Employee Benefit Plan Review – From the Courts

Federal Court Remands Case to State Court Because ERISA Did Not Preempt Claims Against Health Insurer for Revealing Plaintiff’s HIV Status

A federal district court in California held that the Employee Retirement Income Security Act of 1974 (ERISA) did not preempt a plaintiff’s claims under California law against his managed health care company for revealing his HIV status.

The Case

In 2015, the plaintiff learned that he had contracted HIV and began treating it with medications. He kept his HIV status confidential.

In 2017, the plaintiff, who had employer-sponsored health insurance through Aetna, received a notice at his residence in a windowed envelope that permitted anyone who handled the plaintiff’s mail to see his name and discover that he was taking “HIV Medications.” The plaintiff’s landlord retrieved the envelope from the mailbox, discovered the information about the plaintiff’s HIV status, and evicted the plaintiff from his residence.

The plaintiff sued Aetna and a number of its affiliates in a California state court, bringing claims for violation of California’s Confidentiality in Medical Information Act; violation of California’s HIV disclosure laws; violation of his constitutional right to privacy under Article 1, Section 1, of the California constitution; negligence; negligence per se; intentional infliction of emotional distress; and unlawful, unfair, and fraudulent business acts and practices.

Aetna removed the action to federal court on the grounds that ERISA preempted the plaintiff’s state law claims.

The plaintiff moved to remand to California state court, arguing that the district court lacked subject matter jurisdiction because ERISA did not preempt any of his state law claims.

The court granted the plaintiff’s motion to remand.

The Court’s Decision

In its decision, the court explained that, under the U.S. Supreme Court’s decision in Aetna Health Inc. v. Davila, 542 U.S. 200 (2004), a state law cause of action is completely preempted by ERISA if:

1. An individual, at some point in time, could have brought the claim under 29 U.S.C. § 1132(a)(1)(B), and
2. There is no other independent legal duty that was implicated by a defendant’s actions.

Applying this test, the court held that ERISA did not completely preempt the plaintiff’s state law causes of action.

First, the court ruled that the plaintiff could not have brought his claims under 29 U.S.C. § 1132(a)(1)(B), which permits a plan participant or beneficiary to bring a civil action “to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.”

The court was not persuaded by Aetna’s argument that the plaintiff could have asserted a 29 U.S.C. § 1132(a)(1)(B) claim against Aetna for its alleged failure to follow the terms of the health plan requiring Aetna to “abide by all applicable laws and regulations regarding confidentiality of individually identifiable health and other personal information” as well as a claim against Aetna for breach of its fiduciary duty under ERISA.

The court reasoned that the plaintiff’s claims were based on state law, not on the terms of the plan. Moreover, the court added, all of the plaintiff’s claims arose out of the notice mailed by Aetna, enclosed in a windowed envelope that resulted in the disclosure of the plaintiff’s HIV status to third parties who came in contact with his mail. The plaintiff sought damages, statutory penalties, attorneys’ fees, and equitable remedies for harm he allegedly suffered as a result of Aetna’s unlawful disclosure, and did not claim that he was entitled to relief based on the ERISA plan. According to the court, there was no indication that the plaintiff’s claims were an “alternative” to ERISA’s “enforcement mechanism.”

The court also rejected Aetna’s argument that the plaintiff could have brought his claims under ERISA because the disclosure occurred in the course of Aetna’s plan administration. However, merely because the conduct at issue may have occurred in the course of Aetna’s plan administration did “not create a relationship sufficient to warrant preemption.”

The court also rejected Aetna’s contention that it met the second prong of the test because there was no “independent legal duty” that was implicated by Aetna’s actions. In particular, Aetna argued that it had obtained the plaintiff’s personally identifiable information (PII) and protected health information (PHI) “to perform its duties as plan administrator” and that it sent the plaintiff the notice “to notify him about his plan benefits.”  In doing so, Aetna said, it “was required to comply with state and federal laws pursuant to its fiduciary obligations under ERISA and the terms of [the plaintiff’s] health plan.”

