Illinois employee benefit company files suit against Teladoc for overcharges, tortious interference

By Dave Muoio
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Key Benefit Administrators (KBA), an Illinois-based administrator of self-funded employee welfare benefit plans for enterprises, has brought a lawsuit against Teladoc alleging a breach in obligations, pecuniary loss, defamation, and tortious interference all stemming from $450,000 in overcharges.

In a statement to MobiHealthNews, Teladoc said that it was “optimistic” that this dispute could be resolved, and suggested that the suit could potentially be settled out of court.

The suit, filed in the US District Court for the Southern District of Indiana and originally obtained by FierceHealthcare, involves renegotiations of a contract originally penned in 2016 between KBA and telemedicine company Healthiest You to include the latter’s services in welfare benefit plans.

When Healthiest You was acquired by Teladoc in 2017, Teladoc sought to shift from the previous Per Employee Per Month (PEPM) service charge structure to one where KBA would be billed monthly based on data regarding the portion of employees who utilized the service in the previous month, according to the complaint. While the specific terms of this arrangement remained under negotiation between the two companies, each agreed to operate under an alternative proposal that saw KBA self-billing monthly.

In January 2018, Teladoc informed KBA that these billings had been priced to reflect a 40 percent service utilization rate, when in reality service utilization was approximately four percent, according to the suit. As a result of the overcharge and looking to avoid a full refund “because of the potential negative impact on Teladoc’s financial statements,” Teladoc offered to credit KBA $450,000 in its future billings.

“KBA does not know whether Teladoc has made the same error with respect to others who became Teladoc customers as a result of Teladoc’s acquisition of [Healthiest You],” the company wrote in the complaint.

Following initial suggestions to compensate KBA in two $225,000 credits, the suit alleges Teladoc “admitted” that the issues stemmed from differences between its accounting system and the one used by Healthiest You. According to the suit, “Teladoc advised KBA that, instead of booking revenue based on the actual number of employees for whom the PEPM is payable each month, with a discount to account for possible non-payment by KBA’s clients, Teladoc booked and reported revenue based on the number of employees who are eligible to participate in a plan for which the PEPM is payable rather than on those who actually participated in the Teladoc program.”

To amend this, KBA said in in its complaint that the telehealth company then sought to charge the benefits company more than $750,000 to rectify the accounting error.

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

In response to MobiHealthNews’ inquiry, a representative from Teladoc stressed that the issue at hand was a dispute in billing and asserted that there were never any errors in the telehealth company’s accounting.

“The heart of the matter here is a billing dispute that we are optimistic we will resolve amicably,” Teladoc told MobiHealthNews in an email statement. “We’ve had a disagreement over stated contract clauses that was for months supported by good faith efforts from Teladoc. While we are limited in what we can say at this time, we do stand by our desire to bring this to a positive resolution, which could in fact end outside of the court system.”

KBA’s complaint goes on to describe its decision to switch 50,000 individuals to another telemedicine provider, with 10,000 continuing to rely on Teladoc’s service. After the benefits company declined an offer from Teladoc to retain those 50,000 individuals, the lawsuit claims that Teladoc’s Kowalski sent a email notifying KBA of their decision to terminate the business relationship — citing KBA’s decision to switch its 50,000 members with only a two-day notice as “unprofessional and unacceptable” — and subsequently dropped services to the remaining 10,000 members less than six hours later.

KBA wrote in the suit that removing services from these individuals with such little notice could place them in danger, and that the task of replacing those services for 10,000-plus people cannot be completed in so short of a time frame. Along with stressing the “irreparable harm” this break could have on KBA’s relationships with its clients, KBA also claimed that Teladoc then solicited those clients while placing blame for the service severance on the benefits company. Of note, this contact between the clients and Teladoc is said to have occured after KBA delivered an unfiled copy the complaint to Teladoc’s counsel but before receipt of a response from the telehealth company.

“In other words, Teladoc suckered KBA into waiting to file its lawsuit in the hope and expectation that Teladoc would restore the coverage that Teladoc had abruptly terminated, and in the interim lied to at least one (and presumably other) of KBA’s customers for the purpose of trying to cut KBA out of the picture and steal the business for itself,” KBA wrote in the filed complaint.

With these allegations, KBA wrote that it is seeking a temporary restraining order and preliminary injunction that would require Teladoc to continue to provide its services to the 10,000 enrollees and their dependents until a replacement service could be obtained; an order that would end defamation against KBA and tortious interferences with its relationships; and address the pecuniary losses and damages.

Teladoc’s most recent financial reports boasted big gains in total revenue, memberships, and user engagements, although the telehealth company still remains well in the red. In early June, the company announced the acquisition of fellow virtual care platform Advance Medical for $352 million as part of an effort to bring its clinical services to international markets.