The 9th Circuit Court of Appeals has reversed a lower-court ERISA-related decision that upheld a fiduciary's benefit denial in a ruling that could reach into other areas of benefit law.
At issue was the denial of benefits to a Wells Fargo & Co. employee who was admitted to Pacific Shores Hospital in California severely underweight, with anorexia, and was potentially suicidal. The 83-pound patient not only required close monitoring because of her physical condition but also because of her mental state.
Wells Fargo has a self-funded health plan under which the patient was covered. The plan allows Wells Fargo to determine benefits and to delegate its discretionary authority over benefits to claims administrators.
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OptumHealth BehavioralSolutions, a trade name of United Behavioral Health, was the third-party administrator responsible for reviewing mental health and substance abuse claims, including anorexia. In acting as claims administrator, it refused to authorize payment for more than three weeks of inpatient hospital treatment, saying that a lower level of care was adequate.
The hospital appealed the decision on behalf of the patient, but UBH persisted in its judgment that inpatient care was no longer necessary and stopped payment. PSH continued to treat the patient, who, after her discharge, assigned her rights to payment under the plan to the hospital. The hospital, in turn, sued UBH for the unpaid portion of the patient's care.
Two U.S. Supreme Court decisions, Firestone vs. Bruch and MetLife vs. Glenn, had laid the groundwork to preserve fiduciaries' decisions. The former said such decisions should not as a rule be overturned unless there was an abuse of discretion. The latter determined that courts must consider whether there is a conflict of interest with regard to companies and insurers who fund the plans and administer the benefits — as one factor among many that they must take into account.
However, the appeals court determined that the initial court decision in this case, Pacific Shores Hospital v. United Behavioral Health, was based only on the administrative record provided by UBH, which contained numerous errors and inconsistencies, and not on any additional materials.
In its appeal, PSH argued that procedural irregularities in UBH's benefits denial made it necessary for the appeals court to consider the denial anew. It also argued that the patient's hospital records should be considered. PSH also said that UBH was operating under a conflict of interest because it was concerned with maintaining its relationship with Wells Fargo, and Wells Fargo had its own self-interest in wanting to hold down the cost of benefits.
The 9th Circuit decided "all of the relevant circumstances" needed to be considered, including the hospital records and the fact that UBH had never seen the patient and instead relied merely on a paper review of her case.
"It is painfully apparent," wrote appeals court Judge William Fletcher, "that UBH did not follow procedures appropriate to (the) case." And this "raise[s] questions about the thoroughness and accuracy of the benefits determination."
"UBH owed a fiduciary duty to (the patient) under ERISA," said the decision, citing Pegram v. Herdrich. "The statute provides that fiduciaries shall discharge their duties with respect to a plan 'solely in the interest of the participants and their beneficiaries,' [29 U.S.C.] § 1104(a)(1), that is, 'for the exclusive purpose of (i) providing benefits to participants and their beneficiaries; and (ii) defraying reasonable expenses of administering the plan,' § 1104(a)(1)(A)."
Because of all the factual errors that were involved in reaching the denial, "the unhappy fact is that UBH acted as a fiduciary in name only, abusing the discretion with which it had been entrusted," the 9th circuit said.
Because of the way the court made its determination, relying on "all of the relevant circumstances" — a point made not just by the court itself, but by the Department of Labor in an amicus brief — the possibility exists that the decision could have a far broader effect on the court's approach to fiduciaries and their decisions, not just in health care plans but also in pension plans.
Only time — and perhaps the next court case — will tell.
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