Plan’s Network Policy Was Clear Enough to Ward Off ERISA Claims (in spite of poor call center performance)

Rejecting a plan participant’s claims that plan documents should specifically list in-network providers, the 7th U.S. Circuit Court of Appeals held that a plan clearly providing information on how to check for provider status was sufficient to escape benefits-denial and fiduciary-breach claims. In affirming a lower court decision, the court also rejected an argument that call center representatives did not confirm provider status, finding that such poor communication does not per se create a fiduciary violation.

However, in Killian v. Concert Health Plan, 2012 WL 1357703 (7th Cir., April 19, 2012), the appeals court raised the possibility of higher statutory penalties arising from the plan’s violation of ERISA disclosure requirements.

The Facts

The employer, Royal Management Corp. sponsored a health plan, and used Concert Health as its claims review administrator. Concert Health was a named plan fiduciary, and it had discretionary authority to make claims determinations reserved for it in the plan.

In February 2006, plan participant Susan Killian required immediate brain surgery and aggressive cancer care after she was found to have lung cancer that had spread to her brain. She died during the course of chemotherapy treatment in August 2006.

Susan was enrolled her employer’s HMO option called “Open Access” which cautioned her:

to avoid reduced benefit payments, obtain Your medical care from SELECT providers whenever possible.

to confirm that Your Hospital, Qualified Treatment Facility, Qualified Practitioner or other provider is a CURRENT participant in Your SELECT provider Network, You must call the number listed on the back of Your medical identification card.

Facing a dire need for immediate brain surgery, Susan began care with Dr. Barnes, a brain surgeon who was not in the Open Access network, at Rush University Hospital.

In April 2006, on the day of Susan’s surgery, her husband James Killian called the number on the back of his insurance card to obtain pre-approval. In two conversations, James and Concert Health’s customer service representatives never discussed whether Dr. Barnes was in-network.

In the months before Susan’s death, plan explanations of benefits (EOBs) told Killian Concert would not cover the treatment Susan was receiving from out-of-network providers. Ultimately, Concert Health denied coverage of out-of-network claims totaling $80,000. Concert’s appeal committee upheld all denials except one emergency treatment claim.

In August 2007, James sued in federal court alleging improperly denied benefits and breach of fiduciary duty. He alleged the plan never provided him or his wife with an SPD or provider network list and didn’t notify him in phone conversations about the network status of his provider.

The district court rejected those allegations, saying there was no evidence Killian was confused about the provider being out of network, and that the two plan letters substantially complied with ERISA requirements because they included reasons for the denials.

Killian added on a third statutory penalties claim against the plan after it failed to provide plan documents. The district court did award Killian statutory damages against the plan administrator of about $5,880 for that. He nevetheless pursued the plan seeking $80,000 for the denied services.

Plan Unfailingly Stated Provider Was Non-Partipating

Circuit Judge Manion agreed that the plan did not improperly deny benefits. The fact that Killian never received a list of in-network providers was not enough to merit reversal because: (1) the plan in all its communications maintained the providers were out-of-network; and (2) nothing in the record indicated the Killians ever believed Dr. Barnes was in-network. The district court correctly ruled the plan decision was neither arbitrary nor capricious, the circuit held.

The plan and administrator admitted they failed to give the Killians an SPD, and the court went on to see whether that failure caused the harm to the Killians for the purposes of a fiduciary breach claim. The record showed the Killians would have started treatment from Dr. Barnes at Rush University Hospital whether they had an SPD or not. Therefore that could not be considered as an issue of fact, the court said.

Broken Phone Conversation

Killian’s two hurried phone conversations the plan call center in April 2006 left a lot to be desired from a plan administration standpoint, but it was still not the basis of a fiduciary breach claim.

The circuit found nevertheless that no triable issue arose from those conversations, because Killian failed to put the call center representatives on notice of the circumstances necessitating the surgery, and he failed to inquire about coverage at Rush University Hospital.

The case was dissimilar from Kenseth v. Dean Health Plan, 610 F.3d 452 (7th Cir., 2010), a ruling that concluded that fiduciaries are obliged to give important information even when not directly asked.

But to invoke that argument, Killian would have had to at least put the fiduciary on notice of his circumstances. And in this case, James did not.

We would have to significantly embellish the threadbare record before us to allow for a possible finding that James put Concert on notice of his “predicament.” The case law simply does not support a blanket requirement that a fiduciary turn every vague exchange, such as the phone calls between James and Concert in this case, into a quest to uncover some kind of harm that might befall a beneficiary. Therefore, Concert did not breach its fiduciary duty by failing to apprise him that Susan’s treatment at Rush University Hospital was not covered by her plan.

Killian never directly asked whether Rush University Hospital was in network; he merely told Concert Health that his wife was admitted, to which the claims servicers merely said “okay,” and “go ahead with whatever has to be done.” That was not an authorization by the plan, the circuit said.

The record showed that James Killian never believed that the center rep’s advice to “go ahead” was an authorization, and didn’t sufficiently follow through to resolve that issue, the court said. He also didn’t seriously seek out a network provider.

Further, poor communication by a call center employee per se did not create fiduciary violations. Kenseth itself held that a fiduciary “will not be held liable simply because a ministerial, non-fiduciary agent has given incomplete or mistaken advice to an insured.” Further, no evidence existed that fiduciaries Concert and Royal Management — say, through insufficient oversight — were responsible for the call center reps’ weak performance.

And, in spite of the unhelpful call service, clear plan documents shielded the fiduciaries. They: (1) identified Killian’s network; and (2) warned her that she needed to stay in-network to avoid reduced benefits payments.

Therefore, the appeals court affirmed, Killian failed to show that any breach of conduct by the plan or administrator actually caused his harm.

Statutory Penalties

Killian alleged the plan failed to provide ERISA required copies of the plan’s SPD, and the group policy after a formal request on April 24. The plan improperly responded by sending a Certificate of Insurance and Employee Benefits Summary. The district court agreed these were non-responsive, and awarded the plaintiffs $10 per day times 588 days for a total of $5,880 for the plan’s failure to provide an SPD.

This was insufficient, the appeals court held, and while it did not vacate the penalty award, it remanded the case for the penalty to be recalculated because it said, the district court left out an essential element when calculating it the first time around.