An employee of a company was covered under the company’s health plan, which was governed by the Employee Retirement Income Security Act of 1974 (ERISA). The plan was self-insured by the employer, which was both the sponsor and administrator of the plan. The company contracted with third-party administrators to review claims made under the plan, including a third-party administrator responsible for reviewing mental health and substance abuse claims, and anorexia nervosa.
The woman was admitted to the hospital for acute inpatient treatment for severe anorexia nervosa. The third-party administrator's case management notes listed her “Reason for admission” as “severe depression, SI [Suicidal Ideation], and anorexia.” Her admitting diagnoses were (1) “Major Depressive Disorder, Recurrent, Severe Without Psychotic Features”; (2) “Anorexia Nervosa”; (3) “pneumonia”; and (4) “Problems with primary support group.” The third-party administrator responsible for reviewing mental health and substance abuse claims refused to pay for more than three weeks of inpatient hospital treatment. The claims administrator based its refusal in substantial part on mischaracterizations of the woman's medical history and condition. The hospital continued to provide inpatient treatment to the woman after the claims administrator refused to pay. One month after her admission to the hospital and eleven days after the plan ceased paying for her treatment, the woman was discharged. After her discharge, the woman assigned to the hospital her rights to payment under her employer’s health plan.
The hospital sued the plan and the claims administrator, seeking payment for the additional days of inpatient treatment, alleging that the claims administrator and the plan had wrongfully denied benefits to the woman. The United States District Court for the Central District of California held that, despite numerous errors in the reports written by the claims administrator’s regional medical director and the claims administrator’s outside reviewer, the administrative record provided a reasonable basis for determining that acute inpatient care was not necessary after three weeks. The district court concluded that it was not left with a definite and firm conviction that the claims administrator's benefits determination was in error, and therefore could not disturb that decision. The United States District Court for the Central District of California entered a judgment in favor of the plan administrator.
The Ninth Circuit United States Court of Appeals reversed. The court held that the plan administrator's denial of benefits was an abuse of discretion and breach of fiduciary duty.
The plan administrator's denial of benefits was an abuse of discretion and breach of fiduciary duty. When the terms of an ERISA plan unambiguously confer discretion to determine eligibility for benefits or to construe the terms of the plan, the court reviews a denial of benefits for abuse of discretion. If there are procedural irregularities or if an ERISA plan administrator who has unambiguously been conferred discretion operates under a conflict of interest, the court considers the irregularities or conflict as a factor in determining whether there has been an abuse of discretion. An ERISA plan administrator's choice to conduct only a paper review of a claim for benefits raised questions about the thoroughness and accuracy of the benefits determination. The review is typically limited to the contents of the administrative record. However, when procedural irregularities are apparent in an administrator's determination, the Court may consider extrinsic evidence to determine the effects of the irregularity, in essence recreating what the administrative record would have been had the procedure been correct. The court noted that, in a striking lack of care, all of the administrator's decision makers made critical factual errors, all of which supported the administrator's denial of payment. An ERISA plan administrator abuses its discretion if it renders a decision without any explanation, construes provisions of the plan in a way that conflicts with the plain language of the plan, or fails to develop facts necessary to its determination. An ERISA plan administrator abuses its discretion if it relies on clearly erroneous findings of fact in making benefit determinations.
The Ninth Circuit United States Court of Appeals reversed the district court’s judgment in favor of the ERISA plan coordinator.
See: Pacific Shores Hosp. v. United Behavioral Health, 2014 WL 4086784 (C.A.9 (Cal.), August 20, 2014) (not designated for publication).
See also Medical Law Perspectives, June 2013 Report: Independent Medical Evaluations: Legal Risks and Responsibilities