According to the court, it was not the terms of the plan that compelled Aetna to comply with state and federal law. Indeed, Aetna was independently obligated by several federal and state laws to protect the plaintiff’s PHI and PII, including the Health Insurance Portability and Accountability Act of 1996 (HIPPA), the California Confidentiality in Medical Information Act, and the California Health and Safety Code. Therefore, the plaintiff’s claims were not solely and entirely dependent on the ERISA plan. Accordingly, ERISA did not completely preempt the plaintiff’s state law claims; the court granted the plaintiff’s motion to remand. [D.L. v. Aetna, Inc., No. SA CV 18-893-JFW(JEMx) (C.D. Cal. Aug. 10, 2018).]

Sixth Circuit Holds That ERISA Health Plan Correctly Denied Coverage for Air Ambulance Bill in Absence of Precertification

The U.S. Court of Appeals for the Sixth Circuit recently held that an employee benefit plan governed by the Employee Retirement Income Security Act of 1974 (ERISA) correctly denied coverage for air ambulance transportation for a participant’s son where the participant had not obtained the precertification required by the plan for nonemergency transportation.

The Case

When the plaintiff, a Utah physician, began a fellowship at the Cleveland Clinic in Ohio on July 1, 2010, he enrolled his family in the Cleveland Clinic’s ERISA-governed employee benefit plan, administered by Antares Management Solutions. The plaintiff’s coverage began on July 1 but required about 15 business days to process enrollment paperwork.

On July 7, the plaintiff had his 14-month-old son, J.S., transported from a Utah hospital to the Cleveland Clinic by Angel Jet’s air ambulance service. J.S. had been hospitalized since birth for multiple congenital abnormalities, including omphalocele (protrusion of abdominal organs from the navel) and pulmonary hypoplasia (underdeveloped lungs). He required a mechanical ventilator to breathe.

J.S.’s physician had prepared a letter of medical necessity for the air ambulance service. He explained that J.S. could not be safely transported by any other means because of the distance to travel and his health conditions, which required close monitoring for suctioning of secretions, potential airway compromise, and possible respiratory failure. The letter, dated June 3, said that J.S. was “stabilized for transfer and will continue to progress with continued care.”

Before the flight, Angel Jet sought coverage information from Antares. Antares was unable to confirm that the plaintiff and his son were members of the plan while their enrollment paperwork was processing and did not pre-certify the air ambulance service. Angel Jet decided to proceed with the transportation on July 7 and submitted a bill to Antares for $340,100.

Antares denied the claim for failure to obtain the precertification required by the plan for nonemergency transportation.

Angel Jet appealed the determination to Cleveland Clinic Employee Health Plan Total Care (Total Care). Total Care affirmed the denial but issued Angel Jet a check for $34,451.75, approximately 10 percent of the billed charges. Total Care explained that the payment was “an attempt to be fair” and reflected the amount its preferred provider of air ambulance services would have charged.

The plan’s advisory committee, which adjudicated the plan’s final level of administrative review under the plan, affirmed.

The plaintiff, as a plan participant, sued Total Care under 29 U.S.C. § 1132(a)(1)(B). The district court affirmed the plan’s denial of benefits. Among other things, the district court concluded that the plaintiff lacked standing and that the administrative benefit determination was not arbitrary and capricious because J.S.’s transportation was not an emergency or pre-certified as required for a nonemergency.

The plaintiff appealed to the Sixth Circuit.

The Sixth Circuit’s Decision

In its decision affirming the district court, the Sixth Circuit first considered whether the plaintiff had standing to sue, since it was the provider of air ambulance service that potentially suffered a financial loss, not the plaintiff plan participant. The court held the plaintiff had standing because he “suffered an injury within the meaning of Article III because he was denied health benefits he was allegedly owed under the plan.” The court reasoned, “Like any private contract claim, his injury does not depend on allegation of financial loss. His injury is that he was denied the benefit of his bargain.”

The court next considered the appropriate standard of review.  Disagreeing with the district court, which applied the abuse of discretion standard of review, the court determined that the plan did not contain an explicit enough grant of discretion to the claim fiduciary to warrant deferential review; thus, the court reviewed the determination de novo.

