Opinion
Case No. 2:03-CV-00334 PGC.
November 18, 2004
ORDER GRANTING DEFENDANTS' RENEWED MOTION FOR SUMMARY JUDGMENT
In November 2001, Intermountain Health Care Health Plans Inc. ("IHC"), changed the way it paid certain claims. Without changing any language in its health insurance policies or notifying its policy holders, IHC began using a different database in determining how much of an out-of-network claim it would pay. One of those policyholders, Carin Korros, had filed a claim for reimbursement with IHC, and expected a certain amount of her claim to be paid. Using its new method, IHC paid only a portion of the amount Korros expected to be reimbursed. This difference has led to this litigation. After carefully reviewing the relevant plan language, the court concludes that IHC's interpretation is not arbitrary and capricious. Accordingly, IHC's motion for summary judgment is hereby GRANTED.
BACKGROUND
For the purpose of resolving IHC's motion for summary judgment, the court finds the following relevant facts to be undisputed.
IHC is a Utah non-profit corporation which provides and administers health insurance coverage to individuals and families through employer-sponsored group plans. At all relevant times, Korros was insured by IHC under a group health insurance policy known as the "Franklin Covey SelectMed Plus Plan" (the "Plan").
IHC has created a "network" of health care providers through direct contractual relationships. Pursuant to these contracts, IHC has established predetermined amounts that it will pay "in-network" providers for specific services rendered to IHC insureds. In-network providers agree to accept that payment from IHC as payment-in-full for a given service.
In addition to covering expenses incurred from such in-network providers, Korros' Plan also covered certain expenses incurred from non-network providers. IHC's obligation to reimburse non-network providers is governed by its contracts with its insureds, rather than contracts directly with the providers. Those contracts contain different provisions depending on whether the non-network provider is located inside or outside the "plan area" (Utah). With regard to providers that are both "out-of-area" and "non-network," an insured's coverage is determined by two provisions in the Plan:
Section 2.24: Eligible Charges, Fee Schedule for Non-Participating Providers and Facilities
The maximum dollar amount allowed by Plan for a specific Covered Service, rendered by Non-Participating Providers and facilities. Deductibles and Coinsurance amounts are calculated based on Eligible Charges and not billed charges. Non-Participating Providers and facilities may not accept this amount as payment in full for Covered Services.
Section 2.88: Usual and Customary Fee Schedule (UC)
A Usual Fee is the fee usually charged for a given service by a Provider. A Customary Fee is a fee in the range of usual fees charged for a given service by most of the Providers in a community. The Usual and Customary (UC) Fee Schedule is a list of the maximum amounts Plan will pay for specific Covered Services within a certain area. The Fee Schedule is based on the minimum skill and training required to provide a given service, as determined by Plan, and is not based on the specialized training of any particular Provider. UC applies to Covered Services rendered outside the State of Utah.
As set forth in these sections, IHC compensates out-of-area, non-network providers for covered health care services ("Eligible Charges") according to its UC Fee Schedule. Subject to some exceptions, any residual balance ("Excess Charges") is the insured's responsibility.
In Section 1.12 of the Plan, IHC retained "sole discretionary authority to determine eligibility for and the availability of benefits . . . and to interpret, construe, and administer the terms of this Contract."
Before November 2001, IHC calculated Eligible Charges under its UC Fee Schedule by reference to a database known as the "Medical UCR Module." This module collected data regarding fees charged by providers in different geographical areas for particular medical services. In November 2001, IHC began calculating Eligible Charges under its UC Fee Schedule by reference to a different database, known as the "MDR Allowed Medical Module." This module collects data regarding charges allowed by insurers for particular medical services in different geographical areas. When the Allowed Module contains relevant data, IHC sets its Eligible Charges equivalent to the 85th percentile of the amount paid by insurers for that particular service in that particular area.
IHC appears to be one of only two insurance companies in the United States to use the Allowed Module to calculate Eligible Charges for non-network claims. By contrast, approximately one thousand insurance companies use the Medical Module to calculate the eligibility of such charges. When IHC switched from using the Medical Module to the Allowed Module to determine Eligible Charges for non-network claims, it neither announced the change to its insureds nor modified the language pertaining to usual and customary charges in its insurance contracts.
