:: Attorneys’ Fees & Costs Awards In The Fourth Circuit

As we stated in Williams v. Metropolitan Life Insurance Co., a district court in an ERISA action may, in its discretion, award reasonable attorneys’ fees to either party under 29 U.S.C. § 1132(g)(1), if that party has achieved “’some degree of success on the merits.’” ___ F.3d ___, No. 09-1025, 2010 U.S. App. LEXIS 13328, **25-26 (4th Cir. June 30 2010) (quoting Hardt v. Reliance Std. Life Ins. Co., ___ U.S. ___, 130 S.Ct. 2149, 2152, 176 L. Ed. 2d 998 (2010)).

We review a district court’s award of attorneys’ fees to an eligible litigant to determine whether the court has abused its discretion. Williams, ___ F.3d at ___, 2010 U.S. App. LEXIS 13328, *25; Mid Atl. Med. Servs., LLC v. Sereboff, 407 F.3d 212, 221 (4th Cir. 2005). The district court’s factual findings in support of such an award are reviewed for clear error. Williams, ___ F.3d at ___, 2010 U.S. App. LEXIS 13328, *25; Hyatt v. Shalala, 6 F.3d 250, 255 (4th Cir. 1993).

Rinaldi v. CCX, Inc., 2010 U.S. App. LEXIS 14611 (4th Cir. N.C. July 16, 2010)

Rinaldi provides a useful overview of factors considered in whether to award of attorneys’ fees and costs.  The Court begins with a foundation question, “whether Rinaldi achieved ’some degree of success on the merits’ in the district court. ‘”

The Court concludes” [b]ecause the district court found in Rinaldi’s favor and awarded him the severance benefits due under the Employment Agreement, we conclude that Rinaldi was eligible for an award of attorneys’ fees.”

The District Court’s Opinion

Although Rinaldi was eligible for an award of reasonable attorneys’ fees, the district court retained the discretion to decline to award Rinaldi such fees.

The Court observes that,

In Williams, we restated the familiar guidelines that assist a district court’s discretionary determination whether attorneys’ fees should be awarded to an eligible litigant.

The guidelines are as follows:

(1) degree of opposing parties’ culpability or bad faith;

(2) ability of opposing parties to satisfy an award of attorneys’ fees;

(3) whether an award of attorneys’ fees against the opposing parties would deter other persons acting under similar circumstances;

(4) whether the parties requesting attorneys’ fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA itself; and

(5)  the relative merits of the parties’ positions.

Williams, ___ F.3d at ___, 2010 U.S. App. LEXIS 13328, **27-28 (quoting Quesinberry v. Life Ins. Co. of N. Am., 987 F.2d 1017, 1029 (4th Cir. 1993) (en banc)).

Denial Of Attorneys’ Fees Award

The standard is difficult for the challenging party.  Here, the district court’s opinion stood the challenge by the appellant.

. . . we cannot conclude that the district court abused its discretion in declining to award Rinaldi attorneys’ fees. We therefore affirm the district court’s holding denying Rinaldi’s request.

Denial Of Costs

We next address Rinaldi’s argument that the district court erred in denying his request for costs. We agree with Rinaldi that there is a presumption in favor of awarding costs to a prevailing party.

Here we turn to the Federal Rules of Civil Procedure.

Under Rule 54(d)(1) of the Federal Rules of Civil Procedure, costs “should be allowed to the prevailing party” unless a federal statute provides otherwise.

Presumption Indulged

As we stated in Williams, the ERISA statute does not alter this general rule in favor of presumptively awarding fees to the prevailing party, and instead expressly permits a district court to award costs in the court’s discretion. ___ F.3d at ___, 2010 U.S. App. LEXIS 13328, *32 (citing 29 U.S.C. § 1132(g)(1)).

We therefore agree with Rinaldi’s argument that he was entitled to a presumption in favor of costs.

Error Found

The district court bound up its decision on awarding attorneys’ fees with that of awarding costs.  This, absent an articulated grounds, could not stand.

[I]n Teague v. Bakker, . . . we stated that if a district court chooses to depart from the general rule favoring an award of costs to the prevailing party, the court must justify its decision by “articulating some good reason for doing so.” 35 F.3d 978, 996 (4th Cir. 1994) (citations omitted). Because the district court did not state any reason for its decision, we reverse the district court’s holding denying Rinaldi’s request for an award of costs, and remand the case to the district court for reconsideration of Rinaldi’s request in light of the standard that we have discussed here.

And thus,

For these reasons, we reverse the part of the district court’s judgment denying Rinaldi an award of costs, and remand the case to the district court for reconsideration of that issue.

We affirm the balance of the district court’s judgment.

Note: Aside from procedural issues of fees and costs, the case has larger application, namely, application of the “after-acquired evidence rule.”

Upon agreement of the parties, the district court applied a test requiring that CCX prove its claim of after-acquired evidence by establishing the following three elements:

(1) Rinaldi was guilty of some misconduct of which CCX was unaware;

(2) the misconduct constitutes “acts of dishonesty” in connection with CCX’s business, “gross neglect” of his obligations, or “illegal acts;” and

(3) []CCX would have discharged Rinaldi for cause had it known of the misconduct.

More on this point here:

Although we have not previously considered an after-acquired evidence defense in an ERISA case, we have considered this defense in other types of civil cases. In our decisions in those cases, we have applied a three-part test that is essentially the same as the test employed here by the district court. See, e.g., Dotson v. Pfizer, Inc., 558 F.3d 284, 298 (4th Cir. 2009) (involving alleged violations of the Family and Medical Leave Act of 1993, 29 U.S.C. §§ 2601-2654); Miller v. AT&T Corp., 250 F.3d 820, 837 (4th Cir. 2001) (same); Russell v. Microdyne Corp., 65 F.3d 1229, 1240 (4th Cir. 1995) (involving alleged violations of Title VII of the Civil Rights Act of 1964, 42 U.S.C. §§ 2000e-2000e-17).

The three-part test used by the district court also is essentially the same as the Supreme Court’s test for after-acquired evidence set forth in McKennon v. Nashville Banner Publishing Co., 513 U.S. 352, 362-63, 115 S. Ct. 879, 130 L. Ed. 2d 852 (1995), a case arising under  the Age Discrimination in Employment Act of 1967 (ADEA), 29 U.S.C. §§ 621-634.

We have a review of this case on erisaboard.com which addresses this aspect of the decision in more detail.

:: ERISA Preemption Notes After PCMA v. District Of Columbia

The Supreme Court has not prescribed a standard for determining whether a state law sufficiently constrains an EBP’s decision-making in an area of ERISA concern that the law is pre-empted, but it has indicated a law that “bind[s] plan administrators to any particular choice” is pre-empted. Travelers, 514 U.S. at 659. We need go no further: Sections 48-832.01(a), (b)(1), and (d) bind plan administrators because the “choice” they leave an EBP between self administration and third-party administration of pharmaceutical benefits is in reality no choice at all.

For most if not all EBPs, internal administration of beneficiaries’ pharmaceutical benefits is a practical impossibility because it would mean forgoing the economies of scale, purchasing leverage, and network of pharmacies only a PBM can offer.  By imposing requirements upon third-party service providers that administer pharmaceutical benefits for an EBP, §§ 48-832.01(a), (b)(1), and (d) “function as a regulation of an ERISA plan itself.” Travelers, 514 U.S. at 659. Because these provisions also regulate an area of ERISA concern, they are pre-empted.

Pharm. Care Mgmt. Ass’n v. District of Columbia, 2010 U.S. App. LEXIS 13991 (D.C. Cir. July 9, 2010)

The decision by the D.C. Circuit in PCMA v. D.C. touches on issues that at first glance appear somewhat remote in the average benefits practice, but I think readers will find some useful analysis in the opinion.

On the big picture, the Court of Appeals found that a substantial part of the District’s  law regulating pharmacy benefit mangers (Access Rx Act of 2004, D.C. Code § 48-832.01 et seq.) was preempted.   Some contractual provisions that could be waived by benefit plans survived the preemption challenge.   Additional argument remains for consideration on remand, so the case will likely be around for a while yet.

On a decidedly less rarefied level, we find development of some recurring themes that arise in everyday concerns about which claims are preempted and why.    Of course, in the PCMA case, the key theme was state law preemption.

A state law “relates to” an EBP “if it [1] has a connection with or [2] reference to such a plan.” Egelhoff v. Egelhoff, 532 U.S. 141, 147, 121 S. Ct. 1322, 149 L. Ed. 2d 264 (2001) (quoting Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 97, 103 S. Ct. 2890, 77 L. Ed. 2d 490 (1983)).

The PCMA argued that Title II of the law intruded on plan administration.   As such, the law would be preempted if it had an impermissible effect upon employee benefit plans.   Bypassing the discussion of these legally freighted terms, I think the District’s defense of the statute is really more interesting for my purposes.

The District found itself inconveniently stuck with the fact that its law regulating PBM’s impinged plan benefit administration.  (The law imposes fiduciary responsibilities, disclosure of rebates and pass through of discounts, among other things.)

This point had to be admitted.

The District does not deny the administration of employee benefits is an area of core ERISA concern or that PBMs administer benefits on behalf of EBPs; indeed at oral argument  it conceded as much.

The District sought refuge in case law suggesting that garden variety breach of contract of malpractice claims are not preempted:

Rather, the District argues the various provisions of Title II nonetheless fall within the scope of state law the Congress did not intend to pre-empt with ERISA because they do not regulate “relationships among ERISA entities,” such as a plan and an ERISA fiduciary or a plan and its beneficiaries.

The District points to no support for this limitation upon pre-emption either in ERISA itself or in any Supreme Court case interpreting it. Instead, the District relies upon decisions of other circuits holding ERISA did not pre-empt breach of contract or professional malpractice claims against third-parties who provided services to an EBP.

This argument failed, as the preceding excerpt would suggest.

The Court says that the District read too much into the cases it relied upon.   A law affecting the  ”relationships among ERISA entities,” such as a plan and an ERISA fiduciary or a plan and its beneficiaries is a concern – but that is not a touchstone for preemption.

As the PCMA points out, in none of the cases cited by the District did the state law regulate a third party who administered employee benefits on behalf of a plan. Those cases therefore suggest only that the relationship among ERISA entities is an area of ERISA concern, not that the objective of uniformity in plan administration is for some reason inapplicable simply because a plan has contracted with a third party to provide administrative services.

Given the restrictions the law would impose on plan administrators in their dealings with PBM’s, the Court found an impermissible effect on ERISA plan administration and held Title II preempted.

Note: The non-preempted state law claims relied upon by analogy in the opinion are quite important for benefit practitioners in the prosecution or defense of negligence and contractual cases against plan administrators and other service providers.

A case by a participant against a service provider has at least two strikes against it – #1 the traditional ERISA entities are involved – and #2 the case will likely consist of complaints about administration issues.    Here the Court’s observation distinguishing the cited authorities is of interest:

Indeed, dicta in two cases central to the District’s argument   suggest a state law regulating a third party’s performance of administrative functions on behalf of a plan could be pre-empted. See Gerosa v. Savasta & Co., 329 F.3d 317, 324 (2d Cir. 2003) (noting that although courts are “reluctant to find that Congress intended to preempt state laws that do not affect the relationships among [ERISA entities]” they have “typically” held ERISA pre-empts “state laws that would tend to control or supersede central ERISA functions–such as state laws affecting the determination of eligibility for benefits, amounts of benefits, or means of securing unpaid benefits”); Airparts Co. v. Custom Benefit Servs. of Austin, 28 F.3d 1062, 1066 (10th Cir. 1994) (holding claims for negligence, indemnity, and common-law fraud not pre-empted where defendant “was simply an outside consultant which did not directly perform any administrative act vis-a-vis the plan”).

Furthermore, when actually confronted with a malpractice claim challenging a third party’s performance of administrative services on behalf of a plan, the Third Circuit held the claim was pre-empted by ERISA. See Kollman v. Hewitt Assocs., 487 F.3d 139, 148 (2007) (holding ERISA pre-empts malpractice claim  against non-fiduciary service provider responsible for plan administration; goal of uniformity reflected in ERISA is “equally applicable to agents of employers … who undertake and perform administrative duties for and on behalf of ERISA plans”).

Note, however,  that the plaintiff in Kollman was a plan participant. (#1 above)  Compare: Custer v. Sweeney, 89 F.3d 1156, 1167 (4th Cir. 1996) (trustee’s state law legal malpractice claim against an ERISA plan’s attorney not subject to ERISA preemption), where trustee was plaintiff.

What Is Plan Administration? From the opinion:

Plan administration includes “determining the eligibility of claimants, calculating benefit levels, making disbursements, monitoring the availability of funds for benefit payments, and keeping  appropriate records in order to comply with applicable reporting requirements.” Fort Halifax, 482 U.S. at 9.

Voluntary Provisions Prevail – It was not all downside for the District:

The District’s point is well-taken with regard to the usage pass back provision, § 48-832.01(b)(2), because it expressly provides that it “does not prohibit the covered entity from agreeing by contract to compensate the [PBM] by returning a portion of the benefit or payment,” and with regard to § 48-832.01(c), which requires disclosure (and imposes a corresponding duty of confidentiality) only “[u]pon request by a covered entity.” Those provisions are in essence voluntary provisions for the covered entity.

Circuit Conflict – As the Court observed:

This holding differs from that of the First Circuit in Rowe, which held no part of a nearly identical Maine statute was pre-empted by ERISA. See 429 F.3d at 303. In our view the uniform administrative scheme encouraged by ERISA includes  plan administrative functions performed by a third party on behalf of an EBP.

See also - :: PBM’s Prevail In Controversy Over ERISA Preemption Of Disclosure Legislation

:: EBSA Publishes Guidance On Health Care Reform (PPACA)

The Department of Labor’s Employee Benefits Security Administration has posted the following related to preexisting condition exclusions, lifetime and annual limits, rescissions and patient protections under the Affordable Care Act:

The EBSA has published guidance regarding preexisting condition exclusions, lifetime and annual limits, rescissions and patient protections under the Patient Protection And Affordable Care Act:

Published version of Interim Final Regulation, available at

http://www.dol.gov/federalregister/HtmlDisplay.aspx?DocId=23983&AgencyId=8&DocumentType=2Model Notice on Patient Protections, available at

http://www.dol.gov/ebsa/patientprotectionmodelnotice.docModel Notice on Lifetime Limits No Longer Applying and Enrollment Opportunity, available at

http://www.dol.gov/ebsa/lifetimelimitsmodelnotice.docModel Notice of Opportunity to Enroll in Connection with Extension of Dependent Coverage to Age 26, available at

http://www.dol.gov/ebsa/dependentsmodelnotice.doc

:: Plan Administrators Cannot Invoke “SPD Prevails” Rule To Cure Plan Language Deficiencies

Here, there are no terms in the plan which allow it to be amended by inserting into the SPD such critical provisions as the administrator’s discretionary authority to interpret the plan or to determine eligibility for benefits. Indeed, this particular plan wholly fails to comply with § 1102(b)(3)’s requirement to include a procedure governing amendment of the plan.

Thus, there is no basis for concluding that the purported grant of discretion in the SPD is a procedurally proper amendment of the policy, and therefore “the policy’s failure to grant discretion results in the default de novo standard.” Jobe, 598 F.3d at 486. “Consequently, the district court should not have reviewed the administrator’s decision for abuse of discretion but, rather, should have reviewed it de novo.” Id.

Ringwald v. Prudential Ins. Co. of Am. (8th Cir.) (06/21/10)

It is not unusual to see plan documents and summary plan descriptions merged into one document these days, or for summary plan descriptions to take on the role as the source of authority and documentation of administrative practices.   This recent Eighth Circuit opinion should give plan fiduciaries pause as they delegate such paperwork to their claims administrators and benefit communications consultants.

Here, the question was whether the plan granted discretionary authority to the plan administrator so as to invoke the benefit of an abuse of discretion standard of review.  The answer - the summary plan description did, but the plan document did not.  And therefore, a de novo standard of review applied.