The court next looked at the merits.  It explained that the plan “unambiguously” required precertification as a condition of coverage. The plan stated that it would “pay 100% for transportation—including . . . air ambulance” for a sick or injured member outside of the Cleveland area, but it added that “[t]his type of transportation to a Cleveland Clinic Hospital must meet the precertification process.” The plan specifically stated:

If precertification is required and NOT obtained, EHP Total Care is not obligated to reimburse for services even if it is a covered benefit.

and:

If the member does not participate in the precertification process before obtaining the service there will be NO REIMBURSEMENT for the service.

A claim is not exempt from the plan’s precertification requirements, even if it was submitted during the enrollment period, when it would have been impossible to obtain precertification. Under the plan, only an emergency could qualify for an exemption.

According to the court, J.S.’s transportation was not an emergency, because there was no evidence in the record that J.S. required “immediate medical attention” on July 7 and could not wait another week or so for the plaintiff’s enrollment paperwork to be processed. To the contrary, the court pointed out, the physician’s letter of medical necessity—dated June 3—stated that J.S. was stable and planned for his transportation on a date scheduled over a month later.

Finally, the court rejected the plaintiff’s argument that because precertification was “impossible” during the enrollment period because his membership could not be verified, the plan waived the precertification requirement. The court explained that, under ERISA regulations, denial of a claim for failure to obtain precertification would be unreasonable “under circumstances that would make obtaining such prior approval impossible or where application of the prior approval process could seriously jeopardize the life or health of the claimant.” 29 C.F.R. § 2560.503-1(b)(3). The court noted, however, that the regulations do not require a plan to exempt nonemergency services and effectively forego any precertification requirement.

The court concluded that because the physician did not show that the transportation was an emergency or obtain the precertification required for a nonemergency, he was not entitled to reimbursement under the plan. [Springer v. Cleveland Clinic Employee Health Plan Total Care, No. 17-4181 (6th Cir. Aug. 14, 2018).]

Court Rejects Request to Expand Record for Judicial Review of Claim Administrator’s Adverse Medical Benefits Determination

The administrative record compiled by the claim administrator during the administrative process and considered by the court in an action for benefits under the Employee Retirement Income Security Act of 1974 (ERISA) is nearly sacrosanct. There are certain limited instances when a court will consider evidence outside the administrative record. A federal district court in Massachusetts recently considered the scope of the administrative record and when a court may open the record to consider additional evidence.

The Case

The plaintiff, a young woman with a history of bulimia nervosa, had health insurance through an ERISA-governed employee welfare benefit plan through her father’s employer, which sponsored the plan.  Harvard Pilgrim Health Care of New England, Inc. (HPHC) was the plan’s payor of benefits. The plan’s claim administrator was United Behavioral Health (UBH).

On May 28, 2015, the plaintiff was admitted to a residential treatment facility specializing in eating disorders. HPHC paid for her treatment for about two months. On July 30, 2015, UBH informed the plaintiff that HPHC would stop paying for residential treatment on July 31, 2015.

The plaintiff requested coverage for “partial hospitalization” at the residential treatment facility beginning August 1, 2015, but UBH denied that claim on August 4, 2015 on the ground that the requested level of care was not medically necessary. It offered instead to cover outpatient treatment.

The plaintiff appealed that determination. On August 7, 2015, HPHC upheld the initial determination. The plaintiff continued to receive treatment at the residential treatment facility until January 8, 2016, with her family paying for the treatment until she stepped down to outpatient care on October 6, 2015.

The plaintiff sued HPHC, challenging the determination to stop paying for treatment relating to her eating disorder on the ground that it was not medically necessary.

HPHC produced to the plaintiff’s counsel a copy of its proposed administrative record. The plaintiff filed a motion to open the administrative record to include the following additional documents:

1. All internal claim or utilization review notes by HPHC or UBH pertaining to the treatment received by the plaintiff between May 28, 2015 and January 8, 2016, the dates of the plaintiff’s stay at the residential treatment facility;
2. All communications between HPHC and/or UBH, on the one hand, and the residential treatment facility, on the other, between May 28, 2015 and January 8, 2016;
3. All communications between HPHC and/or UBH, on one hand, and the plaintiff and/or any of her representatives, on the other, between May 28, 2015 and January 8, 2016;
4. All communications between HPHC and UBH between May 28, 2015 and January 8, 2016 regarding the plaintiff’s claim for benefits for her treatment at the residential treatment facility; and
5. All medical records associated with the plaintiff’s treatment at the residential treatment facility between May 28, 2015 and January 8, 2016.