In late October or early November 2002, Korros received medical treatment at the Mayo Clinic in Scottsdale, Arizona, which is an out-of area, non-network provider. Korros submitted her claim to IHC, which used its UC Fee Schedule to determine the Eligible Charges for the various services Korros received. The billed charges were several thousand dollars more than the amount determined by IHC to be compensable Eligible Charges.
For the period of time at issue in this case (from November 1, 2001 to April 30, 2003), IHC saved at most approximately $1.59 million by switching from the Medical Module to the Allowed Module in determining Eligible Charges for non-network, out-of-area providers. During this time period, IHC's total revenue was more than a billion dollars For the purposes of this Motion for Summary Judgment, IHC concedes that it had a conflict of interest insofar as it made administrative decisions establishing Eligible Charges to its insureds when receiving care from out-of-area, non-network providers, which had an immediate and direct impact on its own finances.
SUMMARY JUDGMENT STANDARD OF REVIEW
Pursuant to Rule 56 of the Federal Rules of Civil Procedure, summary judgment "shall be rendered . . . if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits . . . show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." In applying this standard, the court must examine the evidence and reasonable inferences therefrom in the light most favorable to the non-moving party.
See Gaylor v. Does, 105 F.3d 572, 574 (10th Cir. 1997).
STANDARDS OF REVIEW FOR ERISA § 1132(a)(1)(B) CLAIMS
While section 1132(a)(1)(B) statutorily sets forth remedies for those plaintiffs who seek "to recover benefits due under the [insurance] plan, to enforce rights under the terms of the plan, and to obtain a declaratory judgment of future entitlement to benefits under the provisions of the plan contract," ERISA does not set forth a judicial standard of review for such claims. This void has been filled by the Tenth Circuit, which has held that "a denial of benefits challenged under § 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." When an insurer retains discretionary authority, the insurer's interpretation and decision must be upheld "unless it was arbitrary and capricious."Recognizing that there are often inherent conflicts of interests when an administrator or fiduciary also operates as the insurer, the Tenth Circuit has held that such "conflict[s] must be weighed as a facto[r] in determining whether there is an abuse of discretion." More specifically, "Tenth Circuit law requires the court to apply a `sliding scale' approach" — the court shall apply an arbitrary and capricious standard but decrease "the deference given to the fiduciary's decision `in proportion to the seriousness of the conflict.'" The purpose of this "sliding scale" approach is to lessen the level of deference to the degree necessary to neutralize any untoward influence resulting from any conflict. Therefore, unless the conflict of interest is "so strong as to eliminate any deference . . . [the court] will uphold the fiduciary's interpretation if it is reasonable."
See Pitman v. Blue Cross and Blue Shield of Okla., 217 F.3d 1291, 1296 n. 4 (10th Cir. 2000) ("[A]s both insurer and administrator of the plan, there is an inherent conflict of interest between its discretion in paying claims and its need to stay financially sound.").
Firestone, 489 U.S. at 115 (citation omitted).
Lefler v. United Healthcare of Utah, Inc., 162 F. Supp. 2d 1310, 1316 (D. Utah 2001) (citing Chambers, 100 F.3d at 826-27).
See id. (citation omitted).
Chambers, 100 F.3d at 826.
Lefler v. United Healthcare of Utah, Inc., No. 01-4228, 2003 WL 21940936, at *4 (10th Cir. Aug. 14, 2003).
In applying the law of the Tenth Circuit's holdings to determine the appropriate standard of review, the court must decide (1) whether IHC's benefit plan held by Korros gives IHC discretionary authority to determine eligibility for benefits or to construe the terms of the plan, (2) whether IHC has a conflict of interest, and if so, the extent of that conflict, and (3) which standard of review is appropriate considering potential conflicts of interest that may exist.
Looking at the plan language of the policy held by Korros, it is clear that de novo review is inappropriate here. Section 1.12 of the Plan clearly gives IHC power to interpret the policy by stating that
[IHC] has sole discretionary authority to determine eligibility for and the availability of benefits under this contract and to interpret, construe, and administer the terms of this Contract. All determinations and interpretations made by Plan pursuant to its discretionary authority are intended to be final, conclusive and binding on Employer, the Plan Administrator and Members.
Because IHC retained discretionary authority, the court will review IHC's interpretation of its own plan language under an arbitrary and capricious standard. However, the degree of deference IHC is allowed depends on the extent to which any conflict of interest may exist.
