Sheppard & Enoch Pratt Hospital, Inc. v. Travelers Insurance

Citation: 32 F.3d 120Docket: No. 93-2220

Court: Court of Appeals for the Fourth Circuit; August 15, 1994; Federal Appellate Court

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Denzil G. Bolyard, a retired AT&T employee, was hospitalized for sixteen months due to a psychiatric disability. The Travelers Insurance Company, managing AT&T's Medical Expense Plan for Retired Employees, approved payment for only six months of his hospitalization. The Hospital, as Bolyard's assignee, filed a lawsuit under ERISA to recover the full amount. The district court granted summary judgment in favor of Travelers, ruling that the Hospital did not demonstrate that the denial of coverage constituted an abuse of discretion. 

Bolyard, who had a history of severe obsessive-compulsive disorders, was hospitalized multiple times before being admitted to the Hospital on March 7, 1989. The Plan stipulates that coverage requires certification of medical necessity by a doctor and the claims administrator. Bolyard's initial stay was covered by Medicare, exempting him from pre-certification requirements. However, after Bolyard sought coverage for the remaining hospitalization period, Travelers determined that only the first 60 days were medically necessary, based on a review by Dr. Matthew R. Friedman. Bolyard's appeal, supported by his physicians' letters, was reviewed by Dr. Michael A. Gureasko, who confirmed coverage for six months. The Hospital's lawsuit sought to extend coverage and claimed breach of fiduciary duty. 

On appeal, the Hospital argued that the district court applied the wrong review standard and erred in granting summary judgment. The appellate court emphasized a de novo review of the summary judgment decision, aligning with the standards used by the district court.

The administrator's interpretation of the "medically necessary" provision of the Plan should have been reviewed de novo by the district court, as established in Firestone Tire & Rubber Co. v. Bruch. The Supreme Court determined that benefits claims under ERISA are generally subject to de novo review unless the plan grants discretionary authority to the administrator. In such cases, courts apply an "abuse of discretion" standard, which allows the trustee's reasonable interpretations to stand. In the present case, Bolyard's coverage hinges on the undefined term "medically necessary." The Plan grants conclusive authority to the administrator and AT&T to interpret coverage questions, as specified in the Plan's contractual language and the Summary Plan Description. The Hospital argues that a clause requiring patient doctor certification of medical necessity limits the administrator's discretion. However, both the Plan and its summary affirm the administrator's exclusive authority to determine coverage, meaning physician certification alone does not guarantee coverage without the administrator's approval.

Travelers retains the authority to make eligibility determinations, and the appropriate standard of review is "abuse of discretion." The Hospital contends that the district court erred by not considering extrinsic evidence not available to the Plan during its decision-making process. Specifically, the Hospital argues that if the court had considered materials from Dr. Boronow, who reviewed Bolyard’s case, it would have identified a genuine dispute over material facts. The precedent in Berry v. Ciba-Geigy establishes that under an arbitrary and capricious standard, courts should only evaluate the record before the plan fiduciary at the time of the decision. The court's role is to determine whether the decision had a reasonable basis based on the facts known to the administrator at that time. The district court should not disturb a benefits determination unless it is unreasonable; thus, if the administrator lacked sufficient evidence, the correct procedure is to remand for a new determination, not to introduce new evidence. Dr. Friedman reviewed Bolyard’s medical records and concluded ongoing treatment was necessary but not inpatient care, while Dr. Gureasko conducted a second review incorporating additional materials, including letters from Drs. Boronow and Lazor detailing their diagnoses and treatment recommendations.

The district court affirmed Travelers' decision regarding coverage after reviewing the depositions of Drs. Friedman and Gureasko and deemed the record sufficient, choosing not to remand for further deliberation. The Hospital's claim of abuse of discretion in the administrator's denial of full coverage was rejected. Factors considered in evaluating whether an abuse of discretion occurred include the consistency of the administrator's interpretation with the plan's goals, the potential for rendering plan language meaningless, compliance with ERISA requirements, consistency in application, and alignment with the plan's clear language. The court maintains that reasonable interpretations by plan fiduciaries cannot be overruled by the court's own interpretations.

The Hospital contended that the administrator unreasonably favored its medical consultants' assessments based solely on medical records over the opinions of Bolyard's treating physicians, likening it to Social Security disability cases where treating doctors' opinions carry significant weight. However, the court noted that the case at hand involves the assessment of medical necessity, where the administrator must evaluate the treating physician's judgment rather than accept it unconditionally.

The Hospital also argued that the differing opinions between Drs. Friedman and Gureasko indicated an unreasonable conclusion by Travelers regarding coverage duration. The court clarified that previous cases addressing inconsistent applications of plan provisions among similar ailments did not apply here, as the Plan's decision to follow Dr. Gureasko's more comprehensive recommendation did not reflect that type of inconsistency.

Lastly, the Hospital claimed that Travelers operated under a conflict of interest in the benefits decision. However, the court cited the Supreme Court's Bruch decision, which indicates that such conflicts should be weighed in determining abuse of discretion, but concluded that this principle was not applicable in the present case.

The AT&T Plan is a self-funded and self-insured program, with Travelers acting solely as a third-party administrator and not as an insurer, meaning they and the affiliated doctors had no financial interest in Bolyard's eligibility determination. The Hospital claims the Plan violated ERISA regulations, specifically the requirement to process claims within 90 days of submission and to provide specific reasons for benefit denials and review procedures. Bolyard's coverage request was made on February 9, 1990, but the Plan's determination of medically necessary hospitalization was only issued on June 11, 1990, exceeding the 90-day requirement. However, the regulations state that failing to provide timely notice is considered a claim denial, allowing for internal review. Bolyard requested an internal review on July 5, 1990, resulting in a recommendation for coverage of six months of hospitalization. The district court found that the review effectively remedied the earlier 90-day violation and that Bolyard was not harmed by the lack of detailed reasons regarding the denial of full coverage. The June 11 letter indicated that full coverage was denied due to lack of medical necessity, and Bolyard's appeal included supportive letters from his physicians, which sufficiently addressed the issue. Although the denial notice could have been more detailed, it was deemed to have substantially complied with ERISA regulations. The Hospital's argument that the Plan should be estopped from denying coverage due to delays was rejected, as there was no evidence of misleading representations by the Plan that would justify reliance on the expectation of coverage. The judgment of the district court was affirmed. Additionally, the AT&T Plan relies on the HealthCheck unit for hospitalization reviews, and the discussion included the standards for reviewing benefit determinations under ERISA, emphasizing that the outcome would remain consistent regardless of the review standards applied.