Hope or Hype

8/3/2019 Hope or Hype

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Delayed & Denied? Toward anDelayed & Denied? Toward an

Effective ERISA Remedy forEffective ERISA Remedy for

Improper Processing of HealthcareImproper Processing of HealthcareClaimsClaims

Faculty Quodlibet

March 24, 2010


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Why ERISA?Why ERISA?

Why claims processing regulations?W

hy claims processing regulations?


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Toward an Effective ERISA RemedyToward an Effective ERISA Remedy

for Improper Processing offor Improper Processing of

Healthcare ClaimsHealthcare Claims

I.Background: Three Things About ERISA

II. Claims processing procedures as back-

door benefits denial

III. Possible solutions


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1.1. Comprehensive federal statuteComprehensive federal statute

governing employergoverning employer--sponsoredsponsored

pension and welfare planspension and welfare plans

y

Passed in 1974 to great fanfarey Originally aimed at preventing pension

defaults

y

Business community strongly opposed


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Focus was on pension, not welfareFocus was on pension, not welfare

plansplans

y Sets out technical rules governing pension

plans

y Creates Pension Benefit Guarantee

Corporation as back-up for defaulting

plans


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Any debate over welfare plans?Any debate over welfare plans?

y Little debate over healthcare plans

y Organized labor fought for preemption of

regulations of welfare plans

y Labor wanted to keep ABA from

controlling prepaid legal plans


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Congresss goalCongresss goal

To increase the likelihood that full

benefits will be paid to participants and

beneficiaries of [ERISA] plans. 29 U.S.C.

1001b(b)(1)


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Supreme Court agrees . . .Supreme Court agrees . . .

y Congress enacted ERISA to protect . . . the

interests of participants in employee benefit

plans and their beneficiaries.

Aetna Health v. Davila, 542 U.S. 200, 208 (2004).

y ERISAs repeatedly emphasized purpose [is]

to protect contractually defined benefits.Mass.Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 148

(1985).


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High hopes from sponsors . . .High hopes from sponsors . . .

[T]he greatest development in the life ofthe American worker since Social

Security.

Principal sponsor Senator Jacob Javits


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Basic structureBasic structure

y Gives all who have decision-making

power over ERISA plans fiduciary status

y Codifies broad principles of trust law

Loyalty

Prudence

Exclusive benefit rule

= heavy influence of trust law, trust law still

influences remedies


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High hopes dashedHigh hopes dashed

y An unjust and increasingly tangled ERISA

regime.Aetna Health, Inc. v. Davila, 542 U.S. 200, 208(2004) (Ginsberg, J., concurring).

y A gaping wound.

Cicio v. Does, 321 F.3d 83,106 (2d Cir. 2003)(Calabresi, J., dissenting in part).


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2.2. ERISA preempts stateERISA preempts state--lawlaw

claims that touch on ERISA plansclaims that touch on ERISA plans

y Section 514 preempts state laws that

relate to an ERISA plan

y Section 502 sets out exclusive remedies

for claims under ERISA


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State law claims preemptedState law claims preempted

y Exception to the well-pleaded complaint

rule

y For federal statutes that wholly displace the

state-law cause of action through complete

preemption.Aetna Health v. Davila, 542 U.S. 200,

208 (2004).


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ExampleExample

Payor says hospitalization during final weeks ofhigh-risk pregnancy not medically necessary,despite two doctors statements that it was;woman goes home, fetus goes into distress

and dies.

Held: ERISA preempts negligence claims, noremedy here.

Corcoran v. United HealthCare, Inc., 965 F.2d1321 (5th 1992).


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3. The ERISA bargain gives few3. The ERISA bargain gives few

remediesremedies

502 Claim for benefitsx Remedy: benefit itself, injunction, other equitable

relief

x Supreme Court says no consequential damages

409 Claim for breach of fiduciary dutyx Remedy is other equitable or remedial relief

x Restore profits


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SophisticatedSophisticated payorspayors on ERISA:on ERISA:

The advantages of ERISA coverage in litigioussituations are enormous. There are no jury trials,there are no compensatory or punitive damages,relief is usually limited to the amount of thebenefit in question, and claims administratorsmay receive a deferential standard of review.

