I replaced the FAQ resource page previously on this site with a new FAQ page that lists the questions with links back to the DOL site where the answers appear.
Set out below are additional Frequently Asked Questions (FAQs) regarding implementation of the market reform provisions of the Affordable Care Act. These FAQs have been prepared jointly by the Departments of Health and Human Services (HHS), Labor and the Treasury (the Departments). Like previously issued FAQs (available at http://www.dol.gov/ebsa/healthreform/), these FAQs answer questions from stakeholders to help people understand the new law and benefit from it, as intended.
FAQs About Affordable Care Act Implementation Part VI
More “frequently asked questions” about the PPACA are now on tap. Here is the sextology of FAQ’s:
I suppose I am an inveterate cynic, but I doubt these questions are “frequently asked.” For example, consider this one from FAQ #6:
Q3: A previous FAQ addressed the interaction of value-based insurance design (VBID) and the no cost-sharing preventive care services requirements. See http://www.dol.gov/ebsa/faqs/faq-aca5.html . In that example, a group health plan did not impose a copayment for colorectal cancer preventive services when performed in an in-network ambulatory surgery center. In contrast, the same preventive service provided at an in-network outpatient hospital setting generally required a $250 copayment, although the copayment was waived for individuals for whom it would be medically inappropriate to have the preventive service provided in the ambulatory setting. The FAQ indicated that this VBID did not cause the plan to fail to comply with the no cost-sharing preventive care requirements.
A question about a different situation has been raised. Under a group health plan, similar preventive services are available both at an in-network ambulatory surgery center and at an in-network outpatient hospital setting, but currently no copayment is imposed for these services in either setting. This has been the case since March 23, 2010. If this plan wished to adopt the VBID approach described in the example above by imposing a $250 copayment for these preventive services only when performed in the in-network outpatient hospital setting (i.e., not when performed in an in-network ambulatory surgery center), and with the same waiver of the copayment for any individuals for whom it would be medically inappropriate to have these preventive services provided in the ambulatory setting, would implementation of that new design now cause the plan to relinquish grandfather status?
Now do you really think such questions are “frequently asked’? Not likely.
So why do federal agencies use FAQ’s? Because they can use the FAQ format to circumvent the rules applicable to regulatory projects. The goal is to get the regulatory take on issues in the public domain without bothering with those pesky notice and comment requirements, the possibility of judicial review, etc. The triumvirate of IRS, DOL and HHS has been strategic in their choice of media for getting their points across. (“Interim final regulations” are another example.)
FAQ’s are not final agency action, or at least not typically thought of as such. See, Golden & Zimmerman, LLC v. Domenech, 599 F.3d 426 (4th Cir. Va. 2010). An agency may signal a position in a FAQ, and evade notice, comment and judicial review, while retaining the option of enforcement action of that position based on interpretations of statutory provisions and prior regulations — i.e., by arguing that was “always” the law. That should be a cause for concern — particularly given the volume of this administration’s “FAQ’s”.
Note: For those folks out there asking this question, the answer to “Frequently Asked Question” #3 of the sixth set of FAQ’s is as follows:
No. This increase in the copayment for these preventive services solely in the in-network outpatient hospital setting (subject to the waiver arrangement described above) without any change in the copayment in the in-network ambulatory surgery center setting would not be considered to exceed the thresholds described in paragraph (g)(1) of the interim final regulations on grandfather status and thus would not cause the plan to relinquish grandfather status.
The Departments are seeking further information on VBID and wellness programs and are planning to address issues relating to those designs and programs in future regulations. Comments from plan sponsors have expressed an interest in being able to retain grandfather status notwithstanding certain changes in plan terms that are intended to implement VBID and wellness programs. As the regulatory process progresses, the Departments will be giving close attention to these comments, and further guidance may be issued addressing other circumstances in which plan changes implementing those designs and programs may be made without relinquishing grandfather status.
. . . our decision does not prevent Henderson from bringing a subsequent action pursuant to ERISA Section 502(a)(1)(B) to recover benefits associated with any unjustly withheld compensation that she receives if she is successful in her state wage lawsuit. Indeed, at oral argument, UPMC agreed that were it to be established in state court that Henderson should have been paid for the additional hours she alleges, UPMC will make the corresponding contributions to these plans.
Henderson v. Upmc, 2011 U.S. App. LEXIS 6820 (3d Cir. 2011)
Henderson v. UPMC involves one of those interesting intersections between wages and compensation on the one hand and employee benefits on the other. The case illustrates the potential ripple effect of wage disputes into the employee benefit arena.
In this case, however, the court held that the plaintiff had more work to do before she had an ERISA case. As the excerpt above indicates, however, the court nonetheless held open the distinct possibility that an ERISA claim could emerge from the wage case.
The facts underlying the wage claim were as follows:
Henderson’s Second Amended Complaint alleges that while employed as a registered nurse for UPMC, she and other nurses were required to work during their thirty-minute unpaid “meal breaks,” but were never compensated for this work. In addition, UPMC began increasing the number of patients assigned to each nurse per shift.
Nurses were allocated thirty minutes of paid time at the beginning of their shifts to review the status reports of the patients they would cover during the upcoming shift. The complaint alleges that as a result of the increased patient load, nurses such as Henderson had to begin arriving at work and reviewing the status reports twenty to forty minutes prior to the official start of their shift.
Even though the nurses clocked in when they arrived, UPMC would not start crediting the nurses with paid work time until the official start of the shift.
Henderson filed a lawsuit in state court alleging that UPMC violated the Pennsylvania Wage Payment and Collection law and the Pennsylvania Minimum Wage Act. Henderson v. UPMC, No. GD-09-13303 (Court of Common Pleas, Allegheny County, Pa. filed July 23, 2009). That suit remains pending.
If true, that is not a very fair way to treat your employees. But what would that have to do with ERISA? First of all, the plaintiff claimed that the defendant failed to properly keep records of her hours:
Henderson contends that these plans and the ERISA statute which controls them require that UPMC, as an employer, keep records of the uncompensated hours she worked and, as a fiduciary, to investigate and ensure that contributions allegedly corresponding to the hours worked were being provided so that the relevant fund can distribute benefits to Henderson when she retires.
Then, she claims that these misconduct affected her benefits as follows:
Specifically, she alleges that “UPMC failed to maintain records . . . sufficient to determine the benefits due,” in violation of Section 209(a)(1) of ERISA. Henderson also claims that UPMC breached its fiduciary duty under Section 404(a), 29 U.S.C. § 1104(a), “to act prudently and solely in the interests of [Henderson and her coworkers] by failing to credit them with all hours worked for which they were entitled to be paid when calculating their pension benefits, or to investigate whether such hours should be credited.”
The plaintiff asked the court for equitable relief pursuant to Section 502(a)(3), 29 U.S.C § 1132(a)(3), and “[a]ll applicable statutory benefits and contributions” pursuant to Section 502(a)(1)(B). The district court held for the defendant and the plaintiff appealed to the Third Circuit.
The Third Circuit agreed that the employer had the recordkeeping duties alleged by the plaintiff. But the court looked to the plan language of the retirement plans in issue and found that the calculation of benefits turned on compensation paid, not hours worked.
Based on this plain plan language, we conclude that contributions owed by UPMC are calculated based on compensation paid to the employees and not based on uncompensated hours worked. Henderson’s focus on language other than these straightforward definitions is misguided. See Fields v. Thompson Printing Co., 363 F.3d 259, 268 (3d Cir. 2004) (declining to look beyond plain language of employment agreement when determining liability under ERISA).
So, there would be no ERISA case – yet anyway. We have to wait and see since, as the court noted, a successful wage claim would affect compensation paid and then the benefits due would change – again based upon the plain plan language.
In so holding, we are careful to note that our decision does not prevent Henderson from bringing a subsequent action pursuant to ERISA Section 502(a)(1)(B) to recover benefits associated with any unjustly withheld compensation that she receives if she is successful in her state wage lawsuit. Indeed, at oral argument, UPMC agreed that were it to be established in state court that Henderson should have been paid for the additional hours she alleges, UPMC will make the corresponding contributions to these plans.
Were that to eventuate, Henderson would then have been paid reportable W-2 compensation to which contributions are linked. Accordingly, we see no reason to disturb the District Court’s ruling dismissing the complaint with prejudice with respect to Henderson’s claims for violations of Section 209 and any corollary fiduciary responsibility to monitor and ensure that contributions are being accurately provided. However, as just stated, Henderson retains the right to bring a claim for benefits under Section 502(a)(1)(B), if and when she is successful in her state wage lawsuit.
Note: The court did not reach the alternative issue raised – whether plan participants are entitled to bring a separate cause of action for violations of Section 209.
Relationship of Section 209 to Benefit Claim – The court noted that:
. . . in this case, the records “sufficient to determine the benefits due” under Section 209 are the records of the employee’s compensation actually paid. Nowhere is it alleged that UPMC in anyway failed to keep track of the compensation it did, in fact, pay to Henderson or her coworkers.
. . . because Henderson has failed to state a Section 209 claim against UPMC, any related claim that UPMC failed its fiduciary obligation under Section 404 to investigate and ensure that contributions were being accurately provided to the fund also fails. Ipso facto, to the extent Henderson is attempting “to recover benefits due to [her] under the terms of [her] plan” from UPMC as a fiduciary pursuant to Section 502(a)(1)(B) or seek injunctive relief under Section 502(a)(3), her claim fails because the plan links contributions and benefits due to compensation paid.
Contrary Authority – The plaintiff did cite a case favorable to her position that the Third Circuit rejected:
Henderson urges us to follow Gerlach v. Wells Fargo & Co., No. C05-0585 CW, 2005 U.S. Dist. LEXIS 46788, *6-8 (N.D. Cal. June 13, 2005), where, notwithstanding that the plan linked contributions to compensation paid, the court held that the employer was obligated to keep track of overtime that was never paid. As evidenced by the long list of cases holding to the contrary, Gerlach is an outlier in refusing to follow the plan language and we decline to follow it.
Majority View On Section 209- The Court cited the following cases in favor of its position:
. . . we join the several other courts that have determined the scope of the Section 209 record-keeping duty, and its fiduciary corollary, by evaluating how contributions are allocated under the pension plan. See Trs. of the Chi. Painters & Decorators Pension v. Royal Int’l Drywall & Decorating, Inc., 493 F.3d 782, 786 (7th Cir. 2007) (evaluating scope of Section 209 record-keeping duty by looking to plan language); Mich. Laborers’ Health Care Fund v. Grimaldi Concrete, Inc., 30 F.3d 692, 697 (6th Cir. 1994) (same); Combs v. King, 764 F.2d 818, 825 (11th Cir. 1985) (same); Zipp v. World Mortg. Co., 632 F. Supp. 2d 1117, 1125 (M.D. Fla. 2009) (same); see also Mathews v. ALC Partner, Inc., No. 08-cv-10636, 2009 WL 3837249, at *3-7 (E.D. Mich. Nov. 16, 2009) (evaluating scope of fiduciary duty by looking to plan language); Steavens v. Elec. Data Sys. Corp., No. 07-14536, 2008 WL 3540070, at *4 (E.D. Mich. Aug. 12, 2008) (same).
The Patient Protection and Affordable Care Act (the “Affordable Care Act”) (P. L. 111-
148, as amended) requires the Secretary of Labor to provide Congress with an annual
report containing general information on self-insured employee health benefit plans and
financial information regarding employers that sponsor such plans.
The first such report is now available. From the DOL’s news release:
Department of Labor releases Affordable Care Act study on self-insured plans
WASHINGTON – The U.S. Department of Labor today transmitted to Congress the first annual report on self-insured employee health benefit plans. The report, which was mandated by the Affordable Care Act, contains general information on self-insured employee health benefit plans and financial information on the employers that sponsor them.
Self-insured plans, unlike fully insured plans, are generally plans in which the sponsor retains the risk associated with paying covered health expenses, rather than paying a premium and transferring the risk to an insurance company. Some sponsors retain the risk for a subset of the benefits, but transfer the risk for the remaining benefits to health insurers – that is, they finance the plans’ benefits using a mixture of self-insurance and insurance. Self-insurance is more common among larger sponsors, mainly because the health expenses of larger groups are more predictable and therefore larger sponsors face less risk.
The report includes information on self-insured and mixed health benefit plans that are required to file a Form 5500 Annual Return/Report of Employee Benefit Plan. The department estimates that 12,000 health plans filing a Form 5500 for 2008 were self-insured and 5,000 mixed self-insurance with insurance. These plans respectively covered 22 million and 25 million participants. Many self-insured health plans do not meet the filing requirements and therefore do not file the Form 5500. Therefore, it is likely that the report underestimates the total number of self-insured plans.
Health benefit plans covering private-sector employees must file a Form 5500 if they cover 100 or more participants or hold assets in trust. This report presents data on such plans for 2008, the latest year for which complete data are available.
The full report can be found on the department’s Employee Benefits Security Administration Affordable Care Act page here.
People make mistakes. Even administrators of ERISA plans
Conkright v. Frommert, 130 S. Ct. 1640 (U.S. 2010)
The pithy statement quoted above, coupled with the comment that a “single honest mistake” does not alter the standard of review, seems destined to become the talismanic essence of what Conkright means to ERISA law. Starting from the boggy, loamy soil Metropolitan Life v. Glenn left behind, the Court sought traction by reaching for something fixed and weighty — like Firestone v. Bruch, for example.
The trilogy now seems to be in place – Firestone, providing generous deferential review; Glenn, providing a multi-factor analysis for cases in which the fiduciary is deemed unworthy of such deference; and Conkright, to remind us that Firestone remains the bedrock on which all else rests.
A review of post-Conkright cases corroborates this interpretative template.
For example, the following excerpt provides a good summary of Conkright‘s policy argument:
These principles were discussed further in Conkright, in which the Supreme Court declared that a single mistake by a plan administrator cannot serve as a basis for depriving that administrator of deference that would otherwise be warranted under Firestone Tire. Conkright, 130 S.Ct. at 1644-47. It was noted that deference to the findings of a plan administrator, where warranted under the terms of the plan in question, promoted the goals of “efficiency,” “predictability” and “uniformity.” Id. at 1649.
Deference promotes efficiency by encouraging the resolution of benefits disputes by means of “internal grievance procedures,” rather than by means of “costly litigation.” Id.
Predictability is ensured by standards allowing an employer to “rely on the expertise of the plan administrator rather than worry about unexpected and inaccurate plan interpretations that might result from de novo judicial review.” Id.
