A recently filed lawsuit by the Kansas Attorney General against Aetna may signal an important expansion in the use of state False Claims Acts against health insurers serving as third-party administrators (“TPAs”) for government-funded health plans. Although the allegations arise from the administration of Kansas’s State Employee Health Plan rather than Medicaid or Medicare, the case demonstrates how billing and payment practices sometimes litigated as ERISA fiduciary issues may increasingly be recast as fraud against the government.
The Allegations
Last month, Kansas filed suit alleging that Aetna improperly diverted funds from the State Employee Health Plan through two allegedly improper practices.
First, the complaint challenges Aetna’s use of cross-plan offsetting—a practice whereby an insurer allegedly recovers overpayments made under one health plan by reducing payments owed to providers under an entirely different plan. According to the state, Aetna allegedly used assets belonging to Kansas’s self-funded employee health plan (taxpayer money) to reimburse itself for overpayments made under unrelated commercial insurance plans. The Attorney General alleges that this practice violated Aetna’s fiduciary obligations and improperly shifted losses onto Kansans. Aetna has denied the allegations.
Second, Kansas alleges that Aetna charged hidden or inadequately disclosed fees through out-of-network repricing arrangements, including the use of third-party repricing vendors. According to the complaint, these arrangements allowed the insurer to retain portions of plan assets while paying providers substantially less than the amounts withdrawn from the state health plan.
Why This Matters
For years, False Claims Act (FCA) enforcement against insurers has focused primarily on Medicare Advantage, traditional Medicare, Medicaid, and, to a much lesser extent, TRICARE. Suits about State-funded employee health plans have been relatively rare.
If Kansas’s theory gains traction, TPAs administering self-funded governmental employee health plans may face FCA exposure for operational practices that previously generated primarily ERISA or breach-of-contract litigation.
And, unlike Kansas, whose state FCA prohibits private causes of action by qui tam plaintiffs, under most State FCAs, whistleblowers would be able to bring these suits forward on behalf of states and share in the recovery (generally between 15 and 30%).
Broader Enforcement Context
The Kansas lawsuit also arrives during a period of heightened scrutiny of health insurers under the False Claims Act. Earlier this year, Aetna agreed to resolve separate federal allegations involving Medicare Advantage risk adjustment submissions (paying over $117 million), underscoring the government’s continued focus on insurer conduct affecting public healthcare funds. Although the allegations in the Kansas case are entirely different, together these matters illustrate the expanding enforcement landscape facing insurers that administer government-funded healthcare programs.
Looking Ahead
What happens in the Kansas suit remains to be seen. Nevertheless, the case is notable because it seeks to apply state false claims statutes to the administration of a governmental employee health plan, potentially signaling a broadening of the enforcement focus of State FCAs.
Healthcare insurers, third-party administrators, entities administering public benefit plans, and whistleblowers should monitor this litigation closely. Whistleblower Partners LLP represents individuals with knowledge of fraud against federal and state healthcare programs. Contact us for a confidential consultation.