Internal Provident Insurance Company memo,dated October 2, 1995 (emphasis added)


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Memo (cont.)Memo (cont.)

y As an example, [an adjuster] identified

12 claim situations where we settled for

$7.8 million in the aggregate. If these 12

cases had been covered by ERISA, ourliability would have been between zero

and $0.5 million.

y Internal Provident Insurance Company

memo, dated October 2, 1995


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ERISA is a major coup forERISA is a major coup for

employers &employers & payorspayors

The National Coalition on Benefits

believes that the employer sponsorship of

benefits under ERISAs uniform rules has

worked very well.

Statement of employers lobbying group vis-

-vis healthcare reform


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II.II. The problem: ClaimsThe problem: Claims

processing as backprocessing as back--doordoor

benefits denialbenefits denial

yWhat happens when we file a claim?

yWhat happens when claims are not

processed the way they should be?


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Steps in Claims ProcessingSteps in Claims Processing

y Seek care

y Submit claim (either self or provider)

y If denied, appeal

y Appeal again

y Sue in federal court

y Denial affirmed unless arbitrary and

capriciousy If win, get value of benefit, sometimes

attorneys fees


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Regulatory requirementsRegulatory requirements

y Have a claims processing procedure

y Claims processing procedures should

decide claims uniformly, according to plan

terms

y Process claims within a certain time

y Review the participants file

y Decide appeals within certain time limits


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What happens if you dont?What happens if you dont?

y Substantial compliance doctrine erases

most instances of non-compliance

y Possible lowering of discretionary

standard of review

y Possible attorneys feesbut rare, and

not during administrative phase


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No claims processing procedure atNo claims processing procedure at

all? No problem.all? No problem.

y [T]here was no direction as to what the

claims procedure was. So everyone just

had to use their own imagination as to

what types of claims procedures existed.

y Sage v. Automn, Inc. Pension Plan & Trust, 845 F.2d 885, 894 (10th Cir.1998) (affirming denial of benefits and quoting testimony of plan

accountant).


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MostMost frequent result?frequent result?

y Payor is ordered to go back and do the

review that it should have done in the

first place

y No penalty

y Meanwhile, the participant waits or gives

up

yWhat about lawyer?


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Participants tend to give up = backParticipants tend to give up = back--

door denialdoor denial

y Those who can fight doand win (settle

quietly)

y Affects access to healthcare

y Hurts the less educated and the sick(!)

y Undermines purposes of ERISA


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III. Can there be a real ERISAIII. Can there be a real ERISA

remedy for improper processing ofremedy for improper processing ofhealthcare claims?healthcare claims?

y But state common-law claims are preempted

y State laws & regulations are preemptedy ERISA remedies provide no consequential damages

y May be no direct damage to participant (delayarguably costs only interest)

y Discouraged participants do not come before thecourtthey quietly give up

= millions of small injustices that add up


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Guiding principlesGuiding principles

y Legislative history supports a remedy

y The rising judicial chorus referenced by

Ginsberg

yWillingness to view individual ERISA

claims within a broader context


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Where to look for a remedy?Where to look for a remedy?

I. Rethinksubstantial compliance doctrine

as undermining purposes of ERISA

II. Develop breach of fiduciary duty claim

III. Breach of fiduciary duty as class action

IV. Analogy to truth-in-lending lawsneeds

legislative reform (least likely)


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I.I. Rethinking substantialRethinking substantial

compliancecompliance

1. Purpose of ERISA is to protect

contracted benefits

2. Substantial compliance doctrine permits

overall lax approach to claims

regulations


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II.II. Improper claims processing asImproper claims processing as

Section 409 fiduciary breachSection 409 fiduciary breach

y ERISA decision-makers are fiduciaries

y Permitted under ERISA

Rarely remedied (as explained above)


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Provision for equitable remedies inProvision for equitable remedies in

Section 409Section 409

y Disgorgement of profits

y Beneficiary need not be harmed

y Idea is to enforce fiduciary duties


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Section 409 claim analogized toSection 409 claim analogized to

securities regulation for damagessecurities regulation for damages

purposespurposes

y SEC has brought fiduciary breach actions

and successfully obtained disgorgement of

profits remedies

yWhat can we learn from this?


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III.III. Section 409 as class actionSection 409 as class action

y Can fiduciary duty plaintiffs overcome

class action requirement of typicality,

commonality?


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IV.IV. Case for legislative reformCase for legislative reform

y Analogy to truth-in-lending laws and

others

y Truth-in-lending violations result in

statutory remedies

yJust as request for SPD results in

$100/day fine..


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Questions?Questions?

Documents

Hope or Hype