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John* called his health plan’s third-party administrator (TPA) to ask whether his wife Claire’s* bilateral mastectomy – related to her diagnosis of the BRCA1 mutation – would be covered by their employer’s self-funded health plan.

The BRCA1 mutation means Claire has an 80 percent chance of contracting breast cancer. A bilateral prophylactic mastectomy reduces the likelihood of breast cancer by 90 percent. The term “prophylactic” means the surgery is done to prevent breast cancer, rather than waiting to treat it after the disease develops.

Before deciding to move forward with the surgery, John and Claire wanted to make sure they understood what it might cost them.

The TPA’s customer service representative’s answer was clear: “Yes, it’s covered.” They talked a bit more with John making clear that Claire had the BRCA1 mutation, that she had already been treated for ovarian cancer and that her surgery was intended to reduce her risk of breast cancer.

The TPA representative assured him Claire’s surgery would be covered, but just before hanging up, added this customary line: “Of course, this is not a guarantee of payment.”

John replied, “No, right, the hospital still has to call for preauthorization.” To which the TPA representative said, “Yes, that’s correct sir.”

When Mike* from the hospital billing office called the TPA to pre-authorize the surgery, he was told by a second TPA representative that “Pre-authorization was not required for this procedure.” And again, at the end of the call, the TPA representative added, “Of course, this is not a guarantee of payment.” Mike was used to this; it’s a standard line at the end of every pre-authorization call.

A $60,000 Bill

A couple of weeks after the surgery, John and Claire received a bill for $60,000. The TPA denied the claim for the surgery, saying it was “experimental” and therefore “not medically necessary” as it related to prophylactic double mastectomy for BRCA1 positive women.

Claire and John appealed and the TPA persisted. The TPA defended their position with recordings of their conversations with both John and Mike, where their representatives clearly claimed the calls were not a “guarantee of payment.” The TPA claimed it didn’t matter what else was said on the call – as long as the TPA informed the patient there was no “guarantee of payment,” coverage could still be denied.

Uncertain where to turn, John and Claire contacted the Center for Patient Partnerships at University of Wisconsin Madison. Director Meg Gaines, a lawyer and distinguished clinical professor of law, shared the story with The Alliance to illustrate how TPAs sometimes act in ways that undermine employers’ relationships with employees.

Why This Decision?

Gaines shared the TPA’s reasoning for its decision as reflected in their written denial.

The surgery’s role in reducing Claire’s likelihood of developing breast cancer was not enough for the TPA to consider it worth covering. The TPA noted that while a bilateral mastectomy reduces the risk of contracting breast cancer, the surgery has not yet been “proven to positively affect mortality.” Therefore, payment was denied.

Gaines points out that decision left the couple – or potentially anyone facing a difficult, expensive surgery – in a precarious position. The employee who just had surgery and is coping with recovery can find it difficult to go through an appeal. Yet unless the employee appeals the decision, the claim will not be paid. Meanwhile, the employer may never know the issue occurred.

“Things like this happen all the time,” Gaines said.

Gaines was not surprised when the TPA eventually reversed its decision, “because now the employer is watching.” In their reversal letter, the TPA noted that they contracted with no fewer than six “independent experts” of which the final five agreed that this treatment is “standard of care” for women with BRCA1 mutations.

“It makes you wonder what they meant when they called the first physician an ‘expert,’ ” Gaines observed. She worries that TPAs looking to cut corners for financial gain retain physicians who are generalists, not experts, to serve as medical reviewers. “And that they mostly get away with it because who has the wherewithal to fight this kind of battle? That keeps me up at night.”

Careful Language

Gaines said cases like this show that employers must be careful about the instructions they give to TPAs.

To prevent situations like John and Claire’s, she recommends that employers require TPAs to treat a pre-authorization as a “yes” for payment unless there are material facts that have been misrepresented. This is similar to language that many hospitals and clinics put in contracts with purchasers and that some states require of all health care contracts.

But Gaines added that employers must also provide direction about the need for TPAs to communicate clearly with employees about how much they may owe out-of-pocket and when they owe it. She cited the case of another employee who followed all the steps for pre-authorization, had the surgery and then got a bill for $36,000.

In this situation, the TPA kept insisting more information was needed for payment. The hospital kept saying it already provided the information. As the dispute dragged on, the hospital billed the patient for the full amount, arguing there was “nothing they could do.”

That left the panicked patient wondering what to do with the bill while the TPA and the hospital continued their back-and-forth conversation.

“It’s just nonsense and it happens too often,” Gaines said, “and there’s no consequence for the TPAs which means it continues.”

Paying Bills They Don’t Owe

One result is that employees sometimes end up paying bills that should be covered by the insurance plan or that they don’t owe in the first place. Gaines calls this a byproduct of our “Midwestern nice” culture, which includes a kind of obsession with never leaving a bill unpaid.

“In the Midwest, people don’t complain about health care bills even when they’re way wrong,” Gaines said. “People pay bills they don’t owe.”

Because this mentality exists, Gaines believes it’s even more important for employers to make sure the TPA is acting fairly.

What You Can Do

To make sure your TPA is in tune with your desires, Gaines recommended these steps for employers.

  • Have a health plan advisory board that includes employees. This creates a knowledgeable group of employees who can share health plan information with co-workers. It also lets advisory board members relay TPA and health plan feedback from employees so management hears it. Gaines added that employees should not handle individual cases; instead they should focus on health plan coverage and the related processes.
  • Make sure the TPA is instructed to treat employees fairly. In most situations, Gaines said many people will not share information about delays in payment or contradictory instructions with their employer. That means it’s important for employers to be proactive in sharing their expectations with the TPA.
  • Avoid endorsing a TPA mindset of, “The more money my TPA saves for the employer, the better the employer will like my TPA.” Employers should make it clear that while they want the TPA to save money when it’s right, they don’t want to do it unfairly in a way that sacrifices employees’ physical or financial health.
  • Create a policy for pre-authorization. Gaines recommends treating pre-authorization as a “yes” unless material facts are misrepresented.
  • Remember, the TPA works for you. Gaines wryly notes that when issues arise, employers sometimes act like it’s the other way around. “Hire a TPA that will treat your employees as you would have them treat your family, and make sure they do. Then, this kind of problem just won’t arise.”

Gaines also believes there is a need for a trusted source to develop a model TPA contract provision that ensures pre-authorized care is paid for and that ensures payment disputes remain between providers and payers.

“It’s the right way to treat employees who have no ability to defend themselves in these situations. And it’s the smart way to maintain a healthy and happy workforce.”

Ethical TPA Management

Gaines said ethical employers must be proactive in communicating with their TPA about their expectations.

“If you choose to offer health benefits as a way to attract your employees, then you have to be as focused on your health plan as you are on the widgets you market,” Gaines said.

“If you don’t apply the same quality standards to the TPA as you do to the employees producing your product, it’s at best short-sighted and at worst a kind of intentional neglect,” Gaines said. “Remember, at the end of every single day, you’re carving your epitaph as a leader and this will be on it too.”

*Names have been changed.


Benefit Plan Design Self-Funding


Members & Employers


Benefit Plan Design Self-Funding


Members & Employers