Uniformity is secured when an employer is able to “avoid a patchwork of different interpretations of a plan” that covers multiple employees in several different jurisdictions. Id. ERISA does not affirmatively require employers to establish employee benefit plans, nor does it mandate what types of benefits must be provided by employers who choose to create such plans. Lockheed Corp. v. Spink, 517 U.S. 882, 887, 116 S. Ct. 1783, 135 L. Ed. 2d 153 (1996). It should not be construed in such a way as to “lead those employers with existing plans to reduce benefits,” or to discourage employers without such plans from adopting them in the first place. Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 11, 107 S. Ct. 2211, 96 L. Ed. 2d 1 (1987). Instead, it should be interpreted in light of its objectives of ensuring the enforcement of employees’ rights under existing employee benefit plans and encouraging employers to create additional employee benefit plans. Aetna Health, Inc. v. Davila, 542 U.S. 200, 215, 124 S. Ct. 2488, 159 L. Ed. 2d 312 (2004).
Haisley v. Sedgwick Claims Mgmt. Servs., 2011 U.S. Dist. LEXIS 20751 (W.D. Pa. Mar. 2, 201
The district court’s perspective shows its perfect appreciation for the general rule enunciated in Conkright.
The notion of a single honest mistake “rule” is captured in another excerpt from a recent district court opinion:
Where, as here, an employer both administers the Plan and pays benefits, this dual role creates a conflict of interest, and “‘that conflict must be weighed as a factor in determining whether there was an abuse of discretion.’” Metro. Life Ins. Co. v. Glenn, 554 U.S. 105, 128 S.Ct. 2343, 2348, 171 L. Ed. 2d 299 (2008)(quoting, Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 957, 103 L. Ed. 2d 80 (1989)). Nevertheless, the administrator’s decision is still entitled to deference and that deference remains, even where the administrator makes a mistake, because a “single honest mistake in plan interpretation” does not justify “stripping the administrator of . . . deference for subsequent related interpretations of the plan.” Conkright v. Frommert, 130 S.Ct. 1640, 1645, 176 L. Ed. 2d 469 (2010).
Canada v. Am. Airlines, Inc. Pilot Ret. Ben. Program, 50 Employee Benefits Cas. (BNA) 1272 (M.D. Tenn. Aug. 10, 2010)
On the other hand, a magistrate judge swims upstream in an opinion in which he defends the Ninth Circuit Abatie opinion, post-Conkright, and simultaneously overcomes the “single” mistake hurdle:
In Conkright, the court held that a Plan Administrator’s single, honest mistake does not strip a Plan Administrator of deference. 130 S. Ct. 1640, 176 L. Ed. 2d 469, Id. 2010 WL 1558979 at *9-10. Abatie similarly requires that a court “should give the administrator’s decision broad deference notwithstanding a minor irregularity.” Id., 458 F.3d at 972. If anything, Conkright reinforces the basic themes of the main cases over the years related to whether a Plan Administrator is entitled to deference: that deferential review is to be applied; that lower courts are not to deviate from it on ad hoc rationales; and that deferential review is a necessary element of the balancing act between employee rights and the need to encourage employers to provide benefits plans. Conkright, 130 S. Ct. 1640, 176 L. Ed. 2d 469, 2010 WL 1558979 at *7. Instead of changing the controlling law, Conkright reaffirmed it. See e.g., Conkright, 130 S. Ct. 1640, 176 L. Ed. 2d 469, 2010 WL 1558979 at *9 (noting that it would be inappropriate to defer to a Plan Administrator’s interpretation when he does not exercise his discretion fairly or honestly or is too incompetent to exercise his discretion fairly). Accordingly, there are no grounds for reconsideration of my April 12, 2010 Opinion and Order.
Even assuming arguendo that Conkright had changed existing law, application of Conkright’s holding would not change the result here. In Conkright, the Supreme Court rejected the notion that a single honest mistake had infected the ERISA review process. Conkright. 130 S. Ct. 1640, 176 L. Ed. 2d 469, 2010 WL 1558979 at *7. The instant case is not a case about a single mistake. Instead, significant procedural irregularities throughout Providence’s internal review proces
Lafferty v. Providence Health Plans, 720 F. Supp. 2d 1239 (D. Or. 2010)
The Ninth Circuit remains somewhat mired in the bog. In a recent opinion (over a vehement dissent), the Court trotted out a number of axiomatic propositions from the Firestone trilogy (ultimately holding against the plan):
The Supreme Court further refined the standard of review in its decision this year in Conkright v. Frommert, holding that a single honest mistake in plan interpretation” administration does not deprive the plan of the abuse of discretion standard or justify de novo review for subsequent related interpretations. The Court emphasized that under Glenn, “a deferential standard of review remains appropriate even in the face of a conflict.” Conkright noted, though, that “[a]pplying a deferential standard of review does not mean that the plan administrator will prevail on the merits.” n24 What deference means is that the plan administrator’s interpretation of the plan ” ‘will not be disturbed if reasonable.’ ”
Salomaa v. Honda Long Term Disability Plan, 2011 U.S. App. LEXIS 4386 (9th Cir. Cal. Mar. 7, 2011)
But most courts appear to be on board and repeat the now familiar refrain, as in this Seventh Circuit opinion:
“People make mistakes. Even administrators of ERISA plans.” Conkright v. Frommert, 130 S. Ct. 1640, 1644, 176 L. Ed. 2d 469 (2010). This introduction was fitting in Conkright, which dealt with a single honest mistake in the interpretation of an ERISA plan. It is perhaps an understatement in this case, which involves a devastating drafting error in the multi-billion-dollar plan administered by Verizon Communications, Inc. (“Verizon”).
Verizon’s pension plan contains erroneous language that, if enforced literally, would give Verizon pensioners like plaintiff Cynthia Young greater benefits than they expected. Young nonetheless seeks these additional benefits based on ERISA’s strict rules for enforcing plan terms as written. Although Young raises some forceful arguments, we conclude that ERISA’s rules are not so strict as to deny an employer equitable relief from the type of “scrivener’s error” that occurred here. We will accordingly affirm the district court’s judgment granting Verizon equitable reformation of its plan to correct the scrivener’s error.
Young v. Verizon’s Bell Atl. Cash Balance Plan, 615 F.3d 808 (7th Cir. Ill. 2010)
Likewise, from the Third Circuit:
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., 383 Fed. Appx. 193 (3d Cir. Del. 2010)
And the now-chastened Second Circuit (from whence Conkright emerged):
More recently, in Conkright v. Frommert, 130 S. Ct. 1640, 176 L. Ed. 2d 469 (2010), the Supreme Court reiterated its longstanding concern with ERISA litigation expenses. In Frommert, the Court addressed the deference that courts should accord to a plan administrator’s interpretation of an ERISA plan. Central to the Court’s holding was the increased litigation costs associated with de novo review of a plan administrator’s decisions as to plan benefits. As the Court explained:HN19Congress enacted ERISA to ensure that employees would receive the benefits they had earned, but Congress did not require employers to establish benefit plans in the first place. We have therefore recognized that ERISA represents a careful balancing between ensuring fair and prompt enforcement of rights under a plan and the encouragement of the creation of such plans. Congress sought to create a system that is not so complex that administrative costs, or litigation expenses, truly discourage employers from offering [ERISA] plans in the first place. ERISA induc[es] employers to offer benefits by assuring a predictable set of liabilities, under uniform standards of primary conduct and a uniform regime of ultimate remedial orders and awards when a violation has occurred.Id. at 1648-49 (internal quotation marks and citations omitted). Extending ERISA liability to unintentional misstatements regarding non-plan consequences of retirement decisions would run counter to these goals.
Bell v. Pfizer, Inc., 626 F.3d 66 (2d Cir. 2010)
All of which leaves us to ask, what are we to make of Metropolitan Life v. Glenn, if Conkright is the other bookend to Firestone? I think that would be a great theme for an article about Conkright and one that I hope to finish in the next few weeks.
Professor Roger Baron has a new website on which he addresses ERISA subrogation issues. The website is available here.
Professor Roger Baron teaches at the University of South Dakota School of Law. A 1976 graduate of the University of Missouri at Columbia School of Law, he practiced law in Missouri for nine years before beginning his teaching career. He is licensed in Missouri, Texas and South Dakota. Professor Baron has a strong academic interest in the matter of subrogation on personal injury claims and related ERISA reimbursement issues. He has authored three significant law review articles and numerous shorter articles which address subrogation and reimbursement issues in the context of personal injury claims
Section 2719 of the Public Health Services Act sets forth standards for plans and issuers that are not grandfathered health plans regarding internal claims and appeals and external review. These rules are aimed at bolstering ERISA’s “due process” requirements by amplifying the old claims regulation released back in 2000, namely, 29 CFR 2560.503-1.
The various departments engaged in publishing regulations under the new statute (DOL, IRS, HHS) published interim final regulations implementing PHS Act section 2719 on July 23, 2010, at 75 FR 43330 (the 2010 interim final regulations). The finished product bears the mark of a hurried assembly of rules with little comprehension of how claims adjudication actually works.
Thus, on September 20, 2010, the regulators retreated, with the Department of Labor issued Technical Release 2010-02 (T.R. 2010-02), which set forth an enforcement grace period for compliance with certain new provisions with respect to internal claims and appeals until July 1, 2011.
Based on comments, the regulators have retreated once again. Now, Technical Release 2011-01 extends, with a few modifications, the enforcement grace period set forth in T.R. 2010-02 until plan years beginning on or after January 1, 2012 “to give the Departments time to publish new regulations necessary or appropriate to implement the internal claims and appeals provisions of PHS Act section 2719(a).” [Read more...]
Defendant argues that it met its obligation to provide notice under COBRA because [it] . . . placed in the mail to Brooks a letter explaining that he was eligible to continue his health and dental insurance coverage under COBRA (the “COBRA Notice Letter”). . . . Plaintiff makes no argument that the COBRA Notice Letter was in any way deficient for notice under COBRA. Plaintiff argues simply that Defendant has not presented sufficient evidence that the COBRA Notice Letter was actually mailed to him.
Brooks v. AAA Cooper Transp., 2011 U.S. Dist. LEXIS 28218 (S.D. Tex. Mar. 18, 2011)
The result in Brooks v. AAA Cooper Transp. is typical of cases of its kind. The opinion contains a concise presentation of a defense to a claim that the plan administrator failed to send a COBRA notice upon termination of employment.
The Consolidated Omnibus Budget Reconciliation Act (“COBRA”) requires sponsors of group health plans to provide plan participants who lose coverage because of a “qualifying event” with the opportunity to choose to continue health care coverage on an individual basis. See 29 U.S.C. §§ 1162, 1163.
Termination of employment is a qualifying event pursuant to § 1163(2). Thus, upon termination of a covered employee’s employment,the plan sponsor must provide written notice to the plan participant within 14 days of the date the plan was notified of the qualifying event.
In the case at bar, the parties agreed that the plaintiff’s termination of employment constituted a qualifying event. The dispute arose over whether the defendant provided the plaintiff with the statutorily required notice.
It is well-established that ERISA plan participants and beneficiaries may assign their rights to their health care provider. Misic v. Bldg. Serv. Employees Health & Welfare Trust, 789 F.2d 1374, 1378-79 (9th Cir. 1986). As an assignee, the provider has standing “to assert the claims of his assignors.” Id. at 1379. A Plan may also prohibit the assignment of rights and benefits. Davidowitz v. Delta Dental Plan of California, Inc., 946 F.2d 1476 (9th Cir. 1991). Both the Braun and Rudolph Plans prohibit the assignment of benefits.
Thus, the question is whether the plan participants assigned Eden the right to sue for statutory penalties, independent from a claim for benefits.
Eden Surgical Ctr. v. B. Braun Med., Inc., 2011 U.S. App. LEXIS 4809 (9th Cir. Cal. Mar. 9, 2011)
Although a short, unpublished opinion, the decision in Eden Surgical Ctr. v. B. Braun Med., Inc. raises an important question. Does the assignment of benefits by a patient to a provider confer rights under an ERISA group health plan to assert other claims, such as a claim for statutory penalties and attorneys fees?
Claims for benefits arise under 29 U.S.C. § 1132(a)(1)(B). This case is not about a claim for benefits, though, but rather statutory penalties and attorneys fees.
Statutory penalties for failure to provide requested plan information, inter alia, may be available under § 1132(c). Attorney’s fees may be available under 29 U.S.C. § 1132(g).
In this case the Court held that the assignment did not confer rights to seek the penalties and attorneys fees, stating:
Eden’s assignment purports to include the right to sue for statutory penalties under § 1132(c), as well as the right to seek attorney’s fees. Eden’s assignment is effective during “any legal process, necessary to collect claims submitted on [the participant's] behalf for health insurance benefits, but denied by [the] plan.” Eden’s assignment grants personal standing under ERISA for “judicial review of denied claims.”
This is not a suit seeking “judicial review of denied claims,” and the claim for relief is not asserted during any “legal process, necessary to collect claims submitted on [the participant's behalf] for health insurance benefits, but denied by [the] plan.” Accordingly, assuming (without deciding) that the right to bring claims under § 1132(c) is free-standing and may be assigned, Eden’s assignment to seek such relief is not effective under the terms of the assignment itself because it is not pursued during a process “necessary to collect claims.”
This means that Eden lacks derivative standing to sue and the district court lacked jurisdiction. See Harris v. Provident Life and Account Ins. Co., 26 F.3d 930, 933 (9th Cir. 1994) (an ERISA civil action must be brought by a participant, beneficiary, fiduciary, or the Secretary of Labor).
According to the dissent, the question was a matter of contract interpretation (meaning, presumably the terms of the assignment itself).
This case turns on a matter of contract interpretation. Unlike the majority, I would find that the assignment language at issue allows Eden Surgical Center (“Eden”) the right to seek penalties under 29 U.S.C. § 1132(c) and would reverse the district court’s decision on that basis. For this reason, I respectfully dissent.
Since the balance of the dissenting opinion contains the judge’s perspective on the specific contractual terms, I do not think it is worth reproducing here.
Note: Since this case turned on a contractual interpretation, and the assignment terms (as interpreted) failed to confer rights to sue for penalties and attorneys’ fees, the question remains open as to whether an assignment can confer such rights under ERISA.
The Fifth Circuit took a hard look at the rights of health care providers under assignments many years ago. Under a strict reading of ERISA, of course, providers are not in the class of permitted plaintiffs. Nonetheless, in one of the seminal opinions on the issue, the Fifth Circuit permitted an assignment of claims on this analysis:
As the district court correctly concluded below, Memorial’s state law claims asserted as an assignee of Echols’ benefits under Noffs’ plan are preempted. As assignee, Memorial stands in the shoes of Echols and may pursue only whatever rights Echols enjoyed under the terms of the plan. Such derivative claims invoke the relationship among the standard ERISA entities and clearly relate to a plan for preemption purposes. See Hermann Hospital, 845 F.2d at 1290. Moreover, these derivative claims fall within the scope of section 502(a), ERISA’s civil enforcement scheme, which Congress intended to be the exclusive vehicle for suits by a beneficiary to recover benefits from a covered plan. See Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 62-63, 107 S. Ct. 1542, 1546, 95 L. Ed. 2d 55 (1987).
