© 2014 by Michael A. McKuin

Attorney at Law

Post Office Box 10577

Palm Desert, CA 92255

(California State Bar No. 103328)


The information provided at this website is intended for educational and promotional purposes only. It is strictly general in nature and under no circumstance should it be considered legal advice.  Every case is unique and a competent, qualified lawyer must be consulted for legal advice regarding any specific case. 

“I've found that evil usually triumphs unless good is very, very careful." Bones McCoy, Star Trek, The Omega Glory (TOS)



As I have stated many times at this web site, the more you understand about ERISA,  the more you come to the realization that things are not quite what they seem. Perhaps what is even more disturbing is that in the field of ERISA law, words lose their meaning. A decision by the 10th Circuit Court of Appeals (which encompasses Utah, Wyoming, Colorado, New Mexico, Kansas and Oklahoma),  Jones v. Kodak 169 F.3d 1287 (10th Cir., 1999)   demonstrates just how far into the abyss we have slipped.

Russell Jones was an employee of Eastman Kodak and was a participant in the KMED medical plan. His wife, Susan, was a dependent and beneficiary of the plan. The plan provided coverage for the treatment of substance abuse problems, subject to pre-certification requirements. Susan had an alcohol abuse problem for which she sought treatment. When she requested pre-certification, the plan denied her request, finding she didn’t meet certain unpublished criteria for "medical necessity".

In upholding the denial of Mrs. Jones' claim, the 10th Circuit Court of Appeals held that ERISA does not require plans to state the criteria used to determine when a service is "medically necessary".  In addition, the Court ruled that unpublished criteria are a matter of plan design and structure, rather than implementation and are, therefore,
are not even reviewable by the courts. The Court's opinion states as follows:  "In granting KMED's second motion for summary judgment, the district court found that the unpublished APM criteria were part of the Plan's terms and, hence, that it could not review them. We agree."  "A plan participant has the right to know where she stands with respect to her benefits. . . . However, ERISA's disclosure provisions do not require that the plan summary contain particularized criteria for determining the medical necessity of treatment for individual illnesses. See Stahl v. Tony's Bldg. Materials, Inc., 875 F.2d 1404, 1407 (9th Cir. 1989); Pompano v. Michael Schiavone & Sons, Inc., 680 F.2d 911, 914 (2nd Cir. 1982). Indeed, such a requirement would frustrate the purpose of a summary  to offer a layperson concise information that she can read and digest. See Stahl, 875 F.2d at 1409. In the instant case, the Plan Summary expressly authorized APM to determine eligibility for substance abuse treatment according to its own criteria. The APM criteria did not need to be listed in Plan documents to constitute part of the Plan." (Emphasis supplied).  "Because we consider the APM criteria a matter of Plan design and structure, rather than implementation, we agree that a court cannot review them."

The implications of this case are mind-boggling, leading (former) Rep. Greg Ganske (R-IA) to denounce the decision on the floor of the U.S. House of Representatives in a speech given on May 18, 1999. Rep. Ganske stated:  "Jones v. Kodak provides a road map to health plans to deny any type of care they want. Under Jones v. Kodak, health plans do not need to disclose to potential or even to current enrollees the specific criteria they use to determine whether a patient will get treatment. There is no requirement that a health plan use guidelines that are applicable or appropriate to a particular patient's case. Most important to the plans, the decision ensures HMOs that if they are following their own criteria then they are shielded from court review." [Click here for full text of Rep. Ganske's speech.].  

Without question, Jones v. Kodak was one of the most intellectually and legally flawed decisions that this writer has ever seen issued by a federal court of appeal relating to ERISA. It bears repeating that on one hand the court
specifically acknowledged that the "APM criteria" used to deny the claim were "unpublished". But then, on the other hand, the court found those very same APM criteria to be a "part of the language of the Plan" ("Because the APM criteria were part of the language of the Plan shielded from judicial review . . . the Plan Administrator's reliance on them was neither arbitrary nor capricious." ). The silliness of such a holding is obvious. If indeed the criteria were "unpublished", then how could they possibly have been a "part of the language of the plan"? The very purpose of ERISA is "to safeguard the well-being and security of working men and women and to apprise them of their rights and obligations under any employee benefit plan." "(T)he evils against which ERISA was enacted to guard" are "insecurity (and) lack of knowledge." Blau v. Del Monte 748 F.2d 1348, 1356 (9th Cir. 1985); cert. denied 474 U.S. 865, 106 S.Ct. 183 (1985). "ERISA and the accompanying regulations require clear notice to a plan member of the steps the member must take in order to comply with plan requirements and to have the plan reimburse the member for desired medical services." Bellanger v. Health Plan of Nevada, Inc. 814 F. Supp. 918, 924 (Nev. Dist. 1992). Reporting and disclosure requirements are the very essence of ERISA. Without them, ERISA means absolutely nothing, and yet in the 10th Circuit's estimation, secret criteria can be utilized by plan administrators and managed care companies to deny benefits.

