ELAP, Inc - Relevant Court Cases

Case One:	Stumpf v. Medical Benefits Administrators and Stetson Building Products, Inc.
At-Issue:	Who typically makes benefit decisions? Who is really responsible for them?

A self-funded health plan covered pregnancy-related expenses but not professionally assisted insemination. Shortly after becoming pregnant via artificial means, the plan participant began to suffer with a pregnancy-related illness and entered the hospital. The TPA, after consulting with the Stop-Loss Carrier, denied the claim for the patient’s hospitalization on the basis that it was not covered because it was caused by the artificial method of impregnation.

The patient appealed. She included a statement from her treating physician that her illness was a result of being pregnant, and not a result of the method of fertilization. The TPA consulted with the Plan Administrator, and they denied her appeal. The patient then sued the TPA, Stop-Loss Carrier and Plan Administrator (her Employer).

The Plan Administrator testified that he made the ultimate decision to deny the appeal. The Plan Administrator further testified that he relied on the recommendations of his TPA and his Stop-Loss Carrier – he said he did no medical research, he did not seek outside advice, and he had no knowledge of the basis for conclusions of the TPA and Stop-Loss Carrier.

Result:

The judge held that the denial was not based on “any reasoned application of either medical facts or legal analysis.” The suit settled out-of-court with the three defendants, for an amount that exceeded the original benefit.

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Case Two:	Guardsmark, Inc. v. Blue Cross & Blue Shield of Tennessee
At-Issue:	How a TPA becomes a “functional fiduciary” despite its efforts to avoid the role and the responsibility.

Guardsmark (the employer) had a self-funded plan, and BC/BS of TN served as its TPA per a contract for “administrative services only” – an ASO contract. Guardsmark sued BC/BS for breach of Fiduciary duties. Allegations included failure to provide Guardsmark with accurate and complete records of claims-paid, over-charging for admin-fees, over-payment of individual claims, inaccurate reporting of stop-loss claims, etc.

BC/BS of TN argued that it was not a Fiduciary and that this suit for breach should be dismissed. BC/BS pointed to the terms of its ASO contract that specifically and clearly stated that it provided only ministerial services, and that BC/BS was not a Fiduciary to the Plan.

But Guardsmark showed that BC/BS had check-writing authority to pay claims under a certain dollar threshold. And while there was a system to refer some claims to Guardsmark for final decisions, BC/BS decided the “overwhelming majority” of claims without such referral.

Result:

The court ruled in favor of Guardsmark, calling BC/BS of TN a “functional fiduciary.” The court observed that BC/BS had control over plan assets (to pay claims) and that it used discretion because it decided on most claims without any communication with Guardsmark. The court specifically said that “magic words” in an admin-contract such as “purely ministerial” do not work if this is not a true description of the actual services provided. The BOTTOM LINE is if you walk like a duck and quack like a duck, the court will probably rule that you are a duck.

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Case Three:	Mindt v. Prudential Insurance Company
At-Issue:	Court enforcement of the DOL’s new Regulations regarding the strict timeframes during which The Plan must handle an appeal.
Note:	This case involves an insured plan and disability benefits, but it is still relevant because of enforcement of the same DOL Claims/Appeal Regulations of 7/1/2002.

The insurance company (Prudential) denied a participant’s long-term disability benefits because the claim allegedly was not supported by independent medical evidence. The participant appealed, and Prudential granted an Independent Medical Examination (an IME). However, due to scheduling conflicts, the IME was not conducted before the appeal timeframe of 45 days expired.

The participant then sued. Prudential argued that the suit had no merit because the participant had failed to exhaust his appeal rights within the plan (his “internal” appeal rights). The court allowed the lawsuit to continue on the basis of the new DOL Reg – that failure to handle appeals within the proper timeframe means the plan’s appeals-process is deemed to be exhausted, and the participant can proceed directly to court with an ERISA suit for benefits.

Result:

The participant won his benefits (partly because his evidence of injury was the only medical evidence before the court). The independent evaluation never occurred.

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Case Four:	Computer Aided Design, Inc. v. Safeco Life Insurance Co.
At-Issue:	Improper involvement by and influence of a stop-loss carrier Proper, reasonable, prudent action by a Plan Administrator The affect of new DOL Regulations
Note:	If you only read one case, read this one – this case has it all

The employer, Computer Aided Design System, Inc. (CADSI), sponsored a self-funded health plan and purchased its stop-loss insurance from Safeco. CADSI had a female plan participant who was diagnosed with Stage IV breast cancer. Her treating physician recommended autologous peripheral blood stem cell transplant with high dose chemotherapy, and she filed for pre-authorization from the Plan.

The Plan Administrator, acting in a manner that is typical in these situations, called Safeco and asked for its input. Citing two anonymous “experts,” Safeco advised the Plan Administrator that there would be no stop-loss coverage for this cancer treatment on the basis that the procedure was experimental, and thus, it was excluded – excluded by the Plan and by the stop-loss policy.

Despite this negative feedback from Safeco and the financial implications that come with it, the Plan Administrator sought two “second” opinions. CADSI first went to a Safeco-required UR company, whose medical director opined that the treatment was not expressly excluded by the Plan. Then the Plan Administrator put the question to a leading oncologist who practiced in CADSI’s geographic area. This physician also recommended coverage, based on the published success rates of the proposed procedure, as well as the positive experience at the specialist facility that would treat the plan participant. Thus, CADSI authorized the cancer treatment, and the judge later called this decision an “eminently reasonable determination” (see ELAP Note #1).

After nine months of research (see ELAP Note #2) and the ultimate decision to cover, CADSI paid the medical bills and sent its claim for $146,000+ to Safeco for reimbursement. Safeco denied the claim, and CADSI sued Safeco to collect, accusing Safeco of breach of contract (the policy is a contract).

Result:

CADSI won (see ELAP Note #3) and the Federal District judge clearly expressed his disdain for the idea of asking for input from a stop-loss carrier. The judge wrote that any stop-loss carrier has “…a wholly financial interest in disapproving any… claims and has no legal right to make coverage decisions or to influence… an ERISA Plan Administrator.”

ELAP Notes Regarding the CADSI Case

With this description of how CADSI reached its decision by seeking multiple expert opinions, the judge gave a good idea of what is expected of an ERISA Fiduciary. On the flip-side, the judge also made it quite clear as to what will NOT work – i.e. asking the stop-loss carrier.
As well as CADSI did, the decision took nine (9) months! Under the DOL Reg’s that went into effect on 7/1/2002, CADSI would have a maximum of 30 days to make this same decision on appeal (the timeframe would be 15 days for some plans).
This decision was upheld by the 8th Circuit Court of Appeals in March of 2004.

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