Former Employees Sue Atrium, Claim It's Not A Part Of The Government

Nov 20, 2018

Former Atrium Health employees have filed a class action lawsuit against the health system because they say it is falsely claiming it’s an arm of the government — when it’s really not. These employees say that’s a problem because when it comes to pensions and health plans, Atrium isn’t following some federal standards for benefits that private companies are subject to.

Here's a breakdown of the lawsuit:

Is Atrium Health, formerly Carolinas HealthCare System, a government entity or not?

It is a public entity called a "hospital authority." Its legal name is the Charlotte Mecklenburg Hospital Authority. That designation was created in state law in 1943. The state or county doesn’t fund Atrium. And it doesn’t collect taxes or really have any other oversight. The organizations 65,000 employees aren’t government employees. And it actually operates hospitals and other health care facilities across state lines. The state law spells out some details about the board but those members aren’t elected. While the chairperson of the county commission has to give official approval, that’s more of a rubber stamp, according to the lawsuit. The Charlotte Observer reported in the last 30 years, one nomination was rejected.

The suit argues that employees are being cheated on certain benefits including retirement plans. What do the employees suing claim Atrium is doing wrong?

Private companies that have retirement plans have to meet some federal standards under a law called Employee Retirement Income Security Act, ERISA for short. It requires things like sharing certain information to employees and establishing rules for the people who are responsible for the plan. Also, there have to be ways employees can challenge those responsible for the plans in the courts.

Right now, Atrium Health’s plans don’t have to meet these federal standards because the health system is considered a part of the government. And plaintiffs claim it has some problems that threaten its long term sustainability. At the end of 2017, the lawsuit claims the pension had a net unfunded liability of $379 million. The suit also alleges that employees were wrongfully denied the pension benefits they earned. One of the former employees suing, Lisa Engel, worked for the health system for almost four years which would have been enough to vest in the plan if it was subject to those federal requirements. But Atrium requires five years of employment to become fully vested, so Engel isn’t eligible.

The lawsuit also says employees with 401(k) plans get limited information about the plan. The lawsuit claims that could impede employee’s ability to make decisions about their retirement savings.

The suit also alleges there are problems with Atrium’s health plan for employees. What do they claim is wrong with the plan?  

Atrium uses a company for its health plan called MedCost. MedCost is jointly owned by Atrium and Wake Forest Baptist Medical Center. It has been the subject of a previous court challenge and department of labor investigation.

According to ERISA, private companies can’t use companies they own to provide health benefits. There are some exemptions to that. Atrium is not currently subject to these rules because of its status as a governmental entity. But attorneys claim, Atrium should be subject to it and knew that its own facilities would be the biggest supplier of medical services under its health plan for employees. So, it essentially paid itself more for medical care than it would have under another company.

The suit also claims Atrium offered other companies, who use Atrium-owned MedCost, bigger discounts at its hospitals than it did to its own employees for medical care at the hospital they work for.  

So what do these former employees suing want from Atrium and what has the health system said about this? 

They want the court to claim Atrium Health isn’t a governmental entity, and require it follow federal rules about employee benefits. That would mean a variety of changes to plans such as shortening the amount of time before employees are considered fully vested in benefits under their plan.

And the attorneys are also demanding Atrium return to the health plan payments of assets made to Atrium or MedCost, and employees back co-insurance, co-payments and deductibles paid to Atrium. It is unclear exactly what form that would take.

The attorney representing the former employees is Karen Handorf. She is an expert this kind of law. She spent 25 years at the labor department litigating these kinds of cases, and now leads a team of lawyers that challenge health systems' claims that benefits are exempt from these federal standards.

She said in a statement after the suit was filed, “Atrium is a healthcare behemoth trying to get away with spending money to expand its operations rather than on its employees.”

Atrium’s vehemently denies the claim it’s not a governmental entity.

In a statement, the system said, “Nothing about our governmental status stands in the way of providing these market competitive benefit plans.”

The case has been referred to Judge Thomas Schroeder.