Memorial Hosp. Sys. v. Northbrook Life Ins. Co., 904 F.2d 236 (5th Cir. Tex. 1990).
Note the reference to ERISA Section 502(a) (which is the parallel citation to 1132(a)). I am inclined to think that the Fifth Circuit (and likely majority of courts facing this unique issue), would limit health care providers’ rights under assignments to claims for benefits.
Rotech has argued that it could, within its discretion, rely upon Huff’s sworn answers to interrogatories and the opinion of Dr. Wilson in concluding that it is entitled to be reimbursed out of any recovery Huff receives in the circuit court litigation against Hawkins and his employers. This court does not agree. This court first concludes that any reliance on Dr. Wilson’s opinion is “downright unreasonable.”
Dr. Wilson first saw Huff in June 2006, more than one and one-half years after the October 2004 accident, when she was referred to him by Dr. Potts. Dr. Wilson testified that any opinion regarding whether the spinal cord stimulator he implanted in September 2007 was necessary because of the collision “would be speculation.” Dr. Potts, by contrast, testified that the spinal cord stimulator implantation performed by Dr. Wilson was not causally related to the October 2004 automobile collision.
Rotech Healthcare, Inc. v. Synthia Ann Huff, (C.D. Ill 9.8.2011)
This opinion illustrates a frequent problem in health plan subrogation cases — determining the medical expenses related to an accident. In this case, the court weighed two opposing medical opinions and held that the physician seeing the patient after the first accident could not reasonably infer that the medical expenses at issue were causally related to the accident.
Plaintiffs’ attorneys are well familiar with the problem presented when a plaintiff has preexisting injuries. While Congress has sought to eliminate the significance in health plan claims, the regular insurance world looks at matters quite differently. And despite the old Prosser hornbook notions of the “eggshell plaintiff”, the possible exacerbation of preexisting conditions does not often inspire liability insurance companies to up their settlement offers.
In the subrogation context, a causal failure in proof is fatal. In this case, the Court rejected the more recent physician’s opinion as to causality — in spite of a corroborating declaration by the injured party in interrogatory responses. So, the point is, if relatedness is a material issue, the subrogation claims is likely compromised and settlement negotiations should proceed accordingly. The full opinion can be viewed on erisaboard.com. Hat tip to Rob Hoskins for pulling the case.
The federal courts have been in some disagreement as to whether, under Rule 56, a court is obliged to consider the materials “on file” in deciding whether a “genuine issue as to any material fact” is shown (as Rule 56(c)(2) indicates). Indeed, a majority of our sister circuits appear to have taken the view that a court, in assessing a summary judgment motion, may confine its consideration to materials submitted with and relied on in response to the motion (as Rule 56(e)(2) may contemplate).
Consistent with the majority view, subdivision (c)(3) of the 2010 version of Rule 56 now specifies that a “court need consider only the cited materials,” though “it may consider other materials in the record.” See Fed. R. Civ. P. 56 advisory committee’s note (explaining that the 2010 version’s “[s]ubdivision (c)(3) reflects judicial opinions and local rules provisions stating that the court may decide a motion for summary judgment without undertaking an independent search of the record”).
Sinclair v. Mobile 360, 2011 U.S. App. LEXIS 4112 (4th Cir. N.C. Mar. 3, 2011) (unpublished)
This rather unusual case does serve the useful purpose of highlighting a requirement that briefs opposing a motion for summary judgment must cite to the record and adduce affidavits or other materials necessary to the opposition. In the case at bar, the pro se appellants argued that the court below erred by not considering materials previously filed by their (now withdrawn) legal counsel.
Specifically, the Appellants contend that, under the plain terms of Rule 56(c)(2) as it existed in 2009, a court assessing a summary judgment motion must consider the materials “on file,” and the Counseled Response was “on file” in this case when summary judgment was awarded.
The Defendants respond that it was the Appellants’ burden, under Rule 56(e)(2), to bring the Counseled Response to the court’s attention, and that there was nothing preventing the Appellants from resubmitting, in response to the Renewed Motion, any exhibits that had been filed as part of the Counseled Response.
The Fourth Circuit, noting that its prior, more generous, holding on the issue may have been superseded by the rule change noted above, nonetheless chose to apply the old rule here, particularly in view of the pro se litigants’ predicament.
In candor, a majority of the other circuits might prefer a view contrary to our Campbell decision [Campbell v. Hewitt, Coleman & Associates, Inc.], and that view may have since been ensconced in Rule 56 by way of the 2010 amendments. In any event, a careful assessment of the Counseled Response would not impose an unwarranted burden on the magistrate judge, for several reasons. . . . [E]ven though the First Motion was withdrawn, the Counseled Response and Auto Advantage’s Reply were never withdrawn or stricken from the record. As a result, the Counseled Response remained “on file” in this case when summary judgment was awarded to the Defendants. In such circumstances, the award of summary judgment to the Defendants must be vacated under the applicable 2009 version of Rule 56.
Note: Judge Wilkerson dissented, stating:
. . . the Federal Rules of Civil Procedure were amended in 2010, and these amendments eliminated the “on file” language from Rule 56. Fed. R. Civ. P. 56. Rule 56 now explicitly states that district courts “need consider only the cited materials” when ruling on summary judgment. Fed. R. Civ. P. 56(c)(3).
And the current Rule 56 makes clear that parties are obligated to support their assertions with citations to the record. Fed. R. Civ. P. 56(c)(1). If a party neglects this obligation and “fails to properly support an assertion of fact or fails to properly address another party’s assertion of fact . . . the court may: . . . (2) consider the fact undisputed for purposes of the motion; [and] (3) grant summary judgment if the motion and supporting materials — including the facts considered undisputed — show that the movant is entitled to it . . . .” Fed. R. Civ. P. 56(e).
As the Advisory Committee Notes explain, these changes “reflect judicial opinions and local rules provisions stating that the court may decide a motion for summary judgment without undertaking an independent search of the record.” Fed. R. Civ. P. 56 advisory committee’s note. Thus, the 2010 amendments rejected our minority position in Campbell in favor of the approach followed by the majority of the circuits that had considered the issue. Accordingly, under the current Rule 56, district courts need consult only those materials cited by the parties when ruling on summary judgment.
Decisions From Other Circuits – As noted in the opinion, the Fourth Circuit opinion had been a minority point of view:
At least seven of our sister circuits have weighed in on the apparent tension between the language in subdivisions (c)(2) and (e)(2) of Rule 56. The First Circuit has concluded that the materials “on file” should be considered by the district court in ruling on a summary judgment motion. See Stephanischen v. Merchs. Despatch Transp. Corp., 722 F.2d 922, 930 (1st Cir. 1983). The Second Circuit has decided that summary judgment cannot be awarded “on the ground that the nonmovant’s papers failed to cite to the record unless the parties are given actual notice of the requirement.” See Amnesty Am. v. Town of W. Hartford, 288 F.3d 467, 471 (2d Cir. 2002).
Five other courts of appeals have taken the view that requiring a district court to review materials not relied on by the parties is unduly burdensome to the judiciary. See Carmen v. S.F. Unified Sch. Dist., 237 F.3d 1026, 1029 (9th Cir. 2001); Adler v. Wal-Mart Stores Inc., 144 F.3d 664, 672 (10th Cir. 1998); Forsyth v. Barr, 19 F.3d 1527, 1537 (5th Cir. 1994); L.S. Heath & Sons, Inc. v. AT&T Info. Sys., Inc., 9 F.3d 561, 567 (7th Cir. 1993); Guarino v. Brookfield Twp. Trs., 980 F.2d 399, 405 (6th Cir. 1992).However, the Federal Rules of Civil Procedure were amended in 2010, and these amendments eliminated the “on file” language from Rule 56. Fed. R. Civ. P. 56. Rule 56 now explicitly states that district courts “need consider only the cited materials” when ruling on summary judgment. Fed. R. Civ. P. 56(c)(3). And the current Rule 56 makes clear that parties are obligated to support their assertions with citations to the record. Fed. R. Civ. P. 56(c)(1). If a party neglects this obligation and “fails to properly support an assertion of fact or fails to properly address another party’s assertion of fact . . . the court may: . . . (2) consider the fact undisputed for purposes of the motion; [and] (3) grant summary judgment if the motion and supporting materials — including the facts considered undisputed — show that the movant is entitled to it . . . .” Fed. R. Civ. P. 56(e).
Of Interest – Mark Debofsky wrote an interesting article a few years back about the abuse of summary judgment in the ERISA setting. Though not pertinent to the issue above, the article draws important conclusions about the odd way in which Rule 56 is applied in ERISA cases. Mark notes that federal courts have migrated toward application of a “substantial evidence” test to determine whether a plan administrator’s decision is rational rather than applying the typical summary judgment standard focused on genuine issues of fact. See, DeBofsky, The Paradox of the Misuse of Administrative Law In ERISA Benefit Claims, 37 John Marshall Law Review 727 (2004).
“ . . . [I]n order for Principal to reasonably deny S.W.’s hospital charges, substantial evidence had to support its determination that the primary focus of her hospitalization was mental health treatment, i.e., treatment designed to alter her behavior. While there is certainly evidence that mental health treatment was one focus of S.W.’s hospitalization, we conclude there is insufficient evidence to support the determination that S.W.’s mental health was the primary focus of the hospitalization.“
Wrenn v. Principal Life Ins. Co., 2011 U.S. App. LEXIS 3962 (8th Cir. Iowa Mar. 2, 2011)
This recent opinion by the Eighth Circuit Court of Appeals revisits the standard of review for judicial review of benefit denials in that Circuit.
The facts reveal that “S.W” was a minor that received treatment for an eating disorder. The course of the diagnosis and treatment followed one of those fine lines that occur from time to time where the dichotomy between the psychological and physical etiology of medical symptoms reveal the complex hylomorphic nature of man. We will forgo the factual history (and philosophical observations) at this point, but the full case can be read on the Eighth Circuit’s website (hotlinked above).
Now to the law. Principal was both the insurer and the claims administrator. Principal denied a substantial amount of hospital charges as exceeding its policy limitations.
Relying upon the policy’s ten-day limit for mental health inpatient services, Principal paid benefits for ten days of S.W.’s hospitalization in the 2006 calendar year, and the first ten days of her hospitalization in the 2007 calendar year, but denied payment of hospitalization benefits beyond that time on the ground that the “primary focus” of S.W.’s hospitalization was mental health treatment.
The hospital charges Principal refused to pay totaled $44,260.63.
Mental Health Or Physical Condition?
Was S.W. hospitalized because she was physically in jeopardy of dying (a 15 year old diminished to 77 pounds due to “malnutrition”)? That was clearly the immediate and material cause. But isn’t it also true that her physical health resulted from choices S.W. made that were “mental” or “psychological”? Undoubtedly. So which cause should be viewed as “primary”?
The district court took a go at the question, applying an abuse of discretion standard, and came out in favor of Principal:
The mere fact that Principal arguably could have reached a determination that S.W.’s malnourishment and physical condition were the primary focus of her hospitalization simply cannot change the fact that Principal’s actual decision, that S.W.’s mental health condition was the primary focus of her care, was a reasonable one supported by substantial evidence in the record.
On appeal the plaintiff (S.W.’s father) argued that the district court erred in applying an abuse-of-discretion standard of review because of” procedural irregularities” in Principal’s handling of his claim. Wrenn alternatively argued that Principal abused its discretion in denying his claim.
Wrenn found a sympathetic ear.
In evaluating Principal’s denial of benefits “[u]nder the abuse of discretion standard, the proper inquiry is whether [Principal's] decision was reasonable; i.e., supported by substantial evidence.” Fletcher-Merrit v. NorAm Energy Corp., 250 F.3d 1174, 1179 (8th Cir. 2001) (internal quotation marks and citation omitted). Thus, in order for Principal to reasonably deny S.W.’s hospital charges, substantial evidence had to support its determination that the primary focus of her hospitalization was mental health treatment, i.e., treatment designed to alter her behavior.
While there is certainly evidence that mental health treatment was one focus of S.W.’s hospitalization, we conclude there is insufficient evidence to support the determination that S.W.’s mental health was the primary focus of the hospitalization.
The case appears to be one in which the Court could have come out either way. The critical factor is whether the Court limits its consideration to the stabilization of S.W.’s medical condition or broadens consideration to include the fact that S.W. required supervision and treatment for irrational choices in view of her physical health.
Standard of Review
As noted at the outset, the case provided an opportunity for the Court to examine its standard of review jurisprudence. The opinion notes some continuing vitality in its pre-Glenn decisions, stating:
[Woo v. Deluxe Corp., 144 F.3d 1157, 1161 (8th Cir. 1998)] held a less deferential standard of review than abuse of discretion applied whenever “(1) a palpable conflict of interest or a serious procedural irregularity existed, which (2) caused a serious breach of the plan administrator’s fiduciary duty[.]” Woo, 144 F.3d at 1160.
After the Supreme Court’s decision in Glenn, the Woo sliding-scale approach is no longer triggered by a conflict of interest, because the Supreme Court clarified that a conflict is simply one of several factors considered under the abuse of discretion standard.
The procedural irregularity component of the Woo sliding scale approach may, however, still apply in our circuit post-Glenn. See Wakkinen v. UNUM Life Ins. Co. of Am., 531 F.3d 575, 582 (8th Cir. 2008) (stating “[w]e continue to examine [a procedural irregularity] claim under Woo“); but see Chronister v. Unum Life Ins. Co. of Am., 563 F.3d 773, 776 (8th Cir. 2009) (analyzing a procedural irregularity, i.e., a plan administrator’s failure to follow its own claims-handling procedures, as one factor under Glenn’s abuse of discretion standard).
Because we conclude Principal abused its discretion, we do not address the extent to which Glenn may have changed the procedural irregularity component of Woo‘s sliding-scale approach.
The essential point – for practitioners in the Eighth Circuit, a procedural irregularity remains a point to be argued in a benefit denial case in terms of the prior case law.
