Amy H. (Self-Funded Plan administered by Aetna / Magellan)
Amy was admitted to the hospital for treatment of a serious illness. Prior to admission, benefits were verified payable at 80% "Usual, Reasonable & Customary" (URC) charges, subject to a $5,000 out of pocket maximum. Amy had executed an assignment of benefits, by which she had expressly assigned all Plan benefits to the hospital. Accordingly, the hospital, as assignee, "stood in the shoes" of Amy and had standing to assert whatever rights she had, relating to the plan, including the right to pursue administrative remedies or pursue legal action to recover benefits. See: Misic v. Building Service Employees Health & Welfare Trust 789 F.2d 1374, 1378 (9th Cir., 1986).
The hospital sought certification for the treatment rendered, which was initially withheld by Magellan. An appeal of that decision followed. Ultimately, some six months after the rendition of treatment, Magellan certified only a few days of inpatient treatment and denied the remainder. The stated ground for the denial was that Magellan did not find such services to be medically necessary, "based upon Magellan's Medical Necessity Criteria".
Magellan responded by letter, reaffirming its prior determination that the treatment rendered by the hospital was not "medically necessary" after the first few days. The letter stated, "There is insufficient documentation in the medical record that supports the need for Amy to have been inpatient for the time after the initial admission authorization was given."
The "insufficient documentation" excuse has been used by health and disability plans to deny claims more times that I can count. But each time it is used, the plan never explains what documentation would be sufficient. As the court noted in Booton v. Lockheed Medical Benefit Plan 110 F.3d 1461 (9th Cir., 1997), the denial of a claim "without explanation and without obtaining relevant information is an abuse of discretion." "(I)f the plan administrators believe that more information is needed to make a reasoned decision, they must ask for it. There is nothing extraordinary about this; it's how civilized people communicate with each other regarding important matters." Id at 1463. "If the plan is unable to make a rational decision on the basis of the materials submitted by the claimant, it must explain what else it needs." Id. See also, Salomaa v. Honda Long Term Disability Plan 642 F.3d 666, 680 (9th Cir., 2011). "An administrator does not do its duty under the statute and regulations by saying merely 'we are not persuaded' or 'your evidence is insufficient. Nor does it do its duty by elaborating upon its negative answer with meaningless medical mumbo jumbo.'"
The Magellan letter also purported to set forth the "medical necessity" criteria that it relied on to deny certification. However, an analysis of those stated criteria revealed that Magellan was incorrectly applying "admission criteria", not "continued stay criteria". And since Amy’s hospital admission had already been certified, those criteria were no longer applicable.
Interim appeals were then made to Magellan and Aetna U.S. Healthcare, but with no success. In one of the appeals, the admitting physician stated that in his opinion without hospitalization Amy would have been at risk for severe and potentially life-threatening consequences and he stated emphatically, "I do not believe any physician who wanted to ensure adequate care for a patient with the medical complications (Amy) was exhibiting would recommend providing care on a lower level of service than that which was provided." His words fell on deaf ears.
Thus, the remainder of the claim was effectively denied, although no formal denial was ever communicated. An administrative appeal was then made to the employer, who was also the "Plan Administrator". The employer failed to make a decision within the time provided by law; therefore, the claim stood deemed denied on review under ERISA, pursuant to (former) 29 CFR 2560.503-1 (e).
Twenty months passed and the employer did nothing, despite repeated phone calls and letters from the hospital. Ultimately, the case was referred to me. I basically "resurrected" the appeal and within a few months the "GenCorp Administrative Committee" granted the appeal and paid the claim.