The Tenth Circuit tried to rationalize this absurd finding by citing two cases: Stahl v. Tony's Bldg. Materials, Inc., 875 F.2d 1404, 1407 (9th Cir. 1989) and Pompano v. Michael Schiavone & Sons, Inc., 680 F.2d 911, 914 (2nd Cir. 1982). Aside from the fact that neither Stahl nor Pompano involved medical benefits nor any issues relating to the "medical necessity" of treatment. (Both Stahl and Pompano were pension benefits cases), neither of those cases even comes close to providing any legal precedent for the result reached by the 10th Circuit in Jones v. Kodak. All Stahl and Pompano basically hold is that a Summary Plan Description (SPD) booklet need not set forth every conceivable term of the plan, (because it is after all a mere summary). That is a fundamentally different issue than whether unpublished non-plan criteria can be used to deny benefits, promised by the plan itself.

The narrow issue in Stahl was whether an SPD had to address every conceivable instance where a participant might forfeit benefits. The Pompano case didn't even involve a forfeiture of benefits, but rather it addressed the simple issue of how and when benefits would be paid. The issue in Pompano involved whether a lump sum of pension benefits would be paid, as opposed to a monthly pay-out. Mr. Pompano wanted a lump sum. The SPD provided that a lump sum could be paid only by approval of the benefits Committee. However, the SPD did not state exactly what circumstances would guide the Committee's determination in deciding whether to pay out a lump sum. Therefore, the issue decided by the court in Pompano was whether an SPD was required to specifically state the circumstances under which the Committee would pay out a lump sum distribution of pension benefits. The court held that an SPD need not be so precise. That is a radically different issue from whether a benefit claim can be denied altogether, based upon unpublished, previously undisclosed criteria for determining the "medical necessity" of treatment.

Furthermore, if as the 10th Circuit suggests, such unpublished criteria are not even reviewable by the courts, then
what exactly happens when the SPD itself either defines or otherwise sets forth its own criteria for determining "medical necessity" -- and the unpublished criteria are inconsistent with or contradict the SPD?

These same issues were addressed by the 11th Circuit Court of Appeal in Florence Nightingale Nursing Serv., Inc. v. Blue Cross/Blue Shield of Alabama, 41 F.3d 1476, 1484 (11th Cir., 1995) cert. denied, 131 L. Ed. 2d 1003, 115 S. Ct. 2002 (1995), where the court held that the use of such non-plan "medical necessity" criteria, to deny a benefits claim, was an abuse of discretion.

The 9th Circuit has also held, in a rather long line of cases, that "imposition of a standard for obtaining benefits, that is not contained in the terms of a Plan, amounts to an arbitrary and capricious decision." Blau v. Del Monte 748 F.2d 1348, 1354 (9th Cir. 1985); and that "[plan administrators] may not construe a plan so as to impose an additional requirement for eligibility that clashes with the terms of the plan." Canseco vs. Construction Laborers Pension Trust for Southern California 93 F.3d 600, 606 (9th Cir. 1996); and that ("[the plan] administrator lacks discretion to rewrite the plan.") Saffle v. Sierra Pacific Power Company Bargaining Unit 85 F.3d 455, 459-460 (9th Cir., 1996) .

Postscript:  The federal regulations have now been amended to address the denial of claims based on such undisclosed criteria.  Today, any such adverse benefit determination must contain the internal rules, guidelines, protocols, standards or other similar criteria of the plan that were relied upon in denying the claim (or a statement that such criteria do not exist).



How ERISA can Further Compromise the Rule of Law
as We Know It.
By: Michael A. McKuin


ERISA Disability Lawyer