A recent ruling from the 9th U.S. Circuit Court of Appeals focused on an insurer’s conflicts of interest that may have impacted its full and fair adjudication of an employee benefit claim.

The U.S. Supreme Court first expressed concern about the impact of benefit plan administrators’ conflicts of interest in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989). Subsequently, in Metropolitan Life Insurance Co. v. Glenn, 554 U.S. 105 (2008), the Supreme Court explicitly acknowledged the inherent structural conflict of interest that exists where the same party both decides a claimant’s eligibility for benefits and provides the funding to pay the benefits.

Last month, in Demer v. IBM Corp. LTD Plan, 2016 WL 4488006 (9th Cir., Aug. 26, 2016), although the appeals court gave little attention to the structural conflict, the 9th Circuit expressed concern about consultants who are frequently retained by benefit plans and their compensation.

Two of the doctors involved in assessing Daniel Demer’s disability claim had each performed more than 200 claim file reviews per year for MetLife and earned well in excess of $100,000 per year from MetLife for writing file review reports.

The court determined that the plaintiff’s evidence regarding the frequency with which those doctors reviewed claim files, and the amount of the compensation they each received, met the plaintiff’s burden of production showing a financial conflict.

“The magnitudes of these numbers,” the court found, “particularly when combined, raise a fair inference that there is a financial conflict which influenced the [physicians’] assessments and thus such conflict should be considered as a factor in reviewing MetLife’s decision for abuse of discretion.”

Although there was no evidence presented that would establish the consultants had a stake in the outcome of the case, the court remarked that fact alone “does not mean that there is no conflict of interest” in view of the frequency with which the reviewers were retained and the compensation they each were paid.

Although one of the members of the panel disagreed with the majority’s findings as to the conflict, the majority responded by noting, “The dissent mistakenly equates outside experts with independent experts, but the former does not guarantee the latter.

“We do not quarrel with the notion that using outside medical evaluators can be an important step toward the goal of obtaining neutral assessments, but it is not hard to imagine an outside medical examiner who does not engage in a neutral, independent review, such as where the examiner receives hundreds of thousands of dollars from a single source and performs hundreds of reviews for that source every year.”

The majority also was careful to make it clear that it was not disapproving the use of outside reviewers, but was limiting its observation to “the unremarkable proposition that the number of examinations referred and the size of the professional fees paid to a reviewer may compromise the neutrality of an expert.”

There is a lot of meat to chew on in this opinion. But there was also nothing remarkable about its conclusions.

In Black & Decker v. Nord, 538 U.S. 822, 832 (2003), the Supreme Court rejected a rule that would give deference to treating doctor’s opinions as in Social Security disability claims, but then observed:

“Nor do we question the court of appeals’ concern that physicians repeatedly retained by benefits plans may have an ‘incentive to make a finding of “not disabled” in order to save their employers money and to preserve their own consulting arrangements.'” (Citation omitted.)

Likewise, in Hawkins v. First Union Corp. Long Term Disability Plan, 326 F.3d 914, 917 (7th Cir. 2003), the 7th Circuit expressed concern that when the consultant is “hired by the administrator of a private plan [the consultant] may have a financial incentive to be hard-nosed in his claims evaluation in order to protect the financial integrity of the plan and of the employer that funds it.” (Citations omitted.)

What is notable about the ruling here, though, is the court’s finding that the conflict of interest discussed in MetLife v. Glenn, 554 U.S. 105 (2008), not only exists in the structure of the claim administrator’s role, but can also be manifested by the manner in which the claim was evaluated.

Given the discovery that was obtained showing the number of reviews and the compensation paid to the reviewers, the plaintiff opened the door far enough to require a rebuttal by MetLife to establish the doctors’ neutrality irrespective of those issues. And this ruling opens the door to even more discovery relating to financial taint.

In cases where the reviewing doctor is employed by the insurance company, if the doctor is also a shareholder or is paid a bonus based on company profitability, the 9th Circuit’s concern about the consultant having a financial stake in the outcome would be even more pronounced.

Additional discovery could also be sought from the claim handler to find out why a particular doctor was selected and whether the adjuster knew the frequency with which a particular doctor was retained and the amount of compensation paid to that doctor.

The dissent by Judge Jay Bybee asks a legitimate question by expressing dissatisfaction as to how much weight is placed on the scale when a court expresses “skepticism” about the claim administrator’s neutrality. But his expression of concern that the court’s ruling will impact Social Security disability claims is mostly unwarranted.

Although initial claim decisions in Social Security cases are often also based on physician file reviews, Richardson v. Perales, 402 U.S. 389 (1971), requires a medical report used in a Social Security case to be based on an examination before it is deemed “substantial evidence” sufficient to support a claim denial.

In addition, Social Security has a regulation, 20 C.F.R. Section 404.1527, that requires giving deference to a treating doctor’s opinion so long as the doctor is a specialist, has a reasonably lengthy history of treating the patient and offers an opinion that is consistent with the test results and the evidence as a whole.

Thus, the entire proof paradigm is different in Social Security disability claims.

The impact of this case remains to be seen, but growing judicial criticism of ridiculous assessments written by the limited number of doctors involved in reviewing both disability and health benefit denials deserves greater judicial scrutiny.

The 9th Circuit’s observation that the use of outside experts does not guarantee independence is undeniable and opens the door to greater scrutiny of whether health and disability insurance claimants are receiving the full and fair consideration their claims deserve.

This article was initially published in the Chicago Daily Law Bulletin.

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