EP512: 3 Kinds of Broker/EBC Rent-Seeking Payment Models—A Lawyer's Perspective, With Doug Aldeen
Attorney Doug Aldean joins Stacey Richter to discuss how brokers and employee benefit consultants (EBCs) engage in rent-seeking payment models that harm self-insured health plans. The conversation covers three main categories of problematic compensation: direct overcharges, rent-seeking solution recommendations, and undisclosed vendor payments. A six-step roadmap is offered for plan sponsors to evaluate and protect themselves from these practices.
Summary
In this episode of Relentless Health Value, host Stacey Richter speaks with healthcare attorney Doug Aldean about the ways broker and EBC compensation models can become predatory toward self-insured health plans. The conversation is framed around three layers of problematic compensation: direct fees that are opaque or inflated, indirect payments tied to rent-seeking vendor recommendations, and undisclosed payments from vendors at the book-of-business level.
The first category discussed is direct compensation complexity. Aldean notes that many plan sponsors have no frame of reference for what they're paying their broker because they've never conducted an RFP or compared rates. He references the Ohio Potato Company case, where a broker collected over $2 million in a level-funded arrangement, depleting the claims fund and leaving patients, doctors, and facilities unpaid — while the broker profited.
The second major category is rent-seeking solution recommendations, where brokers steer clients toward vendors that pay the broker a share of their revenue. Aldean gives the example of reference-based pricing (RBP) vendors using a percentage-of-savings model. Because hospital prices can be marked up 17,000%, the RBP vendor — and the broker who placed them — can earn enormous fees, often more than the hospital itself receives. He also highlights balance billing defense programs as another rent-seeking placement, citing a case where a plan paid $2.2 million in fees to a balance billing vendor to protect against $94,320 in potential claims — in a state (Texas) where balance billing wasn't even legally permitted. Voluntary benefits are identified as a third example, with commissions of 70–90% in year one going almost entirely to the broker, with minimal claims ever paid.
The third category involves undisclosed vendor payments. Aldean explains that brokers can receive compensation from point solutions, PBMs, or stop-loss carriers at the book-of-business level — tagged as 'marketing services' to the vendor — which may not require disclosure under the Consolidated Appropriations Act (CAA). He notes this practice is becoming more frequent and cites examples of PBM contracts paying brokers per-script fees (e.g., $7 or $2.50 per script), sometimes explicitly labeled as 'discounts' in contracts to avoid disclosure requirements.
The episode also addresses stop-loss coverage as a major area of risk, where discrepancies between plan documents and stop-loss reimbursement levels can create gaps that benefit undisclosed parties. Aldean warns about the entrenchment of brokers in public entities like school districts and municipalities, citing political patronage as a driver of corrupt arrangements, particularly in South Texas.
The conversation concludes with a six-step roadmap for plan sponsors: (1) Ask 'why' five times about any recommendation; (2) Demystify the commission structure — complexity is itself a red flag; (3) Use a third-party broker RFP; (4) Audit plan data and documents, especially stop-loss arrangements; (5) Watch for DEF CON 5 reactions — emotional demands can lead to being locked into bad contracts; and (6) Trust but verify, especially long-term broker relationships, which may mask years of rent-seeking behavior.
Key Insights
- Aldean argues that broker compensation problems exist on three distinct layers: the direct fee (which may already be inflated), indirect fees tied to vendor placements, and whether the recommended product or service is even appropriate for the plan at all.
- Aldean describes a case (Ohio Potato Company) where a broker collected over $2.7 million across two years in a level-funded arrangement, completely depleting the claims fund and leaving medical providers unpaid — demonstrating that broker rent-seeking can cause direct patient harm.
- Aldean explains that reference-based pricing vendors using a percentage-of-savings model can earn more than the hospital itself receives, because hospital markups can reach 17,000%, making the savings figure — and thus the vendor's fee — enormous regardless of actual plan benefit.
- Aldean describes a case where a plan paid $2.2 million to a balance billing defense vendor over three plan years to protect against $94,320 in contested claims, in a state where the hospital lacked legal authority to balance bill — making the service both overpriced and entirely unnecessary.
- Aldean states that brokers can receive undisclosed payments from point solutions and PBMs by tagging the arrangement as 'marketing services' rendered to the vendor rather than the plan, a structure that may fall outside CAA disclosure requirements.
- Aldean notes he has seen one PBM contract that explicitly labeled broker payments as 'discounts' rather than compensation, with the stated purpose of avoiding disclosure obligations — describing this as 'boldly done.'
- Aldean argues that the complexity of a broker's commission structure is itself a warning sign — he contends that a legitimate compensation arrangement should be explainable in two sentences, and that requiring a 'NASA scientist' to reverse-engineer it is a red flag.
- Aldean warns that long-term broker relationships, while seemingly trustworthy, carry elevated risk because plans become complacent — he notes that in the lawsuits he has reviewed, the average tenure of a rent-seeking broker with the victimized plan was notably long.
Topics
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