Weight Loss Healthcare Centers of Am. Inc. v. Office of Pers. Mgmt.

• Decision Date: 23 August 2011
• Docket Number: No. 10–3247.,10–3247.
• Citation: 655 F.3d 1202
• Parties: WEIGHT LOSS HEALTHCARE CENTERS OF AMERICA, INC., Plaintiff–Appellant,v.OFFICE OF PERSONNEL MANAGEMENT, Defendant–Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

655 F.3d 1202

WEIGHT LOSS HEALTHCARE CENTERS OF AMERICA, INC., Plaintiff–Appellant,

v.OFFICE OF PERSONNEL MANAGEMENT, Defendant–Appellee.

No. 10–3247.

United States Court of Appeals, Tenth Circuit.

Aug. 23, 2011.

Daniel D. Owen of Shughart, Thomson & Kilroy (P. John Brady, Andrew J. Ennis, and Anthony W. Bonuchi of Polsinelli Shughart, PC, on the briefs), Kansas City, MO, for Plaintiff–Appellant.David B. Bailey, Assistant United States Attorney, (Barry P. Grissom, United States Attorney, and Jackie A. Rapstine, Assistant United States Attorney, on the brief), Topeka, KS, for Defendant–Appellee.Before HARTZ, McKAY, and EBEL, Circuit Judges.HARTZ, Circuit Judge.

Eric Walters was a federal employee covered by a Standard Option health insurance plan (the Plan) administered by Blue Cross Blue Shield of Kansas City (Blue Cross). In November 2007 he went to Weight Loss Healthcare Centers of America, Inc. (Weight Loss) to inquire about surgical treatment for obesity. Because Weight Loss had no contractual arrangement with Blue Cross as either a preferred provider or a participating provider, Walters would expect to pay more than if he used a provider that had a contract. Nevertheless, the following February Walters had outpatient laparoscopic surgery at Weight Loss to insert an adjustable gastric band (lap band) that would help him better control his weight. Although Walters obtained preauthorization from Blue Cross for the surgery, there is no indication in the record that he requested or received information about his out-of-pocket costs.

Weight Loss billed Blue Cross $56,000 for the procedure. The bill included various codes (which are not explained in the record) and two charges: one for “gastric lap band,” with a “unit price” of $50,000; and one for “lap band ap low prof,” with a unit price of $6,000. Aplt.App. at 71. There was no separate charge for the services of surgeons or anesthesia providers. Blue Cross paid only $1,610. Its Explanation of Benefits (EOB) sent to Walters stated that there was a payment of $1,610 for “surgery” and no reimbursement for the “medical equip/supply” charge of $6,000. Id. at 72. The Blue Cross Plan paid non-participating facilities 70% of the Plan allowance for outpatient surgery, and the EOB said that the allowance was $2,300. Walters was responsible for the remaining $54,390 billed by Weight Loss.

Weight Loss, having obtained permission from Walters to act on his behalf, requested that Blue Cross reconsider its payment, but the insurance company responded that it had correctly calculated Walters's benefits. Weight Loss appealed to the federal Office of Personnel Management (OPM), which held that Blue Cross's interpretation of Walters's Plan was correct and it had paid the proper amount.

Weight Loss, again acting on behalf of Walters, then brought suit in the United States District Court for the District of Kansas, asking that the court order OPM to require Blue Cross “to pay the amount of benefits in dispute” and “to provide specific and detailed reasons for the partial denial of the benefits.” Id. at 14. The district court affirmed OPM's decision.

Weight Loss appeals, raising three issues. First, it argues that the district court erred by deferring to OPM's interpretation of the Plan. Second, it argues that OPM and the court incorrectly interpreted the Plan. Third, Weight Loss argues that OPM never obtained the calculations and data that Blue Cross used to determine the amount of the plan allowance for outpatient surgery, making a reasoned decision impossible.

We have jurisdiction under 28 U.S.C. § 1291. We hold that OPM's interpretation of the Plan is entitled to deference because of its intimate and extensive involvement in the negotiation and interpretation of federal health-insurance plans. We further determine that OPM reasonably interpreted the Plan language. We reverse the district court's decision, however, because OPM neither (1) reviewed the evidence that would show whether Blue Cross had correctly calculated the Plan allowance, nor (2) explained why such review was unnecessary.

I. DISCUSSIONA. Standard of Review/Deference to OPM

“When reviewing agency action, we accord no deference to the district court's decision. Rather, we apply the same standard of review to the administrative record as [should] the district court.” Lee v. U.S. Air Force, 354 F.3d 1229, 1236 (10th Cir.2004) (brackets, citations, and internal quotation marks omitted).

