Jett v. Blue Cross and Blue Shield of Alabama, Inc.

Decision Date18 December 1989
Docket NumberNo. 88-7659,88-7659
Citation890 F.2d 1137
Parties11 Employee Benefits Ca 2433 Olan JETT, Plaintiff-Appellee, v. BLUE CROSS AND BLUE SHIELD OF ALABAMA, INC., et al., Defendant-Appellant, Medical Expense Plan, Defendant.
CourtU.S. Court of Appeals — Eleventh Circuit

Lawrence B. Clark, Lange, Simpson, Robinson & Somerville, Sally S. Reilly, Morris Wade Richardson, Birmingham, Ala., for defendant-appellant.

Joe L. Tucker, Hardin & Taber, James V. Green, Jr., Birmingham, Ala., for plaintiff-appellee.

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

Before JOHNSON, Circuit Judge, RONEY *, Senior Circuit Judge and YOUNG, ** Senior District Judge.

RONEY, Senior Circuit Judge:

This case presents the question as to the scope of a court's review of an administrator's decision denying hospitalization benefits on the ground that hospitalization was not medically necessary under an ERISA-governed employee medical expense plan. We hold that the district court articulated the proper arbitrary and capricious standard required by ERISA, but that it, in fact, conducted an improper de novo review. We remand for further consideration.

The Plan

The medical benefits plan in this case was established by Olan Jett's employer, South Central Bell, pursuant to the Employee Retirement Income Security Act of 1974, 29 U.S.C.A. Sec. 1001, et seq. (ERISA). This is a self-insured health plan under which Blue Cross and Blue Shield of Alabama, Inc., is named as the administrator. Blue Cross processes the claims and makes the decision as to which ones are covered by the plan. Benefits under the plan are not considered insurance and South Central Bell reimburses Blue Cross the full costs of payments made for covered medical claims. Charges that are "reasonable and customary" for "medically necessary" services are covered. Those terms are defined in the plan and the booklet given to the employees. When a claim is denied, an employee may bring suit in federal court under 29 U.S.C.A. Sec. 1132(a)(1)(B) against the administrator of the plan.

The Hospitalization

On Monday, September 15, 1986, Dr. Kerry Kirkland, an internist, decided that the peptic ulcer and depression from which Olan Jett was suffering were sufficiently serious to warrant Jett's hospitalization. Accordingly, Dr. Kirkland admitted Jett to Brookwood Medical Center in Birmingham, Alabama on that date. Following Jett's admission, Dr. Kirkland continued to treat his peptic ulcer. Because treatment of Jett's depression fell outside of Dr. Kirkland's practice area, however, he decided to associate a psychiatrist, Dr. Clarence McDanal, in the care of Jett.

On September 16, at the request of Dr. McDanal, Jett was transferred to one of Brookwood's psychiatric units. In treating Jett's depression, Dr. McDanal utilized a combination of psychotherapy and medication. Jett's hospitalization continued through October 14, 1986. Beginning with the weekend of September 20-21, however, he was permitted to return home each weekend on therapeutic leaves of absence. The weekend absences did not diminish Jett's hospital bill, though, as Brookwood still deemed Jett to be hospitalized during the weekends for billing purposes.

The Claim and Denial

Following Jett's discharge, the hospital, Dr. Kirkland and Dr. McDanal each submitted claims under the plan to Blue Cross for the care that they had rendered to Jett. Blue Cross paid Dr. Kirkland in full for his treatment of Jett's peptic ulcer. However, Blue Cross deferred payment of the claims related to treatment of Jett's depression pending a review of whether provision of the services in question was medically necessary.

Blue Cross ultimately denied payment for a major portion of Jett's hospitalization, concluding that its duration was not medically necessary since the treatment involved could have been provided on an outpatient basis.

The Standard of Review

The parties agree that a court reviewing Blue Cross' denial of benefits under this plan must apply an arbitrary and capricious standard. Any contrary state law standard would be inapplicable because the Supreme Court has held that ERISA preempts state law as to claims made under such plans. Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987). The recent Supreme Court case which holds that a de novo standard of review is proper under some plans validates the prior law of this Circuit that the arbitrary and capricious standard of review is appropriate here. Firestone Tire & Rubber Co. v. Bruch, --- U.S. ----, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989). The court held that

a denial of benefits challenged under [29 U.S.C.A.] Sec. 1132(a)(1)(B) 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, 109 S.Ct. at 956.

