Legislation to Enhance Enforcement and Transparency under No Surprises Act Picks Up Steam 

On December 16, 2024, Senators Michael Bennet (D-CO) and Roger Marshall (R-KS) introduced the "No Surprises Act Enforcement Act" (S. 5535), which would amend ERISA, the Public Health Service (PHS) Act, and the Internal Revenue Code (IRC) to increase penalties on group health plans and health insurance issuers for violating the No Surprises Act's (NSA) provisions prohibiting certain limitations on covered services and governing cost-sharing and payment timeline requirements. The legislation also would impose additional reporting requirements on the governmental agencies charged with NSA enforcement. Similar legislation that was introduced in the House in September remains in initial stages of consideration.

The NSA was signed into law at the end of 2020 has been in effect since January 1, 2022. It removes certain restrictions on access to covered services, limits patient cost-sharing amounts for certain out-of-network health services by tying those amounts to in-network cost-sharing amounts, eliminates balance-billing for those services, and created an Independent Dispute Resolution (IDR) system for payment disputes between providers and payors. See 42 U.S.C. § 300gg-111 (PHS Act); I.R.C. § 9816 (IRC); 29 U.S.C. § 1185e (ERISA). We have previously covered various legal and implementation challenges impacting plans, issuers, providers, and the U.S. Departments of Labor (DOL), Health and Human Services (HHS), and the Treasury (collectively, the Departments) in their efforts to enforce the NSA. Senator Marshall's office published a press release asserting that the NSA "is not being effectuated as Congress intended," specifically because "health insurance companies are not following the process outlined in this federal law." According to its sponsors, the legislation seeks to "close[] enforcement gaps" in the NSA. Insurers, plans, providers, and participants have all been very vocal with complaints about how the law has been implemented and how the IDR process is operating.

The legislation includes three amendments to the NSA:

1. Increased penalties for health plans and insurance issuers: The legislation would modify the civil enforcement provisions in ERISA, the PHS Act, and the IRC to provide for civil penalties of $10,000 per violation of the cost-sharing and consumer protection requirements for out-of-network emergency services, certain out-of-network non-emergency services at in-network facilities, and air ambulance services.
2. Additional penalties for late or non-payment of an IDR payment determination: The legislation would allow for penalties on health plans and issuers that fail to make payment to a provider within the 30-day statutory period after an IDR determination in an amount that is three times the difference between any initial payment made to the provider and the out-of-network rate for the service involved in the contested claim.
3. Additional transparency related to audits and enforcement actions: The legislation would require that the Departments submit biannual reports to Congress detailing the number of audits conducted, the number of complaints submitted by providers and participants, any enforcement actions taken, the amount of civil penalties assessed, a summary of corrective action imposed on plans and issuers, and a description of the three most common violations of the NSA.

Sixth Circuit Weighs In on Pleadings Standard for Fiduciary Duty Claim Based on Investments and Fees 

On November 20, 2024, the Sixth Circuit reversed a district court's decision to dismiss fiduciary duty claims by a putative class against Parker-Hannifin Corporation stemming from allegedly underperforming, high-fee investments in a 401(k) plan. Johnson v. Parker-Hannifin Corporation, No. 24-3014 (6th Cir. Nov. 20, 2024). The Sixth Circuit panel found that the complaint plausibly alleged that Parker-Hannifin breached its ERISA fiduciary duty of prudence for retaining an underperforming fund by alleging that a Standards & Poor's (S&P) target date fund benchmark performed better. The court also pointed to certain allegations to support an imprudent retention claim such as the high turnover rate of assets in the fund and the transaction costs associated with a high turnover. In addition, the court reversed dismissal of the plaintiffs' excessive investment fee and duty to monitor claims. 

The Sixth Circuit found that there was a meaningful benchmark in this case, especially given that the fund at issue "share[d] the same goals, strategies, and risks as the indices they are designed to replicate," and given that "tracking an industry-recognized index is the 'investment goal' of a passively managed target date fund" such as the fund at issue. The court commented that its decision is not novel, citing Braden v. Wal-Mart Stores, 588 F.3d 585 (8th Cir. 2009), and Matousek v. MidAmerican Energy Co., 51 F.4th 274, 281 (8th Cir. 2022), for support. 

The decision is noteworthy for the more general holding — and one developing as a circuit split — that a "meaningful benchmark" to the fund performance of another plan is not required to allege a fiduciary duty claim based on the decision to retain an investment. Relatedly, the court found that a benchmark alone is insufficient to allege a claim, but rather, "a plaintiff is permitted to point to a higher-performing fund—in conjunction with additional context-specific evidence" (emphasis added). The majority was critical of the dissenting opinion in this case that the plaintiff was obligated to allege sufficient details about the S&P target date fund benchmark itself, reasoning that when the fund at issue does not "meet [its] own disclosed investment objectives," that alone is sufficient to allege a claim. 

The court also revived a fiduciary breach claim based on the allegation that the fund invested in higher cost shares of investment options when it could have secured lower fees even though there was no allegation that the plan qualified by meeting the minimum-investment requirements. The court pointed to allegations like the large asset size of the plan and corresponding bargaining power. 

This decision has implications for a number of fiduciary duty claims based on underperforming funds that may be filed and make their way through discovery. As the dissenting opinion portended: "Plan administrators in this circuit should be warned: if their plans are big enough and if they have not obtained the least-expensive shares, they should prepare for 'expensive' discovery no matter the reasons for selecting the share classes that they did."

We have previously discussed pleading standards in the context of excessive fee cases concerning recordkeeping and investment management fees and the use of comparator plans.  

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