The court denied the plaintiff’s motion.

The Court’s Decision

In its decision, the court noted, citing to Orndorf v. Paul Revere Life Ins. Co., 404 F.3d 510, 519 (1st Cir. 2005), courts deciding ERISA cases typically “focus” on the administrative record and absent “some very good reason,” courts will not look beyond the record. And the final administrative determination “acts as a temporal cut off point.” In other words, “claimant[s] may not come to a court and ask it to consider post-denial medical evidence in an effort to reopen the administrative decision.” However, the court stated that “additional evidence may be relevant when a claimant challenges the procedure used to make a decision, as opposed to the merits of the decision itself.” For instance, evidence outside the administrative record may be relevant if it is “relevant to a claim of personal bias by a plan administrator or of prejudicial procedural irregularity in the ERISA administrative review procedure.” And if a claimant can provide evidence of bias discovery outside the administrative record may be appropriate to determine “whether a structural conflict has morphed into an actual conflict. … But any such discovery must be allowed sparingly and, if allowed at all, must be narrowly tailored so as to leave the substantive record essentially undisturbed.”

Accordingly, the court first held that no documents or communications from the period after August 7, 2015, when HPHC issued its final determination on the plaintiff’s appeal, could be included in the record for judicial review. The court explained that the final administrative decision was a “temporal cutoff point,” and it said that the plaintiff had not argued how later materials could be relevant.

The court then held that, with respect to documents and communications created prior to August 7, 2015, the plaintiff had the burden to show either that HPHC/UBH actually had these materials when they made the benefit determination at issue, or there was a “very good reason” to include them in the record.

According to the court, the plaintiff’s medical records from the residential treatment facility certainly would be relevant to a claim determination if HPHC/UBH had the records at the time. But they did not have them. The court was not persuaded by the plaintiff’s arguments that these records were “the best evidence of what kind of treatment [the plaintiff] was receiving” and that the court should consider these records in determining whether the treatment was medically necessary. The court noted that the plaintiff could have submitted these records earlier, in support of her administrative appeal, but she had not and she failed to explain why she had not. The court concluded that the plaintiff had not put forth “a very good reason” for these medical records to be included in the administrative record.

The court then considered whether case notes taken at the beginning of her treatment at the residential treatment facility until the adverse determination should be included in the record, as well as communications from that period between her or the residential treatment facility, on the one hand, and HPHC or UBH, on the other.

Under Department of Labor regulations, an ERISA plan is required to provide claimants with “all documents, records and other information relevant to the claimant’s claim for benefits.” 29 C.F.R. § 2560.503-1(h)(2)(iii). Further, “[a] document, record, or other information shall be considered ‘relevant’ to a claimant’s claim if such document, record, or other information (i) was relied upon in making the benefit determination; [or] (ii) was submitted, considered, or generated in the course of making the benefit determination, without regard to whether such document, record, or other information was relied upon in making the benefit determination.” Id. § 2560.503-1(m)(8). The court explained that it appeared that neither HPHC nor UBH had actually considered the treatment notes or communications from the prior, covered treatment periods as part of the benefits determination; thus, they should not be in the administrative record.

Moreover, the court concluded, the plaintiff’s argument – that her “history of struggling with her condition” was “important” for the court to consider in determining whether her treatment was warranted under the terms and conditions of the plan – did not amount to a “very good reason” to include them in the record. The court stated, “if that type of relevance alone were enough to reopen the record in ERISA benefits cases, there would be no teeth to a rule restricting review to the record before the administrator.” [Fisher v. Harvard Pilgrim Health Care of New England, Inc., No. 17-11232-FDS (D. Mass. July 13, 2018).]