Denise B. (Self-Funded Plan administered by American Medical Security Insurance)
Denise B. was admitted to a residential treatment facility for cocaine dependency, where she spent 30 days as an inpatient, with one week of follow-up outpatient treatment. She had a 15 year history of cocaine use, but in the three years prior to her admission, her use of powder cocaine accelerated to daily use. She also reported regular use of crack cocaine in the previous one and a half years before her admission. At the time of admission, she was using 1 gram of cocaine a day and she had lost 8 pounds of body weight, in the month preceding her admission. Her admission sheet indicated that she had used a half gram of crack cocaine on the day of admission. She had also used methamphetamines two days prior to admission and she reported a history of heroin use the previous year. She had attempted outpatient treatment a year earlier, but remained drug free for only two months before relapsing. The “medical necessity” for her treatment could not have been clearer.
Denise B. executed a standard Assignment of Benefits form, by which she expressly assigned all of her Plan benefits to the treatment facility. Therefore, under the law, the facility had standing to assert whatever rights Denise B. possessed, relating to the Plan, including the right to pursue administrative remedies, the right to request plan documents and other information, as well as the right to pursue legal action against the Plan to recover benefits, if necessary.
Upon admission, an employee of the treatment facility spoke with a representative from Employers Health, who verified that inpatient benefits were payable at 50% “Usual, Reasonable & Customary” (URC) for the first $6,000 in charges and then payable at 100% URC thereafter, subject to a $300 deductible and a 30-day calendar year maximum. Outpatient benefits were verified payable at 50%, limited to $1,000 calendar year maximum. The facility employee was told that pre-certification was not required for residential treatment.
A claim was submitted by the facility to American Medical Security (AMS) for all charges incurred. AMS declined to pay anything, stating on several Explanation of Benefits (EOB) forms that, “Based on a review of your provider's records, it has been determined that the services rendered do not meet the plan definition of 'medically necessary'. Please refer to your plan definition of 'medically necessary' for further explanation.”
A request for further review was made by the facility. However, AMS upheld the initial denial and refused to pay the claim. At that point the case was referred to me. I sent a letter to AMS, which called attention to the fact that there had been no formal notice of denial of the claim other than the EOB form, which simply denied the claim for lack of medical necessity, but which lacked the specificity required by the federal regulations. My letter pointed out that ERISA and the regulations required clear notice as to why a claim was denied and a conclusory statement that services were “not medically necessary” was not sufficient, since nothing explained why they were considered not “medically necessary”. I also explained that the claim denial defeated Denise B.’s “reasonable expectation of coverage”. I also explained how the treatment provided was “medically necessary”, applying objective standards; how there was no “substantial evidence” to support a denial of payment; and how AMS was in breach of the fiduciary standards imposed by ERISA.
Result: The case was resolved satisfactorily without litigation.