Some of you may be saying, but I thought the summary plan description controlled in the case of a conflict between the plan and the SPD?   The Eighth Circuit observes that this rule of “SPD prevails” only applies where necessary to protect the plan participants.

the policy underlying the “SPD prevails” rule was ERISA’s important goal of providing complete disclosure to plan participants, such that where disclosures made in an SPD pursuant to 29 U.S.C. § 1022(a)(1) . . .  ERISA’s policy of full disclosure – inuring to the benefit of employees, not employers – would not be advanced by a blanket rule indicating an SPD “prevails over the policy in all circumstances.”

Thus, the door opens for the plan participant to introduce the plan document as a means of impeaching the SPD.   ERISA forbids a plan administrator from using the SPD “to enlarge the rights of the plan administrator at the expense of plan participants when the plan itself does not confer those rights.”

Note: This case does not address the combination of the plan and the SPD into one document.   It does illustrate, however, the risks incurred when plan administrators deviate from ERISA’s documentary scheme.

ERISA contemplates plan documents which control many important legal matters, such as allocation of fiduciary responsibilities, specification of amendment procedures, eligibility, participation and claims adjudication rules.  ERISA further contemplates an SPD or SMM that put these matters in the vernacular for the plan participants.

In view of Ringwald, if important language fails to appear in the plan document, such as a grant of discretion, the SPD cannot cure this deficiency. Plan fiduciaries should review and compare the plan language on this issue as well as other important issues, such as ERISA subrogation and reimbursement rights, to ensure consistency in plan documentation.

:: DOL Releases Guidance On Grandfathered Health Plans

The Department of Labor’s Employee Benefits Security Administration has posted the following related to grandfathered health plans under the Affordable Care Act:

Interim Final Regulation, available at

http://www.federalregister.gov/OFRUpload/OFRData/2010-14488_PI.pdf

Fact Sheet, available at

http://www.healthreform.gov/newsroom/keeping_the_health_plan_you_have.html

FAQs, available at

http://healthreform.gov/about/grandfathering.html

:: Conkright In The Courts – A Summary Review

Following Metropolitan Life Insurance Co. v. Glenn, 554 U.S. 105 (2008), the U.S. Supreme Court’s opinion in  Conkright v. Frommert,  ___ U.S.  ___  , 130 S. Ct. 1640, 176 L. Ed. 2d 469 (2010), added another layer of protection for plan fiduciaries.  Glenn held that a conflict of interest is but one factor to be considered by a reviewing court.  Conkright held that a “single honest mistake”  did not forfeit deference. 

Here’s a quick look at how Conkwright has been applied in the short time since its decision.

A recent Third Circuit non-precedential opinion demonstrates the wide berth a Glenn/Conkright analysis gives plan fiduciaries:

Also waived is Goletz’s argument that, because Prudential’s handling of this case has already been faulted once by the District Court, we should now forego extending any deference to Prudential’s decision and subject it to de novo review. This position was all but rejected by the Supreme Court in Conkright, in which the Court explained that ERISA plan administrators “make mistakes” and that a “single honest mistake in plan interpretation” does not justify “stripping the administrator of . . . deference for subsequent related interpretations of the plan.” ___ U.S. ___, 130 S. Ct. 1640, 176 L. Ed. 2d 469, 2010 WL 1558979, at *3.

Goletz v. Prudential Ins. Co. of Am., 2010 U.S. App. LEXIS 11501 (3d Cir. Del. June 7, 2010)

On the other hand, a recent district court decision reveals some limitations on the application on Conkright.  In this case, the decision of which interest rate is appropriate did not warrant deference, in the opinion of the court:

This leaves the question of what interest rate or rates defendant should use to estimate plaintiffs’ future interest credits. Defendant’s motion to file a surreply brief will be granted to allow defendant to argue that under the recent decision by the United States Supreme Court in Conkright v. Frommert, 130 S. Ct. 1640 (2010), the court should allow defendant to choose a new method  for determining an unbiased rate. I conclude that Conkright has no bearing on the issue to be decided in this case. Deferring to the plan fiduciary would be inappropriate in a matter such as this one, involving the method for reflecting future interest credit, on which the plan administrator enjoys no discretion.

Larson v. Alliant Energy Cash Balance Pension Plan, 2010 U.S. Dist. LEXIS 55420 (W.D. Wis. June 3, 2010)

And a pattern of “deliberate actions” may serve to undo the plan fiduciary seeking the cover of Conkright:

This Court is also aware of the U.S. Supreme Court decision in Conkright and finds it inapplicable to the facts of this case. “The question here is whether a single honest mistake in plan interpretation justifies stripping the administrator of that deference for subsequent related interpretations of the plan. We hold that it does not.” Conkright v. Frommert, 130 S. Ct. 1640, 176 L. Ed. 2d 469, 2010 WL 1558979, 3 (2010) v. Frommert, 130 S. Ct. 1640, 176 L. Ed. 2d 469, 2010 WL 1558979, 3 (2010). This case involves not “a single honest mistake,” but a number of deliberate actions by the plan administrator.

Nolan v. College, 2010 U.S. Dist. LEXIS 53997 (N.D. Cal. May 6, 2010)

A predicted trend toward more frequently “remands” of cases to plan administrators finds support in a recent district court opinion.

As the Supreme Court recently reiterated, “ERISA law [is] already complicated enough without adding special procedural or evidentiary rules to the mix.” Conkright v Frommert,     US    , 130 S. Ct. 1640, 176 L. Ed. 2d 469, 476 (2010) v Frommert,     US    , 130 S. Ct. 1640, 176 L. Ed. 2d 469, 476 (2010) (citation and internal quotation omitted). When, a plan administrator (or here, a plan’s clerical staff) makes a simple mistake, the plan remains entitled to deference. 130 S. Ct. 1640, 176 L. Ed. 2d 469, 476 at 476-477. This court, however, would face a difficult challenge evaluating plaintiff’s claims through such a deferential lense, while, at the same time, independently scrutinizing the Carteron report. It is thus appropriate, rather than to substitute its judgment for that of the plan  administrator or, perhaps more accurately, to adopt the plan’s post hoc rationales for why the Carteron report is of no value, for the court to follow the Ninth Circuit’s preferred “usual remedy” in such circumstances and to remand the file for further consideration for a full an fair review.

Fortlage v. Heller Ehrman, LLP, 2010 U.S. Dist. LEXIS 50634 (N.D. Cal. Apr. 27, 2010)

Note:  Much remains to be learned about how the standard of judicial review will evolve after the latest Supreme Court intervention in Conkwright.  At present, however, it appears that certain issues may eludeapplication of the opinion, e.g., interest rate determinations, certain conduct may override application of the opinion, e.g., repeated “deliberate actions”, but that overall, the opinion will expand the scope of deference and, in any event, generate more instances wherein the district court will send the case back to the plan administrator for another go at the disputed issue.

:: “Grandfathered Plans” – NAIC Guidance On Essential Points

PPACA SEC. 1251. PRESERVATION OF RIGHT TO MAINTAIN EXISTING COVERAGE.

(a) No Changes to Existing Coverage-

(1) IN GENERAL- Nothing in this Act (or an amendment made by this Act) shall be construed to require that an individual terminate coverage under a group health plan or health insurance coverage in which such individual was enrolled on the date of enactment of this Act.

(2) CONTINUATION OF COVERAGE- With respect to a group health plan or health insurance coverage in which an individual was enrolled on the date of enactment of this Act, this subtitle and subtitle A (and the amendments made by such subtitles) shall not apply to such plan or coverage, regardless of whether the individual renews such coverage after such date of enactment.

PPACA SEC. 1251. PRESERVATION OF RIGHT TO MAINTAIN EXISTING COVERAGE.

(2) CONTINUATION OF COVERAGE- With respect to a group health plan or health insurance coverage in which an individual was enrolled on the date of enactment of this Act, this subtitle and subtitle A (and the amendments made by such subtitles) shall not apply to such plan or coverage, regardless of whether the individual renews such coverage after such date of enactment.

(a) No Changes to Existing Coverage-

(1) IN GENERAL- Nothing in this Act (or an amendment made by this Act) shall be construed to require that an individual terminate coverage under a group health plan or health insurance coverage in which such individual was enrolled on the date of enactment of this Act.

This oddly-worded provision in the PPACA is Orwellian reform-speak intended to assure that the new law will not result in any changes to existing coverage for the 85% of Americans satisfied with their health insurance coverage.  Of course that is not true, as many Americans will lose their coverage,  but that is another subject altogether.

For plan sponsors trying to understand the “grandfathered plan” exception to several (but not all) provisions of the PPACA, the NAIC has published a succinct set of guidelines here.

Questions awaiting regulatory guidance include the following as noted by the NAIC:

The statutory language of PPACA raises a number of questions that will have to be decided in the regulatory
process. The House legislation included a requirement that there be no changes in terms or conditions of
grandfathered plans.iv The final bill, however, did not contain this requirement. A case could be made, however, that
if substantial changes are made to a grandfathered health plan, it is no longer the same plan, and would lose its
grandfathered status. A related question will be whether or not states may change state laws governing
grandfathered plans, and if so, whether compliance with these changes would cause plans to lose their grandfathered
status.

:: Ninth Circuit Upholds Ban Of Discretionary Clauses

[Regarding discretionary clauses,] the Commissioner’s practice is “specifically directed toward entities engaged in insurance,” Kentucky Ass’n, 538 U.S. at 342, and it “substantially affect[s] the risk pooling arrangement between the insurer and the insured,” more so than other laws which have been upheld by the Supreme Court. The practice of disapproving discretionary clauses is thus saved from preemption under 29 U.S.C. § 1144(a) by the savings clause in section 1144(b)

Standard Insurance Co. v. Morrison (08-35246)

Dan Schelp noted on erisaboard.com today that the Supreme Court denied the petition for writ of certiorari in the case ofStandard Ins. Co. v. Lindeen, leaving in place the 9th Circuit’s decision in Standard Ins. Co. v. Morrison.

This opinion concludes the issue first raised in :: State Regulation Barring Grants Of Discretion To ERISA Plan Administrators Sustained

For fully insured plans, this is another indication that state regulations banning discretionary clauses will survive ERISA preemption challenge.   Bear in mind that these regulations, in states adopting them (often based upon the NAIC model act) will apply to disability plans as well as health plans.  The consequence will be de novo review of claim denials with augmented discovery in many cases.

For a similar decision, see American Council of Insurers v. Ross here.

:: New Federal Rules Target MEWA’s

The health reform legislation contains several provisions directed at Multiple Employer Welfare Arrangements (”MEWA’s”). A new criminal enforcement section contains broad language prohibiting false statements.

Sec. 6601(a) of the PPACA addes ERISA Sec. 519 which prohibits false statements about a MEWA as to:

the MEWA’s financial condition or solvency, the benefits provided, or the regulatory status of the MEWA under state or federal law, including specifically the exemption of the MEWA from state regulatory authorities.

Any person that violates section 519 shall upon conviction be imprisoned not more than 10 years or fined under Title 18, United States Code or both.

Preemption

In addition, the Sec. 6604 of the PPACA authorizes the Secretary of Labor to issue “standards” or “orders” “relating to a specific person” establishing that a MEWA is subject to state regulatory jurisdiction notwithstanding ERISA Section 514(b)(6) or the Liability Retention Act of 1986, regardless of whether state law is otherwise preempted under those provisions.

This regulatory grant appears quite broad – perhaps too broad. I’m no fan of MEWA’s as a general rule, but a grant of discretion to the DOL to determine when federal law does or does not apply regardless of other federal statutes is pretty sloppy work in my opinion.

Summary Seizure Orders

Sec. 6605 of the PPACA authorizes ex parte cease and desist orders as well as summary seizure if a MEWA appears to be financially distressed.

Registration

MEWA’s will be required to file registration and annual reports which will be designed to ensure financial solvency.

Note: Given the new requirements, understanding when a benefit plan is a MEWA or not takes on new significance.  For more on this topic, see A Short Course in MEWA’s.

:: District Court Remands ERISA Subrogation Case

Prior to settling and releasing the tortfeasors in exchange for a proffered settlement of $606,488.99, this personal injury plaintiff (and ERISA participant) persuaded the Washington state trial court to enter an Order To Show Cause against the ERISA Plan, causing it to appear in the state court action for the purpose of resolving the lien issues.

The participant argued that the lien of $525,601 would “consume his entire settlement.” The Order To Show Cause directed the ERISA plan to “show cause why [it] should not substitute its draft in favor of the plaintiffs in the amount of [settlement]” offered by the tortfeasors.

Upon receipt of the Order to Show Cause, the ERISA Plan filed a Notice of Removal in Federal Court. The U.S. District Court for the Western District of Washington in Thomas v. Powell, Case No. C10-53 MJP, grants the Plaintiff’s Motion for Remand and awards the Plaintiff reasonable costs and attorney fees.

The Court enforces the language of 28 U.S.C. 1441(a), holding that only the defendant or defendants are permitted to remove a case from state court. Merely being the recipient of an Order to Show Cause does not transform the ERISA Plan into a defendant.

post by Professor Roger Baron, erisaboard.com

Thanks to my friend Roger Baron for notifying me of this recent important opinion in an ERISA subrogation case.  For more information, including an upload of the district court opinion, please visit erisaboard.com.

:: Rescissions After The PPACA – A Preview

Under the PPACA, rescission is prohibited except in cases of fraud or misrepresentation. (PPACA Sec. 1001, amending the PHSA, 42 USC 300gg et seq.)

The health insurance industry agreed to comply with this requirement ahead of the September effective date.

The House bill required “clear and convincing” evidence and external review. The law as passed does not. Some insurers have agreed to this standard without regulation or requirement. Regulations may, however, impose an external review requirement on claims of misrepresentation.

Interestingly, the House bill would have required continuation of coverage during a challenge. The law as enacted does not.

This area will be interesting to follow.

Questions – what is the standard of review? Presumably, that under Firestone v. Bruch in the group plan setting. Are benefits continued if misrepresentation is alleged? In the case of individual policies, could a retroactive increase in premiums be required as in Werdehausen v. Benicorp Ins. Co., 487 F.3d 660 (8th Cir. Mo. 2007)? If not paid, then could the policy be cancelled for failure to pay premiums? What is the burden of proof?

The anticipated regulations have much to address. I do not expect this to be a very significant issue in the group market, but after the dust settles, I think there are still some surprises in store in the individual policy market.

__________________

:: “Clear Repudiation Rule” Applied In Determination That Benefits Claim Was Time-Barred

Underpayment of a benefit constitutes a repudiation of full benefits and triggers the statute of limitations. Id. at 521. The record is clear that the plaintiff was well aware of the underpayment more than four years before filing suit, as evidenced by a number of letters between the defendant and Mr. Bryer’s then-counsel, culminating in the letter of March 4, 2005, appealing the denial of increased benefits.

Bryer v. Metro. Life Ins. Co., 2010 U.S. Dist. LEXIS 42867 (E.D. Pa. May 3, 2010)

The district court in Bryer v. Metro. Life Ins. Co. applied the “clear repudiation rule” to find that the plaintiff’s claims were time-barred.

The disability plan that covered the plaintiff provide for an increase in benefits that he did not receive according to the complaint:

According to the complaint, the plaintiff was awarded long-term disability benefits effective July 21, 2002, and pursuant to the relevant benefits plan, he is entitled to a seven percent increase in his monthly benefit amount each year beginning 13 months after the award of benefits (i.e., starting on August 21, 2003). The plaintiff never received the increase.

Correspondence concerning an appeal played an important role by indicating the denial of the claimed benefits:

By letter dated March 4, 2005, then-counsel for Mr. Bryer appealed the denial  of the disputed benefits; the request for an adjustment of benefits was denied by letter dated May 4, 2005, in which the defendant writes that the decision “concludes the administrative review process” and the plaintiff has “the right to bring a civil action under Section 502(a)” of ERISA.

In evaluating when the limitations period began to run, the court stated that:

In this Circuit, the “statute of limitations begins to run when a plaintiff discovers or should have discovered the injury that forms the basis of his claim.” Miller v. Fortis Benefits Ins. Co., 475 F.3d 516, 520 (3d Cir. 2008). A cause of action for unpaid benefits accrues when there has been “a repudiation of the benefits by the fiduciary which was clear and made known [to] the beneficiary.” Id. at 520-21. Underpayment of a benefit constitutes a repudiation of full benefits and triggers the statute of limitations. Id. at 521.