Note: This would be a great case to analyze in a course or seminar about the new claims procedure rules, post-PPACA. I like the facts because the case involves an “administrative” denial (internal plan limitations) as well as a “clinical” denial (medical necessity issues), as well as use of some external review (omitted in my discussion above). Under the new rules, insureds will not be able to invoke external review of administrative denials under most states’ versions of the NAIC model act, although, inexplicably, the interim final regulations denials to external review regardless of whether administrative or clinical in the case of self-funded plans subject to the federal external review process.
That opens up the issue of whether a valid distinction really can be made between the two in a case like this anyhow or in any case where comorbidity may play a role in the disease or sickness. None of that was important to the opinion under the applicable law, of course, but the issues presented therein suggest an interesting complexity going forward as the new claims procedures go into effect.
I returned Friday from South Dakota Law School’s ERISA Symposium. The program was well attended by attorneys, law professors, students and members of the public.
One of the highlights for me was the presentation by Peter Stris on litigation before United States Supreme Court. Peter has had several ERISA cases before the Court, including LaRue, and he related his experience in an informative style with dry humor from time to time that really engaged the audience.
John Morrison took up a discussion of discretionary clauses bans which we took up in a panel discussion. Of course John has some experience with that subject, not only through the NAIC, but also as the prevailing party in the matter of Standard v. Morrison. Professor Radha Pathak joined in this discussion and related a number of issues arising in this context which will be addressed in an upcoming article for the South Dakota Law School.
Professor Roger Baron presented on several hot topics in the ERISA health plan subrogation field. I joined David Abney in a discussion of these topics with Roger. As always, the subrogation topic draws varying points of view, but the interplay of opinions really helped to sharpen perspectives on the issues.
I concluded the program with an evaluation of ERISA after health care reform. In particular, I examined the DOL claims procedure, the new external review and several open questions that affect judicial review in light of the PPACA changes. All of these points are given in-depth analysis in an article I wrote that will be published in an upcoming issue of the South Dakota Law Review.
Congratulations to the law school staff, the bright students on the law review staff, Professor Roger Baron and Dean Barry Vickrey on an excellent ERISA symposium covering highly relevant issues. At the risk of some self-promotion, I recommend the upcoming ERISA Symposium issue of the law review for a good source of timely information on ERISA developments.
In Comrie v. IPSCO (7th. Cir. 2/18/11) the Seventh Circuit considered whether a discretion-conferring clause in a SERP plan document should be applied when the plan administrator is not a fiduciary. Noting a difference of opinion on the issue, the Seventh Circuit, via Judge Easterbrook, saw the issue as very simple to resolve:
As for the fact that the administrator of a top-hat plan is not an ERISA fiduciary: One circuit has held that interpretations by a non-fiduciary must be ignored, and that courts must make independent decisions, no matter what a plan’s governing documents say. Goldstein v. Johnson & Johnson, 251 F.3d 433, 442–43 (3d Cir. 2001). Another has adopted an intermediate standard divorced from contractual language. Craig v. Pillsbury Non-Qualified Pension Plan, 458 F.3d 748, 752 (8th Cir. 2006). We don’t get it .
When the Supreme Court held in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), that judges presumptively make independent decisions (often, though misleadingly, called “de novo review”, see Krolnik v.Prudential Insurance Co., 570 F.3d 841, 843 (7th Cir. 2009)), about claims to benefits under ERISA, it derived this conclusion from an analogy to trust law. The Court understood trust law to call for a non-deferential judicial role. ERISA fiduciaries are like common-law trustees the Justices thought, so judges normally should make independent decisions in ERISA litigation.
In Firestone’s framework, deferential review is exceptional, authorized only when the contracts that establish the pension or welfare plan confer interpretive discretion in no uncertain terms. 489 U.S. at 111. See also, e.g., Diaz v. Prudential Insurance Co., 424 F.3d 635 (7th Cir. 2005)
In the Court’s view, Firestone authorizes deference even though the decision-maker is a fiduciary. Thus, when the contract confers discretion on a non-fiduciary, courts should find it “easier, not harder”, to defer to the decision-maker on contract principles.
Below appears a recent DOL Advisory Opinion on MEWA status of a health plan benefit plan:
3(40) & 514(b)(6)
Dear Mr. Wender:
This is in reply to your request on behalf of the Custom Rail Employer Welfare Trust Fund (“CREW” or “CREW Welfare Trust”) for an advisory opinion regarding Title I of the Employee Retirement Income Security Act of 1974 (ERISA).
Specifically, you ask the Department of Labor (Department) to determine that CREW is a “multiple employer welfare arrangement” (MEWA) within the meaning of ERISA section 3(40)(1) that is “fully insured” within the meaning of ERISA section 514(b)(6).(2) For purposes of that analysis, you ask the Department to assume that CREW is also an “employee welfare benefit plan” within the meaning of ERISA section 3(1).
For the reasons set forth below, it remains the Department’s view that CREW is a MEWA that is not fully insured for purposes of ERISA.
Following up on an earlier post, the new claims appeals and review rules present some opportunities to claimants and concomitant risks to plans. PHS incorporate the existing claims regulation DOL Reg. Sec. 2560.503-1 into an augmented claims procedure for internal appeals. PHS Act § 2719 provides that plans and issuers must initially incorporate the internal claims and appeals processes set forth in 29 CFR 2560.503-1 and update these processes as required by the DOL.
The interim final regulations (Interim Final Rules for Group Health Plans and Health Insurance Issuers Relating to Internal Claims and Appeals and External Review Processes Under the Patient Protection and Affordable Care Act) released on July 23, 2010 appear in the Federal Register at Volume 75, Number 141, Pages 43329-43364.
Grandfathered plans are exempt. The value of this exemption will become vividly apparent as the new rules are reviewed.
The regulations require “strict adherence” to the new claims procedure. Substantial compliance or de minimus violations are not, the regulations state, sufficient to avoid the determination of non-compliance. (The consequences of non-compliance will be reviewed later — but note for now that the regulations purport to change the standard of review to de novo in this event. Thus, plan fiduciaries would be well advised to put maximum effort toward compliance.
At the outset, careful observance of what constitutes an adverse benefit determination is necessary. The definition is broader than the definition in the DOL claims procedure regulation.
Failure to make a payment in whole or in part includes any instance where a plan pays less than the total amount of expenses submitted with regard to a claim, including a denial of part of the claim due to the terms of a plan or health insurance coverage regarding copayments, deductibles, or other cost- sharing requirement.
In the next post I will summarize the new requirements for the claims regulations as augmented.
A second federal judge ruled on Monday that it was unconstitutional for Congress to enact a health care law that required Americans to obtain commercial insurance, evening the score at 2 to 2 in the lower courts as conflicting opinions begin their path to the Supreme Court.
“Federal Judge Rules That Health Law Violates Constitution”, New York Times (January 31, 2011)
Under ordinary circumstances, the Court likely would not require a party making a breach of contract claim to identify the contractual terms on which it relies; alleging the nature of the breach would be enough. In this case, however, Regence’s claim is premised not on one or a small number of contracts. Rather, it relies in significant part on a large number of underlying contracts — the subscriber agreements. And, as the Court has indicated, the claim may be preempted in whole or in part, depending on the nature of the alleged breaches of the provider agreement and what underlying subscriber agreements are involved. These factors together require further detail before the Court can conclude whether, and to what extent, Regence has stated a non-preempted claim.
Pa. Chiropractic Ass’n v. BCBS Ass’n, 2011 U.S. Dist. LEXIS 6446 (N.D. Ill. Jan. 21, 2011)
In this litigation between BCBS and a group of health care providers, the defendant BCBS filed a counterclaims seeking alleged overpayments. The alleged overpayments were claimed due under the terms of collateral subscriber agreements.
Defendant The Regence Group has filed a counterclaim against plaintiff Larry Miggins and third party defendant Miggins & Miggins, Inc. (collectively, Miggins) alleging breach of contract and unjust enrichment. Regence’s breach of contract claim is premised, at least on the surface, on a provider agreement that it had with Miggins under which Miggins agreed to provide health care services to patients covered by Regence’s subscriber agreements and to receive payment for those services on specified terms.
Specifically, BCBS alleged that the plaintiff breached its contract by:
- failing to charge and make reasonable attempts to collect coinsurance payments;
- submitting and obtaining claims for reimbursement using incorrect diagnosis codes and modifiers; and
- submitting and obtaining claims for reimbursement for services that were not medically necessary as defined in the provider agreement and that were otherwise not covered under the patients’ subscriber agreements.
Plaintiff Miggins moved to dismiss the counterclaim on the ground that it is preempted by ERISA and because it does not include sufficient detail.
Argument # 1:
Miggins argues that Regence’s claim is preempted by ERISA section 514(a), which provides that ERISA supersedes state laws that “relate to any employee benefit plan.” 29 U.S.C. § 1144(a). State law relates to a benefit plan if is has connection with or reference to such a plan. Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 47, 107 S. Ct. 1549, 95 L. Ed. 2d 39 (1987). This occurs in [*10] various ways, only one of which is relevant here: if the state law “provides an alternative enforcement mechanism to ERISA.” Trustees of the AFTRA Health Fund v. Biondi, 303 F.3d 765, 774 (7th Cir. 2002). That happens if the benefit plan’s existence is a critical element of a state law claim, such that the state law relies on a direct and unequivocal nexus with an ERISA plan. Id. at 778.
The court agreed that “at least some parts of Regence’s claim are, in fact, preempted by ERISA”, stating that:
Regence relies in part on a contention that Miggins obtained payment on claims that were not covered under patient subscriber agreements. Regence does not disclose whether any of those agreements are ERISA benefit plans, but it is overwhelmingly likely that some or even most of them are. In addition, it is conceivable that other parts of Regence’s claim rely on the terms of one or more ERISA benefit plans.
Lack of Specificity
Argument # 2
Demonstrating that the Twombly standard can trip up plaintiff and defendant alike, the court ruled that the counterclaim failed the specificity requirement. The court observed that:
Even after Bell Atlantic v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007), and its progeny, federal courts follow a notice-pleading regime under which a plaintiff (here, Regence) need provide only enough detail to give the defendant (here, Miggins) fair notice of what the claim is and the grounds on which it rests. See, [*11] e.g., Tamayo v. Blagojevich, 526 F.3d 1074, 1083 (7th Cir. 2008). In complex case, however, a fuller set of factual allegations may be necessary. See, e.g., Limestone Dev. Corp. v. Village of Lemont, 520 F.3d 797, 803 (7th Cir. 2008).
Note: The court granted the motion to dismiss with leave to amend.
So argued Professor James Ely today in a symposium on the PPACA sponsored by the Charleston School of Law. And a federal district court judge agreed in a case in which he and fellow academics brought in U.S. District Court for the Eastern District of Virginia. Brian Galle, Assistant Professor of Law, Boston College Law School presented an opposing point of view. I found Professor Ely’s position more convincing, as did Judge Hudson.
There is one case going the other way and we will have to see how the matter turns on on appeal. Aside from the ethereal world of constitutional law, we must also ask if the individual mandate is enforceable as a practical matter. Seriously, do you really think that the tax can be collected against the vast majority of uninsured Americans? Constitutional or not, the individual mandate is a bankrupt idea as Massachusetts’ experiment proves for anyone interested in empirical data.
For my part, I discussed the internal appeals and external review regulations as a part of a panel discussion on how the PPACA affects the practice of law. The interim final regulations on this topic make some huge changes in current law that are likely unwarranted by the statute. I will review some highlights in my next newsletter.
For now, congratulations to the Charleston School of Law faculty and their Federal Courts Law Review on an excellent contribution to scholarship and debate on this important policy issue.
The second prong of the Pascack test is also satisfied. Plaintiff identifies no other “independent legal duty” that would support its claims. Plaintiff’s argument that this is a “rate of payment” case is of no avail. 6 Plaintiff admits that it has no contractual relationship with any Defendants. At the same time, it argues that its right to payment is dependent upon assignments of benefits. The amount of payment (i.e., the “rate”) at issue would necessarily implicate the rates in the ERISA plans under which Plaintiff claims it has received assignments.
Sportscare of Am., P.C. v. Multiplan, Inc., 2011 U.S. Dist. LEXIS 6295 (D.N.J. Jan. 24, 2011)
The plaintiff in this case, Sportscare of America, P.C. (“Plaintiff”), is a physical therapy facility. The plaintiff filed its complaint in New Jersey Superior Court, naming twenty-one insurance providers and one medical claim processing company.
The gravamen of the complaint, “couched in terms of fraud, negligence, and interference with contract,” consisted of a claim for additional reimbursement.
In short, Plaintiff submitted claims to the health insurers and received some payment but at a rate that it claims is improper. Plaintiff apparently sues for the difference between what Plaintiff was paid and what it thinks it should have been paid on various insurance claims . . .
ERISA intrudes upon these controversies, of course, and requires its due, whether in argument and satisfaction that it does not apply, or in acknowledgment that it does and the consequences that flow from that fact. In this case, ERISA claimed the field.
The Third Circuit has some distinctive and influential case law on provider reimbursement issues stemming from Pascack Valley Hosp., Inc. v. Local 464A UFCW Welfare Reimbursement Plan, 388 F.3d 393 (3d Cir. N.J. 2004).
In this case, however, the Court found most important the lack of foundation for removal of the case to federal court.
On its face, the Hospital’s complaint does not present a federal question. Rather, the complaint asserts state common law claims for breach of contract. The complaint does not expressly refer to ERISA and the rights or immunities created under ERISA are not elements, let alone essential elements, of the plaintiff’s claims. The possibility–or even likelihood–that ERISA’s pre-emption provision, 29 U.S.C. § 1144(a), may pre-empt the Hospital’s state law claims is not a sufficient basis for removal.
So the defendant’s removal was found wanting inasmuch as the only claims asserted by the plaintiff were state law claims. Undoubtedly, the court could have found the image of a claim for benefits here. Had the defendant proved assignments of benefits the matter may turned out that way. But no assignments were before the court in the removal papers.
The court observed that:
As the party seeking removal, the Plan bore the burden of proving that the Hospital’s claim is an ERISA claim. Accordingly, the Plan bore the burden of establishing the existence of an assignment. The Plan concedes that the record contains no evidence of an express assignment, whether oral or written, from either Psaras or Rovetto to the Hospital.
The mere argument that assignments should be assumed from the facts did not carry any weight.
The Plan argues that the Hospital’s claims arise under “the federal common law” of ERISA. On several occasions, we have predicated jurisdiction on a plaintiff’s invocation of the federal common law of ERISA.
Here, the Hospital’s complaint asserts a state law claim for breach of contract, and the federal common law of ERISA does not provide an element–essential or otherwise–of such a claim. The Plan may be correct that, in interpreting the Subscriber Agreement, the federal common law of ERISA displaces state law.
