Barnett v. Kaiser Foundation Health Plan, Inc., 93-15390

• Decision Date: 04 August 1994
• Docket Number: No. 93-15390,93-15390
• Citation: 32 F.3d 413
• Parties: Ralph BARNETT, Plaintiff-Appellant, v. KAISER FOUNDATION HEALTH PLAN, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 413

32 F.3d 413

Ralph BARNETT, Plaintiff-Appellant, v. KAISER FOUNDATION HEALTH PLAN, INC., Defendant-Appellee.

No. 93-15390.

United States Court of Appeals Ninth Circuit.

Argued and Submitted June 16, 1994.

Decided Aug. 4, 1994.

Mark H. Rosenthal, San Francisco, CA, for plaintiff-appellant.

Kennedy P. Richardson and Sam Walker, Oakland, CA, for defendant-appellee.

Appeal from the United States District Court for the Northern District of California.

Before: HUG, SCHROEDER, and FERNANDEZ, Circuit Judges.

HUG, Circuit Judge:

Ralph Barnett belonged to Kaiser Foundation Health Plan, Inc. ("Kaiser"), a Health Maintenance Organization ("HMO"). After consulting with various doctors about his deteriorating health condition, Barnett formally requested financial approval from Kaiser for a liver transplant. Kaiser denied Barnett coverage. Following an expedited trial, the district court denied Barnett's request for a permanent injunction requiring Kaiser to pay for the costs of his liver transplant. Barnett appeals that decision. We have jurisdiction under 28 U.S.C. Sec. 1292, and we affirm.

I. FACTS AND PRIOR PROCEEDINGS

Ralph Barnett is inflicted with Hepatitis B, further classified as e-antigen positive. The "e-antigen positive" characterization indicates that he is infected with a large amount of the virus and that the virus is replicating rapidly outside the liver. E-antigen positive status carries with it a greater risk that a new liver could become infected with the virus.

Barnett, through his employment with Magnolia Upholstery, entered into an ERISA-regulated service agreement with Kaiser in 1990. Kaiser contracts with The Permanente Medical Group ("Medical Group") to provide health services to its members. Kaiser's Health Plan provides coverage for organ transplants if the Medical Group determines that the Member satisfies medical criteria developed by the Medical Group. In addition, the plan excludes procedures that are experimental or investigational in nature, that is, services that are not recognized in accord with generally accepted medical standards as safe and effective.

When Barnett's health began to deteriorate, he sought treatment from Dr. Mary Pauly at Kaiser-Sacramento Medical Center. After investigating the option of a liver transplant, Dr. Pauly concluded in early 1992 that a liver transplant was not medically appropriate for Barnett because of his e-antigen positive status. In reaching that decision, Dr. Pauly consulted informally with Medical Group's Liver Transplant Advisory Board ("Advisory Board"), a committee of liver specialists.

After rejection by Kaiser, Barnett sought a second opinion. He was thereafter accepted into the University of California at Los Angeles' and California Pacific's transplant programs. Both medical centers, however, required that Barnett gain certification from his insurance provider, or that Barnett pay $100,000 up front. Thus, Barnett formally requested the Advisory Board to approve his transplant. On October 29, 1992, Dr. Jack Rozance, the Assistant Physician-In-Chief at Kaiser-Sacramento Medical Center, wrote to Barnett informing him that Kaiser would not pay for the transplant because it viewed the procedure as "investigational in nature" and thus excluded from coverage.

Barnett's brother appealed the decision to the Member Grievance Committee on November 10, 1992, who forwarded the appeal to Dr. Leon Kaufman, Chairman of the Advisory Board. On December 4, 1992, Dr. Kaufman recommended affirming the denial of benefits. The Grievance Committee wrote to Barnett on December 15, 1992, stating two reasons for the denial: First, the transplant was excluded under the experimental and investigational procedure exception to the service agreement; and second, the transplant was not medically appropriate because of Barnett's medical condition and history.

Barnett filed this action on December 18, 1992. On December 22, the parties argued Barnett's motion for a preliminary injunction. The court denied the motion, but set the case for a hearing on a permanent injunction. The court held an expedited trial on January 22, 1993. On February 4, 1993, the court issued a written judgment denying the injunction and entering judgment in favor of Kaiser. Barnett thereafter did obtain a liver transplant from California Pacific through individual financial arrangements. The import of this case, at this stage, is whether Kaiser bears the financial responsibility for the expense of the procedure.

II. STANDARD OF REVIEW

Kaiser's service agreement is governed by ERISA, 29 U.S.C. Sec. 1001 et seq. Although the language of ERISA does not identify the proper standard of review for benefit denials, the Supreme Court has held that "a denial of benefits ... is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 956, 103 L.Ed.2d 80 (1989). Therefore, the standard by which we review benefit determinations depends upon the amount of discretion the plan vests in its administrator. Bogue v. Ampex Corp., 976 F.2d 1319, 1324 (9th Cir.1992), cert. denied, --- U.S. ----, 113 S.Ct. 1847, 123 L.Ed.2d 471 (1993).

Kaiser's plan explicitly vested Kaiser with discretionary power to determine eligibility for benefits and to construe terms of the agreement. Thus, we review Kaiser's denial of benefits under an abuse of discretion standard. See Firestone, 489 U.S. at 115, 109 S.Ct. at 956; Eley v. Boeing Co., 945 F.2d 276, 278-79 (9th Cir.1991). When such discretion exists, the arbitrary and capricious standard applies. Dytrt v. Mountain State Tel. & Tel. Co., 921 F.2d 889, 894 (9th Cir.1990).

Before arguing that Kaiser abused its discretion, Barnett contends that the district court erred in applying a highly deferential standard of review to Kaiser's decision because Kaiser is operating under a conflict of interest. See Firestone, 489 U.S. at 115, 109 S.Ct. at 956; Bogue, 976 F.2d at 1325. Barnett asks this court to apply a more stringent abuse of discretion standard. Although we have applied a less deferential standard when an administrator's decision involved a "serious conflict," see Bogue, 976 F.2d at 1325, this is not such a case. The district court found that Kaiser was not operating under a conflict of interest, based in part on Kaiser's nonprofit status and in part on the fact that the ultimate decision was made by the Advisory Board of doctors of the Medical Group that the procedure was not medically appropriate for Barnett, rather than a cost savings to the Kaiser Plan. We hold that this decision was not erroneous. The district court applied the proper standard of review.

III. DISCUSSION

We turn to the application of the principles of abuse of discretion review to analyze Kaiser's denial of Barnett's claim for coverage of his liver transplant. Under an abuse of discretion standard, we will uphold the district court's decision unless Kaiser's conduct was arbitrary and capricious. Clark v. Washington Teamsters Welfare Trust, 8 F.3d 1429, 1431 (9th Cir.1993). "The touchstone of 'arbitrary and capricious' conduct is unreasonableness. '[O]ur inquiry is not into whose interpretation of plan documents is most persuasive, but whether the plan administrator's interpretation is unreasonable.' " Id. at 1432 (citation omitted).

Barnett makes two arguments on appeal. First, he contends that the district court erred in finding that Kaiser properly excluded him from coverage under the experimental and investigational procedures...