We have a new requirement for payment and you don’t meet it.

Greg S. (CIGNA)

Greg was admitted to a residential treatment center (RTC) for that provided drug and alcohol rehabilitation treatment. The treating physician’s admission diagnosis was alcohol and amphetamine dependence. On the day of admission, the facility contacted CIGNA and verified that inpatient benefits were payable at 70% of “usual, reasonable and customary” (URC) charges, subject to a small deductible. Outpatient benefits were verified payable at 50%, limited to $2,000 each calendar year. The facility actually spoke with both a Senior Claims Representative and a Supervisor on two different occasions the same day and each CIGNA representative confirmed that an RTC was covered under the plan. No mention was made of any requirement that a treating facility had to have 24-hour on-site Registered Nursing services and in fact RTCs do not generally maintain 24-hour on-site nursing services.

Greg remained in inpatient care for three weeks. After his discharge, a claim for benefits was submitted to CIGNA. CIGNA didn’t pay it. Nor did it send out any formal notice of denial. It just didn’t pay it. The case was referred to me. The only item of correspondence I found in the file was a letter from CIGNA, which requested that the RTC complete and return a two page questionnaire that bore the caption: "Facility Investigation". The questionnaire sought to elicit information relating to the "Type of Facility" and the "Facility Staff". Under the section entitled "Type of Facility", the following pre-printed categories are listed: "Acute General Hospital"; "Residential Treatment Center"; "Nursing Home"; "Unit of Hospital"; "Rehabilitation Center"; "Transitional Living Center"; "Free-Standing Surgical Center"; Convalescent Hospital"; "Group Home"; "Skilled Care Facility"; "Rest Home"; and "Other". The corresponding box beside "Residential Treatment Center" was checked on the questionnaire. The form also requested information about the RTC’s license, which was also provided.

Under the section of the form entitled "Facility Staff" the following questions were asked and answered: Question: "Number of licensed physicians regularly in attendance?" Answer: "One"; Question: "Are physicians in attendance 24 hours?" Answer: "Yes, On Call"; Question: Are physicians in attendance at night?" Answer: "Yes, On Call"; Question: "Number of RNs on Staff?"; Answer: "Two"; Question: "Number of LPNs on staff?" Answer: "None"; Question: "Number of Aides on staff?" Answer: "Two"; Question: Is an RN on duty on a 24-hour basis?" Answer" "Yes, on-call"; Question: "Is an LPN on duty on a 24-hour basis?" Answer: "No"; Question: "Are Aides on duty on a 24-hour basis?" Answer: "Yes".

There was no other correspondence of any kind in the file, not even an Explanation of Benefits (EOB) form acknowledging receipt and processing of the claim, nor was there any kind of a formal denial of the claim; nor anything evidencing a claims-related appeal. I did find several telephone log entries indicating a CIGNA claims representative said the claim was denied because the RTC did not maintain 24-hour Registered Nursing services, on site. In other words, CIGNA took the position – articulated only after the rendition of services by the RTC – that the RTC had to have maintain 24-hour Registered Nursing services, on site (as opposed to on-call nursing services), in order to be an “eligible facility” for coverage. By imposing this “on-site" nursing requirement, CIGNA was holding the RTC to an acute-care standard that was more stringent than was required by either the State of California or the Joint Commission on Accreditation of Healthcare Organizations (“JCAHO”).

I sent a letter to CIGNA, reminding of if its fiduciary responsibilities under ERISA. I pointed out that CIGNA’s denial of the claim did not comply with the requirements of ERISA, which requires that: "every employee benefit plan shall: provide adequate notice in writing to any participant or beneficiary whose claim for benefits under the plan has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by the participant. . ." 29 USC § 1133(1) and the regulations impose additional requirements. They require that an initial notice of a claim denial contain: (1) the specific reason or reasons for the denial; (2) specific reference to pertinent plan provisions on which the denial is based; (3) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and (4) appropriate information as to the steps to be taken if the participant or beneficiary wishes to submit his or her claim for review. 29 CFR. Section 2560.503-1(f).

CIGNA produced no policy or plan document showing the “on-site" nursing requirement to be a part of the benefit plan. But even if it had, the fact that CIGNA verified the RTC’s eligibility before Greg was admitted made it potentially liable under a negligent misrepresentation theory. The case law in this circuit holds that where misrepresentations are made by a plan representative 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. See: The Meadows v. Employers Health Ins 826 F. Supp. 1225 (AZ, 1993); upheld by Ninth Circuit Court of Appeals in The Meadows v. Employers Health Ins. 47 F.3d 1006 (CA9, 1995) and Regents of the University of California v. First Pyramid Life Insurance Co. of America 1994 U.S. Dist. LEXIS 12288. (US Dist. Ct, So. Dist. Cal.)

My letter also pointed out that the denial simply defied logic. It made no sense in terms of CIGNA’s own self-interest. Although I have encountered many instances, where insurance companies denied claims, contending that a “lower level of care” should have been pursued, I had never before encountered a denial, such as this one, which at its essence is based upon a contention that a higher level of care should have been pursued. Was CIGNA seriously taking the position that Greg’s alcohol and drug rehab. should have cost more?

Result: Three weeks after receipt of my letter, CIGNA paid the claim in full.

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