The capstone of the court’s decisional analysis rested on a key principal of preemption jurisprudence:
Nevertheless, potential defenses, even when anticipated in the complaint, are not relevant under the well-pleaded complaint rule.
Note: The importance of assignments varies from jurisdiction to jurisdiction. This case illustrates that attachment of assignments to the removal papers (if they are available) is a good practice.
Testimony as to business practice may not carry the day:
The Plan offers the certification of Kathy Pridmore, the Plan’s Director of Medical Benefits, to support a finding of an assignment. Pridmore broadly declares that, in her experience, the Plan has “consistently followed the claims and claim review procedures” contained in the Summary Plan Description. The Plan argues that Pridmore’s declaration constitutes evidence of “routine practice” that supports an inference of an assignment. See Fed. R. Evid. 406. We disagree. Pridmore does not declare that the Plan routinely receives assignments prior to payment. In her recitation of the Plan’s “standard procedure for processing claims,” she does not even mention the execution of assignments by Plan participants or beneficiaries. As such, Pridmore’s certification cannot establish a routine practice relevant to this appeal, let alone satisfy the Plan’s burden of establishing federal subject-matter jurisdiction by a preponderance of the evidence.
On Remand – The plan can still argue ERISA preemption as a defensive proposition in state court. It just failed to justify complete preemption warranting removal.
Practice Pointer - This case suggests that a provider reimbursement case filed in state court may have some advantages, subject to the point noted above regarding the situation on remand.
See also: Beach Erosion On The ERISA Waterfront
Adam B. Gartner, Fordham University – School of Law, has published a note, “Protecting the ERISA Whistleblower: The Reach of Section 510 of ERISA” in the Fordham Law Review, Vol. 80, Fall 2011. The Note “addresses the unresolved circuit split over the reach of ERISA’s whistleblower protection provisions.”
Gartner, Adam B., Protecting the ERISA Whistleblower: The Reach of Section 510 of ERISA (January 24, 2011). Fordham Law Review, Vol. 80, Fall 2011.
The Note is Available at SSRN as a part of the Accepted Paper Series:
Johnson Controls v. Flaherty, 2011 U.S. App. LEXIS 969 (11th Cir.) (January 18, 2011) (unpublished) presents a typical subrogation scenario. The plan brought suit under 29 U.S.C. § 1132(a)(3), for medical benefits that the employee benefits plan, Johnson Controls, Inc. Welfare Plan (“the Plan”), had paid resulting from a bicycle injury. The Defendant had successfully settled a personal injury case and recovered proceeds for the injury from a third party.
The defendant and his lawyer argued that attorneys’ fees and costs incurred in obtaining the settlement — amounting to $14,467.44 — must be deducted from the settlement proceeds before the funds are subject to the Plan’s reimbursement claim.
In a short unpublished opinion, the Court disagreed, stating:
Section 6.06 of the Plan expressly provides, however, that when an employee receives benefits under the Plan and thereafter recovers for his injuries from a third party, the Plan “has the right to be reimbursed for such benefits in full,” and “no portion of the [Plan]‘s recovery shall be reduced by the fees or costs (including attorney’s fees) associated with any claim, lawsuit, or settlement agreement in connection with any recovery, without the express written consent of the Plan Administrator no portion of the [Plan]‘s recovery shall be reduced by the fees or costs (including attorney’s fees) associated with any claim, lawsuit, or settlement agreement in connection with any recovery, without the express written consent of the Plan Administrator.” (Emphasis added). The Summary Plan Description also plainly says that the Plan “ha[s] the right to be reimbursed in full before any amounts (including attorneys’ fees) are deducted from any policy, proceeds, judgment or settlement,” and that the Plan’s “right to . . . reimbursement takes preference over any other claims against the recovery, . . . regardless of how settlement proceeds are characterized.”
Where the terms of an ERISA plan are clear and unambiguous — as they are here — we must enforce them as written. See Zurich Am. Ins. Co. v. O’Hara, 604 F.3d 1232, 1239 (11th Cir. 2010) (holding that “full reimbursement according to the terms of the Plan’s clear and unambiguous subrogation provision [wa]s necessary . . . to effectuate ERISA’s policy of preserving the integrity of written plans”). The district court correctly applied the unambiguous terms of the Plan, requiring Flaherty to reimburse Johnson Controls for the entire amount it paid in medical expenses on Flaherty’s behalf, without deduction for attorneys’ fees and costs.
In the present case, the plaintiff asserts its procedural challenge on the grounds that, given the different versions of the administrative record produced during discovery, many of which lacked important medical records initially provided by the plaintiff, it is impossible to determine what comprises the full administrative record on which the defendants relied when denying the plaintiff’s claim. The Court concludes that this claim justifies discovery beyond the administrative record. The plaintiff’s allegation that the defendants may have failed to consider significant portions of the record may give rise to a procedural challenge of the kind discussed in Killian and may also give rise to an inference of a structural conflict of interest.
Pediatric Special Care, Inc. v. United Med. Res. (UMR), 2011 U.S. Dist. LEXIS 3795 ( E.D. Mich. Jan. 14, 2011)
In review of benefit denials, the federal judiciary treats the plan administrator’s determination as it would that of a administrative agency. Never mind that ERISA does not require or even mention this sort of deference. In any event, it follows on this train of thought that evidence considered in judicial review should be limited to the “administrative record”, i.e., the evidence before the plan administrator.
Nonetheless, discovery may be available in the case of procedural irregularities, as indicated above, or into possible conflicts of interest. Typically, some sort of evidentiary showing is required as a predicate.
For example, as noted in the Michigan case cited above, “in the context of a procedural challenge to an administrator’s decision, some discovery of evidence not contained in the administrative record is permissible.” In short,
The district court may consider evidence outside of the administrative record only if that evidence is offered in support of a procedural challenge to the administrator’s decision, such as an alleged lack of due process afforded by the administrator or alleged bias on its part. This also means that any prehearing discovery at the district court level should be limited to such procedural challenges.
This exception stems from a form of due process:
The Sixth Circuit has held in the procedural challenge context that due process is denied when the administrator fails to provide the insured with proper notice under the plan’s hearing procedures, VanderKlok v. Provident Life & Accident Ins. Co., 956 F.2d 610, 617 (6th Cir. 1992), and when the administrator refuses to consider evidence favorable to the insured while actively seeking out and considering evidence unfavorable to the insured, Killian v. Healthsource Provident Adm’rs, Inc., 152 F.3d 514, 522 (6th Cir. 1998).
Of course, the “due process” consists of the full and fair review requirements of ERISA, not constitutional due process. (I do not believe there is sufficient state action involved to invoke constitutional due process, at least prior to the PPACA.)
Another recent case to this effect is Dandridge v. Raytheon Co., 2010 U.S. Dist. LEXIS 5854 (D.N.J. 2010)
Aside from this category, some courts have permitted discovery 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).
See also, 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) and McGahey v. Harvard University Flexible Benefits Plan, Civil Action No. 08-10435-RGS September 14, 2009.
Note: The PPACA does not directly alter ERISA jurisprudence in this area but the possibility of external review process may indirectly affect the scope of the administrative record.
Alexander A. Reinert, Assistant Professor of Law, Benjamin N. Cardozo School of Law, has published a meticulously researched article that examines effects of the heightened pleading requirements under recent United States Supreme Court jurisprudence.
Entitled “The Costs of Heightened Pleading”, the article appears in the Winter 2011 issue of the Indiana Law Journal ( 86 Ind. L.J. 119).
Professor Reinert observes that Twombly v. Bell Atlantic Corp., 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009) have created a pleading standard that “heightens attention to ‘conclusory’ pleading, treats state of mind allegations in a manner at odds with prior precedent, and encourages lower courts to apply their own intuitions to decide whether a plaintiff’s legal claims and allegations are sufficient to proceed to discovery.”
Have these developments aided judicial economy and the cause of justice by eliminating a measurable number of meritless claims? Through a carefully designed research project, this work parses ”empirical data to question the widespread assumptions about the costs and benefits of heightened pleading.” This work illustrates a gap in the supposed link between the heightened pleading standards and filtering of meritorious claims.
Nor does the heightened pleading standard come without costs. In this regard, the author suggests “a heightened pleading standard may function in the same way that randomized dismissal would, amounting to a radical departure from pleading standards that few would find satisfactory.”
See, Reinert, Alex A., The Costs of Heightened Pleading (August 16, 2010). Indiana Law Journal, Vol. 86, 2011; Cardozo Legal Studies Research Paper No. 307.
Available at SSRN: http://ssrn.com/abstract=1666770
ERISA provides federal courts with jurisdiction to review benefits determinations made by fiduciaries or plan administrators. 29 U.S.C. § 1132(a)(1)(B); see also Lopez ex rel. Gutierrez v. Premium Auto Acceptance Corp., 389 F.3d 504, 509 (5th Cir. 2004). A district court’s function when reviewing ERISA claims is like an appellate court’s.
“[The court] does not take evidence, but, rather, evaluates the reasonableness of an administrative determination in light of the record compiled before the plan fiduciary.” Leahy v. Raytheon Co., 315 F.3d 11, 18 (1st Cir.2002). Courts cannot consider additional evidence “resolve the merits of the coverage determination—i.e. whether coverage should have been afforded under the plan-unless the evidence is in the administrative record, relates to how the administrator has interpreted the plan in the past, or would assist the court in understanding medical terms and procedures.” Crosby v. La. Health Serv. & Indem. Co., — F.3d —, No. 10-30043, 2010 U.S. App. LEXIS 26323, *8, 2010 WL 5356498 (5th Cir. Dec. 29, 2010). A claimant is not permitted to explore, through discovery in an ERISA lawsuit, what information a plan administrator “should have considered” in making its benefits determination, as opposed to analyzing the information that the plan administrator “did consider” in making its decision. Griffin, 2005 U.S. Dist. LEXIS 18720, 2005 WL 4891214, at *2.
Bullard v. Life Ins. Co. of N. Am., 2011 U.S. Dist. LEXIS 47 (S.D. Tex. Jan. 3, 2011)
In this claim for accidental death benefits, a factual dispute arose over policy exclusions given the circumstances of death. The deceased, Darnell Berryman, died six days after receiving 17 stitches for a knife wound to his face. He was on prescribed medication after the stitches but h also had a history of sleep anea. The death certificate and autopsy report listed the cause of death as “Acute Toxicity due to the Combined Effects of Hydrocodone, Alprazom, Carisprodol, and Promethazine.”
As explained in more detail below, the carrier denied the parents’ claim for death benefits. The issue before the court, however, was not simply whether that denial should be overturned.
In fact, the insurer and the claimants agreed that further proceedings were appropriate before judicial review — they just couldn’t agree on the extent of those proceedings. [Read more...]
The NAIRO released a white paper covering a number of points on the new external review requirements. A press release on the white paper appears here.
Under the DOL’s point of view, the decision of the external review organization is binding. In other words, if Sue Smith requests external review of a benefit denial, the external review organization’s decision will be the final word, absent further judicial review to the extent available.
The drafters of the interim guidance show a woeful lack of perspective on the existing state of the law under Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989) and ancillary legal concerns over fiduciary status and deference in judicial review. [Read more...]
From the Employee Benefit Security Administration’s website:
EBSA Unified Agenda Entries
DOL Fall 2010 Semi-Annual Agenda
- 1210-AB33 — Lifetime Income Options for Participants and Beneficiaries in Retirement Plans — Prerule Stage
- 1210-AB46 — Automatic Enrollment in Health Plans of Employees of Large Employers Under FLSA Section 18A — Prerule Stage
- 1210-AB18 — Annual Funding Notice — Proposed Rule Stage
- 1210-AB20 — Pension Benefit Statements — Proposed Rule Stage
- 1210-AB32 — Definition of “Fiduciary” — Proposed Rule Stage
- 1210-AB37 — Improved Fee Disclosure for Welfare Plans — Proposed Rule Stage
- 1210-AB38 — Target Date Disclosure — Proposed Rule Stage
- 1210-AB39 — Amendment to Claims Procedure Regulation — Proposed Rule Stage
- 1210-AB48 — Ex Parte Cease and Desist and Summary Seizure Orders Under ERISA Section 521 — Proposed Rule Stage
- 1210-AB08 — Improved Fee Disclosure for Pension Plans — Final Rule Stage
- 1210-AB35 — Statutory Exemption for Provision of Investment Advice — Final Rule Stage
- 1210-AB41 — Group Health Plans and Health Insurance Issuers Relating to Dependent Coverage of Children to Age 26 Under the Patient Protection and Affordable Care Act — Final Rule Stage
- 1210-AB44 — Group Health Plans and Health Insurance Issuers Relating to Coverage of Preventive Services Under the Patient Protection and Affordable Care Act — Final Rule Stage
- 1210-AB49 — Prohibited Transaction Exemption Procedures — Final Rule Stage
- 1210-AB30 — Mental Health Parity and Addiction Equity Act — Long-Term Actions
- 1210-AB42 — Group Health Plans and Health Insurance Coverage Relating to Status as a Grandfathered Health Plan Under the Patient Protection and Affordable Care Act — Long-Term Actions
- 1210-AB43 — Preexisting Condition Exclusions, Lifetime and Annual Limits, Rescissions and Patient Protections Under the Affordable Care Act — Long-Term Actions
- 1210-AB45 — Group Health Plans and Health Insurance Issuers Relating to Internal and External Appeals Processes Under the Patient Protection and Affordable Care Act — Long-Term Actions
- 1210-AB47 — Amendment of Abandoned Plan Program — Long-Term Actions
- 1210-AA54 — Regulations Implementing the Health Care Access, Portability, and Renewability Provisions of the Health Insurance Portability and Accountability Act of 1996 Completed Actions
- 1210-AB07 — Improved Fee Disclosure for Pension Plan Participants — Completed Actions
- 1210-AB15 — Time and Order of Issuance of Domestic Relations Orders — Completed Actions
- 1210-AB34 — Definition of “Welfare Plan” — Completed Actions
- 1210-AB36 — Genetic Information Nondiscrimination; Penalties for Noncompliance — Completed Actions
- 1210-AB40 — Children’s Health Insurance Program: Notice Requirements for Employers — Completed Actions
The new group health plan external review requirements require analysis on several levels.
Some of the more obvious issues involve whether the external review requirements apply, and if so, whether state or federal external review requirements will apply. As the note below suggests, these issues are just the beginning of the analysis.
Unless grandfathered, a group health plan must comply with either a federal or a state external review process. Thus, the first level of inquiry might be something like this:
#1 Is the plan a grandfathered plan? If so, the rules don’t apply.
#2 Does a state law external review process apply to the plan?
