APWU Settles Claim Related
To Health Plan Contracts

Burrus Update #4-02, March 13, 2002

The APWU has settled a case brought against it in which the plaintiff, a former employee of the APWU Health Plan, alleged that the health plan had incorrectly accounted for income received from APWU Health Plan contractors. Under the contracts in question, two different contractors, who provided cost containment services to the APWU Health Plan between 1993 and 1997, agreed to reimburse the health plan for costs incurred by the health plan on behalf of the contractors in connection with the contractors' cost containment activities. Over a five-year period, these payments to the health plan reduced the administrative expenses of the plan by approximately $1.2 million dollars. The contracts in question had been terminated by the health plan by 1997.

In the suit against the APWU, it was contended that the payments for services provided by the APWU Health Plan should have been accounted for as reductions in cost containment expenditures, not as reductions in administrative expenses. The suit alleged that using the payments from the contractors to reduce administrative expenses, rather than to reduce cost containment expenditures, was a "false claim" under federal law. If sustained, that claim would have required the APWU to pay triple damages plus attorneys fees and costs, and might have resulted in the imposition of civil money penalties.

Under the settlement, the APWU agreed to resolve the case by making an initial payment of $335,000, and then reducing the annual service fee received by the APWU for sponsoring the health plan each year for a four-year period. Because service fees paid to the union are paid from health plan reserves, the money not paid to the APWU as a result of the reduction in service fees will remain in the reserves earmarked for the APWU Health Plan.

When this case was first brought to the union's attention, outside counsel was employed to conduct a thorough review of the contracts and the payments made under the contracts. The union was advised to settle the case rather than litigate, because the cost of litigating such a complex case would have been very substantial, and a favorable outcome could not be guaranteed. Given that the settlement moneys paid by the union come entirely from funds gained by the union through its sponsorship of the health plan, and not from union dues, and given that the payments benefit the health plan, the decision to settle the case was seen as clearly within the best interests of the union and the health plan. The settlement agreement expressly recognizes that the APWU denies any violation. The APWU Executive Board was informed of the pending litigation and expressed its approval of the settlement.

William Burrus
President

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