Viewing the facts of this case in the light most favorable to the plaintiff, there is substantial evidence that IHC is inherently conflicted in this case. Plaintiff has presented evidence that suggests that IHC made changes to the way it calculates eligible charges in order to increase profits. For example, IHC's Chief Financial Officer has referred to the previous database as being probably more expensive than the newly used database. Based on such evidence, and despite IHC's purported intent of addressing consistency in billing methods rather than generating profits, the court finds IHC to be inherently conflicted in this matter.
Having found IHC to be inherently conflicted, the court must next determine how far the sliding scale of deference must move so as to neutralize IHC's conflict. IHC grosses over $600 million per year and has in its portfolio over one million insureds. In light of IHC's size, the conflict it has in this case — approximately $1.59 million and 9109 number of claims — is relatively small. While the court must give IHC limited deference in construing the terms of its plans, the court disagrees with Korros who argues that the conflict is so strong that the court should give no deference. Moreover, because the practice challenged in this case is systematic and does not single out individual plan participants or beneficiaries, the level of its conflict is diminished. Therefore, despite being inherently conflicted, IHC remains entitled to some of its retained discretion; accordingly the court will apply the arbitrary and capricious standard while keeping in mind that a conflict, albeit not an overly strong one, exists.
Id. at *4.
In interpreting the arbitrary and capricious standard as applied to an ERISA claim, the Tenth Circuit states that "[a] decision to deny benefits is arbitrary and capricious if it is not a reasonable interpretation of the plan's terms." As further articulated by the Circuit in Kimber v. Thiokol Corp., the key question is one of reasonableness:
McGraw v. Prudential Ins. Co. of Am., 137 F.3d 1253, 1259 (10th Cir. 1998).
When reviewing under the arbitrary and capricious standard, "[t]he Administrator['s] decision need not be the only logical one nor even the best one. It need only be sufficiently supported by facts within [his] knowledge to counter a claim that it was arbitrary or capricious." . . . The decision will be upheld unless it is "not grounded on any reasonable basis." . . . The reviewing court "need only assure that the administrator's decision fall[s] somewhere on a continuum of reasonableness — even if on the low end.
196 F.3d 1092, 1098 (10th Cir. 1999) (internal citations omitted).
In short, "for plaintiff claims based upon Section 1132(a)(1)(B), the court must determine whether defendant's interpretation of its plan terms is arbitrary and capricious, giving less deference to such interpretation in proportion to the seriousness of its conflict of interest." It is also important to note that "it is of no moment that [Korros's] interpretation is also reasonable. [The court tests] only to determine if [ IHC's] interpretation is reasonable."
Lefler, 162 F. Supp. 2d at 1318.
Lefler, 2003 WL 21940936, at *4 (emphasis added).
ANALYSIS
Having established the proper standard of review, the court must consider Korros' challenge to IHC's interpretation of the Plan language. Korros argues that when IHC changed the manner in which it determined Eligible Charges, without changing any of the plan language, IHC's subsequent actions violated the terms of its insurance plan and therefore violated 29 U.S.C. § 1132(a)(1)(B) of ERISA. IHC responds that its interpretation of the Eligible Charge language is reasonable.In determining whether IHC's interpretation was reasonable, the court must first consider whether the plan language is clear and unambiguous. Analyzing the language, "the court must give the plan language `its common and ordinary meaning as a reasonable person in the position of the [plan] participant, not the actual participant, would have understood the words to mean.'"
Hickman v. Gem Ins. Co., 299 F.3d 1208, 1212 (10th Cir. 2002)
Lefler, 162 F. Supp.2d at 1319 (citation omitted) (emphasis in original).
The plain language of the portion of the plan at issue reflects ambiguity. In section 2.88, it states:
A Usual fee is the fee usually charged for a given service by a Provider. A Customary Fee is a fee in the range of usual fees charged for a given service by most of the Providers in a communicty. The Usual and Customary (UC) Fee Schedule is a list of the maximum amounts Plan will pay for specific Covered Services within a certain area. The Fee Schedule is based upon the minimum skill and training required to provide a given service, as determined by Plan, and is not based on the specialized training of any particular provider. UC applies to Covered Services rendered outside the state of Utah.
