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ERISA holds plan fiduciaries to incredibly high standards— fiduciaries must act in the exclusive interest of the participants, and for the exclusive purpose of providing benefits and paying plan expenses. Fiduciaries do not need to be named as such in the plan documents, and some individuals or organizations will be considered functional fiduciaries of a plan depending on how they interact with the plan and the plan’s participants. For example, a person or organization that exercises discretionary authority with respect to plan assets or administration of the plan will be deemed a fiduciary.
In Josef K. v. California Physicians’ Service, a federal district court in California held that an independent medical review (IMR) organization can be a functional fiduciary. In this case, the IMR determined if medical claims were “medically necessary,” as was required before the plan would cover the benefit. The plan itself did not define medically necessary, but the plan administrator defined it as treatment that was “safe and effective,” “of accepted professional standards,” and “furnished at the most appropriate level.” The court held that the IMR necessarily had to interpret and exercise discretion when determining if care was “safe and effective” and “appropriate,” and thus was a fiduciary of the plan. Additionally, the IMR effectively controlled plan assets, because it determined whether claims were covered under the plan and therefore if plan assets were spent to pay the claims.
In order to distance themselves from fiduciary status, IMRs may consider insisting that plans do not solely rely on their recommendation when granting or denying claims; instead, plans may consider the entire record, of which the IMR recommendation is one piece.