Reputation Risk – Story of Hospital Over-Charging Its Employees for Insurance for Health Care

Here’s a story of short-term gain creating a lousy reputation. A Winston-Salem hospital (N.C. Baptist Hospital) is about to start paying off in a class action because it over-charged its employees for health-care insurance premiums. How? The health care was provided by a plan owned by Baptist and another hospital. The hospital charged its employees more for the health care insurance premiums than it charged to employees of other companies.

The hospital apparently took in an extra $ 5 or so million over a period of years. One wonders how it values the negative consequences of the resulting publicity, and how the annual bonus pool is looking for the people who approved the over-charging. Once can also wonder if the hospital was guided by a lawyer who wrote a letter arguing the overcharge "could technically be legally" instead of saying "this is a really bad idea."

Here’s the key quote:

"Baptist has denied any wrongdoing. It said the selection of MedCost was a plan-sponsor function, not a fiduciary function, and therefore its actions were not governed by ERISA.

"NCBH alleges that cost is only one factor in a prudence analysis, and that MedCost provided superior service or capabilities in other areas that justified any increase in cost," Baptist said in June 2009.

However, according to the agreement, the plaintiffs’ attorneys "obtained reliable documentary evidence to suggest that NCBH had a history of ‘self-dealing’ with its subsidiary provider network. Indeed, that evidence indicated NCBH was even offering better pricing to outside health plans that used the MedCost network than it was offering its own plan and own employees."

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About Kirk

Since becoming a lawyer in 1983, Kirk’s over 30 years of practice have focused on advising a wide range of corporations, associations, and individuals (as both plaintiffs and defendants) on both tort and commercial law issues centered around “mass torts.”

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