Indiana benefits administrator sues Teladoc to recoup $450K in overcharges

lawsuit and book
Key Benefit Administrators claims Teladoc overcharged them and then tried to structure the refund to reflect favorably on its books. (Getty/eccolo74)

An Illinois benefits administrator is suing the telemedicine company Teladoc for $450,000 in overcharges, claiming the company tried to restructure a refund to avoid a negative outlook on its financial statements.

The lawsuit, filed by Key Benefit Administrators, Inc. (KBA) in the U.S. District Court for the Southern District of Indiana, details negotiations over a billing contract with Teladoc that was ultimately terminated “in retaliation for KBA’s refusal to be complicit in Teladoc’s misbehavior.”

KBA, which administers self-funded employee welfare benefit plans for employers, contracted with the telemedicine company HealthiestYou in October 2016 to provide services to 50,000 employees for various clients. Teladoc acquired HealthiestYou the following year.

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According to the complaint (PDF), Teladoc Vice President Paul Kowalski notified KBA in January of an accounting error that led to $450,000 in overcharges. KBA alleged Kowalski initially proposed crediting KBA in two installments in future bills—including a $225,000 credit for services through Best Doctors—to avoid a “the potential negative impact on Teladoc’s financial statements,” KBA alleged.

Kowalski later reversed his position, arguing KBA owed Teladoc $750,000 under the company’s accounting process—which was different than HealthiestYou—that booked revenue based on eligible participants rather than actual users.

“KBA cannot be a party to reconstructing [T]eladoc’s financial events,” Tom Satarino, president of the American Health Data Institute, a KBA affiliate, wrote in a June 14 email to Kowalski, according to the complaint.

KBA said it doesn’t know whether Teladoc made the same error with other customers. A Teladoc spokesperson did not return a request for comment.

RELATED: Telehealth providers look to capitalize on a rapidly expanding market

Teladoc reported $89.6 million in revenue in the first quarter of 2018, up 109% from the first quarter of the previous year. But the company has struggled to turn a profit, reporting a $23.9 million net loss over the first three months. The company lost $106.8 million last year.

KBA and Teladoc ultimately parted ways after KBA transferred the majority of its clients to another service provider, prompting Teladoc to terminate the remaining 10,000 individuals on the plan. KBA said the abrupt cancelation left patients unable to use telemedicine services and caused “irreparable harm” top KBA’s client relationships.

Following the cancelation, KBA claims Teladoc contacted the company's clients directly "for the purpose of trying to cut KBA out of the picture and steal the business for itself."

RELATED: Teladoc sees big gains in revenue and membership, but profits are still elusive

Much of the complaint focuses on Teladoc’s billing arrangement. Rather than, pay a “per employee per month” (PEPM) charge, Teladoc proposed a new model in which it would bill KBA at the beginning of each month for telemedicine services it expected to provide.

KBA claims the arrangement would have “boosted Teladoc’s cash flow and, presumably, its attractiveness to investors.”

However, PEPM payments are common among telehealth providers and employer plans, offering an attractive alternative to traditional fee-for-service payment models.

“It is not only an access to care benefit, but a cost-savings approach designed to handle the members’ needs at the right site of service,” Nate Lacktman, an attorney with Foley & Lardner LLP who chairs the firm’s telemedicine practice.

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