This section, Korros argues, specifically directs IHC to calculate its Eligible Charges for non-network services based on the "usual" and "customary" fees charged by providers for that service and compiled in a fee schedule used by the plan. In support of this argument, Korros points to the Medical UCR Module which compiles usual and customary charges based on fees charged by providers in different geographical areas.
Korros contends that IHC no longer adheres to the terms of its plan because IHC no longer calculates Eligible Charges using the Medical UCR Module, but instead uses the MDR Allowed Module, a database that compiles the amounts that insurers allow. Korros asserts that by basing its usual and customary charges on the MDR Allowed Module, IHC ignored the first two sentences of this section, giving effect to only the third. Korros argues that IHC should be held to the definitions of "usual" and "customary" that Korros believes IHC set forth. To hold otherwise, Korros argues, would render the first two sentences meaningless. Framing it simply, Korros contends that this section defines elements A ("usual fees") and B ("customary fees") and then, in the section's third sentence, combines those elements to create AB, rather than an entirely different element. While Korros' interpretation is reasonable, the court disagrees that to hold otherwise would render parts of the section entirely meaningless.
Addressing Korros' accusation that IHC's interpretation wholly ignores the section's first two sentences, IHC argues that a reasonable person reading the plan could logically interpret the first two sentences in a way so as to give the third sentence controlling force. More specifically, the first and second sentence could be taken as merely defining both "usual" and "customary" fees according to their general meanings. Then, as IHC argues, the third sentence clearly defines "usual" and "customary" as it applies to IHC's plans specifically, Returning to the simple approach mentioned above, IHC contends that this section defines elements A ("usual fees") and B ("customary fees"), but then clearly states that it will follow C (a specifically defined "Usual Customary" fee) according to its own fee schedules.
After a careful reading of the plain language of the Plan and the parties' interpretations of its language, the court finds the policy language is "`reasonably susceptible to more than one interpretation,'" and is therefore ambiguous. Consequently, because of the Plan's ambiguity and because IHC has discretion to interpret the terms of the Plan, the only issue left to resolve is whether IHC's interpretation of the ambiguous section is reasonable.
Carland v. Metropolitan Life Ins. Co., 935 F.2d 1114, 1120 (10th Cir. 1991) (internal citation omitted).
See Lefler, 162 F.Supp.2d at 1322.
Considering the principles stated above, the court now turns to the reasonableness of IHC's interpretation of the ambiguous language. Applying the appropriate standard of review, the court concludes IHC's interpretation was reasonable.
To support the reasonableness of its interpretation, IHC has argued that this section does not require IHC to use a database comprised of provider charges, but leaves it to the discretion of IHC. Further, IHC contends that section 2.88 does not require that the terms "usual" and "customary" be defined in reference to provider charges, as opposed to allowed charges. The conclusion, says IHC, is that section 2.88 does not require IHC to adhere to any particular formula or to use any particular database to determine Eligible Charges — its decision to use either a provider or allowed charges database is entirely within its discretion.
Further evidence of the reasonableness of IHC's interpretation is provided by the fourth sentence of section 2.88: "Fee Schedule is based upon the minimum skill and training required to provide a given service, as determined by the plan, and is not based on the specialized training of any particular provider." IHC alleges, and the court agrees, that this portion of the section directs it to pay charges based upon the minimum skill level required to perform a service, the concept used by an Allowed Charge, and not upon the actual skill and training of the service provider, a concept underlying charges according to providers. The court finds it entirely reasonable that IHC should have discretion to utilize such standardized bases for determining Eligible Charges — one not dependent on the amount various physicians of various skill levels charge. In doing so, IHC can more accurately predict its medical expenses and other financial consideration in a more efficient fashion.
(Emphasis added).
Therefore, "[a]pplying the appropriate standards of review set forth above, including the Tenth Circuit's "sliding scale" approach, the court cannot conclude defendant's interpretation of the terms of its insurance policy is unreasonable and, therefore, arbitrary and capricious. Although the court may adjust IHC's position downward on the `sliding scale' of reasonableness in view of its conflict of interest," its resting position nonetheless remains within the realm of what the court considers reasonable.
Id. at 1323.
CONCLUSION
Having found IHC's interpretation of the Plan to be a reasonable one and not arbitrary nor capricious, the court hereby GRANTS defendant's renewed Motion for Summary Judgment. The Clerk of the court is directed to close the case.