The opinion underscores the importance that correspondence may play in indicating a repudiation that begins the limitations period. For example, the court observed that:

The record is clear that the plaintiff was well aware of the underpayment more than four years before filing suit, as evidenced by a number of letters between the defendant and Mr. Bryer’s then-counsel, culminating in the letter of March 4, 2005, appealing the denial of increased benefits. Accord Lutz v. Philips Electronics North Am. Corp., 347 Fed. Appx. 773 (3d Cir. 2009) (unpublished) (holding that an ERISA claim accrued “when the [plaintiffs] began their ‘repeated’ complaints about the incorrect calculation of benefits.”)

Note:  The Third Circuit’s “clear repudiation rule” is discussed more detail in :: Third Circuit Extends “Clear Repudiation” Rule To Erroneous Benefit Award Claims.

:: Health Care Providers Warn Of Failure In HIT Compliance

The proposed rule takes an “all-or-nothing” approach, where failure to meet any one of the requirements means the provider will not receive an incentive payment.

Letter to Health and Human Services Secretary Kathleen Sebelius

Healthcare providers need additional time and greater flexibility to meet criteria of the Centers for Medicare and Medicaid Services’ proposed electronic health record rule, according to an article in Healthcare Leaders Media.

If the current rule is finalized, it would likely result in providers with advanced HIT systems not meeting requirements in fiscal 2011. For those physicians in small practices and rural providers, the letter notes, “the unrealistic timeframes are even more problematic because they have further to go in their implementation of EHRs compared to larger providers.”

Here’s another take:

Under the Medicare incentive plan, if physicians meet stage 1 requirements by 2011 or 2012, they can earn a total of $44,000 over five years, starting with $18,000 the first year. But if meeting the requirements takes longer, the totals are lower: $39,000 in 2013 and $24,000 in 2014. The bonuses turn into penalties in 2015 if meaningful use has not been reached.

:: Mandates Require Cheapening Of Health Care Coverage

The PPACA contains some specific mandates as to what affordable health insurance should look like, in that as of 2014, companies must offer plans in which employees’ contributions are no more than 9.5% of their household incomes. If a company fails on that measure, and employees apply for government assistance through the yet-to-be-built health insurance exchanges, the company will be fined $3,000 per affected employee. (The fine drops to $2,000 after the first 30 employees).

Mercer Analysis:  Study: Many Health Plans Not Affordable

In short, coverage must be cheapened for those presently covered to extend coverage to those who are not covered.

Either way, experts say the level of health coverage would likely degenerate compared with current levels, in order to make the plans cheaper. Particularly if all plans must be affordable, “you’ll probably see the level of coverage going down,” says Umland, with employers making additional, richer coverage available for workers to purchase with aftertax dollars.

So much for Obama’s claim that you can keep your present coverage under his vision for reform.

:: “Appropriate” Equitable Relief Under ERISA Section 502(a)(3) – Another Silver Bullet Misses The Mark

O’Hara contends that, as a matter of equity and in order to effectuate ERISA’s policy of protecting plan beneficiaries, the make-whole rule must be applied because allowing Zurich to recoup the medical expenses it paid on his behalf unduly punishes him by requiring him to forfeit a substantial portion of the compensation he received for his other losses, including  future wages and bodily integrity, and unjustly enriches Zurich. We disagree.

Zurich Am. Ins. Co. v. O’Hara, 2010 U.S. App. LEXIS 8570 (11th Cir. Ga. Apr. 26, 2010)

The Eleventh Circuit takes up the issue of “appropriate” equitable relief in this recent opinion.  The Court rejects the argument that the plan’s reimbursement fails to satisfy the terms of statutory relief authorized under ERISA Section 502(a)(3).

The Facts

On 22 February 2005, the personal injury plaintiff, O’Hara, was seriously injured in a head-on collisions. The ERISA-governed group health plan providing his medical benefits paid $ 262,611.92 for his accident-related medical treatment. O’Hara later sued the other driver, and the parties to that action settled for $ 1,286,457.11.

The plaintiff disputed the plan’s right to reimbursement using one predictable argument and several innovative arguments. The dispute ended up before a federal district court judge who ruled for the Plan under its claim for reimbursement under ERISA Section 502(a)(3).

Framing The Argument

First, what was not in dispute:

#1 The parties did not dispute the premise that the plaintiff was not “made whole” by the recovery.

# 2 The parties had “no quarrel” that the plan’s claim was authorized under ERISA Section 502(a)(3) as “equitable” in nature.

# 3 The funds were held in an identifiable account, so there was no issue of a res upon which equitable remedies could be imposed.

#4  The parties did not argue that the plan provision failed to disavow the “make whole” doctrine.

Equitable Claim Versus “Appropriate” Claim

The plaintiff’s case tested the limits of what may be considered “appropriate” equitable relief.   For those who regularly follow ERISA subrogation issues, the argument will be clear enough.  A full explication of the issue must take into account the foundation laid for this query in the Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356 (2006).

There, while holding for the plan, the Court dropped a footnote in which it rejected consideration of whether the relief was “appropriate” since the issue had not been raised below.

Allow me here to insert the question as formulated in an Eighth Circuit opinion:

The remaining issue is whether the relief the Committee sought was “appropriate.” The Supreme Court in Sereboff declined to expound on the meaning of this term, because Sereboff’s argument on that point had not been raised in the court below. 126 S. Ct. at 1877 n.2. The Shanks contends that full reimbursement to the Committee is not “appropriate” under section 502(a)(3), and asks us to apply either the “make-whole” doctrine or a pro rata share requirement as a rule of federal common law in order to reach this conclusion.

Admin. Comm. of Wal-Mart Stores, Inc. Assocs.’ Health and Welfare Plan v. Shank, 500 F.3d 834, 838-39 (8th Cir. 2007) (noting the “primacy of the written plan” under ERISA and rejecting appellant/beneficiary’s argument that the make-whole doctrine precluded insurer from exercising its contractual right to recovery)

“Appropriate” Delimiter Does Not Equal “Make Whole” Requirement

As in Shank, and with even shorter shrift, the Eleventh Circuit rebuffed the notion that the statute’s requirement of “appropriate” equitable relief, even in view of the mischievous Sereboff footnote, had any effect on the plan’s right to recovery.

The Court tersely concluded that:

Applying federal common law to override the Plan’s controlling language, which expressly provides for reimbursement regardless of whether O’Hara was made whole by his third-party recovery, would frustrate, rather than effectuate, ERISA’s “repeatedly emphasized purpose to protect contractually defined benefits.”

Note: As is becoming increasingly clear, whatever “appropriate” means in this context, it does not mean an implicit make whole requirement.   So what does it mean?  It may be worth considering whether a misrepresentation might make relief inappropriate.  In any event, an example of inappropriate relief has not found its way into an important opinion yet.

Make Whole - The doctrine:

“Under the make-whole doctrine, an insured who has settled with a third-party tortfeasor is liable to the insurer-subrogee only for the excess received over the total amount of his loss.” Cagle v. Bruner, 112 F.3d 1510, 1520 (11th Cir. 1997) (per curiam).

Cited Authorities - The Court’s cited a number of cases upholding reimbursement rights including its own opinion in Popowski v. Parrott, 461 F.3d 1367, 1373 (11th Cir. 2006) was well as United McGill Corp. v. Stinnett, 154 F.3d 168, 172 (4th Cir. 1998), Admin. Comm. of Wal-Mart Stores, Inc. Assocs.’ Health and Welfare Plan v. Varco, 338 F.3d 680, 691-92 (7th Cir. 2003) and Admin. Comm. of Wal-Mart Stores, Inc. Assocs.’ Health and Welfare Plan v. Shank, 500 F.3d 834, 838-39 (8th Cir. 2007).

Most interesting was the footnote cite to the blockbuster opinion in Longaberger Co. v. Kolt, 586 F.3d 459, 472 (6th Cir. 2009).

For further reading – Susan Harthill, “A Square Peg in a Round Hole? Whether Make Whole Relief Is Available Under Erisa Section 502(A)(3)”, Florida Coastal School of Law, SSRN Working Paper Series (2008, Last Revised: October 5, 2009); Thomas Allen Comment: ERISA Subrogation and Reimbursement Claims: A Vote to Reject Federal Common Law Adoption of a Default “Make Whole” Rule, Spring, 2009, 41 Ariz. St. L.J. 223 J.; Kristin L. Huffaker, Note: Where the Windfall Falls Short: “Appropriate Equitable Relief” after Sereboff v. Mid Atlantic Medical Services, Inc., Spring, 2008, 61 Okla. L. Rev. 233.

:: District Court Orders Personal Injury Plaintiff To Reimburse ERISA Plan

Here, it is undisputed that the Colliers are in possession of the $ 70,000 currently being held in a non-interest bearing account. The fund is specifically identifiable and within the Colliers’ possession, thus satisfying the Sereboff standard for cognizable relief under § 502(a)(3). Accordingly, the Court must enforce the Plan’s subrogation terms as a matter of law.

Brown & Williamson Tobacco Corp. v. Collier, 2010 U.S. Dist. LEXIS 36505 (M.D. Ga. Apr. 13, 2010)

This is a useful ERISA health plan subrogation case that touches on all the typical issues that arise in the reimbursement context. This case appears in the new cases forum on erisaboard.com and may be accessed there.

Georgia has a robust consumer protection statute that applies in health plan subrogation cases. In this instance, however, the plan was self-funded and the statute did not apply.

Neither the Savings Clause nor the McCarran-Ferguson Act applies in this case. Thus, federal law preempts Georgia’s anti-subrogation statute, O.C.G.A. § 33-24-56.1, and consequently, the subrogation clause in Brown & Williamson’s Plan stands.

The “make whole” doctrine also made a cameo appearance and then exited the stage:

While the Colliers correctly assert that the “make-whole” doctrine is the default rule in the Eleventh Circuit, the Colliers fail to acknowledge that the doctrine can be expressly excluded. . . .

Here, the Plan explicitly rejects the “make-whole” doctrine by stating that the reimbursement provisions apply “whether or not you are made whole.”   This express rejection of the “make-whole” doctrine within the terms of the Plan indicates that the doctrine does not apply in this case.

And then a novel argument, which is also rejected:

Finally, the Colliers argue that the present case is devoid of necessary expert testimony establishing proximate causation. The case before this Court does not require the parties to prove the elements of medical malpractice. Instead, this case focuses on whether a claim brought under § 502(a)(3) is appropriate. Thus, this argument is without merit.

Thus, summary judgment was granted to the plan.   Since the plan had identified funds in the possession of the defendant, the Court ordered the funds restored to the plaintiff.

:: PPACA Imposes External Review On ERISA Plans

SEC. 2719(b) of the PPACA imposes new external review requirements on group health plans.    (Grandfathered plans, i.e., a health plan in which an individual was enrolled on March 23, 2010, escapes Sec. 2719.)

This is a significant augmentation of plan participant rights.

The NAIC model act on available for review on the NAIC website.

http://www.naic.org/documents/commit…_model_act.pdf

Note particularly the sections pertaining to the binding effect of the external review.* Are those sections a part of the process that must be incorporated into self-funded plans that are not grandfathered? It would seem so. I’d be interested in your comments on that particularly, and any general comment on external review from prior experience with state laws imposing similar requirements.

* From the NAIC Model Act:

Note:  Certain plans are exempt from Subtitles A and C of the PPACA.  These are group health plans that were in existence on March 23, 2010.

We don’t know yet what regulations will be forthcoming on this issue but it would be an expensive mistake to, say, subject a plan to the new external review requirements because of plan amendments.  So be careful.

From a Leonard Street & Deinard commentary:

As with the implementation of many other aspects of health care reform, the finer details pertaining to retaining grandfathered status are still to be determined. It is clear that enrolled individuals may add family members to their coverage if on March 23, 2010, the plan permitted this enrollment. It is also clear that new employees and their families can be enrolled without jeopardizing the plan’s grandfathered status.

Apart from these two allowances, PPACA is silent on the changes that may be made to a grandfathered plan without losing grandfathered status or even if grandfathered status can be lost. There is hope that some design changes are permissible, because earlier versions of health reform bills expressly prohibited changes. But before more guidance on this is issued, any changes to a grandfathered plan should be very carefully considered.

Further caution - Grandfathered plans are still subject to a number of the new requirements, such as PHSA Sec. 2708 (excessive waiting periods), PHSA Sec. 2711 (lifetime limits),PHSA Sec. 2712 (rescissions) and  PHSA Sec. 2714 (extension of dependent coverage).

Effective Date - Plan years beginning six months after enactment.  Since most plans are calendar year, 1/1/2011 will be the first plan year for the majority of plans.

:: Online Resources On The Patient Protection Act

“Health Care Reform” is now the subject of a variety of excellent summaries which are accessible online for the employee benefits practitioner:

This alert summarizes the major provisions of the Patient Protection and Affordable Care Act (“PPACA”) and the Health Care and Education Reconciliation Act of 2010 (together with the PPACA, the “Act”) that will impact employers and their group health plans (“GHPs”).

http://www.martindale.com/employee-benefits-law/article_Haynes-Boone-LLP_984758.htm

The Patient Protection and Affordable Care Act (PPACA) of 2010 brings both promise and peril for primary care. This Act has the potential to reestablish primary care as the foundation of US health care delivery.

http://www.annals.org/content/early/2010/04/15/0003-4819-152-11-201006010-00249.full?aimhp

On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care weeping measure designed to expand access to health insurance, reduce health care spending (particularly in the Medicare program); expand federal fraud and abuse authorities and transparency requirements; impose new taxes and fees on health industry sectors; and institute a variety of other health policy reforms.

http://dpc.senate.gov/dpcdoc-sen_health_care_bill.cfm

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:: Healthcare Legislation In Perspective

April 16, 2010 · Posted in Health Care Reform · Comments Off 

Edward A. Zelinsky, Morris and Annie Trachman Professor of Law at the Benjamin N. Cardozo School of Law of Yeshiva University, questions the significance of the Patient Protection and Affordable Care Act in his post The Bi-Partisan Rhetoric of Health Care Apocalypse is Wrong on the OUPblog.

Professor Zelinsky writes:

First, the Patient Protection and Affordable Care Act, while significant, is more incremental in nature than either side cares to acknowledge.

Second, many provisions of the Act have delayed effective dates.  It is questionable whether future Presidents and Congresses will permit these provisions to go into effect as written.

Third, the Act merely postpones many tough decisions which must be made about health care and about health care cost control in particular.  At its core, the Act’s efforts to control health care costs are tepid and deferred.  Indeed, for the long run, the Act is likely to exacerbate the nation’s problem of health care costs and will thus require further confrontation with this intractable problem.

I am in agreement on points two and three,  but skeptical on the first point. As always, his comments are thought-provoking and informative.

You can read the post in its entirety here.

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:: Medical Loss Ratios As Opportunity For Political Theater

April 15, 2010 · Posted in Health Care Reform · 1 Comment 

The goal of many health care reformers is actually to get to a single payer system. President Obama has espoused this point of view and the “public option” was one track to get there.

The Patient Protection and Affordable Care Act (”PPACA”) will get there as well, but in two steps rather than one. The first step will be to force private sector options into untenable economic arrangements while all the while decrying the profit motive as the critical problem as premiums increase. This will make for great political theater and the actors are already taking positions on stage.

For example, I posted yesterday about the unworkable tangle of parameters that are embedded in the medical loss ratio strictures under the PPACA. Today we have Senator Rockefeller complaining about the characterization of expenses under the MLR rules.

The Senate Commerce Committee investigation began in August, 2009. The Committee staff report Chairman Rockefeller released today includes a review of recently filed 2009 medical loss ratio (MLR) information and highlights health insurance companies’ new efforts to “reclassify” their administrative expenses as medical expenses in the wake of health care reform. This staff report updates an analysis of 2008 insurance industry data that the Senate Commerce Committee released last November.

The Huffington Post finds this report an opportunity to accuse health insurance industry of ” starting to game a key element of health care reform months before it even takes effect . . .”

Really?  I don’t think so.