Weight Loss argues that we should review OPM's interpretation of the Plan de novo. It acknowledges that “[c]ourts are right to defer ... to OPM's factual findings, its compilation of the record, and its interpretation of regulatory requirements” but contends that here OPM merely interpreted an insurance contract, a task that courts frequently perform and for which OPM had no specialized expertise. Aplt. Br. at 19. We disagree.

Although an agency's interpretation of a contract is generally not entitled to deference, such deference may be appropriate in certain circumstances. See Sternberg v. Sec'y, Dep't of Health & Human Servs. (HHS), 299 F.3d 1201, 1205 (10th Cir.2002); cf. Tex. Gas Transmission Corp. v. Shell Oil Co., 363 U.S. 263, 270, 80 S.Ct. 1122, 4 L.Ed.2d 1208 (1960) (when agency interprets contract using standard legal analysis and not its expertise, review is de novo). We have previously recognized the following as factors that can indicate the propriety of deferring to an agency's interpretation under an arbitrary-and-capricious standard of review: (1) the agency routinely reviews such contracts, (2) review of such contracts is a duty delegated to the agency by Congress, and (3) the contract deals with arcane subject matter or uses specialized terminology with which the agency is familiar. See Sternberg, 299 F.3d at 1205–06 (refusing to defer to HHS interpretation of a sentencing agreement in a criminal case because HHS did not routinely review sentencing agreements, such review was not a duty delegated to HHS by Congress, and the agreement did not concern arcane subject matter); see also Nw. Pipeline Corp. v. Fed. Energy Regulatory Comm'n (FERC), 61 F.3d 1479, 1486 (10th Cir.1995) (deferring to FERC interpretation of natural-gas tariff filed by pipeline company because Congress had delegated broad authority over natural-gas rates to FERC and it had vast experience in reviewing the tariffs). In addition, when a contract affects numerous persons throughout the country, fairness and efficiency may suggest the advisability of a central decisionmaker to resolve ambiguities. See Muratore v. OPM, 222 F.3d 918, 923 (11th Cir.2000) (“OPM has the ability to take a broad, national view when it interprets plans which serves the function of ensuring consistent, nationwide application.”).

Whether to defer to OPM's interpretation of a federal-employee insurance plan is a matter of first impression in this circuit. We begin our analysis by describing the role of OPM. OPM is responsible for “executing, administering and enforcing ... the civil service rules and regulations of the President and [OPM] and the laws governing the civil service.” 5 U.S.C. § 1103(a)(5)(A). It has authority to administer and regulate many aspects of federal employment, including pay rates, see id. § 5338, hours of work, see id. § 6101(c), annual and sick leave, see id. § 6311, and life-insurance benefits, see id. § 8716.

Of particular relevance to this appeal are OPM's duties under the Federal Employees Health Benefits Act of 1959 (FEHBA), 5 U.S.C. §§ 8901–14, which governs health benefits for federal employees. Under the Act, OPM may enter into contracts with health-insurance carriers to provide coverage for federal employees. See id. § 8902(a). It can prescribe minimum standards for health-insurance plans, see id. § 8902(e); it determines whether rates charged by the plans “reasonably and equitably reflect the cost of the benefits provided,” id. § 8902(i); and it is responsible for providing information to federal employees about available insurance plans and for continually studying their operation, see id. §§ 8907, 8910. And each contract must require the carrier to pay for or provide services if OPM finds that the employee is so entitled. See id. § 8902(j).

The FEHBA authorizes OPM to promulgate regulations to carry out its provisions. See id. § 8913(a). OPM regulations set minimum standards for health insurers, see 5 C.F.R. § 890.202, and permit OPM to withdraw approval of any health-insurance plan that is not meeting its standards, see id. § 890.204. They authorize OPM to negotiate benefit and premium changes with health-insurance carriers, see id. § 890.203(b); and they permit approval of plans only if they are “in the best interest of enrollees,” id. § 890.203(a)(3). Any federal employee who disputes a decision by an insurance provider must pursue relief from OPM before seeking judicial review. See id. §§ 890.105(a)(1), 890.107(d)(1). Judicial review is by suit against OPM. See id. § 890.107(c).

The statutory obligation of OPM to understand federal employee health plans comprehensively is apparent from the above-mentioned duties to negotiate, evaluate, and study contracts, and to resolve disputes between insureds and insurance carriers. Thus, two of the Sternberg factors argue for deference: OPM routinely reviews health-care insurance plans, and it is mandated by Congress to do so.

Further, not only are the advantages of a uniform, nationwide interpretation of these plans manifest, but the legislative history of FEHBA shows that Congress was motivated by those advantages when it adopted 5 U.S.C. § 8902(m)(1), which preempts the application of state law to the federal plans. Indeed the title of the law adding § 8902(m)(1) to the FEHBA is “An Act to Amend [the FEHBA] to establish uniformity in Federal employee health benefits and coverage by preempting certain State or local laws which are inconsistent with such contracts, and...