Lindsey S. (Empire Blue Cross Blue Shield)
Lindsey S. was admitted to the hospital with a diagnosis of Depression. Two weeks prior to admission, her inpatient benefits were verified payable at 70% of “usual, reasonable & customary” (URC) charges, subject to $200 deductible and a $2000 Out of Pocket (OOP) maximum, then payable at 100% thereafter, subject to a 60-day inpatient limit. The day before admission the hospital called Empire a second time, spoke to a different individual and re-verified benefits.
Magellan Behavioral Health, Inc. (Magellan) performed “utilization review” services for Empire. During the course of Lindsey’s hospitalization, Magellan issued eight separate certification letters, meticulously case-managed and approving every single day of treatment. The total amount of the claim was approximately $60,000. But only $16,000 of the claim was paid. No reason was stated for this drastic underpayment. There was a record of several phone contacts between the hospital and Empire. One Empire representative stated that portions of the claim were considered “not medically necessary”. Another Empire representative indicated that opined that there appeared to be some kind of a “tax identification issue”, resulting from the fact that Empire BCBS “split the claim because of the (change in) year” and then “keyed in the claim incorrectly”. Yet another Empire representative indicated that the claim had been denied based on some grounds of “lack of timeliness”. But no one from Empire stated any of these things in writing. It was all conjecture.
At that point, no further action was taken on the claim, so I was retained. I directed an administrative appeal to Empire, which called attention to the Magellan certification letters, which precluded any post hoc determination of “medical necessity” by Empire. I specifically called attention to three cases in this jurisdiction, which addressed the issue. The first was The Meadows v. Employers Health Ins. 826 F. Supp. 1225 (DC- Ariz., 1993); upheld by Ninth Circuit in The Meadows v. Employers Health Ins. 47 F.3d 1006 (9th Cir.,, 1995) and Regents of the University of California v. First Pyramid Life Insurance Co. of America 1994 U.S. Dist. LEXIS 12288 (So. Dist Cal., 1994) . Those cases hold that where a plan representative makes misrepresentations to a third-party health care provider, that provider may proceed on state law theories of “negligent misrepresentation”, “estoppel” and/or “breach of contract”. Such claims are not pre-empted by ERISA. In such a case, the third party provider may pursue the plan, independently, and not just derivatively as an assignee of benefits.
I also pointed out that if the claim was denied on any asserted “lack of timeliness” grounds, that would violate California's notice-prejudice rule, which prescribes: “[A] defense based on an insured's failure to give timely notice [of a claim] requires the insurer to prove that it suffered actual prejudice. Prejudice is not presumed from delayed notice alone. The insurer must show actual prejudice, not the mere possibility of prejudice.” Shell Oil Co. v. Winterthur Swiss Ins. Co., 12 Cal. App. 4th 715, 760-761, 15 Cal. Rptr. 2d 815, 845 (1st Dist. 1993) (citations omitted). See also: Unum v. Ward, 526 U.S. 358; 119 S. Ct. 1380 (Held: California's notice-prejudice rule is a “law . . . which regulates insurance,” and is therefore saved from preemption by ERISA.). I stated that it would be incumbent upon Empire BCBS to demonstrate that it has been substantially prejudiced as the result of any delay in submitting information or pursuing administrative appeals. No such prejudice could be shown in light of the fact that: (a) Magellan (while clearly acting on behalf of Empire BCBS) case managed and certified all of the hospitalization treatment rendered; (b) Magellan and Empire BCBS had in their possession all of the most essential information needed to timely process the claim and had had such information since the inception of the claim; and (c) Empire BCBS’s own communications relating to the claim failed to satisfy even the most basic requirements of ERISA and the federal regulations.
My appeal also addressed the issues of quantum meruit, and unjust enrichment. These are classic legal doctrines, taught in law school. Quantum meruit is imposed to avoid the unjust enrichment of one party to a contract at the expense of another. The doctrine of “unjust enrichment” is a related, but broader concept, which applies regardless of whether there is a contract or not.
Result: The claim denial was administratively reversed and the claim paid in full.