Other than individual policies, the insurance industry appears to have met the MLR standard.  The Wall Street Journal carries a more balanced view of the Senate Report, stating that:

In most instances, among the large, publicly managed-care companies–including Aetna Inc. (AET), WellPoint and UnitedHealth Group Inc. (UNH)–MLRs for individual policies last year didn’t reach the upcoming 80% minimum, though most met that mark for small-group plans. Most of the big insurers also met or came close to the 85% MLR for large group plans, according to the committee report. Cigna Corp. (CI) was the only major insurer with an individual-market MLR that surpassed the upcoming minimum, the report showed.

Those numbers represent an average of each of the companies’ many subsidiaries with varying MLRs. The report cites an Oppenheimer analysis that says the markets where WellPoint subsidiaries have low MLRs are “the most profitable tail” of WellPoint’s business.

. . .

Cigna said Thursday it is too early to say how the new MLR minimums will affect the company and that since the definitions are being worked on, the insurer doesn’t intend to restate its MLR at this time.  UnitedHealth Group said it doesn’t intend to change how it calculates the ratios before new guidance is provided. Aetna said recently it hasn’t reclassified any costs.

Robert Zirkelbach, spokesman for industry trade group America’s Health Insurance Plans, said government data show that “the percent of premiums spent directly on medical care has increased for six straight years. At the same time, health plans are doing more in the areas of disease management for chronic conditions, care coordination, prevention and wellness, and health information technology.

“It is important to ensure that the new MLR requirements do not undermine essential programs and services that are working to improve the quality and safety of patient care,” Zirkelbach said.

Last year, he said, the percentage of premiums used on overhead costs and profits declined for the sixth straight year.

(emphasis added)

The Procrustean MLR concept is flawed as explained by James Robinson in his influential Health Affairs article noted in my prior post.  If the predictable “accounting nightmare” is troublesome, it is only the fault of the politicians that voted for a bill they most assuredly did not understand.

For those who hope to undermine the private sector insurance industry in favor of a Canadian-style single payer system, however, the real gaming is the notion that any of these bureaucratic hurdles has any goal other than the migration to a single payer system.

That change in the American system will likely disappoint affluent Canadians, however, who have heretofore chosen the U.S. for their own health care.

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:: Comments Sought On Medical Loss Ratio Requirements

April 14, 2010 · Posted in Health Care Reform · Comments Off 

The EBSA Request for Comments Regarding Section 2718 of the Public Health Service Act (Medical Loss Ratios), as added by the Patient Protection and Affordable Care Act (”PPACA”) has been published in the April 14 issue of the Federal Register and can be viewed here.    Comments are to be submitted by May 14, 2010.

Section 2718 of the PHS Act (among other provisions), requires health insurance issuers offering individual or group coverage to:

• submit annual reports to the Secretary on the percentages of premiums that the coverage spends on reimbursement for clinical services and activities that improve health care quality, and

• to provide rebates to enrollees if this spending does not meet minimum standards for a given plan year.

Under the PHS amendments, the National Association of Insurance Commissioners (”NAIC”) will establish (subject to approval by HHS) uniform definitions of the activities being reported and standardized methodologies for calculating measures of these activities no later than December 31, 2010.

The law imposes a crude and complex control mechanism based on medical loss ratios that is enforced by rebate requirements, taxes and penalties.  In a nutshell, the amount expended on medical services and “quality” must be at least 85% of premium revenue (as defined) for large group plans and 80% for small plans and individual plans.

Ironically, the concept of assessing value through MLR’s appears to have made its way into the law despite serious deficiencies in its usefulness as a metric of quality or efficiency. From “Use And Abuse Of The Medical Loss Ratio To Measure Health Plan Performance”, Health Affairs (July/August 1997), by James C Robinson:

The medical loss ratio is not a straightforward indicator of either medical or administrative expenditures. It certainly is not a measure of clinical quality or social contribution. The medical loss ratio is an accounting monstrosity, a convolution of data from myriad products, distribution channels, and geographic regions that enthralls the unsophisticated observer and distorts the policy discourse.

Given the short comment period, the rapidly approaching effective date and the lack of regulatory guidance, the MLR feature of health care reform will undoubtedly create substantial confusion for health plan insurers. The “accounting monstrosity” fails to recognize the blended features of claims payment, administrative and profit functions in the contemporary health insurance industry.

In short, the MLR requirement’s greatest defect lies in its failure to constitute a useful metric of what it purports to measure.

Note: Section 1004(a) of the PPACA provides that the provisions of Section 2718 of the PHS Act shall become effective for plan years beginning on or after the date that is 6 months after the date of enactment of PPACA. (The date of enactment of PPACA is March 23, 2010).

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:: Health Care Providers’ RICO Claims “Reversed Preempted”

April 8, 2010 · Posted in PREEMPTION, PROVIDER REIMBURSEMENT · Comments Off 

Plaintiffs argue that Medical Mutual, in its processing of insurance claims, violated the federal RICO statute. Specifically, Plaintiffs allege that Medical Mutual “acted to delay, diminish and deny payment of . . . lawful claims of patient-insureds as submitted by out-of-network health providers . . . through a scheme or artifice, utilizing the U.S. Mail and demonstrating a specific intent to defraud the patient-insureds and out-of-network health-care providers.” (Compl. P 51.). . . .

Defendants contend, and the district court agreed, that Riverview’s RICO claims are reverse preempted in accordance with the McCarran-Ferguson Act. Plaintiffs argue that McCarran-Ferguson does not apply to its RICO claims

Riverview Health Inst. Llc v. Medical Mut. of Ohio, 2010 FED App. 0097P (6th Cir.) (6th Cir. Ohio 2010)

This recent unpublished Sixth Circuit opinion applies reverse preemption to defeat the RICO claims of out of network health care providers.

The health care providers advanced seven claims for relief:

(1) conspiracy to violate 18 U.S.C. § 1962(a) in violation of 18 U.S.C. § 1962(d) (RICO);
(2) violation of 18 U.S.C. § 1962(c)(RICO);
(3) conspiracy to violate 18 U.S.C. § 1962(c) in violation of 18 U.S.C. § 1962(d)(RICO);
(4) denial of benefits under the Employee Retirement Income Security Act of 1974 (”ERISA”), 29 U.S.C. § 1132(a)(1)(B);
(5) state-based breach of contract;
(6) state-based common-law fraud; and
(7) state-based tortious interference with business relationships.

Gravamen Of Complaint

The gravamen of the complaint was that Medical Mutual:

• “acted to delay, diminish and deny payment of . . . lawful claims of patient-insureds as submitted by out-of-network health providers
• acted unlawfully and inaccurately to underestimate and reduce the ['usual, customary and reasonable'] amounts due to out-of-network health providers
• and inappropriately bundled provider services and procedures through scheme or artifice

The district court granted a motion to dismiss, agreeing withe the Defendants that the Plaintiffs’ RICO claims were reversed preempted by the McCarran-Ferguson Act. The other claims were dismissed without prejudice.

The Sixth Circuit panel agreed with the district court that the RICO claims were reversed preempted.

The McCarran-Ferguson Act

The McCarran-Ferguson Act states that “[t]he business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business.” 15 U.S.C. § 1012(a). In the health plan context, the reverse preemption of RICO is triggered when RICO would invade the province of state insurance laws. This is because the McCarran-Ferguson Act declares that “[n]o Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance . . . unless such Act specifically relates to the business of insurance.” Id. § 1012(b).

Ohio Insurance Law

The Court held that the application of federal RICO would impair Ohio’s insurance regulatory scheme. The Plaintiff’s complaint essentially involved the payment of claims and that issue was subject to insurance department authority.

The conduct at the heart of Plaintiffs’ complaint implicates Ohio’s law regarding payment of claims and the Ohio Department of Insurance is charged with administering the applicable state law. In this case, Plaintiffs have no common law remedy or private right of action. The state RICO statute is inapplicable and the damages available pursuant to federal RICO would far exceed the damages contemplated by the Ohio legislature when enacting its insurance regulatory scheme.

Moreover, the State of Ohio has filed a brief as amicus curiae in support of Defendants, arguing that the imposition of the federal RICO statute will impair Ohio’s ability to detect insurance fraud and reverse preemption will not prevent insurers from using state or federal RICO to combat fraud. Accordingly, Plaintiffs’ RICO claims are reverse preempted by the McCarran-Ferguson Act and we, therefore, affirm the district court’s dismissal of Plaintiffs’ RICO claims.

Thus the RICO claims were reversed preempted.

Note: The Court applied several factor-based tests in reaching its conclusions.

Three Factor Reverse Preemption Test – Determining whether the reverse preemption applies involves three questions:

[#1] we must decide “whether the federal statute at issue ’specifically relates to the business of insurance.’” . . . If it does, then the McCarran-Ferguson Act, by its own terms, does not permit reverse preemption. (Neither party disputed that RICO does not specifically relate to the business of insurance.)

[#2]. . . “whether the state statute at issue was enacted . . . for the purpose of regulating the business of insurance” and

[#3] “whether the application of the federal statute would invalidate, impair, or supersede the state statute.”

Three Factor “Business Of Insurance” Inquiry – The Court applied a a three factor test set forth in Union Labor Life Insurance Co. v. Pireno, 458 U.S. 119 (1982) to determine whether an activity is part of the “business of insurance” (#2 above):

(1) “whether the practice has the effect of transferring or spreading a policyholder’s risk,”

(2) “whether the practice is an integral part of the policy relationship between the insurer and the insured,” and

(3) “whether the practice is limited to entities within the insurance industry.”

Seven Factor “Impairment Test - The Court applied the seven factor test articulated by the Supreme Court in Humana Inc. v. Forsyth, 525 U.S. 299 (1999) on the question of impairment (#3 above).  (There the Court held that a federal statute that “proscribes the same conduct as state law, but provides materially different remedies” did not “impair” state law under the McCarran-Ferguson Act.)

The factors are:

(1) the availability of a private right of action under the state insurance scheme;
(2) the availability of a state common law remedy;
(3) the possibility that other state statutes provide the basis for suit;
(4) the availability of punitive damages;
(5) whether the damages available under the state insurance scheme could exceed the damages recoverable under RICO, even taking into account RICO’s treble damages provision;
(6) the absence of a position by the State regarding any interest in state policy or the administrative scheme; and
(7) the fact that insurers have relied on RICO to eliminate insurance fraud.

Estoppel Claim - The Plaintiff’s estoppel claim involves an interesting discussion of anti-assignment clauses and warrants careful review by health care providers and their counsel.  I will likely review that issue in a separate post.

See also -:: “Reverse Preemption” Rejected: The Emergence of RICO Claims In Lieu Of ERISA Claims; :: Sixth Circuit Rejects Reverse Preemption Of RICO Claims

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:: Health Care Legislation Creates Uncertainty For Employer Plans

March 23, 2010 · Posted in ERISA · Comments Off 

The text of H.R.3590, dubbed the Patient Protection and Affordable Care Act, may be viewed here and here.

Readers of this page will find the following exception to “TITLE I — QUALITY, AFFORDABLE HEALTH CARE FOR ALL AMERICANS” of interest:

(B) EXCEPTION FOR SELF-INSURED PLANS AND MEWAS- Except to the extent specifically provided by this title, the term ‘health plan’ shall not include a group health plan or multiple employer welfare arrangement to the extent the plan or arrangement is not subject to State insurance regulation under section 514 of the Employee Retirement Income Security Act of 1974.

And then there is also the provision regarding “grandfathered plans” which reads as follows:

PART II–OTHER PROVISIONS

SEC. 1251. PRESERVATION OF RIGHT TO MAINTAIN EXISTING COVERAGE.

(a) No Changes to Existing Coverage-

(1) IN GENERAL- Nothing in this Act (or an amendment made by this Act) shall be construed to require that an individual terminate coverage under a group health plan or health insurance coverage in which such individual was enrolled on the date of enactment of this Act.

(2) CONTINUATION OF COVERAGE- With respect to a group health plan or health insurance coverage in which an individual was enrolled on the date of enactment of this Act, this subtitle and subtitle A (and the amendments made by such subtitles) shall not apply to such plan or coverage, regardless of whether the individual renews such coverage after such date of enactment.

(b) Allowance for Family Members To Join Current Coverage- With respect to a group health plan or health insurance coverage in which an individual was enrolled on the date of enactment of this Act and which is renewed after such date, family members of such individual shall be permitted to enroll in such plan or coverage if such enrollment is permitted under the terms of the plan in effect as of such date of enactment.

(c) Allowance for New Employees To Join Current Plan- A group health plan that provides coverage on the date of enactment of this Act may provide for the enrolling of new employees (and their families) in such plan, and this subtitle and subtitle A (and the amendments made by such subtitles) shall not apply with respect to such plan and such new employees (and their families).

(d) Effect on Collective Bargaining Agreements- In the case of health insurance coverage maintained pursuant to one or more collective bargaining agreements between employee representatives and one or more employers that was ratified before the date of enactment of this Act, the provisions of this subtitle and subtitle A (and the amendments made by such subtitles) shall not apply until the date on which the last of the collective bargaining agreements relating to the coverage terminates. Any coverage amendment made pursuant to a collective bargaining agreement relating to the coverage which amends the coverage solely to conform to any requirement added by this subtitle or subtitle A (or amendments) shall not be treated as a termination of such collective bargaining agreement.

(e) Definition- In this title, the term ‘grandfathered health plan’ means any group health plan or health insurance coverage to which this section applies.

And then there is the possibility of state waivers as provided in Section 1332(a), entitled: “WAIVER FOR STATE INNOVATION.”

(1) IN GENERAL- A State may apply to the Secretary for the waiver of all or any requirements described in paragraph (2) with respect to health insurance coverage within that State for plan years beginning on or after January 1, 2017 . . .

These various conditions are likely to create substantial controversy as the boundaries of the exceptions are worked out through judicial interpretation. Still undecided, of course, is the fate of the set of amendments proposed by the House which the Senate must consider. Add to that the imminent litigation over the constitutionality of the bill and it appears fair to say that it may be some time before employers can sort out their compliance burdens under the health care legislation.

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:: Ninth Circuit Checklist of Abuse Of Discretion Factors

March 9, 2010 · Posted in 502(A)(1)(B) CLAIM FOR BENEFITS, CLAIMS REVIEW, STANDARD OF REVIEW · 1 Comment 

In ERISA cases, abuse of discretion review is “informed by the nature, extent, and effect on the decision-making process of any conflict of interest that may appear in the record.” Abatie, 458 F.3d at 967. Thus, where, as here, a structural conflict exists because the insurance company administrator both funds and administers the Plan, “the court must consider numerous case-specific factors, including the administrator’s conflict of interest, and reach a decision as to whether discretion has been abused by weighing and balancing those factors together.” .

Sterio v. HM Life, 2010 U.S. App. LEXIS 4615 (9th Cir. Cal. Mar. 4, 2010) (unpublished) (citing Montour v. Hartford Life & Acc. Ins. Co., 588 F.3d 623, 630 (9th Cir. 2009)).

This recent Ninth Circuit opinion provides a nice checklist of issues that may turn a structural conflict of interest into a claimant’s victory even in the face of the lenient abuse of discretion standard of review.

The Facts

In this case, Sterio, a former receptionist, claimed she was disabled “primarily due to sciatic pain, restricted mobility and depression following several hip surgeries.” HM Life, was both the insurer and the administrator of the ERISA-governed disability plan.

The Benefit Dispute

Sterio’s benefit claim was denied by the plan, a denial upheld by the district court:

HM Life engaged Broadspire Services to process Sterio’s claim. Broadspire, in turn, hired six independent physicians to review Sterio’s medical records. The reviewing physicians all concluded that Sterio was not disabled. Broadspire initially denied Sterio’s claim and HM Life denied Sterio’s appeal, both concluding that the objective medical evidence did not support her disability claim. The district court conducted a bench trial and concluded that HM Life did not abuse its discretion in light of “conflicting evidence.”

The Appeal

On appeal, the Ninth Circuit reversed. The Court agreed that the abuse of discretion standard of review applied, but disagreed with the district court’s application of the standard.

