Barbara B. (Self-Funded Plan administered by the Prudential Insurance Company)
Barbara B. was admitted to a residential treatment facility for alcohol dependency, where she spent 34 days as an inpatient, 30 days of partial hospitalization/day treatment and 20 days follow-up outpatient care. At the time she was covered under her husband’s health insurance plan, which was self-funded by his employer and administered by Prudential.
Barbara B. executed an 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 she had, 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 Plan representative, who verified that inpatient benefits were payable at 80% “Usual, Reasonable & Customary” (URC) for the first $1,000 in charges and then payable at 95% URC of the next $1,000, then 100% (URC), thereafter, subject to a $200 deductible and a $50,000 lifetime maximum (none of which had been exhausted). Outpatient benefits were subject to a $2,000 calendar year maximum.
The facility was instructed to call an 800 number to obtain pre-certification for inpatient residential care, which it did.
The very next day, a technical advisor for Prudential sent a letter to Barbara B.’s husband, stating that the treatment facility was not "an eligible facility because it does not have 24 hour a day nursing service. Therefore, a length of stay cannot be approved. . . .". The letter communicated a right of appeal to Prudential.
The facility appealed the decision, explaining that while the facility did not maintain a 24 hour nursing staff on site, it was contracted with private nurses, as well as two hospitals, which were on-call 24 hours a day should such a need arise under the care and direction of the on-site treating physician.
Prudential’s initial response was that in order to qualify as an eligible treatment facility, the facility must be "staffed by registered graduate nurses" and simply having an "on-call" nursing staff was not sufficient to qualify
The facility shot back, stating in a letter, " . . . (Barbara B.) had no medical condition requiring nursing care and, as such, none was ordered by (the treating physician). Had such an order been made by (the physician) we could have and would have brought the registered nurse in to provide the ordered care." More importantly, the facility pointed out that the "on site" requirement that Prudential was relying on was "found in an internal guideline established by Prudential." "This interpretation nor the internal guideline upon which Prudential is relying can be found within the SPD. . ." The facility also pointed out that nothing found in the plan delegated any such discretionary authority to Prudential to interpret the plan in this manner.
Prudential refused to budge. At that point, I was retained. I directed a further administrative appeal letter to the Plan Administrator (employer). I pointed out that Prudential appeared to be a mere claims administrator of the self-funded health benefit plan, with no discretionary authority to interpret the plan. I pointed out that while the Plan Administrator may have discretion to interpret the plan, Prudential did not, unless such discretion had been clearly delegated to Prudential. In the absence of such a delegation, the Firestone default de novo rule would apply and any plan interpretations by Prudential would be subject to de novo review by a Federal Court. I further pointed out that I found absolutely nothing in the Plan that even gave the Plan Administrator the discretion to interpret the plan or determine eligibility for benefits.
The Reasonable Expectations Doctrine provides that:"courts will protect the reasonable expectations of . . . insureds" Saltarelli v. Bob Baker Group Medical Trust, 35 F.3d 382, 387 (9th Cir. 1994). In Saltarelli, the Ninth Circuit expressly adopted this doctrine as part of the federal body of ERISA common law. (“We hereby adopt the doctrine of reasonable expectations as a principle of the uniform federal common law in forming interpretation of ERISA-governed insurance contracts." 35 F.3d at 387). The purpose of the doctrine is to protect insureds’ "objectively reasonable expectations of coverage." Winters v. Costco Wholesale Corp., 49 F.3d 550, 555 (9th Cir. 1995). I further pointed out that Prudential’s interpretation of the plan (requiring an "on-site" nursing staff, which was not even a necessary requirement), defeated the "reasonable expectations" of the plan participant.
In my appeal letter, I noted that this very had been squarely addressed in Migliore v. Sheet Metal Workers’ Welfare Plan of Northern California (1971) 18 Cal. App. 3d 201; 95 Cal. Rptr. 669, where the Court found: "In the instant case, defendant's refusal to pay for plaintiff's hospital expenses at Brooke was in no sense based upon a reasonable construction of its policy. To the contrary, defendant chose to interpret the exclusionary provisions of its policy in such a manner as to nullify the basic provisions of the policy granting the insured the right to select his own hospital and obtain reimbursement for the hospital expenses necessarily incurred. Defendant's interpretation was wholly unreasonable and violative of the established rules governing the construction of insurance contracts. Under these circumstances, there can be no doubt that defendant's conduct in denying plaintiff's claim was arbitrary and capricious." Id at 206.
I pointed out that the same reasoning applied in Barbara B.’s case, as there was no need for 24-hour nursing services. Thus, whatever the reason may be for the 24-hour nursing requirement, it had no relevance to her claim and the application of that requirement to deny her claim defeats her reasonable expectation of coverage.
Finally, in my appeal I pointed out that the denial of the claim defied logic. Although I had encountered many instances, where health plans denied claims, contending that a "lower level of care" should have been pursued, I had never before encountered a situation where a plan denied a claim based on a contention that a higher level of care should have been provided. I pointed out that the facility was a non-acute, residential treatment facility, licensed by the State of California and accredited by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO). If it had been an acute-care facility, it would have maintained 24-hour round-the-clock on site nursing services. But if it did that, it would have also charged "acute-care" prices for its services, which would have far exceeded the amounts that it did charge. Therefore, Barbara B.'s treatment actually saved the Plan money. I stated, "The net result was a substantial cost savings to the plan -- a cost savings that will be obliterated if this case is litigated."
Result: The case was resolved satisfactorily without litigation.