This article was initially published in the Chicago Daily Law Bulletin on March 30, 2017.
By Mark D. DeBofsky
Mark D. DeBofsky is a name partner of DeBofsky, Sherman & Casciari P.C. He handles civil and appellate litigation involving employee benefits, disability insurance and other insurance claims and coverage, and Social Security law. He can be reached at firstname.lastname@example.org.
A recent ruling from the 1st U.S. Circuit Court of Appeals upheld an insurance company's denial of health-care benefits for psychiatric treatment. Although the underlying facts are compelling, the most interesting aspect of the ruling was the court's discussion of civil procedure and judicial standards of review under the Employee Retirement Income Security Act.
The ruling in Stephanie C. v. Blue Cross Blue Shield of Massachusetts HMO Blue Inc., 2017 WL 1101608 (1st Cir. March 24, 2017), was the case's second appearance in the appeals court.
In the initial case, Stephanie C. v. Blue Cross Blue Shield of Massachusetts HMO Blue Inc., 813 F.3d 420 (1st Cir. 2016), the 1st Circuit overturned a U.S. District Court ruling after finding the court had erroneously applied a deferential standard of review in evaluating a health insurer's denial of reimbursement for residential psychiatric treatment.
On remand, the district court applied the de novo judicial review standard and sided with the insurer. The appeals court affirmed that ruling.
The first issue addressed was whether the reviewing court should utilize a de novo standard of appellate review since the appeal was from a ruling on cross-motions for summary judgment.
The court found that although the issue was decided in the district court on cross-motions for summary judgment, which would typically be reviewed de novo on appeal, the court found that "a motion for summary judgment has a different office in administrative law cases" and "is simply a vehicle to tee up a case for judicial review" (internal quotations and citations omitted).
The court explained that because ERISA benefit denial cases are adjudicated based on a record review, "[s]uch cases bear a strong family resemblance to administrative law cases." Therefore, "a motion for summary judgment is simply a mechanism for positioning an ERISA benefit-denial case for a district court's decision on the record of proceedings before the plan administrator."
In a footnote, the court limited its pronouncement to cases in which no additional evidence is taken in the district court.
The court conceded that its prior rulings on this issue have been "murky," but then sidestepped taking a conclusive position by pronouncing that its ruling in this case would not be affected by whether it reviewed the district court's decision de novo or deferentially and left open the standard of appellate review issue for a future case.
Turning to the merits, the court upheld the lower court's decision after determining that some of the services in question were excluded because the policy did not cover services rendered in an educational setting even if therapy is provided.
The court added that none of the claimed services met medical necessity guidelines based on InterQual criteria for adolescent psychiatry that were incorporated by the insurer's internal policies. Although the court acknowledged that the plaintiff had provided satisfactory proof that two of the three criteria established by the InterQual guidelines were satisfied, the court upheld the finding that the plaintiff failed to establish a record of unsuccessful treatment.
Prior treatment, according to the court, "undeniably improved" the minor's symptoms. Although further residential treatment had been recommended by the minor's treating doctors, the court determined "the fact that M.G. required further treatment did not mean that the previous treatment was unsuccessful; what matters is that M.G. did not exhibit the requisite 'lack of improvement' needed to render his prior treatment unsuccessful."
Hence, the court concluded, "we agree that BCBS's decision to follow its internal policy was reasonable." The court added, "And because the policy controls in this instance, BCBS acted appropriately in analyzing Gateway as a psychiatric subacute care treatment setting."
The court further explained, "the dispositive issue here is not whether M.G.'s course of treatment at Gateway was beneficial to him but, rather, whether that course of treatment was covered under the plan."
The procedural framework utilized by the 1st Circuit raises questions. It appears the court conflated a de novo standard of judicial review of the claim file to a deferential review. Indeed, the court showed its hand at the end of the opinion by finding that the decision to follow the internal policy was "reasonable" and that "BCBS acted appropriately."
Those terms are typically applied to deferential review and do not address the problems with conducting a de novo record review and ascertaining whether the court rendered an independent decision.
In contrast to the 1st Circuit's approach, in the 7th Circuit's seminal ERISA de novo review case, Krolnik v. Prudential Insurance Company of America, 570 F.3d 841, 843 (7th Cir. 2009), the court mandated a trial and explained: "In a contract suit, the judge does not 'review' either party's decision. Instead the court takes evidence (if there is a dispute about a material fact) and makes an independent decision about how the language of the contract applies to those facts."
The 1st Circuit began its discussion of the merits of the case by admitting, "This case is fact-intensive"; however, the court concluded that sentence by asserting, "it would serve no useful purpose for us to mine the record extravagantly." But given the nature of the case, the facts are paramount.
People are not machines, and while guidelines may be useful, they are just guidelines and are not intended to dictate an outcome that fits every idiosyncratic situation when someone's life is at stake. There should have been a trial in this case instead of a mechanical application of general guidelines.
The basic underlying problem is that the court appears to have analogized ERISA's de novo standard of review to administrative law cases subject to a record review. The Supreme Court has explained on more than one occasion that review proceedings in civil actions are not to occur outside the administrative law context.
In both Chandler v. Roudebush, 386 U.S. 361 (1967), which involved a discrimination suit brought by a federal employee pursuant to Section 717(c) of the Civil Rights Act, and in Kappos v. Hyatt, 132 S.Ct. 1690 (2012), which involved a challenge to a patent application denial, the Supreme Court rejected the imposition of administrative procedures in civil actions and held the district court was required to serve as a fact-finder, which "must make its own findings de novo" rather than act as a "reviewing court" as envisioned by the Administrative Procedures Act.
Ignoring that authority, the 1st Circuit treated this case as a review proceeding, and instead of granting the plaintiff a plenary hearing to determine whether the treatment in question was medically necessary, the court decided this case formulaically.