Hope or Hype
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Transcript of 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?