The critical points are as follows:

# 1  First, the quantity and quality of the medical evidence supports Sterio’s disability claim. HM Life failed to credit this reliable medical evidence which included the following:

• An EMG test confirmed that Sterio had right sciatic neuropathy after her last hip revision surgery.
• Two MRI exams revealed excess metal artifacts in Sterio’s pelvis region. Two x-ray exams revealed bone thinning in Sterio’s right foot.
• Sterio’s records show consistent use of strong pain medication.
• A Functional Capacity Evaluation (”FCE”) submitted by Sterio’s treating physician reported that Sterio could not sit, stand or walk for more than 1-hour a day.
• Both of Sterio’s treating physicians concluded that she was permanently disabled, which is consistent with the evaluations of Sterio’s treating neurologist and two orthopedists.

# 2  HM Life failed to distinguish or even acknowledge the SSA’s contrary disability determination despite having knowledge of it, raising the question of whether the denial was the product of a principled and deliberative reasoning process.”

# 3  HM Life failed to conduct an in-person medical evaluation of Sterio. HM Life’s choice to rely on a pure paper review, “raises questions about the thoroughness and accuracy of the benefits determination . . . as it is not clear the Plan presented [the six reviewing doctors] with all of the relevant evidence.”

# 4  HM Life failed to adequately investigate Sterio’s claim and request necessary evidence.

For example:

• HM Life did not procure the SSA file or ask Sterio to do so.
• Nor did HM Life request any specific evidence that it, or its reviewing physicians, concluded was necessary to prove up Sterio’s claim.
• HM Life failed to communicate these specific deficiencies to Sterio or ask her to supplement the record.

# 5   HM Life violated ERISA’s procedures by “tack[ing] on a new reason for denying benefits in [its] final decision, thereby precluding [Sterio] from responding to that rationale for denial at the administrative level.”

In its final decision, HM Life added for the first time that Sterio’s hospitalizations did not entitle her to long term benefits because she was not deemed disabled at the onset of her disability effective date and because mental health coverage ends at 24 months.

HM Life’s last-minute addition of a new reason for denial suggests not only a conflict of interest, but can also be “categorized as a procedural irregularity where, as here, [Sterio was] foreclosed from presenting any response to the new reason.”

These factors, taken together, persuaded the Court that HM Life abused its discretion in denying Sterio benefits.

Note: This case illustrates an application of the recent opinion in Montour v. Hartford Life & Accident Ins. Co., 588 F.3d 623 (9th Cir. Cal. 2009) which in turn applies the seminal Ninth Circuit opinion in Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 962 (9th Cir. 2006) (en banc).

Tags: Conflicted Fiduciaries; Standard Of Review

:: EBSA Cites Statistics Showing Effective “Targeting” Of ERISA Plans

March 4, 2010 · Posted in Regulatory · 1 Comment 

In FY 2009, EBSA closed 3,669 civil investigations, with 2,833 (77.21%) resulting in monetary results for plans or other corrective action.

“Civil Investigation Statistics Demonstrate Success In Targeting” Employee Benefit Security Administration Fact Sheet

The EBSA cites its targeting protocols as contributing to the success of enforcement efforts against ERISA plans and fiduciaries during 2009. The news release does not provide information on the methods involved in the targeting process, but that information is generally described in the EBSA Enforcement Manual.

For example, regarding the sources of data indicating selection of targets for review, the manual provides:

3. Targeting

Sources for Potential Limited Review Cases.

Computer generated compilations of selected employee benefit plans or service providers derived from reports filed with EBSA.

Information derived from detailed review and analysis of annual reports, supporting financial statements, schedules, exemption application files, ERISA section 502 complaints, and other internal EBSA sources.
Information concerning employee benefit plans or service providers derived from other governmental agencies such as the IRS, the SEC, and state insurance agencies.

Information concerning employee benefit plans or service providers derived from non-governmental sources such as newspapers, industry journals and magazines, or leads from knowledgeable parties.

Information received as a result of complaints from participants, fiduciaries, informants, or other sources in the community, other than allegations of acts against a participant or beneficiary for exercising any right to which he/she is entitled under the provisions of an employee benefit plan, or interfering with the attainment of any right to which the participant may become entitled, which should be handled as described in Chapter 43.

Compilations of selected employee benefit plans or service providers derived by using combinations of the sources listed in (1) through (5) above.

EBSA Enforcement Manual, Chapter 53, “Targeting and Limited Reviews”

Regarding group health plans, the Manual provides some specific guidance:

12. Limited Review Cases Involving Health Plans. Part 7 of ERISA was amended by four separate statutes: the Health Insurance Portability and Accountability Act of 1996 (HIPAA); the Mental Health Parity Act of 1996 (MHPA); the Newborns’ and Mothers’ Health Protection Act of 1996 (Newborns’ Act); and the Women’s Health and Cancer Rights Act of 1998 (WHCRA).

During the course of an investigation involving an ERISA-covered health plan, Investigators/Auditors will ordinarily determine whether a plan is in compliance with these statutes. An investigative guide to assist in this effort is found at Figure 3. If the investigator finds that a large firm sponsors several covered group health plans, a compliance review for each of the plans should be conducted. Claims procedures for the plan should be reviewed to determine if they are in compliance with ERISA Section 503.

A checklist of potential review items is included in the Enforcement Manual materials. That checklist can be reviewed here.

In the case of any contact by regulators, plan fiduciaries should be aware that one thing frequently leads to another. The agenda contemplated by the auditor/investigator will likely not be conveyed to the plan fiduciary in advance.

The targeting guidelines provide that:

Generally, other than stating that the purpose of the limited review is to determine whether a violation of Title I of ERISA has occurred or is about to occur, the Department has adopted the policy of not informing plan officials or others as to the basis of its investigation.

The limited review (Program 53) is designed to expedite a decision on conversion of the case to a more serious review, such as a fiduciary violation investigation (Program 48).

The sole objective of a Program 53 case is to look at one or more issues and to determine whether to convert the case to a Program 48 case or to conclude the inquiry as quickly as possible. . .

In those instances where the limited review case identifies violations in areas such as bonding, reporting and disclosure, improper administrative practices of a de minimis nature, or prohibited transaction(s) already corrected, the case should generally remain as a Program 53.

A voluntary compliance letter will issue on matters of a de minimis nature whereby the plan is given an opportunity to correct minor violations.

In cases where fiduciary violations are found or suspected the plan is to be advised and follow up action will be taken.

In the case of potential criminal violations, the Manual provides as follows:

Apparent Criminal Violations Found.

Whenever the limited review case uncovers evidence of possible criminal violation(s), the assigned Investigator/Auditor must apprise the group supervisor at the earliest possible time. Normally, the civil case will proceed and no investigation of the criminal case will be performed until the RD has decided whether and by whom such criminal investigation(s) will be conducted.

Note: Plan fiduciaries should be aware of the stage and scope of the audit based upon the targeting criteria provided in the Enforcement Manual. The investigator is under no obligation to apprise the fiduciary of these matters, but some indication can be inferred from the nature of the inquiries as suggested by a review of the excerpts noted above from the targeting protocols. Completion of a civil case before a criminal investigation obviously poses serious risks to the targets of the audit. Therefore, plan fiduciaries and counsel must be alert to the intentions of the investigator and make appropriate judgments as to the risks posed in the course of the investigation.

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:: Medicare Cuts Leave Seniors Seeking Care Among A Shrinking Pool Of Physicians

March 2, 2010 · Posted in Health Care Reform · Comments Off 

Physicians say they are shunning Medicare because they are tired of dealing with the yearly threat of a payment cut under federal law requiring that reimbursement rates be adjusted annually based on a formula tied to the health of the economy.

“Ditched by your doctor – blame Medicare“, CNN Money, Parija Kavilanz, senior writer (March 2, 2010)

Choice of doctor is vital to any notion of health care reform.   As Congress considers health care reform, however, here is a startling fact.  Medicare is already constricting physician choice by cutting pay to physicians.

Now President Obama is on record as stating that Americans will still be able to choose their doctors under the health care reform.  Yet, he and his Democratic cohorts are responsible for a 21% cut in Medicare reimbursement rates.  And that is before the cuts planned in the health care reform legislation.

The AARP has inexplicably  failed seniors abysmally on the issue.   If Medicare continues to reduce benefits to physicians, seniors will be hard pressed to find medical care from any doctor, much less their preferred physician.  If those are the promises of health care reform, seniors would be well advised to pass on Obamacare.

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:: Equitable Liens In Restitution – An Alternative Under ERISA Section 502(a)(3)?

February 24, 2010 · Posted in 502(a)(3), ERISA, PROVIDER REIMBURSEMENT · Comments Off 

Werner also sought restitution, asking the district court to impose a constructive trust or an equitable lien on the $ 3895 that Primax obtained from Progressive. The court found that request to be moot, however, because Primax had returned those funds to Progressive nearly 20 months prior to Werner’s filing of this action. Werner argues that the district court erred by assuming that a specific res had to be identifiable before it could impose an equitable lien.

Werner v. Primax Recoveries, Inc., 2010 FED App. 0112N (6th Cir.) (6th Cir. Ohio 2010)

The Sixth Circuit’s unpublished opinion in Werner v. Primax Recoveries touches on an interesting issue regarding the nature of “equitable liens by agreement” as distinguished from “equitable liens in restitution” and the scope of ERISA Section 502(a)(3). .

The Facts

Werner was involved in a traffic accident on June 28, 2002, and required medical treatment for his injuries.

In addition to coverage through an employer-sponsored health-insurance policy through Medical Mutual of Ohio he also had “medpay” coverage through his automobile insurance policy that covered up to $ 5000 in medical-expense benefits.

Some of his medical bills were submitted to his health plan and some were submitted against his medpay coverage. The health plan apparently paid the bills submitted to it, but then asserted a claim against Werner’s medpay coverage. This subrogation claim exhausted the $ 5000 medpay limit.

For reasons undisclosed, some of the providers ended up with their bills unpaid. In fact, one of Werner’s medical providers sued him for non-payment.

Demand On Progressive

Rather than pursue payment of the outstanding bills through the health plan, Werner demanded that Progressive seek a refund from the health plan’s recovery agent (Primax) of what had been previously paid to the health plan out of his medpay coverage. (The reasons for this approach are not clear from the opinion.)  The repayment would apparently restore the medpay coverage in sufficient amount to satisfy the health care provider’s claims.

Werner added claims against Primax in the course of the personal injury claim based upon its claim on the medpay coverage.  In an effort to settle the controversy, Primax refunded the money it had recovered to Progressive.

The matter did not end there, however.  Werner sought class action relief in an independent action in federal district court – a case which was ultimately dismissed.   The district court based its holding on a number of grounds, including standing, mootness, and preemption.

Appeal Of Denied ERISA Claims

Of the arguments asserted on appeal, the most interesting argument was Werner’s attempt to impose liability under ERISA in terms of equitable relief under ERISA Section 502(a)(3).  (We will ignore the standing and mootness problems with his claims for purposes of discussion.)

In the words of the Court:

Werner also sought restitution, asking the district court to impose a constructive trust or an equitable lien on the $ 3895 that Primax obtained from Progressive. The court found that request to be moot, however, because Primax had returned those funds to Progressive nearly 20 months prior to Werner’s filing of this action.

Werner argues that the district court erred by assuming that a specific res had to be identifiable before it could impose an equitable lien. He relies solely on a passage in Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356, 126 S. Ct. 1869, 164 L. Ed. 2d 612 (2006), in which the Court explained that “strict tracing” of funds is not necessary when an equitable lien is established by an agreement. See id. at 364-65.

But that reliance is misplaced: Werner has no agreement with Primax that creates an equitable lien. Rather, he seeks an equitable lien in restitution, i.e., the return of something that he alleges Primax wrongfully took. Sereboff expressly distinguishes such claims.

The return of the funds by Progressive proved fatal to this claim:

Moreover, Sereboff still requires that a request for restitution under § 502(a)(3) target “‘particular funds or property in the defendant’s possession.’” Id. at 362 (quoting Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 213, 122 S. Ct. 708, 151 L. Ed. 2d 635 (2002) (emphasis added)).

Werner does not dispute that Primax returned the $ 3895 to Progressive. We fail to see why that would not already amount to restitution here, thus mooting the request–unless what Werner actually seeks is possession of the $ 3895 for himself. But for that, presumably he may now file reimbursement claims with Progressive. Restitution certainly does not require that Primax pay twice.

Our review of Sereboff also leads us to conclude that Werner’s restitution claim is for relief that a court cannot grant under § 502(a)(3), because he seeks legal rather than equitable restitution. See id. at 361-62 (distinguishing the two types and explaining that only equitable restitution is available under § 502(a)(3)); Fed. R. Civ. Pro. 12(b)(6).

The district court properly granted summary judgment on this claim.

Note: The “agreement” required to impose a Sereboff-like remedy is an intriguing issue.  In Sereboff, of course, the Court did not based its finding of an “agreement” on any contractual document.  The “agreement” was implied from the terms of the plan which contained a reimbursement provision.

So when may such an agreement be implied?  When Primax recovered funds as the health plan’s recovery agent, it did no more than act under the terms of the plan.   The Court was correct in finding that no equitable lien by express or implied agreement supported Werner’s claims.

The Court goes further, however, and makes an observation that may have some value beyond a typical subrogation case.  The Court describes the relief sought by Werner as an “equitable lien in restitution”.  Note that the Court does not find that claim to be “legal” (and thus unavailable under (a)(3) as “other equitable relief”).  Rather, since the funds have been returned, the claim was legal inasmuch as no res remained upon which to impose an equitable remedy.

This notion of equitable relief in restitution may just the remedy that an ERISA plan should dial up when seeking refunds from recalcitrant health providers.  The troubling issue of whether an equitable lien by agreement can be found may perhaps by sidestepped by this arabesque.  What the plan asserts is simply an equitable lien in restitution.   The Werner opinion, though unpublished, should go in the desk file.

Tags: 502(a)(3) Claims, Practice Pointers, PROVIDER REIMBURSEMENT

:: Discovery Of Claims Administrator’s Personnel Records Permitted On Question Of Bias

February 4, 2010 · Posted in 502(A)(1)(B) CLAIM FOR BENEFITS, LITIGATION · Comments Off 

Based on Glenn and Abatie, therefore, it is within the discretion of the district court to permit limited discovery in an ERISA case. Any discovery, however, “must be narrowly tailored and cannot be a fishing expedition.” Groom v. Standard Ins. Co, 492 F. Supp. 2d 1202, 1205 (C.D. Cal. 2007).

Sullivan v. Deutsche Bank Ams. Holding Corp., 2010 U.S. Dist. LEXIS 8414 (S.D. Cal. Feb. 2, 2010)

Sullivan v. Deutsche Bank offers support for limited discovery where the objective is limited to issues pertinent to conflict of interest.   The plaintiff sought performance reviews of the insurance carrier’s employees involved in evaluation of the claim in dispute, namely:

the “performance evaluations or performance reviews for each of [Unum's] employees [who were involved in the evaluation of Plaintiff's claim] . . . for the years 2005, 2006, and 2007.”

Rationale

The plaintiff based its case for discovery on a tightly constructed argument:

1. discovery of the performance evaluations is necessary to determine the credibility of the evaluators involved in denying Plaintiff’s claim.
2. if Unum awarded superior evaluations for higher rates of denying benefits, this would constitute evidence of a conflict of interest in the administration of claims.
3. the scope of this discovery is reasonably limited: “Plaintiff is not seeking defendant’s employees personnel files, but merely the performance evaluations over a three year period during which plaintiff’s claim was handled.”

UNUM demurred, citing two objections that essentially cohere into one – the request was overbroad and beyond permitted discovery in an ERISA case – and a third, based upon privacy concerns.

Survey Of Opinions

The Court began with a broad consideration of the judicial landscape, stating that:

. . . district courts have reached different conclusions.

At the far end of the spectrum, the Eastern District of Kentucky summarily denied production of “performance reviews and personnel files” because “those requests are unduly burdensome and their intrusiveness outweighs any likely benefit.” Pemberton v. Reliance Std. Life Ins. Co., 2009 WL 89696 at *3 (E.D. Ky. Jan. 13, 2009).

Other courts have taken a more moderate stance, holding that access to the personnel files is unwarranted, but at the same time ordering production of “documents about employee compensation criteria or standards . . . for employees involved in that claim.” Hughes v. CUNA Mut. Grp., 257 F.R.D. 176, 180-81 (S.D. Ind. 2009); see also, e.g., Santos v. Quebecor World Long Term Disability Plan, 254 F.R.D. 643, 650 (E.D. Cal. 2009); Myers v. Prudential Ins. Co. of Am., 581 F. Supp. 2d 904, 914 (E.D. Tenn. 2008).

