, leaving plan members in the dark and unable to effectively challenge or understand the reimbursement decisions.

Upping the ante, the complaint further escalates to accusations of racketeering under RICO, with claims that Mayo and Medica engaged in “a criminal conspiracy to violate ERISA,” by providing misleading information about the availability of in-network providers. Allegedly, this was part of a broader scheme to minimize their own costs at the expense of plan participants, amounting to a kick-back scheme where funds meant for member benefits were pocketed by Mayo and Medica.

Additional concerns

Mayo and Medica’s failure to keep the member portal up to date with accurate information on their network of providers, and the cost of treatment, could constitute non-compliance with the Transparency In Coverage (TIC) regulation. Penalties for non-compliance could reach $100 per day per participant. With Mayo’s 76,000 employees, those fines could add up very quickly.

While this is a civil case seeking damages, it contains allegations of criminal violations. If the Department of Justice investigates, and pursues a criminal case against responsible parties, a conviction could result in up to 20 years in prison.

These allegations raise profound questions about the transparency and ethical management of health plans, especially at a time when mental health services are increasingly recognized as essential to overall health care.

So, what did Mayo do wrong?

As the employer and plan sponsor, by default Mayo has a fiduciary duty under ERISA to manage their health benefit plan in the best interest of the participants. That includes monitoring the actions of plan vendors (like Medica) to ensure that proper actions are taken. Even if the plan documents clearly identify Medica as the “claims fiduciary” with full authority and discretion to make claims decisions, or if the court finds that Medica was acting as a functional fiduciary, Mayo still bears the same fiduciary responsibility to monitor Medica’s performance, and take action if they become aware of a fiduciary breach.

What can employers do to avoid similar lawsuits?

For employers nationwide who offer ERISA health benefit plans, this growing trend of class action lawsuits should serve as a stark reminder of the importance of maintaining rigorous fiduciary standards. To avoid fines from the Department of Labor (DOL) and similar lawsuits, employers should immediately adopt a robust fiduciary process for the management of their health benefit plans. First steps should include:

• Establish a fiduciary committee for the management of your health benefits plan,
• Generate a clear understanding of the total compensation earned by each service provider associated with your plan, and
• Determine if that compensation, in exchange for the services provided, is reasonable.

Fiduciary In A Box stands ready to support employers and forward thinking brokers, advisors, TPAs, PBMs, CPAs, auditors and others in meeting their fiduciary duties, and documenting efforts to do so.