Insurer Bound By Health Care Plan’s Pre-Certification Requirements

An insurer provided health care benefits to the employees of a corporation. The health plan was governed by the Employee Retirement Income Security Act (ERISA). One of the employees covered by the plan assigned her rights to benefits under the plan to a hospital where she underwent a stent placement. She spent two nights in the hospital.


The plan was governed by a “plan document” that described eligibility requirements, terms of coverage, and claims procedures. The plan document also explained that some medical services require “precertification” to be covered, and laid out the procedure for obtaining the precertification. The precertification provision stated:


Regardless of the plan under which you [the plan participant] are covered, you must call [the insurer] ... to pre-certify certain services and to notify [the insurer] within 48 hours of being admitted to a hospital following emergency care. For medical services requiring pre-certification, including inpatient and certain outpatient mental health and substance abuse care, a $300 financial penalty will apply if you don't call and pre-certify your care before services are given. This $300 will not apply toward your annual out-of-pocket limit, and any care that was not pre-certified and not determined to be medically necessary will not be covered.


Under the section entitled “Pre–Certification of Benefits: Network and Out–of–Area Plans,” the plan document explained that:


The Network Plans and Out–of–Area Plans require pre-certification before admission to a hospital or any service listed below. Member Services will certify that the admission or service is medically necessary and that the length of stay or treatment is appropriate for you or your dependent.... It is your responsibility to call Member Services for pre-certification ... [b]efore hospitalization for a scheduled admission.


Later in the same section, the plan warned that:


For out-of-network care, if you enter the hospital or receive care requiring pre-certification without approval from Member Services, you will have to pay a $300 financial penalty before benefits begin. This $300 financial penalty will not be counted toward your deductible or out-of-pocket limit. When you submit your claim, the care will be reviewed for medical necessity. Charges for any and all care determined by the claims administrator to be medically unnecessary will not be considered covered charges. No payments will be made for those charges.


In general, when a participant received out-of-network care, the participant bore the burden of seeking precertification. When the participant sought in-network care, however, the health care provider would usually take care of precertification.


Before performing the participant’s stent placement, the hospital, a network provider under the plan, contacted the insurer to request precertification for the outpatient procedure. The insurer advised the hospital that no precertification was necessary for outpatient procedures and the hospital performed the participant's stent placement the next day. After the procedure, the hospital submitted a claim to the insurer for payment. The insurer denied the claim, however, stating in an “Explanation of Benefits” document that coverage was being denied for failure to follow precertification requirements.


The hospital appealed the decision, referring the insurer to the pre-treatment request for precertification. The insurer responded that it was unable to locate documentation of an inpatient authorization being requested and/or approved for the dates in question and upheld the denial of benefits. Although not explicitly stated in the Explanation of Benefits or the insurer's letter denying the hospital's appeal, the insurer apparently believed that the participant's stent placement was an inpatient procedure, which required precertification. The hospital asked the insurer to reconsider, but it refused.


The hospital sued the insurer. The complaint sought payment or remand to the insurer for further consideration. Both parties cross-moved for summary judgment. The hospital argued that regardless of whether it properly precertified the treatment, the plan document required the insurer to pay for the participant's procedure, although possibly after deducting a $300 penalty. The insurer disagreed for two reasons. First, the insurer contended that the hospital could not bring an ERISA claim under 29 U.S.C.A. § 1132 because the participant herself would not be billed for the stent placement, and thus she had no rights to assign to the hospital. Second, the insurer contended that the denial of benefits was reasonable by the terms of the plan document which did not establish a framework for paying benefits when network providers such as the hospital failed to precertify treatment.


The United States District Court for the Western District of Wisconsin granted the hospital’s motion for summary judgment. The court held that the hospital could bring an action under ERISA as an assignee of a participant; the arbitrary and capricious standard of review applied; the administrator's denial of benefits under the plan was arbitrary and capricious; remand was the proper remedy; and the hospital was entitled to attorney fees.


The hospital could bring an action under ERISA as an assignee of a participant. ERISA allows a health plan's participant or her beneficiary to bring a civil action to recover benefits due and supplies jurisdiction when a provider of medical services sues as assignee of a participant. To establish that a claimant may become eligible for benefits under an ERISA plan, as required to establish standing to bring a claim for benefits, a claimant must have a colorable claim that: (1) he or she will prevail in a suit for benefits, or that (2) eligibility requirements will be fulfilled in the future. The court reasoned that the participant would have had a right to the benefits if she had filed the claim herself because she received medical services from the hospital, a network provider. Thus, the hospital that provided health care benefits to the participant, and to which she had assigned her benefits, could bring an action under ERISA against the insurer for payment for services rendered. Although the plan document recommended that participants precertify before receiving treatment, it acknowledged that the insurer would pay benefits for post-treatment claims if the services were medically necessary—albeit with a $300 penalty.


The arbitrary and capricious standard of review applied. Although the default standard of review in ERISA cases was de novo, when a plan gave its administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan, then a denial of benefits would be reviewed under an arbitrary and capricious standard. The court reasoned that the health plan granted the administrator discretionary authority to determine eligibility for benefits, which warranted review of the administrator's denial of benefits under the arbitrary and capricious standard.


The administrator's denial of benefits under the plan was arbitrary and capricious. If fiduciaries or administrators of an ERISA plan controverted the plain meaning of a plan, their actions were arbitrary and capricious. Although the hospital, a network provider, failed to obtain precertification before giving care, the plain meaning of the plan required a “medical necessity” review and if the treatment was medically necessary, the costs were to be covered after applying a $300 penalty. The administrator controverted the plain meaning of the plan when it denied the hospital’s claim, thus, the decision was arbitrary and capricious.


Remand was the proper remedy. When an ERISA plan administrator's benefits decision has been arbitrary, the most common remedy was a remand for a fresh administrative decision rather than an outright award of benefits. The court reasoned that the record was unclear on whether the participant's procedure was medically necessary, and the record did not contain such powerfully persuasive evidence that the only determination the administrator could reasonably make was that the participant was entitled to benefits. The court concluded that remand was the proper remedy.


The hospital was entitled to attorney fees. Even though the district court remanded the hospital's action to the plan administrator instead of awarding benefits outright, that outcome did not bar the hospital from receiving attorney fees. The hospital satisfied the requirement of obtaining some degree of success on the merits and was eligible for an award of attorney fees under ERISA, where the district court granted summary judgment in favor of the hospital. The hospital was entitled to attorney fees because since the hospital's first request for payment, the insurer did little more to explain its position than simply repeat that the hospital failed to request precertification for inpatient treatment, and when forced to offer a more substantive answer, the insurer had advanced an interpretation of its plan document that effectively and unreasonably re-wrote its precertification and benefit reduction procedures, and an award of attorney fees might deter plan from similar manipulation of its policies in the future.


The United States District Court for the Western District of Wisconsin granted the hospital’s motion for summary judgment and remanded to the insurer for a fresh administrative decision.


See: University of Wisconsin Hosp. and Clinics, Inc. v. Kraft Foods Global, Inc. Group Benefits Plan, 2014 WL 2860916 (W.D.Wis., June 23, 2014), subsequent determination (W.D.Wis.  Jul 17, 2014) (not designated for publication).


See also Medical Law Perspectives, November 2013 Report: Diagnosis and Treatment of Heart Attacks: Liability Issues