In a benefits denial involving a participant's "high dollar claim" back surgery, a magistrate judge concluded that the claims administrator's benefits denial letter failed to satisfy the DOL's claims procedure requirements under the Employee Retirement Income Security Act of 1974 (ERISA). The claims administrator's decision also suffered from substantive issues, which – viewed under a nondeferential standard of review – required remand of the matter to the claims administrator to redetermine the participant's claim using a complete administrative record.
In benefits litigation involving coverage for a participant's lumbar decompression and discectomy procedure, a magistrate judge concluded that the claims administrator's denial letter failed to comply with the Department of Labor's (DOL's) claims procedure requirements (Canter v. Alkermes Blue Care Elect Preferred Provider Plan, (S.D. Ohio Jan. 22, 2020)). On the question of whether the participant was entitled to benefits under the plan, the magistrate recommended remanding the matter to the claims administrator for reconsideration.
The covered participant in this case received treatments for back, hip, and leg pain over a seven-year period before undergoing a lumbar decompression and discectomy surgery in July 2015. The claims administrator denied coverage for the participant's claim on the grounds that the surgery was not medically necessary, and the participant appealed (see Practice Note, Internal Claims and Appeals Under the ACA). A surgeon chosen by the claims administrator to independently review the appeal agreed that the procedure was not medically necessary. Relying on the surgeon's review, the claims administrator sent the participant a letter denying his appeal and informing him that the internal claims process was completed.
In May 2016, however, a manager in the employer's benefits department indicated to the participant that he could make a second appeal regarding the claim. The participant did so through counsel (and included additional supporting materials), but the claims administrator did not respond to the second appeal.
Explain why the participant's surgery was not medically necessary.
Specify what information was needed for the participant to cure the deficiencies in his claim (including with respect to the medical necessity requirement).
Discuss plan terms concerning medical necessity.
Describe the evidence the claims administrator relied on in reaching its decision. (For example, the letter did not disclose that the medical records the claims administrator obtained from the participant's health provider pertained only to the date of the surgery.)
The magistrate also rejected the claims administrator's position that it was not bound by the benefits department's representation regarding availability of a second appeal. The claims administrator had argued that:
The representation was made by an agent of the employer, not the claims administrator.
Under the plan's terms, the participant was entitled to only one appeal.
However, the magistrate concluded that the claims administrator had vested the employer's HR department with apparent authority by directing participants with questions to contact their "employer's benefit office for more information."
Claims Administrator Improperly Interpreted Plan Terms
The next issue addressed was the applicable standard of judicial review for the claims administrator's substantive decisions. The claims administrator argued that a provision stating that the claims administrator "decides which health care services and supplies that you receive (or you are planning to receive) are medically necessary and appropriate for coverage" conferred discretionary authority on the claims administrator, meaning that the deferential "abuse of discretion" standard of review applied (see Practice Note, ERISA Litigation: Standard of Review: Arbitrary and Capricious (Deferential) Standard of Review and Standard Clause, Plan Language, Firestone Plan Interpretation). Citing circuit court of appeals precedent, however, the magistrate concluded that this language did not clearly grant discretion to the claims administrator. As a result, the nondeferential de novo review applied.
On the merits, the magistrate concluded that the claims administrator improperly interpreted plan terms concerning medical necessity. Although the plan provided that medical necessity would be determined "using all of the guidelines described," the claims administrator relied solely on one set of guidelines. Moreover, it was unclear that the claims administrator considered an operative report, surgical record findings, and other evidence documenting the participant's condition. Based on the claims administrator's failure to analyze this other evidence, the magistrate could not determine whether the participant's surgery was medically necessary.
Remand to Claims Administrator Was Warranted
The magistrate recommended remanding the matter to the claims administrator to reconsider the participant's claim with instructions to reopen the administrative record. Remand was the appropriate remedy in this case (as opposed to awarding the participant benefits) given:
The procedural defects in the claims administrator's decisionmaking process.
The incomplete administrative record before the court.
Although there were numerous procedural and substantive shortcomings in how the participant's claim was administered, one of the most significant errors may have been the failure to include clear language conferring discretionary authority on the plan's decisionmakers in the controlling plan documents. The opinion includes a lengthy section on standard of review, which concludes that because the plan did not clearly grant discretion to the claims administrator to make benefit determinations, the court needed to apply the de novo standard of review to the claims administrator's substantive decisions. As the opinion later notes, this means the court's role was to determine whether the claims administrator made a correct decision in a review that gave no deference to the claims administrator's actual decisions. From the plan's perspective, the outcome here could've been worse – the magistrate stopped short of awarding benefits to the participant and instead recommended a do-over of the claim. But one of the key takeaways may be that plans relying on the "claims administrator decides" language to grant discretion in interpreting and applying plan provisions may want to revisit that language and consider replacing it.