McGraw v. Prudential Ins. Co. of America

• Decision Date: 06 March 1998
• Docket Number: No. 97-6064,97-6064
• Citation: 137 F.3d 1253
• Parties: 98 CJ C.A.R. 1346 Linda McGRAW, Plaintiff-Appellant, v. The PRUDENTIAL INSURANCE COMPANY OF AMERICA, a corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1253

137 F.3d 1253

98 CJ C.A.R. 1346

Linda McGRAW, Plaintiff-Appellant, v. The PRUDENTIAL INSURANCE COMPANY OF AMERICA, a corporation,

Defendant-Appellee.

No. 97-6064.

United States Court of Appeals,

Tenth Circuit.

March 6, 1998.

Glen Mullins, Oklahoma City, OK, for Plaintiff-Appellant.

Arlen E. Fielden, Crowe & Dunlevy, Oklahoma City, OK, for Defendant-Appellee.

Before PORFILIO, ANDERSON, and BALDOCK, Circuit Judges.

PORFILIO, Circuit Judge.

Linda McGraw appeals three adverse orders resulting in the denial of her claims for medical insurance benefits for physical therapy and home nursing care prescribed to treat her multiple sclerosis. We affirm in part, reverse in part, and remand.

I. BACKGROUND

A. The Disease

Multiple sclerosis (MS) is a demyelinating disease of the central nervous system. That is, it is believed, deficiencies or abnormalities in the immune system trigger immune cells to attack myelin, the insulating sheath surrounding nerve cell processes located in the central nervous system. The damaged myelin cannot transmit electrical impulses along the nerve fiber pathways in the brain and spinal cord causing the individual to lose strength, coordination, and balance; to have problems with balance and bladder control; and to experience numbness, tingling, and blurred or double vision. ¹ Most commonly, MS occurs in a relapsing/remitting form in which exacerbations or relapses, periods of symptom flare-ups, are interrupted by remissions, times when no new symptoms occur or symptoms improve. Much less common is a chronic progressive form in which spinal cord and cerebellar dysfunction predominate. Despite these two broad categorizations, the course of MS is unpredictable. ² Because the cause of MS remains unknown, there is no prevention or cure. Instead, an armamentarium of treatments for MS-related symptoms, drugs that may modify the course of the disease, and rehabilitative and maintenance therapies to promote and improve functionality and independence are accepted approaches in the present symptomatic management of MS. ³

B. Plaintiff's Medical History

In 1983, Dr. Sherman Lawton, a board certified neurologist in Oklahoma City, diagnosed Linda McGraw, then age twenty-eight, with MS. By the spring of 1990, Ms. McGraw used a walker to stabilize her gait and relied on a wheelchair for longer distances. In 1991, Dr. John H. Noseworthy, a neurologist at the Mayo Clinic in Rochester, Minnesota, performed a comprehensive evaluation of Ms. McGraw and the progression of her MS and recommended an inpatient evaluation at St. Mary's Hospital of Physical Medicine and Rehabilitation Unit to more comprehensively address her problems with mobility. ⁴ Physically too weak to travel back to Mayo, Ms. McGraw was referred to Dr. Donald L. Landstrom, another board certified neurologist in Oklahoma City, who examined her and confirmed Dr. Noseworthy's recommendation for inpatient rehabilitation. Dr. Landstrom then admitted Ms. McGraw to the HealthSouth Rehabilitation Center on January 13, 1992, for twice daily physical and occupational therapy ⁵ which was completed on February 1, 1992.

On another front, Dr. David R. Rittenhouse, a urologist, was treating Ms. McGraw's recurrent urinary tract infections, another manifestation of the course of MS. Indeed, as immobility increases so do urinary tract infections unless the patient readily transfers to a commode or is catheterized. Although Gary McGraw, Linda's husband, was able to catheterize his wife in the early morning, Dr. Rittenhouse ordered home nursing visits to perform the additional catheterizations, the numbness in Ms. McGraw's hands and her immobility making self-catheterizations daunting. A nurse then would visit daily to monitor her bladder function as well as record vital signs and assist with some physical therapy. ⁶

Thus, to combat these two fronts, the interrelationship of functionality and the prevention of bladder infection, Dr. Lawton ordered additional outpatient physical therapy through Baptist HomeCare with the goal of improving Ms. McGraw's endurance, strength, and mobility. Explaining this treatment, Dr. Lawton wrote her medical insurer, the Prudential Insurance Company of America,

Beginning in April of 1992 it was necessary to resume physical therapy for Linda in her home. She is unable to obtain this therapy outside of her home because of marked limitations. For the patient to be seen outside the home it would be necessary for her to be carried to a wheelchair and then be carried into a facility.