Ruling For Plaintiff

Nonetheless, the narrow construction of the Plaintiff’s argument carried the day on the issue.  The Court observes that:

Plaintiff does not request a blanket production of personnel files, however.  Instead, Plaintiff seeks the performance evaluations of 11 individuals–each involved in the evaluation of Plaintiff’s claim for LTD benefits–for a period of three  years.

.  .  .

the evaluators’ performance evaluations are closely related to the issue of conflict of interest.   Accordingly, Plaintiff’s request for the performance evaluations is reasonably calculated to lead to the discovery of admissible evidence. Fed. R. Civ. P. 26(b)(1).   Furthermore, Plaintiff’s request for production is narrowly tailored to the time and scope of Plaintiff’s particular claim for benefits.

Based thereon, the Court GRANTS Plaintiff’s motion to compel production of the performance evaluations [Doc. 21], as identified by Plaintiff’s Request for Production No. 4. Defendant shall produce the performance evaluations on or before February 22, 2010.

Note: The Court cited Knopp v. Life Ins. Co. of N. Am., 2009 WL 5215395 at *4 (N.D. Cal. Dec. 28, 2009) in support of its decision, stating:

Addressing a similar issue, the Northern District of California ordered production of the evaluations, noting:

“This discovery request asks for performance evaluations for the medical consultants or companies.  This information is closely related to the issue of conflict of interest. For instance, if the medical consultants or companies were rewarded by Defendants for providing opinions adverse to a claimant, that would significantly affect the credibility of their evaluations.”

The Court found that discovery was even more appropriate in the case at bar in light of Glenn:

Whereas the standard of review in Knopp was de novo, the Court in the present case reviews UNUM’s denial of Plaintiff’s LTD benefits for an abuse of discretion.   Thus, limited discovery is even more appropriate. Under the abuse of discretion standard, the potential bias of an evaluator–and in turn the potential conflict of interest inherent in the administration of the benefits claim–is a necessary factor in the Court’s analysis. Glenn, 128 S.Ct. at 2350 (holding, in an ERISA case, “that a conflict [of interest] should be weighed as a factor in determining whether there is an abuse of discretion”)(internal  quotations omitted).

Ninth Circuit Authority - The Court framed its analysis within the larger perspective of the Ninth Circuit’s opinion in Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 970 (9th Cir. 2006):

in the Ninth Circuit, “when a court must decide how much weight to give a conflict of interest under the abuse of discretion standard, . . . the court may consider evidence outside the [administrative] record.” Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 970 (9th Cir. 2006). Based on Glenn and Abatie, therefore, it is within the discretion of the district court to permit limited discovery in an ERISA case. Any discovery, however, “must be narrowly tailored and cannot be a fishing expedition.” Groom v. Standard Ins. Co, 492 F. Supp. 2d 1202, 1205 (C.D. Cal. 2007).

Tags: 502(a)(2) Claim For Benefits, Conflicted Fiduciaries; Standard Of Review, Discovery

:: Post-Glenn Template For Analysis Of Permissible Discovery

January 27, 2010 · Posted in STANDARD OF REVIEW · Comments Off 

In sum, limited discovery  beyond the administrative record will be allowed but controlled. Such discovery must focus on the Defendants’ structural conflict of interest.

Dandridge v. Raytheon Co., 2010 U.S. Dist. LEXIS 5854 (D.N.J. 2010)

This recent district court opinion addresses the scope of discovery in a claim for benefits case determined under an arbitrary and capricious standard of review.  The court take a comprehensive survey of the law and, as a result, the opinion provides a helpful template for analysis of the issue.

Relevance Of The Standard Of Review

The Court noted that parties agreed that the proper standard of review was the arbitrary and capricious standard.

The Third Circuit has consistently held that a court’s review of a claim for benefits under the arbitrary and capricious standard is “limited to that evidence that was before the administrator when it made the decision being reviewed.” Mitchell v. Eastman Kodak Co., 113 F.3d 433, 440 (3d Cir. 1997); Abnathya, 2 F.3d 40, 48 n.8 (3d Cir. 1993); see also Johnson v. UMWA Health & Ret. Funds, 125 Fed. Appx. 400, 405 (3d Cir. 2005) (”This Court has made clear that the record for arbitrary and capricious review of ERISA benefits denial is the record made before the Plan administrator, which cannot be supplemented during the litigation.”).

Here, the administrative proceeding analogy is invoked:

The concept of limiting a court’s review to the administrative record derives from the nature of an ERISA review proceeding and the administrative appeal process, which is meant to encourage internal and inexpensive resolution of benefit claims. See Grossmuller v. Int’l Union, 715 F.2d 853, 857 (3d Cir. 1983).

This administrative law paradigm is buttressed by an ancillary requirement:

. . . the Third Circuit has required that parties prior to bringing ERISA benefit disputes exhaust their administrative remedies, i.e., administrative appeals, prior to bringing suit.. . The purpose in limiting the evidential scope of judicial review is to encourage the parties to resolve their dispute at the administrative level.

Thus, drawing from the deference implicit in the administrative law analogy and with a tip of the hat to the notion of judicial economy, the court settles into the default position that no discovery is ordinarily permissible.

Three Questions

The court analyzes the discovery issue in terms of three questions.

#1  Is discovery permissible on the merits of claims adjudication?
#2  Is discovery permissible as to the plan fiduciary’s structural conflict of interest?
#3   Is discovery permissible on perceived bias and irregularity in the review of the benefit claim?

Three Answers

The Court answered the questions as follows:

#1  Merits of Defendants’ claim determination?

No. This answer was predictable from the “closed administrative record” default position on discovery.

. . . to the extent Plaintiff seeks discovery into the merits of the Defendants’ claim determination, it is clear that such discovery is prohibited. . . .  The Court is not aware of any Third Circuit precedent, pre or post-Glenn, which permits discovery into the pure merits of a claim determination.

#2  Defendants’ structural conflict of interest?

Yes, with limitations – discovery beyond the administrative record is permissible if such discovery is directed toward uncovering the extent to which a structural conflict record has morphed into an actual conflict that could have influenced the administrator’s discretionary decision.

#3  Perceived bias and irregularity in the review of the claim?

Yes, with limitations – some discovery into alleged procedural irregularities is permitted in ERISA cases, but only when the party seeking discovery has made at least some minimal showing of bias or irregularity that could have impacted the administration of the claim.

The Case At Bar

The foregoing analysis rendered the Plaintiff’s discovery permissible in part but also beyond the pale in part.  The Court concluded that:

Plaintiff in this case seeks the following discovery: 23 interrogatories; 17 requests for admissions; 7 document requests; and 2 depositions. This discovery   seeks information beyond the effect of any structural conflict of interest or any perceived bias, and encroaches on the merits of the underlying claim.

If permitted, the discovery would transform this action from a review proceeding to an evidentiary proceeding with full discovery. Moreover, it would undercut the discretionary authority of the plan administrator in rendering the Plaintiff’s pension benefit determination and would effectively change the standard of review the Court must apply to a benefit determination conducted under ERISA.

Discovery substantially more limited than that currently sought is, however, permissible. Defendants concede that they suffer from a perceived structural conflict of interest in this case. Thus, based upon Glenn, discovery is appropriate and will be permitted into the scope and impact of any conflict of interest that could have impacted Defendants’ evaluation of Plaintiff’s claim.

Note: The court observed a post-Glenn  split in authority  over whether discovery beyond the administrative record is permitted in ERISA benefit cases.

Cases that have concluded that Glenn does open the door to discovery beyond the administrative record include:

Denmark v. Liberty Life Ins. Co., 566 F.3d 1, 10 (1st Cir. 2009) (”The majority opinion in Glenn fairly can be read as contemplating some discovery on the issue of whether a structural conflict has morphed into an actual conflict.”); Kalp v. Life Ins. Co. of N. Am., No. 08-1005, 2009 WL 261189 (W.D. Pa. Feb. 4, 2009); Burgio v. Prudential Life Ins. Co. of Am., 253 F.R.D. 219 (E.D.N.Y. 2008); and Hogan-Cross v. Metro. Life Ins. Co., 568 F. Supp. 2d 410, 414 (S.D.N.Y. 2008).

Courts that have concluded that Glenn does not alter the pre-existing rules with respect to discovery include:

Weiss v. Unum Life Ins. Co., No. 02-4249, 2008 WL 518857, at *4 (D.N.J. Dec. 10, 2008); Sanders v. Unum Life Ins. Co., No. 08-421, 2008 WL 4493043, at **3-4 (E.D. Ark. Oct. 2, 2008); and Christie v. MBNA Group Long Term Disability Plan, No. 08-44, 2008 WL 4427192, at *2 (D. Me. Sept. 25, 2008).

Tags: Conflicted Fiduciaries; Standard Of Review, Discovery

:: Increase Predicted For 2010 Workplace Litigation

January 25, 2010 · Posted in LITIGATION · Comments Off 

The National Underwriter reports that the sixth annual Workplace Class Action Litigation Report by Seyfarth Shaw LLP indicates an increase in workplace litigation for 2010, both in terms of settlements and exposure. The report examines class action and collective action settlements over the past year, including 715 class action litigation rulings.

J. Stephen Poor, Chair and Managing Partner of Seyfarth Shaw, states that “since we began publishing this annual report six years ago, both the number of cases filed and the financial exposure that they pose to companies has increased exponentially.”

Six key trends from the report are epitomized by the firm as follows:

• First, the plaintiffs’ bar increased the pace of the Fair Labor Standards Act (“FLSA”) collective action and the Employee Retirement Income Security Act (“ERISA”) class action filings seeking recovery for unpaid wages and 401(k) losses. As lay-offs increased, displaced workers also filed more age discrimination and Worker Adjustment and Retraining Notification lawsuits. Even more litigation is expected in 2010, as businesses re-tool their operations.
• Second, wage & hour litigation continued to out-pace all other types of workplace class actions. Collective actions pursued in federal court under FLSA outnumbered all other types of private class actions in employment-related cases. Significant growth in wage & hour litigation also was centered at the state court level, and especially in California, Florida, Illinois, New Jersey, New York, Massachusetts, Minnesota, Pennsylvania, and Washington. This trend is likely to continue in 2010.
• Third, the change in Presidential Administrations created heightened workplace litigation exposures for employers. The Obama Administration’s emphasis on regulation and enforcement also spawned more government-initiated litigation over workplace issues. It is expected that employers will encounter more investigations – and more governmental enforcement lawsuits – in 2010 as the newly augmented staffs of the DOL and EEOC carry out their law enforcement functions.
• Fourth, the Class Action Fairness Act of 2005 (“CAFA”) continued to have significant effects on workplace litigation, and most significantly on wage & hour class actions filed in state court. As the plaintiffs’ bar continues to devise techniques to adapt to the CAFA, rulings on the scope, meaning, and application of the law are already numerous for a statute of such recent vintage.
• Fifth, class action plaintiffs’ lawyers are a tight-knit community, which fosters quick evolution in case theories, and, in turn, impacts defense litigation strategies. As a result, cutting-edge developments are spreading rapidly throughout the substantive areas encompassed by workplace class action law.
• Sixth and finally, the financial stakes in workplace class action litigation increased in 2009. Plaintiffs’ lawyers have continued to push the envelope in crafting damages theories to expand the size of classes and the scope of recoveries. These strategies resulted in a series of massive settlements in nationwide class actions, particularly in the context of wage & hour litigation. This trend is also unlikely to abate in 2010.

The entire report may be ordered from the Seyfarth Shaw website here.

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:: Final Regulation On Definition Of “Plan Assets”

January 20, 2010 · Posted in ERISA · Comments Off 

The Employee Benefits Security Administration has posted a link to the final rules regarding the definition of “plan assets”.

The final regulation establishes a safe harbor period during which amounts that an employer has received from employees or withheld from wages for contribution to certain employee benefit plans will not constitute “plan assets” for purposes of Title I of ERISA.

Here is the link:

1/14/2010 – Final Rules – EBSA – Definition of “Plan Assets”–Participant Contributions [PDF]

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:: New Article Analyzes Proposed Levies Under Health Care Reform

January 20, 2010 · Posted in ERISA · Comments Off 

Rodney P. Mock and Jeffrey Tolin, both of California Polytechnic State University, have published an article entitled “Purchase or Else: The Health Insurance ‘Tax’” in Tax Notes. The article examines the nature of the tax or penalty imposed on taxpayers who fail to purchase health care coverage meeting proposed criteria of acceptability.

Both the Senate and House version of health care legislation contain such a provision.

Is the financial extraction a tax or a penalty?   Is a constitutionally legitimate exercise of the federal government’s power?  These issues are given extensive and persuasive analysis in the article.

From the article abstract:

With the Affordable Health Care for America Act, H.R. 3962, 111th Cong. (2009) passed by the U.S. House of Representatives and the U.S. Senate’s version of a health care bill, the Patient Protection and Affordable Health Care Act, H.R. 3590, 111th Cong. (2009) recently passed, this article reviews the particulars of each Act’s respective tax or penalty imposed on individual taxpayers who fail to purchase acceptable health care coverage, and questions whether or not such constitutes a “tax” at all, and if such does, whether or not it is an unconstitutional regulatory tax, indirectly regulating that which Congress cannot under the “Commerce Clause” of the U.S. Constitution; namely, non-participating taxpayers who merely “fail to purchase.”

 
The article appears in Tax Notes, Vol. 126, No. 224, 2010 and may be downloaded from SSRN.

See, Mock , Rodney P. and Tolin, Jeffrey, Purchase or Else: The Health Insurance ‘Tax’ (January 11, 2010). Tax Notes, Vol. 126, No. 224, 2010.

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:: Five Reasons Obamacare Makes No Sense For Massachusetts

January 19, 2010 · Posted in Health Care Reform · Comments Off 

Scott Brown’s  quip that the open Massachusetts’ Senate seat was, in fact, the “people’s seat“, rather than a Kennedy sinecure to be conferred upon the annointed, raises an interesting question about Obamacare in the Bay State.  Why would the regular working folks in Massachusetts want it?

1.  Massachusetts already has “reform in place. In 2006, Massachusetts enacted ”An Act Providing Access to Affordable, Quality, Accountable Health Care”. Obamacare adds no net benefit for the residents of Massachusetts.  All residents are required by law to have coverage. A series of individual and employer taxes and fines together with state health insurance options, including an exchange (”Commonwealth Health Insurance Connector Authority”) are in place to facilitate this mandate.

2.  Health care reform as proposed will increase premium costs for Massachusetts’ residents.  An estimated 45% or more residents are enrolled in HMO’s.  These and other “fully insured” plans will be subject to taxes under the Senate health care reform bill – and these taxes will be passed on to consumers.

3.  Massachusetts will be paying for reform – even though it has already had “reform” (and the deficits to show for it).  Worse, under the proposed legislation, Massachusetts residents will effectively be paying for reform in other states – like Nebraska that got a free pass on Medicaid funding.

With the addition of significant new costs, with nonprofit health plans dominating a highly competitive health insurance Massachusetts market, and with 97% of the state’s population already covered, Massachusetts will be essentially subsidizing health reform and coverage expansions in other states.

Health Plan Exec: Troubling Truths Emerging From Reform Bill (NPR, Boston)

4.  From the standpoint of extending coverage, the proposed national reform legislation (which largely resembles the Massachusetts plan) will work no better than the struggling state plan.   In terms of consumer protection, those protections are already provided in the state plan.

5.  The proposed plan will tax the benefits of those who presently have “Cadillac” plans (which have been assessed at values more on par with a Ford).

From the “people’s” point of view, Obamacare makes no sense for Massachusetts.

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:: First Circuit Permits § 502(a)(3) Recoupment Claim Despite Failure To Identify “Specific Account” Holding Funds

January 18, 2010 · Posted in SUBROGATION · Comments Off 

We find that Sereboff, rather than Knudson, controls in this case. Here, like in Sereboff,the LTD Plan targets specific funds for recovery — Cusson’s LTD payments — and identifies the specific portion to which Liberty is entitled — the amount of the overpayment while Cusson was receiving benefits under the LTD Plan.