Point #2 involves consideration of several factors. As a general matter, plans that provide coverage through health insurance are typically subject to state external review laws (due to ERISA’s savings clause – see Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355 (2002)).
On the other hand, the state external review process must be equivalent to the minimum requirements imposed by the interim procedures for external review . . . so if the state law does not comport with the minimum standards set forth in the interim regulations, then the federal external review procedures apply.
#3 Is the plan a governmental plan, a church plan or a multiple employer welfare arrangement (“MEWA”)? If so, a state external review process may apply.
Point # 3 will require careful consideration – first, to ascertain the plan’s status under ERISA, second, to determine if state external review processes could apply, and third, even if they might otherwise apply, whether the state external review process meets the minimum standards.
A plan or issuer is subject to the Federal external review process where the State external review process does not meet, at a minimum, the consumer protections in the NAIC Uniform Model Act, as well as where there is no applicable State external review process.
Note: The requirement of external review poses a major change in plan administration for self funded ERISA plans. Moreover, several important additional issues remain to be sorted out.
For example, under the interim guidance, the standards will:
provide that an external review decision is binding on the plan or issuer, as well as the claimant, except to the extent other remedies are available under State or Federal law.
If an external review affirms the benefit denial, the regulations appear to contemplate that the decision can be challenged in a claim for benefits under ERISA (Section 1132(a)(1)(B)). What, however, are the plan’s options if the external review is in favor of the participant?
The quoted language above suggests that the external review decision must be binding – but then further adds the proviso regarding remedies under federal law. The form of the plan challenge to the external review decision is not clear from the regulations.
Further, assuming that the employer challenges the decision in federal court, does the independence of the external review become a factor to be reviewed under the analysis in MetLife v. Glenn? Does it serve, for example, to mitigate a conflict of interest whether the plan fiduciary both adjudicate claims and pays benefits?
Similar issues have arisen in the context of state external review statutes requiring “binding” external review. These administrative regimes raise substantial questions of due process and separation of powers.
I anticipate supplementing this line of inquiry with research acquired during work on an upcoming law review article. In the meantime, the interim rules remain the only official source of guidance and careful regard should be given to the effective dates and the technical releases concerning implementation.
More on this later, but Judge Henry Hudson has ruled that the PPACA individual mandate is unconstitutional:
Judge Henry E. Hudson ruled Monday for the state’s claim that the requirement for people to purchase health care exceeds the power of Congress under the Constitution’s Commerce Clause or under the General Welfare Clause.
The opinion can be read here:
Thus, in a nutshell, Blue Cross lowered rates for its own subsidiary by effectively raising them for Flagstar and other self-insured plans. The letter agreements between Blue Cross and the hospitals spell out these facts in black and white.
But that does not mean that Flagstar knew about the deals. To the contrary, Blue Cross has admitted (in interrogatory responses in this case) that it never told Flagstar it had raised the Plan’s rates in order to lower them for its own subsidiary. And it appears that Flagstar was otherwise clueless about the change, because Blue Cross did not provide backup data for the bottom-line charges it sent Flagstar each month.
Deluca v. Blue Cross Blue Shield of Mich., 2010 FED App. 0371P (6th Cir.) (6th Cir. Mich. Dec. 8, 2010), Kethledge, J, dissenting.
This unpublished Sixth Circuit opinion spotlights a business practice that rarely gets such close scrutiny. A Blue Cross subsidiary failed to meet its profitability numbers which inspired the idea to lower its reimbursement rates.
That solution did not sit well with health care providers, of course, so Blue Cross promised to make the transaction “budget neutral” in this way:
BCBSM agreed to make the rate adjustments budget-neutral for the health-care providers by increasing the PPO and traditional plan rates to make up for the decrease in the HMO rates. Some of these rate adjustments were retroactive to the beginning of the year in which they were negotiated.
A plan participant in one of the self-funded plans Blue Cross administered sued Blue Cross alleging breach of fiduciary duty.
DeLuca, a practicing attorney in Grosse Point Park, Michigan, was a beneficiary of the Flagstar Bank Group Health Plan through his wife’s participation as a Flagstar Bank employee. In 2006, he filed the present action against BCBSM alleging that BCBSM violated its duties as a fiduciary under two provisions of ERISA, 29 U.S.C. § 1104 and § 1106(b), by agreeing to increase its traditional and PPO plan rates in exchange for decreases in the HMO rates.
The district court granted Blue Cross’ motion for summary judgment, concluding that BCBSM was not acting as a fiduciary for the Flagstar Plan when it negotiated the rate adjustments, and DeLuca appealed.
On appeal the issues were:
#1 What Blue Cross acting as an ERISA fiduciary under 29 U.S.C. § 1104 when it negotiated the rate changes?; and
#2 Must Blue Cross be “acting in a fiduciary capacity” to be liable under 29 U.S.C. § 1106(b)(2)?
[which provides that "A fiduciary with respect to a plan shall not . . . in his individual or in any other capacity act in any transaction involving the plan on behalf of a party (or represent a party) whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries."]
Not Acting As A Fiduciary
The Court held that Blue Cross was not in fact acting as a fiduciary when it negotiated the rates with providers.
We conclude, as did the district court, that BCBSM was not acting as a fiduciary when it negotiated the challenged rate changes, principally because those business dealings were not directly associated with the benefits plan at issue here but were generally applicable to a broad range of health-care consumers.
The Court concluded that “a business decision that has an effect on an ERISA plan not subject to fiduciary standards.”In this case, the “conduct at issue” clearly falls into the latter category, “a business decision that has an effect on an ERISA plan not subject to fiduciary standards.
. . . And Thus Not Liable For A Prohibited Transaction
The Court held that the foregoing conclusion defeated the prohibited transaction claim, stating that:
DeLuca’s argument, as we understand it, is that the terminology “in any other capacity” imposes liability on a fiduciary even when not acting in a fiduciary capacity, at least with regard to those activities prohibited by section 1106. Such an interpretation, however, flies in the face of our holding that, “by its own terms, § 1106 applies only to those who act in a fiduciary capacity.” Hunter, 220 F.3d at 724. Because BCBSM was not acting in a fiduciary capacity when it negotiated the rate changes at issue in this case, BCBSM did not violate § 1106(b)(2).In this case, the “conduct at issue” clearly falls into the latter category, “a business decision that has an effect on an ERISA plan not subject to fiduciary standards.”
Note: The dissent saw the matter as involving factual issues that made the case one for trial, not summary judgment. In a thoughtful opinion, Judge Kethledge wrote:
Whether Blue Cross functioned as a fiduciary when it established and maintained provider networks for Flagstar depends on how one characterizes their agreement. DeLuca says—and I think no one disagrees—that the function of negotiating rates with provider hospitals surely would have been fiduciary in nature had the Plan’s trustees kept that function in-house; and in DeLuca’s view, the Contract merely delegated that function from the trustees to Blue Cross. He therefore contends that Blue Cross was acting as a fiduciary when, as part of the services it provided under the Contract, it negotiated rates for the Plan. In contrast, Blue Cross argues that it actually provided a product—off-the-shelf access to its provider network at whatever rates Blue Cross cared to negotiate with them—rather than services.
The difference matters because, while selling a product tends not to create fiduciary duties under ERISA, providing services quite frequently does. And that is especially true for discretionary services that directly impact a plan’s finances. The nub of this case, therefore, is which conception of the parties’ agreement is right.
I do not think this issue is one we can fairly decide—at least in Blue Cross’s favor—as a matter of law.
29 U.S.C. § 1106(b)(2) - The dissent also disagreed on the elements required for a prohibited transaction under this provision, stating:
In Pegram v. Herdrich, 530 U.S. 211 (2000), the Supreme Court stated that, “[i]n every case charging breach of ERISA fiduciary duty, then, the threshold question is . . . whether that person was acting as a fiduciary (that is, was performing a fiduciary function) when taking the action subject to complaint.” Id. at 226 (emphasis added). But Pegram was only a § 1104 case, so that statement is pure dicta as to § 1106(b)(2).
A similar statement by our court, however, cannot be so characterized. In Hunter v. Caliber System, Inc., 220 F.3d 702 (6th Cir. 2000), we said that, “by its own terms, § 1106 applies only to those who act in a fiduciary capacity.” Id. at 724. The Hunter court characterized that statement as a holding (albeit an alternative one), and I cannot fairly recast it as dicta. It is binding precedent for our circuit.
Policy Issues – The dissent reviewed the policy issues raised by Blue Cross and proposed some interesting rebuttals. In the end, however, Judge Kethledge concluded that:
More fundamentally, I reject the unspoken premise of the preceding two arguments, which is that we should be acutely concerned about Blue Cross’s business model in the first place. Cases have consequences, and we should be mindful of them. But our task in this case is not to divine the business model that best serves the plans’ interests and those of everyone else; our task, instead, is the comparatively simple one of determining whether the letter deals violated ERISA. The wisdom of business models can be determined elsewhere.
The Courts of Appeals disagree as to whether Varity prohibits a plaintiff from simultaneously pursuing equitable relief pursuant to Section 502(a)(3) and benefits due under the terms of the plan pursuant to Section 502(a)(1)(B). The Third Circuit has not ruled on the issue, and district judges within the Third Circuit are split.
Trechak v. Seton Co. Supplemental Exec. Ret. Plan, 2010 U.S. Dist. LEXIS 124750 (E.D. Pa. Nov. 24, 2010)
This recent district court opinion addresses several recurring issues about available civil remedies under ERISA. The facts involve a “top hat” plan which is essentially a supplemental retirement benefit plan. The issues were presented in the context of a motion to dismiss.
The district court ultimately permitted the plaintiff to plead a claim for benefits under the terms of the plan (ERISA Section 502(a)(1)(B)) as well as equitable relief under ERISA Section 502(a)(3). The court noted a division in the Third Circuit among the district courts.
Before arriving at that analysis, however, the Court had to determine whether the plaintiff’s claim for equitable relief was preempted. The Court determined that it was not, stating:
Plaintiff has conceded that his unjust enrichment claim is preempted to the extent it is grounded in state law, as discussed above . . . However, Plaintiff contends that the claim survives as a claim for equitable relief under ERISA. Plaintiff clarified in his Response brief that Count Four was pled in the alternative as an ERISA claim for equitable relief pursuant to 29 U.S.C. § 1132(a)(3)(B) (“Section 502(a)(3)”).
In Nagy v. De Wese, 705 F. Supp. 2d 456 (E.D. Pa. 2010) (Yohn, J.), the plaintiff, whose benefit payments pursuant to an ERISA plan had ceased, clarified in his response to the defendant’s motion for judgment on the pleadings that his unjust enrichment claim was “more properly characterized as a demand for equitable relief” under Section 502(a)(3). Id. at 461. Judge Yohn held that the unjust enrichment claim, as pled in the alternative as a claim for equitable relief, was not preempted. Id.
Here, as in Nagy, Plaintiff has clarified that his unjust enrichment claim was pled in the alternative as a claim for equitable relief pursuant to Section 502(a)(3).
The Plaintiff’s next hurdle appeared in the frequently encountered defense that the equitable relief claim was unavailable because the Plaintiff had asserted a claim for benefits.
. . . the Court must determine whether Plaintiff can plead a Section 502(a)(3) claim simultaneously with his claim in Count One for wrongful denial of benefits under 29 U.S.C. § 1132(a)(1)(B) (“Section 502(a)(1)(B)”).
Since Varity Corp. v. Howe, 516 U.S. 489, 116 S. Ct. 1065, 134 L. Ed. 2d 130 (1996) held that Section 502(a)(3) is a “catchall” provision that “offer[s] appropriate equitable relief for injuries caused by violations that § 502 does not elsewhere adequately remedy”, courts have often held that (a)(3) claims cannot be asserted where a claim for benefits has also been asserted.
The district court distinguished Varity, however, and permitted the (a)(3) claims to stand, at least at this stage of the proceedings, stating:
The Courts of Appeals disagree as to whether Varity prohibits a plaintiff from simultaneously pursuing equitable relief pursuant to Section 502(a)(3) and benefits due under the terms of the plan pursuant to Section 502(a)(1)(B).
The Third Circuit has not ruled on the issue, and district judges within the Third Circuit are split. For example, in Parente v. Bell Atlantic Pennsylvania, No. Civ. A. 99-5478, 2000 U.S. Dist. LEXIS 4851, 2000 WL 419981 (E.D. Pa. Apr. 18, 2000), Judge Reed held that “under Varity, a plaintiff is only precluded from seeking equitable relief under § 1132(a)(3) when a court determines that plaintiff will certainly receive or actually receives adequate relief for her injuries under § 1132(a)(1)(B) or some other ERISA section.” 2000 U.S. Dist. LEXIS 4851, [WL] at *3.
Judge Reed found that Fed. R. Civ. P. 8(e) specifically contemplated pleading in the alternative. Id. Therefore, Judge Reed reserved judgment on “the question of whether (and what kind of) equitable relief under § 1132(a)(3) is appropriate” until later in the litigation, when it could be determined “whether § 1132(a)(1)(B) will in fact provide the plaintiff adequate relief.” Id. (denying the motion to dismiss). See also Tannenbaum v. UNUM Life Ins. Co. of Am., No. Civ. A. 03-CV-1410, 2004 U.S. Dist. LEXIS 5664, 2004 WL 1084658, at *4 (E.D. Pa. Feb. 27, 2004) [*17] (Surrick, J.) (denying the motion to dismiss a claim for breach of fiduciary duty based on Section 502(a)(3) because “[a]t this stage, we cannot know whether Plaintiff will be able to prove his entitlement to benefits under § 1132(a)(1)(B)”).
If the plaintiff proceeds on both claims in the alternative, the defendant may properly reassert the argument that the plaintiff cannot recover under both ERISA sections at the summary judgment stage. Koert v. GE Grp. Life Assur. Co., No. Civ. A. 04-CIV-5745, 2005 U.S. Dist. LEXIS 14132, 2005 WL 1655888, at *3 (E.D. Pa. July 14, 2005) (Stengel, J.) (denying motion to dismiss and allowing plaintiff to proceed on claims for wrongful denial of benefits and breach of fiduciary duty simultaneously).