The plan in this case does give the administrator of the plan "discretionary authority to determine eligibility for benefits [and] to construe the [plan's] terms." Id. For example, the plan states,

As a condition precedent to coverage, it is agreed that whenever the Claims Administrator makes reasonable determinations in the administration of the [plan] (including, without limitation, determinations whether services, care, treatment, or supplies are Medically Necessary ...) such determinations shall be final and conclusive.

The plan's descriptive booklet, provided to covered employees, contains this language: "Blue Cross and Blue Shield of Alabama has the exclusive right to interpret the provisions of th[is] Plan, so its decision is conclusive and binding." Accordingly, the arbitrary and capricious standard of review applies here. Firestone, 109 S.Ct. at 956; Guy v. Southeastern Iron Workers' Welfare Fund, 877 F.2d 37, 38-39 (11th Cir.1989).

Scope of Review

When conducting a review of an ERISA benefits denial under an arbitrary and capricious standard (sometimes used interchangeably with an abuse of discretion standard), the function of the court is to determine whether there was a reasonable basis for the decision, based upon the facts as known to the administrator at the time the decision was made. Brown v. Retirement Committee of Briggs & Stratton Retirement Plan, 797 F.2d 521, 532 (7th Cir.1986), cert. denied, 479 U.S. 1094, 107 S.Ct. 1311, 94 L.Ed.2d 165 (1987); Denton v. First National Bank of Waco, Texas, 765 F.2d 1295, 1304 (5th Cir.1985); Berry v. Ciba-Geigy Corp., 761 F.2d 1003, 1007 (4th Cir.1985).

District Court Proceedings

The district court said in its opinion that the plan administrator's decision was arbitrary and capricious because it "was not based on a consideration of the relevant factors and shows a clear error of judgment." The key to this appeal is whether the district court properly followed the contours of the arbitrary and capricious standard. Blue Cross argues that the district court, in fact, conducted a de novo review and based its opinion on its own findings of fact, improperly failing to limit its consideration to the evidence that was before the Blue Cross at the time Blue Cross denied coverage. A review of the record reveals that Blue Cross is correct.

Despite the fact that, at the time Blue Cross decided to deny full coverage of Jett's hospitalization, it had examined only (1) Jett's hospital records, (2) letters written by Jett's two treating physicians, and (3) the opinion of an outside consultant who had examined the same materials, the district court considered subsequent testimony of Dr. McDanal that contained new information that had not been presented to Blue Cross. For example, Dr. McDanal testified (1) that Jett's depressed condition made him a danger to himself during the entire period of his hospitalization, and (2) that the medications which were provided to Jett would have been extremely dangerous if provided on an outpatient basis. Indeed, Jett's medical records stated that, prior to issuance of his first weekend pass on September 20, he was no longer suicidal. Although Dr. McDanal's letter to Blue Cross mentioned the drug treatment, nowhere did the doctor state that outpatient provision of the treatments would have been dangerous, or even that the treatments themselves were necessary to safeguard Jett's life and health.

The district court found that Blue Cross had a duty to consult with Jett's treating physicians in determining whether his entire hospitalization was medically necessary, yet the plan gave Blue Cross discretion over what information was appropriate to consider in making this determination. Blue Cross stated as its reasons for not contacting Dr. McDanal (1) that the contemporaneous hospital records, if properly kept, should have contained all the information pertinent to a medical necessity determination (2) that contacting the doctor might have introduced an atmosphere of confrontation, (3) that by the time the claims were submitted and decided, Dr. McDanal's recollection may have faded somewhat, and (4) that the doctor's self-interest in whether the claims were paid might have influenced his presentation to Blue Cross. It cannot be said that the decision not to contact Dr. McDanal constituted abuse of discretion. The Social Security law that greater weight must be given to the opinion of the treating physician is not applicable to the decision of the claims administrator of an ERISA-governed employee health plan where the treating physician has an economic interest in the matter.

On remand, the district court should limit its review to consideration of the material available to Blue Cross at the time it made its decision. As long as a reasonable basis appears for Blue Cross' decision, it must be upheld as not being arbitrary or capricious, even if there is evidence that would support a contrary decision. Should Jett wish to present additional information that might affect the...

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