We are persuaded by the Eighth Circuit’s holding in a similar case that a claim such as this is a claim for equitable relief. See Dillard’s Inc. v. Liberty Life Assurance Co.,456 F.3d 894, 901 (8th Cir. 2006) (finding that Liberty’s claim was equitable when it sought “a particular share of a specifically identified fund — all overpayments resulting from the payment of social security benefits”).

Cusson v. Liberty Life Assur. Co., 2010 U.S. App. LEXIS 885 (1st Cir. Mass. Jan. 14, 2010)

The First Circuit adds further impetus to a trend away from requiring a specifically identifiable fund as a prerequisite for “equitable relief” under 29 U.S.C. § 502(a)(3).   Though the context in Cusson was that of a recoupment claim under the terms of a long term disability policy, the decision will likely influence opinions in other contexts, such as ERISA health plan reimbursement claims.

The Facts

After the plaintiff unsuccessfully appealed termination of her disability benefits, she  filed suit against the LTD carrier and the LTD Plan in the District of Massachusetts under ERISA, 29 U.S.C. § 1132(a)(1)(B).  The carrier asserted a counterclaim seeking reimbursement for overpayment of benefits as a result of the plaintiff having received SSDI benefits.

The Counterclaim

Under 29 U.S.C. § 1132(a)(3),  a plan fiduciary may bring a civil action to obtain “appropriate equitable relief “to enforce the terms of the plan.  The policy provided the carrier had the right to recovery of overpayments from any source.  

The overpayment issue arose based upon the claimant’s receipt of SSDI benefits following her initial disability award.

 Although Liberty terminated Cusson’s LTD benefits before Cusson was awarded SSDI benefits, the SSA awarded benefits retroactive to March 15, 2002. Liberty argues that because it paid STD and LTD benefits from this date until December 8, 2004, the SSDI benefits Cusson received for this period are an overpayment, and hence that § 1132(a)(3) allows it to sue to enforce the right to recover the overpayment.

“Legal” Versus “Equitable” Issue

In a now familiar dispute in reimbursement cases, the disability claimant defended against the counterclaim be arguing that the claim was “legal”, not equitable:

Cusson argues that Liberty’s counterclaim is a legal claim, rather than an equitable claim, and hence that it is not permitted under § 1132(a)(3).

Cusson relies on Great West Life & Annuity Insurance Co. v. Knudson, a case involving a similar overpayment provision in an ERISA plan, in which the Supreme Court held that the plan administrator could not use the overpayment provision to recover the proceeds from the plan beneficiaries’ tort suit against a third  party because the claim was a legal claim rather than an equitable claim. 534 U.S. 204, 122 S. Ct. 708, 151 L. Ed. 2d 635 (2002).

The Sereboff “Equitable Lien” Argument

The district court had rejected the Knudson argument based on the subsequent Supreme Court decision in Sereboff Mid Atlantic Medical Services, Inc. 547 U.S. 356(2006):

. . . the district court, in allowing Liberty’s claim, relied on Sereboff v. Mid Atlantic Medical Services, Inc., in which the Court reached the opposite result and allowed a plan to recover for overpayment of medical expenses when the claimant received money from a third party in tort. 547 U.S. 356, 126 S. Ct. 1869, 164 L. Ed. 2d 612 (2006).

The First Circuit agreed, citing Dillard’s Inc. v. Liberty Life Assurance Co., 456 F.3d 894, 901 (8th Cir. 2006)

We find that Sereboff, rather than Knudson, controls in this case. Here, like in Sereboff, the LTD Plan targets specific funds for recovery — Cusson’s LTD payments — and identifies the specific portion to which Liberty is entitled — the amount of the overpayment while Cusson was receiving benefits under the LTD Plan. We are persuaded by the Eighth Circuit’s holding in a similar case that a claim such as this is a claim for equitable relief. See Dillard’s Inc. v. Liberty Life Assurance Co., 456 F.3d 894, 901 (8th Cir. 2006) (finding that Liberty’s claim was equitable when it sought “a particular share of a specifically identified fund — all overpayments resulting from the payment of social security benefits”).

Specific Identification Of Accounts Not Required

The First Circuit then made this important observation:

 It is true that, unlike the insurer in Sereboff, Liberty has not identified a specific account in which the funds are kept or proven that they are still in Cusson’s possession. However, the Court in Sereboff noted “‘the  familiar rul[e] of equity that a contract to convey a specific object even before it is acquired will make the contractor a trustee as soon as he gets a title to the thing.’” 547 U.S. at 363-64 (quoting Barnes v. Alexander, 232 U.S. 117, 121, 34 S. Ct. 276, 58 L. Ed. 530 (1914)).

Here, the contract between Cusson and Liberty put Cusson on notice that she would be required to reimburse Liberty for an amount equal to what she might get from Social Security. We therefore find that Liberty’s counterclaim is an equitable claim and is allowed under 29 U.S.C. § 1132(a)(3).

 

Note:  The Court did not that “unlike in Knudson,the SSDI benefit was paid to Cusson rather than into a separate trust over which she has no control.”  Whether this is a distinction critical to the outcome is left for speculation.  Also unclear is whether courts that previously applied a strict rule requirement specific identification of funds will follow this trend.  See, e.g., Bombardier Aerospace Employee Welfare Benefits Plan v. Ferrer, Poirot and Wansbrough, 354 F.3d 348 (5th Cir. 2003).

SSDI Benefit Issue – The First Circuit opinion is also significant in its rejection of the claimants defense based upon 42 U.S.C. § 407(a), finding that:

. . .  § 407(a) does not bar Liberty’s claim because Liberty is not attempting  to recover Cusson’s SSDI benefits. Rather, Liberty seeks to recover in equity from funds Liberty itself already paid under the LTD plan. Although the amount in question happens to be the same as the amount of Cusson’s retroactive SSDI payment, the funds Liberty is targeting do not come from SSDI, and thus § 407(a) does not prohibit Liberty’s claim. See Holmstrom v. Metro. Life Ins. Co., 615 F. Supp. 2d 722, 753 (N.D. Ill. 2009) (collecting cases in which courts have held that § 407(a) does not bar recovery for overpayment).

 See also – :: Sixth Circuit Holds Plaintiff’s Attorney Liable To ERISA Plan For Disbursed Settlement Funds   ; :: The Conflict Between ERISA Overpayment Claims And Statutory Protection Of SSDI Benefits ; :: Evaluating The Res Requirement For Benefit Overpayment Claims

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:: Eleventh Circuit Applies Supreme Court’s Davila Test To Health Care Providers’ “Hybrid” Claims

January 6, 2010 · Posted in 502(A)(1)(B) CLAIM FOR BENEFITS, PREEMPTION, PROVIDER REIMBURSEMENT · Comments Off 

While similar to the Butero test, Davila refines Butero by inquiring about the existence of a separate legal duty, which is not a consideration under Butero.

Moreover, a number of other circuits have recognized Davila’s two-part test as the proper test for complete preemption under ERISA . . . In accordance with the Supreme Court’s directive, we too apply Davila.

Conn. State Dental Ass’n v. Anthem Health Plans, Inc., 2009 U.S. App. LEXIS 28773 (11th Cir. Fla. Dec. 30, 2009)

 This recent 11th Circuit opinion applies the two-part analysis required under Aetna Health Inc. v. Davila, 542 U.S. 200 (2004) to health care providers’ allegations in a class action complaint. The now familiar Davila test requires two inquiries: (1) whether the plaintiff could have brought its claim under § 502(a); and (2) whether no other legal duty supports the plaintiff’s claim. 

On the facts before it in this case, the Court held that several of the providers’ claims were completely preempted under this test.

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Tags: ERISA Preemption, PROVIDER REIMBURSEMENT

:: Senate Health Care Legislation – Links To Documents Under Consideration

December 22, 2009 · Posted in Health Care Reform · Comments Off 

The Senate health care legislation bill is now available for public review.  Here are the links:

From the Senate Democrats’ Site:

 

Manager’s Amendment Now Available, 12/19/2009
Download the complete text of the Manager’s Amendment, #3276 to Reid Substitute amendment #2786 (Click for PDF)

Download the complete text of the Patient Protection and Affordable Care Act, the Senate health insurance reform bill. (Click for PDF)

(The Manager’s Amendment details the deal-making necessary to get the votes for cloture.  This is where, for example, the indoor tanning salon business tax and other revenue-oriented measures appear.)

From the Senate Republicans’ Site:

The bill can be downloaded or viewed online here.   Also of interest, the Congressional Daily Digest excerpt here on closing debate, this timeline of the proposed legislation via that same resource.

Is the Senate bill on a collision course with the House bill previously passed?  Politico.com assesses the odds here.

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:: Health Care Provider’s Tort Claims Preempted Under Fifth Circuit ERISA Jurisprudence

December 16, 2009 · Posted in PRACTICE TIPS, PREEMPTION, PROVIDER REIMBURSEMENT · Comments Off 

The Court did not suggest that all tort claims are completely preempted by ERISA wherever there is an assignment of patient benefits, only that Plaintiffs’ claims in this case were so preempted under controlling Fifth Circuit law. See Transitional Hosps. Corp. v. Blue Cross & Blue Shield of Tex., Inc., 164 F.3d 952, 954 (5th Cir. 1999).

Quality Dialysis One LP v. Aetna Life Ins. Co., 2009 U.S. Dist. LEXIS 115498 (S.D. Tex. Dec. 10, 2009)

In this opinion out of the Southern District of Texas, the Court finds the health care provider’s claims for reimbursement preempted where the provider sued the health plan asserting ”tort claims flowing from the direct communications and business relationship between the parties.” 

The presence of an assignment of benefits and the absence of claims based upon a managed care contract contributed largely to the plan’s successful defense.

The Facts

The facts are adequately summarized in the following excerpt:

Quality Dialysis is a home hemodialysis provider that serviced patients covered by health insurance and employee welfare benefit plans that Aetna administered. Beginning in September 2006, Plaintiffs allege that Aetna began to systematically deny Quality Dialysis’ claims for payment and demanded a refund for claims already paid in excess of one million dollars.

Quality Dialysis further contends that Aetna attempted to persuade patients using Quality Dialysis’ services to switch to a competitor’s home hemodialysis service. Finally, Quality Dialysis alleges that the unpaid insurance claims and Aetna’s request for a refund on past claims caused it to lose an opportunity to sell its business to an unnamed prospective purchaser.

 No Managed Care Contractual Claims

The case was first filed in state court and thereafter removed to federal court based upon ERISA complete preemption of the plaintiff’s claims.  The Court denied the plaintiff’s motion to remand, and in the opinion under discussion here, denied a motion for reconsideration.

The Court observes that:

In its motion for reconsideration, Quality Dialysis argues that the Court failed to “distinguish the true nature of the separate, independent tort causes of action raised by Plaintiffs[,] which only arise out of the independent business relationship between an insurer (Aetna) and medical provider (Quality Dialysis).” (Doc. 39 at 1.)  Quality Dialysis concedes that it “does not bring a breach of contract action arising out of a managed care agreement . . . .” (Id. at 2.) This is important because there was no managed care contract between the Plaintiffs and Defendants in this case.

Claims Based Upon Tort Theories

The Court viewed the plaintiff’s claims as essentially tort claims that emulated a claim for benefits under the plan.  Such claims are of course subject to ERISA complete preemption. 

The Court makes this point as follows:

. . . Quality Dialysis brings “tort claims flowing from the direct communications and business relationship between the parties.” (Id.) The Court, however, determined that it is precisely these tort claims that are preempted by the Employee Retirement Income Security Act of 1974 (”ERISA”), as amended, 29 U.S.C. §§ 1001-1461.

Effect Of Assignment

The plaintiffs claimed that the Court had overemphasized the effect of an assignment of benefits.

Plaintiffs further express concern that the Court’s ruling “would shield every insurance company from its  independent torts committed against medical providers, no matter how egregious, if the medical provider obtains an assignment of benefits from the patient.”

But the Court rejected this claim as fallacious, stating:

The Court did not suggest that all tort claims are completely preempted by ERISA wherever there is an assignment of patient benefits, only that Plaintiffs’ claims in this case were so preempted under controlling Fifth Circuit law. See Transitional Hosps. Corp. v. Blue Cross & Blue Shield of Tex., Inc., 164 F.3d 952, 954 (5th Cir. 1999).

Thus, the motion for reconsideration was denied.

Note:  This opinion is rather short.  It nonetheless provides a pithy distinction between provider cases brought outside of managed care agreements and those that may articulate an independent contractual duty that may potentially survive preemption.

Procedural Point - The Court notes that the Rule 60 motion is inferior to a timely Rule 59(e) motion.  That is a distinction also worth noting.

  Although Plaintiffs fails to expressly invoke the provision governing motions for reconsideration, such motions are generally considered cognizable under either Federal Rule of Civil Procedure 59(e), as motions “to alter or amend judgment,” or under Rule 60(b), as motions for “relief from judgment.” Lavespere v. Niagara Mach. & Tool Works, 910 F.2d 167, 173 (5th Cir. 1990). “Under which Rule the motion falls turns on the time at which the motion is served.

 If the motion is served within ten days of the rendition of judgment, the motion falls under Rule 59(e); if it is served after that time, it falls under Rule 60(b).” Id. (citing Harcon Barge Co. v. D & G Boat Rentals, 784 F.2d 665, 667 (5th Cir.1986) (en banc)). Because Plaintiffs brought their motion for reconsideration more than ten days from entry of judgment, reconsideration can only be given within the stricter limitations of Rule 60(b).

Earlier Opinion – As noted above, the present opinion was in the context of a motion for reconsideration.  More insight on the Court’s reasoning may be gleaned from this excerpt from the prior opinion:

Finally, Quality Dialysis alleges the common law torts of negligence, negligent misrepresentation, and interference with existing contracts and business relations. Quality Dialysis argues that it is a third-party health care provider and therefore that Memorial Hosp. Sys. v. Northbrook, 904 F.2d 236 (5th Cir. 1990) controls. In that case, the Fifth Circuit held that a claim of deceptive practice under Texas Insurance Code for misrepresentation of the coverage status of an employee’s spouse was not preempted by ERISA, where the hospital providing treatment was a third-party health care provider. While “ERISA does not preempt state law when the state-law claim is brought by an independent, third-party health care provider . . . against an insurer for its negligent misrepresentation regarding the existence of health care coverage[,] . . . state-law claims for breach of fiduciary duty, negligence, equitable estoppel, breach of contract, and fraud are preempted by ERISA when the [health care provider] seeks to recover benefits owed under the plan to a plan participant   who has assigned her right to benefits to the [health care provider].” Transitional Hosps. Corp. v. Blue Cross & Blue Shield of Tex., Inc., 164 F.3d 952, 954 (5th Cir. 1999) Hosps. Corp. v. Blue Cross & Blue Shield of Tex., Inc., 164 F.3d 952, 954 (5th Cir. 1999) (internal citations omitted). Here, Quality Dialysis is a health care provider holding an assignment of ERISA plan benefits.

In Davila, the Supreme Court confronted state claims against HMOs for negligence “in the handling of coverage decisions” under their benefit plans. 542 U.S. at 204. The Court held that such claims were completely preempted by ERISA despite any violation of state law because “interpretation of the terms of [plaintiffs'] benefit plans form[ed] an essential part of their [state law] claim.” Id. at 213. Quality Dialysis, as an assignee of patients’ plan benefits, could have brought suit under ERISA § 502(a). Because Plaintiffs’ state law causes of action and common law torts arising from unpaid and underpaid insurance claims in plans administered by Aetna are preempted by ERISA, the Court finds federal question jurisdiction present as to these claims.

Quality Dialysis One LP v. Aetna Life Ins. Co., 2009 U.S. Dist. LEXIS 89672 (S.D. Tex. Sept. 29, 2009)

Other Fifth Circuit Authority -  The provider reimbursement case law in the Fifth Circuit has been quite influential.  Here are some important cases in Fifth Circuit jurisprudence in this context:

Hermann Hosp. v. MEBA Medical & Benefits Plan, 845 F.2d 1286, 1290 (5th Cir. 1988)(Hermann I).

Memorial Hosp. System. V. Northbrook Life Ins. Co., 904 F.2d 236, 243-46 (5th Cir. 1990).