Note: For a contrary outcome, the Court noted the opinion in Cohen v. Prudential Ins. Co., Civ. A. No. 08-5319, 2009 U.S. Dist. LEXIS 71422, 2009 WL 2488911 (E.D. Pa. Aug. 12, 2009), where the judge ruled that held that the Plaintiff could “only permit the § (a)(3) claim to progress if the plaintiff can demonstrate that § (a)(1) (B) alone may not provide an adequate remedy.” 2010 U.S. Dist. LEXIS 32166, [WL] at *4; and see Miller v. Mellon Long Term Disability Plan, Civ. A. No. 09-1166, 2010 U.S. Dist. LEXIS 63167, 2010 WL 2595568, at *6 (W.D. Pa. June 25, 2010)
Other Circuits – The Court noted decisions in Katz v. Comprehensive Plan of Group Ins., 197 F.3d 1084, 1088 (11th Cir. 1999), Tolson v. Avondale Indus., Inc., 141 F.3d 604, 610 (5th Cir. 1998), Frommert v. Conkright, 433 F.3d 254, 270 (2d Cir. 2006) and Forsyth v. Humana, Inc., 114 F.3d 1467, 1475 (9th Cir. 1997) which align with the Cohen reasoning.
Claim Against Individuals - The Court held that a claim for equitable relief under Section 502(a)(3) may be pled against an individual defendant, citing Harris Trust & Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 238, 120 S. Ct. 2180, 147 L. Ed. 2d 187 (2000) (“502(a)(3) admits of no limit . . . on the universe of possible defendants.”)
Section 510 Claim - I am not a big fan of Section 510 theories, but when they are appropriate then they have a place. It just seems they so often don’t. In any event, the Defendants also moved to dismiss Plaintiff’s claim for interference with benefit rights, pursuant to Section 510.
The Court noted that:
A plaintiff must make a three-pronged showing to establish a prima facie case under section 510: “1. prohibited employer conduct; 2. taken for the purpose of interfering; 3. with the attainment of any right to which the employee may become entitled.” Dewitt v. Penn-Del Directory Corp., 106 F.3d 514, 522 (3d Cir. 1997) (quoting Gavalik v. Cont’l Can Co., 812 F.2d 834, 852 (3d Cir. 1987)).
. . .
In this case, Plaintiff does not allege that he was discharged, fined, suspended, expelled, or disciplined by his employer. Furthermore, Plaintiff has not pled facts that show unlawful discrimination within the employer-employee relationship, such as demotion or termination. Plaintiff’s allegations that Defendants decided to suspend payments owed him, improperly influenced the Plan Administrators, and sent him an unauthorized notice terminating his benefits all pertain to actions outside of the employer-employee relationship for purposes of Section 510. Id
Thus, the Court provides a kind of roadmap for what a Section 510 claim has to look like – if it can fit the facts.
(I uploaded this case on erisaboard.com)
The federal agencies regulating under the PPACA have determined that changing issuers should not result in a loss of a plan’s grandfathered status.
The new guidance was anticipated inasmuch as a change in insurers is frequently necessary and the distinction between self-funded plans (that could change claims administrators) and insured plans (which heretofore could not change insurers) was arbitrary and senseless. Individual insurance policies remain subject to the rule forbidding changes in insurers.
From the fact sheet on the new guidance:
On June 17th, the Departments of Health and Human Services, Labor, and the Treasury (the Departments) issued the “grandfather” regulation which, by addressing how health plans can retain a “grandfathered” exemption from certain new requirements, helps protect Americans’ ability to keep their current plan if they like it. At the same time, Americans in grandfathered plans will receive many of the added benefits that the new law provides. The regulation also minimizes market disruption and helps put us on a path toward the competitive, patient-centered market of the future.
The grandfather regulation includes a number of rules for determining when changes to a health plan cause the plan to lose its grandfathered status. For example, plans could lose their grandfather status if they choose to make certain significant changes that reduce benefits or increase costs to consumers. This amendment modifies one aspect of the original regulation.
Previously, one of the ways an employer group health plan could lose its grandfather status was if the employer changed issuers – switching from one insurance company to another. The original regulation only allowed self-funded plans to change third-party administrators without necessarily losing their grandfathered plan status. Today’s amendment allows all group health plans to switch insurance companies and shop for the same coverage at a lower cost while maintaining their grandfathered status, so long as the structure of the coverage doesn’t violate one of the other rules for maintaining grandfathered plan status.
(cross posted on erisaboard.com)
The amendment to the interim rule can be read in its entirety here.
It appears that the individual mandate under the PPACA may be headed for rough sailing. Here is an excerpt from an opinion today in which the Obama administration’s motion to dismiss was denied.
The government has never required people to buy any good or service as a condition of lawful residence in the United States.” See Congressional Budget Office Memorandum, The Budgetary Treatment of an Individual Mandate to Buy Health Insurance, August 1994 (emphasis added). Of course, to say that something is “novel” and “unprecedented” does not necessarily mean that it is “unconstitutional” and “improper.” There may be a first time for anything. But, at this stage of the case, the plaintiffs have most definitely stated a plausible claim with respect to this cause of action.
You can pick up a link to the opinion and other pertinent information here.
The Employee Benefit Security Administration has published several “frequently asked questions” installments. These FAQ’s supplement the several interim rules providing guidance on some of the many vague standards set forth in the PPACA.
The regulatory effect of a FAQ is perhaps an untested legal point, but presumably the FAQ’s give some insight on the intentions of the regulators as they contemplate promulgation of further regulations under the PPACA. I have added a resources page that contains a collation of three FAQ installments published on the EBSA website. You may access that page here.
Here, US Airways seeks the restoration of particular funds, the lawsuit settlement and UIM benefits, as distinct from McCutchen’s general assets, traceable to the Plan and subject to an equitable lien for the benefit of the Plan. Therefore, even if the monies paid to McCutcheon are not specifically traceable to McCutchen’s current assets because of commingling or dissipation, such monies remain subject to the Plan’s equitable lien.
U.S. Airways v. James McCutchen et al, (W.D. Pa.) (August 30, 2010)
This is a very significant opinion addressing ERISA health plan subrogation. I uploaded the opinion on erisaboard.com and this is a cross-post of the commentary on the case.
U.S. Airways v. James McCutchen et al presents a set of facts typical of an ERISA health plan subrogation case. After suffering injuries in an automobile accident, James mcCutchen engages plaintiff’s counsel, “RL&P” for purposes herein, and ultimately settles his case:
|McCutchen’s claims were eventually settled for $10,000.00 from the driver whose vehicle struck McCutchen’s, and $100,000.00 in underinsured motorist benefits (the “UIM Claim”), the limits of the policy, under McCutchen’s automobile insurance policy.|
McCutchen rejected the ERISA plan’s reimbursement claims. Upon receipt of settlement funds, RL&P deducted its fee and a proportionate share of the expenses from the total settlement and placed $41,500.00 in its trust account for any lien against McCutchen found to be valid.
The plan sues for reimbursement under the terms of 29 U.S.C. 1132(a)(3). In the suit, the plan seeks the $41,500.00 held by RL & P, as well as $25,365.82 allegedly in the possession of McCutchen.
The Court finds that the plan has properly framed its claims under ERISA:
|ERISA expressly authorizes fiduciaries of ERISA-governed plans to sue to seek redress of violations or enforce provisions of ERISA or of particular plans. 29 U.S.C. § 1132(a)(3). Further, where an ERISA-governed plan seeks to impose a constructive trust or equitable lien on “particular funds or property in the defendant’s possession,” such plan is seeking equitable restitutionary relief as contemplated by ERISA under § 502(a)(3). Sereboff v. Mid-Atlantic Medical Services, 547 U.S. 356, 361-362 (2006). Here, US Airways is seeking to enforce certain subrogation/reimbursement provisions of the Plan.|
The court quickly rejects the notion of “make whole” as a defense to the plan’s claims. A more interesting issue arose in the context of whether the UIM coverage was subject to the plan’s claims:
|Defendants argue that, in the area of personal injury law, the term “third party” is universally accepted as referring to the at-fault tortfeasor. Defendants argue, therefore, that the language “[y]ou will be required to reimburse the Plan for amounts paid for claims out of any monies recovered from a third party, including, but not limited to, your own insurance company . . .” creates an ambiguity because one “cannot recover money from the third
party from one’s own insurance company.”
The Court finds the issue resolved by prior Third Circuit authority:
|In Bill Gray, the Third Circuit was presented with the same issue and found:
Bill Gray Enters. v. Gourley, 248 F.3d at 220. Similar to the language in the US Airways’ Plan, the Plan document in Bill Gray explicitly provided that reimbursement also applied “when a Covered Person recovers under an uninsured or underinsured motorist plan . . .” Id. Based upon that language, the court found that a “reasonable plan participant . . . would understand the Plan document clearly mandates any recoveries from an uninsured motorist plan are subject to reimbursement.” Id.
Based on the above, this Court finds that the term “third party” as it is used in the passage related to subrogation and reimbursement is clear and unambiguous. The Plan document clearly requires reimbursement by McCutchen of monies recovered including the UIM benefits paid by his insurance company. The Court finds that the interpretation on the Plan document was not arbitrary and capricious, and the Plan is, therefore, entitled to reimbursement from the monies McCutchen received in settlement of his tort claims including the uninsured motorist benefits received from his insurance company.
The Court then turned to the issue of attorneys’ fees. The Defendants argued that the plan had not expressly addressed this issue and that the Court should thus find deduction of attorneys’ fees from the settlement permissible. The Court rejects this argument, stating:
|A plan or agreement, however, need not specifically address attorney’s fees in order to unambiguously require full reimbursement. See Bollman Hat Co. v. Root, 112 F.3d at 117; see also Ryan by Capria-Ryan v. Federal Express Corp., 78 F.3d at 127-128. The ERISA plan in Ryan required “100% reimbursement for any plan benefits paid.” Ryan by Capria-Ryan v. Federal Express Corp., 78 F.3d at 125.
The US Airways Plan is unambiguous and requires reimbursement of any payments made by the Plan to the participant and clearly provides for subrogation to all of McCutchen’s rights of recovery. Third Circuit precedent does not permit federal common law to override a subrogation provision in an ERISA-regulated plan. US Airways, therefore, is entitled to full reimbursement of benefits paid under the Plan without reduction for the proportionate share of attorneys’ fees.
Probably the most interesting outcome of the case is the finding that the plan’s equitable lien extended to funds which had not been held in trust. The Court states that:
|Here, US Airways seeks the restoration of particular funds, the lawsuit settlement and UIM benefits, as distinct from McCutchen’s general assets, traceable to the Plan and subject to an equitable lien for the benefit of the Plan. Therefore, even if the monies paid to McCutcheon are not specifically traceable to McCutchen’s current assets because of commingling or dissipation, such monies remain subject to the Plan’s equitable lien. See e.g. Gutta v. Standard Select Trust Ins. Plans, 530 F.3d 614, 621 (7th Cir. 2008) (allowing a claim under “29 U.S.C. § 1132(a)(3) even if the benefits it paid [the beneficiary] are not specifically traceable to [the beneficiary’s] current assets because of commingling or dissipation.”); Bombardier Aerospace Employee Welfare Benefits Plan v. Ferrer, Poirot & Wansbrough, 354 F.3d 348, 350, 362 (5th Cir. 2003) (allowing an ERISA plan to recover the settlement proceeds that the plan beneficiary’s law firm had deposited into its trust account).
US Airways, therefore, has a claim for equitable relief over the “specifically identifiable” fund consisting of the $100,000.00 from the UIM Claim and the $10,000.00 from the personal injury settlement.
This decision is definitely one for plan fiduciaries and plaintiff’s attorneys to add to the “must read” stack on ERISA subrogation.
There are a number of federal criminal, civil and administrative enforcement provisions set forth in the Medicare statutes which are aimed at preventing fraudulent conduct, including hospice fraud, and which help maintain program integrity and compliance. Some of the more prominent enforcement provisions of the Medicare statutes include the following: 42 U.S.C. § 1320a-7b (Criminal fraud and anti-kickback penalties); 42 U.S.C. § 1320a-7a and 42 U.S.C. § 1320a-8 (Civil monetary penalties for fraud); 42 U.S.C. § 1320a-7 (Administrative exclusions from participation in Medicare/Medicaid programs for fraud); 42 U.S.C. § 1320a-4 (Administrative subpoena power for the Comptroller General).
Other criminal enforcement provisions which are used to combat Medicare and Medicaid fraud, including hospice fraud, include the following: 18 U.S.C. § 1347 (General health care fraud criminal statute); 21 U.S.C. §§ 353, 333 (Prescription Drug Marketing Act); 18 U.S.C. § 669 (Theft or Embezzlement in Connection with Health Care); 18 U.S.C. § 1035 (False statements relating to Health Care); 18 U.S.C. § 2 (Aiding and Abetting); 18 U.S.C. § 3 (Accessory after the Fact); 18 U.S.C. § 4 (Misprision of a Felony); 18 U.S.C. § 286 (Conspiracy to defraud the Government with respect to Claims); 18 U.S.C. § 287 (False, Fictitious or Fraudulent Claims); 18 U.S.C. § 371 (Criminal Conspiracy); 18 U.S.C. § 1001 (False Statements); 18 U.S.C. § 1341 (Mail Fraud); 18 U.S.C. § 1343 (Wire Fraud); 18 U.S.C. § 1956 (Money Laundering); 18 U.S.C. § 1957 (Money Laundering); and, 18 U.S.C. § 1964 (Racketeer Influenced and Corrupt Organizations (“RICO”)).
Joseph P. Griffith, Jr., Hospice Fraud in South Carolina & the U.S. – A Review for SC Hospice Attorneys, Lawyers, Law Firms and Qui Tam Whistleblowers (2010)
Joe Griffith is a former federal prosecutor now in private practice in Charleston, SC. Joe handles white collar crime cases and select litigation matters. I met Joe when giving a presentation on the PPACA for the South Carolina Bar last month. I have previously posted information on the criminal aspect of ERISA enforcement. Joe was kind enough to give me permission to make his article on hospice fraud available to supplement the criminal enforcement material available on this site.
I uploaded the above-referenced article on erisaboard.com in the Resources/Scholarship forum. It is an excellent resource for those seeking an overview of the False Claims Act and Qui Tam arena. (For those who are not registered with erisaboard.com, that particular forum should be open for public viewing next week .)
I hope to soon have an excerpt from a health care fraud book Joe is co-authoring with Bart Daniel, Esq., also of Charleston (and also a former federal prosecutor and U.S. Attorney), which I will make available on this site and erisaboard.com as well.
The federal and state governments are recovering billions of dollars through simultaneous criminal and civil litigation initiatives. These illustrate the issues and risks that arise under a myriad of statutory and regulatory regimes, many of which were enhanced under the PPACA.
“ERISA provides certain minimal procedural requirements upon an administrator’s denial of a benefits claim.” Wade v. Hewlett-Packard Dev. Co. LP Short Term Disability Plan, 493 F.3d 533, 539 (5th Cir. 2007). The plan administrator must “provide adequate notice in writing to any participant or beneficiary whose claim for benefits under the plan has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by the participant.” 29 U.S.C. § 1133(1).
