Atrium Health ERISA law­suit ex­poses gray area for pen­sion plans

Modern Healthcare - - News - By Tara Ban­now

THE SUPREME COURT last year ruled that faith-based hos­pi­tals don’t have to abide by fed­eral rules that gov­ern the pen­sion plans of pri­vate com­pa­nies. Now, a new law­suit raises a re­lated ques­tion: What about cer­tain not-for­profit health sys­tems?

Last week, a group of for­mer Atrium Health em­ploy­ees ar­gued that the Char­lotte, N.C.-based sys­tem im­prop­erly clas­si­fies it­self as a gov­ern­men­tal en­tity so that its health plan, MedCost, doesn’t have to abide by the fed­eral Em­ployee Re­tire­ment In­come Se­cu­rity Act of 1974.

As in other prom­i­nent cases, in which health sys­tems ar­gued their re­li­gious ori­gins qual­i­fied them as churches that are ex­empt from ERISA, at­tor­neys say there’s some gray area when it comes to whether cer­tain not-for-profit health sys­tems qual­ify as gov­ern­ment en­ti­ties.

“It’s not al­ways 100% clear whether you are or are not part of that gov­ern­ment en­tity that would be sub­ject—or in this case not sub­ject—to ERISA,” said Blake MacKay, a part­ner with the law firm Al­ston & Bird in At­lanta.

Atrium’s for­mer em­ploy­ees, who are seek­ing class-ac­tion sta­tus, ar­gue they could be cheated out of pen­sion ben­e­fits be­cause Atrium isn’t fol­low­ing ERISA re­quire­ments for fund­ing their pen­sions. That short­fall was $379 mil­lion at the end of 2017, ac­cord­ing to the com­plaint.

In this case, it’s pos­si­ble the dis­tinc­tion isn’t clear. Af­ter all Atrium was orig­i­nally es­tab­lished pur­suant to state law as the Char­lotte-Meck­len­burg Hos­pi­tal Author­ity.

Atrium, which changed its name from Caroli­nas Health­Care Sys­tem in Fe­bru­ary amid a re­brand­ing, was es­tab­lished by lo­cal gov­ern­ment more than 75 years ago as the area’s hos­pi­tal author­ity, Atrium said in a state­ment.

“A law­suit was re­cently filed claim­ing that Atrium Health is not a gov­ern­men­tal en­tity for pur­poses of the fed­eral law known as the Em­ployee Re­tire­ment In­come Se­cu­rity Act. They are wrong,” the state­ment said. “Var­i­ous reg­u­la­tory agen­cies have re­viewed Atrium Health’s gov­ern­men­tal sta­tus, which stems from our ori­gins as a hos­pi­tal author­ity.”

To ar­gue that Atrium’s ori­gins as a hos­pi­tal author­ity qual­ify it as a gov­ern­men­tal en­tity is ques­tion­able, ac­cord­ing to Paul Keck­ley, a health­care in­dus­try con­sul­tant and man­ag­ing editor of the Keck­ley Re­port. Even as many of those author­ity health sys­tems were es­tab­lished, they still op­er­ated as pri­vate, not-for-profit com­pa­nies, he said. In other words, they didn’t re­ceive pub­lic fund­ing and in­stead billed Medi­care and com­mer­cial health plans.

“The fact is: There must have been some need to clar­ify and some be­lief that or­ga­ni­za­tions were im­prop­erly claim­ing the ex­emp­tion.”

Karen Han­dorf Part­ner Co­hen Mil­stein Sell­ers & Toll

“To qual­ify MedCost as a gov­ern­ment en­tity I would think would be kind of a stretch,” Keck­ley said, “but stranger things have hap­pened.”

Keck­ley ex­pects more law­suits like this one will crop up, given there’s roughly 100 provider-spon­sored health plans cur­rently op­er­at­ing un­der joint own­er­ship be­tween two or three health sys­tems, and they of­ten jug­gle the ques­tion of sol­vency re­quire­ments.

Karen Han­dorf, a part­ner at Co­hen Mil­stein Sell­ers & Toll, the law firm rep­re­sent­ing the em­ploy­ees, said the U.S. La­bor Depart­ment in­ves­ti­gated Atrium’s health plan and de­ter­mined it wasn’t a gov­ern­ment plan. She said the depart­ment did not take ac­tion at the time be­cause the In­ter­nal Rev­enue Ser­vice was craft­ing new reg­u­la­tions to clar­ify the def­i­ni­tion of gov­ern­men­tal plans. The IRS has not fi­nal­ized those reg­u­la­tions, Han­dorf said.

In some cases, health sys­tems started out as be­ing op­er­ated by the gov­ern­ment, but then pri­va­tized later, which Han­dorf said adds murk­i­ness to the sit­u­a­tion, and led to the IRS propos­ing reg­u­la­tions sev­eral years ago.

“The fact is: There must have been some need to clar­ify and some be­lief that or­ga­ni­za­tions were im­prop­erly claim­ing the ex­emp­tion,” she said.

Han­dorf also rep­re­sented a for­mer Dig­nity Health em­ployee who sued Dig­nity be­cause its health plan failed to com­ply with ERISA.

The U.S. Supreme Court unan­i­mously ruled last year that faith-based hos­pi­tals’ pen­sion plans qual­ify for the so-called “church plan” ex­emp­tion from ERISA. The rul­ing ap­plied to Dig­nity, Ad­vo­cate Health Care and St. Peter’s Health­care Sys­tem in New Jersey, all of which had faced law­suits from cur­rent and for­mer em­ploy­ees on the sub­ject. Three fed­eral ap­peals courts ruled against Dig­nity, Ad­vo­cate and St. Peter’s.

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