Hermann Hosp. v. MEBA Medical & Benefits Plan, 959 F.2d 569 (5th Cir.1992) (Hermann II ).

Cypress Fairbanks Med. Center, Inc. v. Pan-American Life Ins. Co., 110 F.3d 280 (5th Cir.), cert. denied, 139 L. Ed. 2d 110, 118 S. Ct. 167 (1997).

Transitional Hosps. Corp. v. Blue Cross & Blue Shield, Inc., 164 F.3d 952 (5th Cir. Tex. 1999).

Abilene Reg’l Med. Ctr. v. United Indus. Workers Health & Benefits Plan, 41 Employee Benefits Cas. (BNA) 1098 (5th Cir. Tex. Mar. 6, 2007)

Tags: Practice Pointers, PREEMPTION, PROVIDER REIMBURSEMENT

:: Bending The Medicare Cost Curve – Practical Versus Political

December 8, 2009 · Posted in Health Care Reform · Comments Off 

Edward Zelinsky, Morris and Annie Trachman Professor of Law at the Benjamin N. Cardozo School of Law of Yeshiva University, has proposed a means of restoring a measure of fiscal soundness to the Medicare program in his post entitled ”Bend The Cost Curve: Raise the Medicare Eligibility Age to 67″.  

He observes:

As Congress debates national health care reform, there is a growing disparity between the rhetoric of cost reduction (which everyone nominally favors) and the reality of electoral politics (which inhibits elected officials from alienating constituents by actually reducing costs). Indeed, there appears to be an inverse correlation between the vociferousness of Congress’ claim to be bending the medical cost curve and Congress’ willingness to undertake the practical steps to control medical outlays.

The post may be found on the OUP blog which provides ongoing scholarly comment on a variety of issues, including healthcare policy.  (See, e.g., today’s post ” Understanding “Broad Partisan Support” for Health-care Reform” by Elvin Limm.)

Tags: Health Care Reform

:: Tribute To Janell Grenier, Esq.

December 4, 2009 · Posted in ERISA · 1 Comment 

Like many, I have long regarded Janell Grenier’s blog and websites as exemplary.  Instructive, interesting, topical and well-ordered, her work has always provided the example for the rest of us as to how it ought to be done.    She has freely provided a tremendous resource on benefits law, fiduciary guidance and related issues.

I am sad to have read of recent developments of which I was unaware until this morning on Benefitslink which I will re-post from Janell’s Benefitsblog:

A thank you and good-bye . . .

As some of you may have heard, I have been diagnosed with a very rare and aggressive form of cancer which started in my kidney and spread to my lymph nodes. Because of that, it is with sadness that I am announcing I will no longer be writing here at Benefitsblog or any of the other blogs that I have written. I just want to thank so many who have been readers here and have emailed or called through the years. Writing this blog has been a wonderful experience which has connected me to so many people and I have enjoyed both writing as well as getting to know so many of you.

As a believer in the Lord Jesus Christ, my life rests with Him and I know that I have a home in heaven, at whatever time the Lord decides my time on earth is finished. “All the days ordained for me were written in your book before one of them came to be.” Ps. 139:16. You can read my testimony about how I came to know Jesus Christ at this location here.

I will be taking this blog down in the next month or so so print off anything you want to keep ASAP. Blessings to all of you!

Please keep Janell in your thoughts and prayers.

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:: Discrimination Claims Or Benefit Claims? The ERISA Preemption Divide

December 4, 2009 · Posted in 502(A)(1)(B) CLAIM FOR BENEFITS, PRACTICE TIPS, PREEMPTION · 1 Comment 

“It is not the label placed on a state law claim that determines whether it is preempted, but whether in essence such a claim is for the recovery of an ERISA plan benefit.”

Lockett v. Marsh United States, 2009 FED App. 0759N (6th Cir.) (6th Cir. Ohio Dec. 3, 2009) (citing, Peters v. Lincoln Elec. Co., 285 F.3d 456 (6th Cir. 2002)

This recent unpublished decision from the Sixth Circuit draws on prior authority in that Circuit on the question of when employment law claims tread too closely to ERISA’s domain and thus are preempted by the broad reach of that statutory regime.  In this case, the plaintiff sued on state law theories of discrimination and retaliation but the facts she alleged were found tilted toward a claim for severance benefits which in turn warranted preemption.

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Tags: 502(a)(2) Claim For Benefits, ERISA Preemption

:: New York “Anti-Subrogation” Law Overview

December 3, 2009 · Posted in SUBROGATION · Comments Off 

 From PointOfLaw.com, there is an interesting reference on New York legislation addressing a number of policy issues in state court litigation including subrogation and benefit plan reimbursement, to wit:

“New York State Legislature Passes New Anti-Subrogation Law” [Roy Mura/Coverage Counsel via Eric Turkewitz, who notes that this "is one bill that I've lobbied for in the past with the New York State Trial Lawyer's Association."]

“Around the web”, December 3, PointOfLaw.com

(Incidentally, the website also features some commentary on the rather strange provisions in the House bill purporting to address “tort reform”.)

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:: Notice Versus Fact Pleading – When Additional Facts Must Be Alleged Under F.R.Civ. P. 8

December 1, 2009 · Posted in ERISA · Comments Off 

This post is a follow up on the previous two posts regarding the tactic of challenging the sufficiency of pleadings.  Of course, since this is an ERISA website, this subject is a digression.  On the other hand, the issue is quite topical and often arises in ERISA litigation. 

Furthermore, I would be remiss, having posted on the Braden v. Wal-Mart Stores, Inc. opinion today not to mention this significant aspect of the opinion.

First, some context is in order.  Here is a brief overview of the tension between notice and fact pleading.  It is legal history, but it is also history that is repeating itself.

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:: Eighth Circuit Clarifies Standing Requirements For Class Action Plaintiffs

December 1, 2009 · Posted in LITIGATION, STANDING · Comments Off 

The district court erred by conflating the issue of Braden’s Article III standing with his potential personal causes of action under ERISA.

Braden v. Wal-Mart Stores, Inc., 2009 U.S. App. LEXIS 25810 (8th Cir. Mo. Nov. 25, 2009)

The  Eighth Circuit found very little correctly done by the district court in this recent opinion addressing threshold requirements for properly stating ERISA claims.  The opinion offers a welcome clarification of recurring issues, such as standing and the specificity required in stating claims for relief.

The gist of the complaint was that Wal Mart’s ten billion dollar 401(k) plan paid excessive managment fees and a number of improprieties involving the alleged sharing of these fees with the trustee.  In any event, the defendants moved for dismissal under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) and the district court granted the motion:

The district court granted the motion, concluding that Braden lacked constitutional standing to assert claims based on breaches of fiduciary duty prior to the date he first contributed to the Plan and that he otherwise failed to state any plausible claim upon which relief could be granted.

“Conflation” Of Standing And Merits

The Eighth Circuit hewed to a conservative line in circumscribing the contours of Article III standing.  This defense, routinely asserted in ERISA litigation, can often overwhelm considerations of the merits of the principal claims such that the two issues converge on one point.  When that happens, every case becomes a constitutional issue – and that should suggest a flaw in analysis. 

So the Eighth Circuit concluded, was the case here:

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Tags: LITIGATION, STANDING

:: Motions To Strike Affirmative Defenses In ERISA Litigation – An Arrow In The Plaintiff’s Quiver

November 30, 2009 · Posted in LITIGATION · Comments Off 

Plaintiffs are correct that this affirmative defense — particularly the last clause — is sufficiently vague as to fail to provide sufficient notice. While Defendants counter that they addressed the factual underpinning of this defense in the motion to dismiss, nothing in the language of the affirmative defense  ties it to the disclosure discussed in the motion.

While Defendants are correct that motions to strike are disfavored, the affirmative defense here is sufficiently vague as to warrant striking.

Trs. of the Local 464A UFCW Pension Fund v. Wachovia Bank, N.A., 2009 U.S. Dist. LEXIS 109567 (D.N.J. Nov. 24, 2009)

Defendants are increasingly tasked with articulating their defenses with clarity and specificity.  In this district court opinion in an ERISA case, the plaintiffs employ a motion to strike to eliminate several affirmative defenses set out in the defendants’ answer to the complaint.

“Bare Bones Conclusory Allegations”

The eleventh affirmative defense stated:

“Plaintiffs’ claims are barred … because Defendants have complied with all disclosure requirements under all applicable laws and informed Plaintiffs regarding matters concerning investments and risk.”

The Plaintiffs move to strike the eleventh affirmative defense, arguing that it failed to provide them with notice as to the nature of the defense and the legal basis therefor.  The court agreed.

Plaintiffs are correct that this affirmative defense — particularly the last clause — is sufficiently vague as to fail to provide sufficient notice.

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:: Senate Health Care Bill Vote Emerges As Bellwether For Direction Of Reform

November 19, 2009 · Posted in Health Care Reform · Comments Off 

Facts are stubborn, but statistics are more pliable.

Quote by Mark Twain.

The Senate’s prior versions of health care legislation are now merged in a bill which will face the threat of filibuster when presented to the full Senate which could happen as soon as Saturday.   The Democratic leadership will need 60 votes to open debate.  An overview of the bill can be read here.    The text can be read here.

The CBO’s scoring of the 2,074 bill at a cost of $849 billion is viewed as a boost to its prospects for passage.  The CBO’s scoring mechanism is controversial, however, in how it matches costs to anticipated revenue and its projections of coverage in view of the paltry fines for failure to enroll.  More on that later.

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:: Clinical Evidence Protocols Rejected Under ERISA Plan’s Medical Necessity Standard

November 18, 2009 · Posted in 502(A)(1)(B) CLAIM FOR BENEFITS · Comments Off 

While a plan administrator need not “accord special weight to the opinions of a claimant’s physician,” it also “may not arbitrarily refuse to credit a claimant’s reliable evidence, including the opinions of a treating physician.”Black & Decker Disability Plan v. Nord, 538 U.S. 822, 834 (2003);see also Demirovic v. Bldg. Serv. 32 B-J Pension Fund, 467 F.3d 208, 212 (2d Cir. 2006).

If BCBS “impose[d] a standard not required by the plan’s provisions, or interpret[ed] the plan in a manner inconsistent with its plain words, its actions may well be found to be arbitrary and capricious.” McCauley, 551 F.3d at 133  [*3] (internal quotation marks omitted).

Durgin v. Blue Cross & Blue Shield of Vt., 2009 U.S. App. LEXIS 25139 (2d Cir. Nov. 17, 2009)

This unpublished opinion from the Second Circuit is instructive in showing that  evidence-based protocols, e.g., clinical studies, may exceed what is required to show medical necessity, even under an abuse of discretion standard of review. 

In this case, the claimant, Richard Durgin, challenged Blue Cross’ denial of coverage for a “standing component” on his motorized wheelchair under BCBS’s “Vermont Freedom Plan”.  

Blue Cross asserted the following grounds:

 # 1  that “[t]here are no peer reviewed clinically controlled studies available showing that the stander improves net health outcomes,” and

# 2  that there is “no evidence showing the benefit of the standing feature and that it will help restore or maintain [Durgin's] health.”

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Tags: Medical Necessity

:: Sixth Circuit Holds Plaintiff’s Attorney Liable To ERISA Plan For Disbursed Settlement Funds

November 17, 2009 · Posted in SUBROGATION · Comments Off 

Longaberger’s equitable lien attached to the settlement fund when it was identified and received in July 2004. Indeed, Kolt conceded at the district court’s February 9, 2005, hearing that he “probably” was aware at the time he wrote his August 4, 2004, letter to Longaberger, stating that “Mr. Billiter would like to try to amicabl[y] satisfy his subrogation obligation to [Longaberger],” that the Plan contained language that indicates the Plan has a first priority lien and first priority claim over funds recovered from third parties. . . .

The fact that Kolt chose to disregard Longaberger’s first
priority lien and commingle the settlement funds does not defeat Longaberger’s claim for equitable relief, because under Sereboff, Longaberger was free to follow a portion of the settlement funds into Kolt’s hands. We therefore hold that the Plan sought and was awarded “appropriate equitable relief” from Kolt.

Longaberger Co. v. Kolt, 2009 FED App. 0399P (6th Cir.) (6th Cir. Ohio Nov. 16, 2009)

The Sixth Circuit handed down a momentous ERISA health plan subrogation (reimbursement) case in Longaberger v. Kolt.  Building on a foundation crafted from an excerpt from Sereboff and a form shaped by a recent Seventh Circuit recoupment decision, the Sixth Circuit all but eliminated any defense based upon commingling of funds. 

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Tags: ERISA Subrogation & Reimbursement

:: Enforcement Of Equitable Liens By ERISA Benefit Plans – A Contrast In Available Remedies

November 11, 2009 · Posted in SUBROGATION · Comments Off 

In this case, Ms. Powell did not commingle her funds and made no purchases that diminished in value. Thus, the “conscious wrongdoer” standard has no application. Moreover, in Sereboff the Supreme Court stated, “This rule allowed them to follow a portion of the recovery into the [Sereboff's] hands as soon as [the settlement fund] was identified, and impose on that portion a constructive trust or equitable lien.” Sereboff, 547 U.S. at 364 (changes in original) (quotations omitted).

Nothing in Sereboff indicates that “conscious wrongdoing” is required for a constructive trust under these circumstances.

Humana Health Plan, Inc. v. Powell, 2009 U.S. Dist. LEXIS 102887 (W.D. Ky. Nov. 5, 2009)

Equitable liens offer avenues of relief to fiduciaries which are distinguishable from the remedy offered by a constructive trust.   Read together with a recent federal district decision in a California case, Humana v. Powell provides a valuable overview of these distinctions in the context of a ERISA health plan subrogation dispute.

These distinctions, while thought-provoking, may not entirely hold true in view of Sereboff’s rejection of the “parcel of equitable defenses” asserted in that case as will be pointed out below.

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:: H.R. 3962 Passes By Narrow Vote

November 9, 2009 · Posted in Health Care Reform · Comments Off 

H.R. 3962, the House health care bill, passed by a vote of 220 – 215.  Changes to the original bill were required to obtain the necessary votes.

Highlights of some of the changes are highlighted in this summary prepared by the  House Committees on Ways & Means, Energy & Commerce, Education & Labor.  This clinical, upbeat summary does not begin to present the political theater and practical obstacles that attended the passage of the bill and that threaten its prospects for shaping any final health care legislation.

The sheer heft of the bill poses a serious impediment to access for most – even if the modifications were published online as initially promised.  In the meantime, there is no shortage of commentary on what the legislation means for various groups.

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:: Fact Check #4: “Endorsements” Of Health Care Legislation Are Deceiving

November 6, 2009 · Posted in Health Care Reform · Comments Off 

It’s an open secret in Washington that only about 15-20 percent of doctors are members of the AMA.  Sermo, a 110,000-member, non-partisan online community of doctors — 25 percent of whom say they are members of the AMA — has recently released polls showing that 92 percent of doctors don’t think the Democratic bills address the “real sources of cost increases,” and 94 percent don’t think there can be “effective” health reform without tort reform (which the Republican bill includes but the Democratic bills do not).

. . .

Recent polls show that seniors are no more in lock-step with the AARP than doctors are with the AMA.  Gallup, Rasmussen, and Reuters polls from the past several weeks show that seniors are opposed to the Democratic bills — by margins ranging from 43-38 percent opposed to 59-36 percent opposed.  Rasmussen shows that 47 percent of seniors are strongly opposed with only 19 percent strongly in favor.

“Critical Condition”, NRO Weekend (November 6, 2009)

Of the many deceiving aspects of the healthcare reform debate are the significance of “endorsements” of the various proposals.  Both the AMA and the AARP have waffled on the concept of reform they endorse.  In fact, at times, it appears that the AARP has taken one position in communication with its members and a contrary position in the media.

In any event, it is important to note that the AMA is virtually irrelevant as a measure of physician opinion, representing a bare 20% of doctors. The AARP has likewise run far beyond its purported constituency in endorsing Pelosi-care.

It remains to be seen whether the House of Representatives members will vote for the evolving health care bill or not.  In the meantime,  these blind endorsements of the most recent House bill  (which is even at present in closed door revision sessions), should carry little ballast with the voters who will reshape the Congress in mid-term elections.

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