Baptist Mem. Hosp. – Desoto v. Crain Auto., 2010 U.S. App. LEXIS 17518 (5th Cir. Miss. Aug. 19, 2010) (unpublished)
The plan fiduciary’s failure to follow the claims regulations had a surprisingly harsh effect on the outcome in this recent claim for benefits case. Neither the standard of review nor the contractual limitations period served to deflect an award of benefits, attorneys’ fees and costs in favor of the claimant.
Crain Automotive operates a series of automobile dealerships and related businesses in central Arkansas, and employs approximately 400 people. Crain Automotive sponsored a self-funded, ERISA-covered employee health plan for its employees.
CoreSource served as third party administrator and network discounts were secured for medical expenses through with NovaSys Health Network (“NovaSys”). Under the network agreements, Baptist Health Services Group and its participant, Baptist Memorial Hospital—Desoto, Inc. (“BMHD”) agreed to discount charges for all inpatient and outpatient services by 15%.
After Dennis Brown, a plan beneficiary, had two cardiac stents implanted at BMHD during a November 6 to November 8, 2003 hospital confinement, BMHD rendered billed charges in the amount of $41,316.95. Before discharge, Brown assigned his benefits under the plan to BMHD.
BMHD submitted a claim to CoreSource on December 3, 2003, in the amount of $41,316.95, minus the 15% preferred-provider discount and CoreSource adjudicated the claim. Crain did not fund the claim, however, and a dispute arose over the charges.
According to the opinion, Larry Crain (who had ultimate authority over payment) called BMHD’s billing office on April 12, 2004 and attempted to negotiate the bill. When that approach failed, Crain called the next day to say that “he [was] not going to pay” until BMHD “answer[ed] all his questions.”
After some further exchanges between the parties failed to resolve the issue, BMHD ultimately filed suit on August 25, 2005, seeking recovery of plan benefits under 29 U.S.C. § 1132(A)(1)(B). The district court t court found for BMHD in the amount of $39,751.08 plus prejudgment interest. In addition, the district court awarded BMHD half of its requested fees and all of its requested costs, for a total award of fees and costs of $110,961.48.
On appeal, Crain argued that the district court erred in four respects (the fees and costs award analysis is omitted in the following discussion).
Failure To Exhaust Administrative Remedies
The district court found that because the plan never issued a formal denial letter to BMHD, the claim was “technically and practically . . . never denied.” The Fifth Circuit agreed.
Noting that “ERISA does not require strict compliance with its procedural requirements,” the Court nonetheless found that the plan failed to meet the less demanding “substantial compliance” standard. The Court further observed that the plan failed to timey provide written notice of the denial with specific reasons tied to the pertinent plan provisions.
One Year Contractual Limitations Period
The Plan appeared to have a good defense based on a one year contractual limitations period, a period which has been sustained in many similar cases. In this case, however, the Court held that “the the Crain Plan’s one-year limitations period is unreasonable under the circumstances presented here.”
First, the one-year limitations period begins to run when a participant merely files a completed claim, potentially long before the claimant’s ERISA cause of action even accrues. The administrator’s initial denial of a claim could take as long as 90 days under the Crain Plan, depending on whether the administrator requests that the claimant submit additional information. The claimant then has an additional 180 days to administratively appeal the denial of a claim, and the administrator then has 60 days to issue a decision on the appeal. In total, the Crain Plan’s claim and internal appeal procedures could take as long as 330 days, leaving an unsatisfied claimant with only 35 days to file suit.
. . .
We know of no decisions, and Crain Automotive has pointed to none, approving such a short limitations period, particularly where the administrator utterly failed to adhere to its procedural obligations. Accordingly, we conclude that Crain Automotive’s failure to follow its obligation to properly deny the claim, coupled with its communications leading BMHD to believe that its claim was actively under consideration, caused the one-year limitations period to be unreasonably [*18] short in this case.
Standard Of Review
The plan’s argument that the district court applied an incorrect standard of review met with equally unfavorable treatment based upon the procedures applied by the plan fiduciaries in reaching its decision.
We need not consider whether Crain Automotive applied a legally correct interpretation of the plan because, even under its interpretation, Crain Automotive abused its discretion in determining that the charges were not “customary and “reasonable.”
In sum, Crain Automotive and its responsible party, Larry Crain, had no evidence upon which to base its decision to deny BMHD’s claim. Rather, Larry Crain relied only on his own speculation and uninformed assessment of the reasonableness of the charges to conclude they were not customary and were unreasonable.
Note: The dissenting judge agreed with the majority that the plan’s failure to comply with the claims regulations precluded any need for the plaintiff to exhaust administrative remedies.
On the other hand, the dissenting judge found much to disagree with in the majority opinion:
I disagree, therefore, with the majority opinion’s attempt to divorce this exhaustion analysis from its assessment of the contractual limitations period. Instead, the majority opinion assesses the contractual limitations period under a “worst case scenario” approach to conclude that a fully exhausted claim could leave a party with only thirty-five days to file suit. But that did not happen in this case. Instead, BMHD’s claim was fully accrued and exhausted upon the operation of § 2560.503-1(l). Thus, in ascertaining whether the period of limitations was “reasonable,” I would consider only how the limitations period applied under the facts of this case and not under a worst-case hypothetical.
On the reasonableness of the contractual limitations period, on the worst case analysis of when the claim accrued:
Additionally, I do not necessarily accept that thirty-five days to file suit following a thorough and complete eleven month review process would leave a party with an unreasonably short period to bring an action. Previous courts have found short periods of limitations reasonable in light of the preparation for suit afforded by the administrative processing period. See, e.g., Northlake Reg’l Med. Ctr. v. Waffle House Sys. Employee Benefit Plan, 160 F.3d 1301, 1304 (11th Cir. 1998) (finding that a ten month appeals process combined with a ninety day limitations period provided an adequate opportunity to investigate a claim and file suit).
The dissenting judge actually felt that BMHD had much longer than 35 days to file:
At the latest, BMHD was on notice that Mr. Crain was not going to adhere to the parameters of the Crain Plan on April 12, 2004. At that point, BMHD had been informed by CoreSource, the claims processor, that Mr. Crain was refusing to release payment. Moreover, on that date, Mr. Crain contacted BMHD to try to settle the outstanding debt outside of the Crain Plan’s claims review process. Thus, BMHD appears to have had approximately 214 days to file suit from the time its cause of action accrued under § 2560.503-1(l).
On the accrual on the cause of action, the dissent made a very good point about jurisdiction.
I cannot accept the majority opinion’s reasoning that “BMHD’s ERISA cause of action had not yet accrued as of October 13, 2004.” By that logic, BMHD’s claim never accrued because it has not been formally denied even now. Not only does the majority opinion’s position conflict with the aforementioned exhaustion analysis, but, taken to its logical conclusion, the majority opinion’s position suggests this matter is not yet ripe for adjudication. Thus, if that position was correct, the court would be required to dismiss this case for lack of jurisdiction.
Benefit Accrual Cases - The Fourth Circuit held that a limitations period that begins to run before the ERISA cause of action accrues is unreasonable per se. White v. Sun Life Assur. Co., 488 F.3d 240, 247 (4th Cir. 2007) (holding that a plan limitations period that “start[s] the clock ticking on civil claims while the plan is still considering internal appeals” is categorically unreasonable).
The court did not go so far as to adopt that standard and collected the following cases on the issue:
Other circuits have disagreed with the Fourth Circuit’s approach, opting instead to consider reasonableness on a case-by-case basis—even when the limitations period begins to run before a cause of action accrues. See Salisbury v. Hartford Life & Accident Co., 583 F.3d 1245, 1249 (10th Cir. 2009); Burke v. PriceWaterHouseCoopers LLP Long Term Disability Plans, 572 F.3d 76, 81 (2d Cir. 2009); Abena v. Metro. Life Ins. Co., 544 F.3d 880 (7th Cir.2008); Clark v. NBD Bank, N.A., 3 F. App’x 500 (6th Cir. 2001); Blaske v. UNUM Life Ins. Co. of Am., 131 F.3d 763 (8th Cir. 1997).
The Second Circuit in Burke concluded that we also declined to follow the Fourth Circuit’s rule with our decision in Harris Methodist. Although Harris Methodist involved a three-year limitations period that began to run with the filing a completed claim, and thus before the claimant’s ERISA cause of action accrued, we had no occasion to address this question because the parties did not dispute the reasonableness of the limitations period. See Harris Methodist, 426 F.3d at 337-38. This case similarly presents no occasion to decide the question because the limitations period is unreasonable in the circumstances of this case, even assuming arguendo that we would decline to follow the Fourth Circuit’s holding in White.
For claims administrators and fiduciaries, this case demonstrates the importance of careful attention to the claims regulations and supporting claims decision rationale on technical issues with expert opinion.
We have never considered whether § 502(a)(3) authorizes equitable reformation of an ERISA plan due to a scrivener’s error, but our case law addressing the related problem of ambiguous plan language suggests that such relief may be appropriate.
Young v. Verizon’s Bell Atl. Cash Balance Plan, 2010 U.S. App. LEXIS 16483 (7th Cir. Ill. Aug. 10, 2010)
In the typical ERISA case, the scope of relief under § 502(a)(3) poses a challenge for plan claimants. In Young v. Verizon, however, the plan sought relief under (a)(3) to avoid paying benefits according to a benefit formula that it contended contained an error.
The formula itself was rather complicated, but the facts concerning its function do not really add much to appreciation of the key point of the opinion.
The following excerpt captures the essential issue:
“People make mistakes. Even administrators of ERISA plans.” Conkright v. Frommert, 130 S. Ct. 1640, 1644, 176 L. Ed. 2d 469 (2010). This introduction was fitting in Conkright, which dealt with a single honest mistake in the interpretation of an ERISA plan. It is perhaps an understatement in this case, which involves a devastating drafting error in the multi-billion-dollar plan administered by Verizon Communications, Inc. (“Verizon”).
Verizon’s pension plan contains erroneous language that, if enforced literally, would give Verizon pensioners like plaintiff Cynthia Young greater benefits than they expected. Young nonetheless seeks these additional benefits based on ERISA’s strict rules for enforcing plan terms as written.
The interesting twist here is that the plan defended by asserting by counterclaim the right to equitable reformation of the plan. This strategy, apparently intimated as a possibility by the district court, required some foundation from the introduction of extrinsic evidence.
Taking the district court’s cue, Verizon counterclaimed for equitable reformation of the Plan to remove the second transition factor in § 16.5.1(a)(2) as a “scrivener’s error.” The court took up Verizon’s counterclaim in the second phase of the trial, in which the court conducted a de novo review of the Plan and allowed the parties to introduce extrinsic evidence on the intended meaning of § 16.5.1(a)(2). And that evidence overwhelmingly showed that the inclusion of the second transition factor was indeed a scrivener’s error.
After a survey of authorities, the court concludes that equitable relief is appropriate in this case, stating:
Although Young raises some forceful arguments, we conclude that ERISA’s rules are not so strict as to deny an employer equitable relief from the type of “scrivener’s error” that occurred here. We will accordingly affirm the district court’s judgment granting Verizon equitable reformation of its plan to correct the scrivener’s error.
Note: The surveyed authorities include the following cases:
- Mathews v. Sears Pension Plan, 144 F.3d 461 (7th Cir. 1998) (“Although the plain language of the plan suggested a benefits formula more favorable to employees, the employer offered objective, extrinsic evidence showing an “extrinsic ambiguity” in this language.”)
- Grun v. Pneumo Abex Corp., 163 F.3d 411, 420-21 (7th Cir. 1998) (“Reformation was inappropriate in Grun because the employee relied on the literal plan language to predict his right to severance compensation.”)
- Int’l Union v. Murata Erie N. Am., Inc., 980 F.2d 889, 907 (3d Cir. 1992) (“Third Circuit . . . found equitable reformation appropriate because holding the employer to the scrivener’s error would produce “what is admittedly a ‘windfall’”)
- Wilson v. Moog Auto., Inc. Pension Plan, 193 F.3d 1004, 1008-10 (8th Cir. 1999) (“Reformation was possible because extrinsic evidence showed that none of the plaintiffs actually relied on the erroneous plan language or believed that they would be eligible for early retirement.”)
- Cinelli v. Sec. Pac. Corp., 61 F.3d 1437, 1444-45 (9th Cir. 1995) (rejecting an employee’s claim that the absence of a plan provision entitling him to vested life insurance benefits was a mistake)
- Blackshear v. Reliance Standard Life Ins. Co., 509 F.3d 634, 643-44 (4th Cir. 2007), abrogated on other grounds as stated in Williams v. Metro. Life Ins. Co., Nos. 09-1025 & 09-1568, 2010 U.S. App. LEXIS 13328, 2010 WL 2599676, at *5 (4th Cir. June 30, 2010) (court declines to equitably reform an ERISA plan where the plan language was clear and neither the summary plan description nor other plan documents supported the employer’s claim of a scrivener’s error.)
Recurring factors noted in the cases are the potential for windfall, reliance by the parties (with some attention to administrative practice) and the parties’ expectations.
As Tennyson said, “the old order changeth, yielding place to new”, and so it is in claims appeals after the PPACA. This is one of several segments on the claims appeals and review process for health plans after the new legislation.
In this segment, let’s look at the appeal process. Before the PPACA, ERISA only mandated internal review. Regulations on that process were promulgated.
Nothing is lost here in the new law. PHS Act section 2719 provides that plans and issuers must initially incorporate the internal claims and appeals processes set forth in 29 CFR 2560.503–1.
So much for the old order. Now what about the new?
Under the new law, the plan must give notice in a “culturally and linguistically appropriate manner” of claim denial and appeal processes. (Is that different than the old standard of “written in a manner calculated to be understood by the average plan participant”?)
Furthermore, the plan must provide information on available internal and external appeals processes. And the plan must allow participants to “review their file”. The whole file it would seem – but what in fact is the file? That should provide fodder for the litigation mill for quite a while.
But there is more. The participant must be allowed to present evidence and testimony as part of the appeals process. Evidence from what quarter? Does this speak implicitly to discovery rights or would that be reading too much into the new law?
In any event, here’s the kicker – coverage continues pending outcome of appeal. I will have more to say about that later. For now, let’s take some time to absorb the fact that the PPACA has altered the old order and replaced it with something, and something that appears quite new.
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.
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.
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.
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.
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  has a connection with or  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.
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
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.
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
Fact Sheet, available at
FAQs, available at
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.
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
[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)
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.
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.
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.
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.
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.
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.