The following May 1993, noting Ms. McGraw "had lost much of her ability for selfcare," Dr. Lawton again sought precertification for inpatient care at Baptist Medical Center, explaining, "her case is amenable to intensive physical and occupational therapy, which is clearly indicated in an attempt to improve the quality of this patient's life."

This second in-patient stay was followed by home physical therapy and skilled nursing services provided by Hillcrest Home Health Care and Hillcrest Health Center to help Ms. McGraw maintain functionality and assist in her catheterizations. Dr. Rittenhouse and Dr. Gena Gardiner, a family practitioner, ordered this care.

C. The Conflict

For each of these episodes of care, HealthSouth Rehabilitation Center, Baptist Care Advantage, Baptist Medical Center, Hillcrest Home Healthcare, and Hillcrest Health Center, Gary McGraw submitted claims for reimbursement totaling about $47,000 from his medical insurance plan, Prudential Plus, a policy offered by Prudential (the Plan) which his employer, Lifefleet, Inc., purchased. Prudential denied each claim under the Plan's general exclusion of unnecessary services or supplies for the diagnosis or medical care of a sickness or injury. Under this provision, to avoid the exclusion and receive payment, the service must be needed or "medically necessary." The Plan defines this term:

To be considered "needed", a service or supply must be determined by Prudential to meet all of these tests:

(a) It is ordered by a Doctor.

(b) It is recognized throughout the Doctor's profession as safe and effective, is required for the diagnosis or treatment of the particular Sickness or Injury, and is employed appropriately in a manner and setting consistent with generally accepted United States medical standards.

(c) It is neither Educational nor Experimental or Investigational in nature.

To decide whether to exclude a particular service, a case manager reviews the claim and makes a recommendation to the medical director. Prudential then relies upon a three-tiered review process. At the first level, the local medical director decides whether the claim is covered by the policy. A challenge of that decision then goes to Prudential's regional medical director. At the third level, an appeals committee comprised of several members who submit individual ballots may confirm or reverse the regional medical director's decision.

In this case, the medical director, Dr. Boyd Shook, board certified in internal medicine, made the initial decision to deny payment of the claim based on his belief "[p]hysical therapy does not affect the course of MS" and was therefore not medically necessary. The regional medical director, Dr. Sharon Lewis, who had previously practiced pediatrics, reviewed the decision and agreed. The appeals committee affirmed these decisions.

D. The Litigation

Invoking diversity jurisdiction, Ms. McGraw filed this lawsuit claiming Prudential, by failing to pay for medical expenses covered by the Plan, had breached its duty to deal fairly and act in good faith under Oklahoma law. To support the application of state law, Ms. McGraw alleged her husband's health insurance policy qualified as a governmental plan exempt from the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1003(b)(1) (ERISA). Prudential sought summary judgment, contending ERISA preempted the application of state law and barred three of her five claims because Ms. McGraw failed to exhaust her administrative remedies; and Prudential's denial of the two remaining claims was not arbitrary and capricious.

In three separate orders, the district court granted summary judgment for Prudential. First, it rejected Ms. McGraw's effort to characterize her medical insurance policy as a "governmental plan" to extricate it from ERISA's federal statutory web. Having found the Plan governed by ERISA, the court then granted Prudential's second motion for summary judgment concluding Ms. McGraw failed to exhaust her administrative remedies for the claims submitted for services rendered by HealthSouth Rehabilitation, Hillcrest Home Healthcare, and Hillcrest Health Center. In a final order examining the denial of coverage for the two surviving claims, the district court held Dr. Shook's determination the treatments were not medically necessary, while perhaps made without benefit of a review of Ms. McGraw's medical records, was nevertheless not arbitrary and capricious because subsequent review assured the initial decision was reasonable and made in good faith.

The district court's orders in response to cross-motions for summary judgment merit de novo review. Garratt v. Walker, 121 F.3d 565, 567 (10th Cir.1997). We must assure the record demonstrates there is no genuine issue of material fact and, even after construing all inferences in favor of the non-moving party, the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c).

II. GOVERNMENTAL PLAN

Despite ERISA's regulatory and remedial sweep, Congress did not include public or governmental benefit plans within its reach believing, in part, state and local governments' ability to tax, would enable them to operate employee benefit systems that would "avoid the pitfalls of underfunding." Hightower v. Texas Hosp. Ass'n, 65 F.3d 443, 449 (5th Cir.1995); see also Rose v. Long Island R.R. Pension Plan, 828 F.2d 910, 914 (2d Cir.1987). Hence, under ERISA,

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