I’ve been a bit neglectful about commenting on Judge Lawrence McKenna’s ruling in the AMA v. UHC case out of the U.S. District Court for the Southern District of New York. The citation is The American Medical Assoc. v. United Healthcare Corp., 2007 U.S. Dist. LEXIS 44196 (S.D. N.Y. 2007). The decision, handed down about six weeks ago, moves forward a longstanding case involving challenges by a number of patients and doctors to UHC’s method of determining what are usual, customary and reasonable fees (“UCR”) for physicians to charge. Health insurers routinely include an exclusion in their policies for any charges that exceed UCR. Disputes can crop up over how insurers determine what that limitation is and whether their actions fairly reflect market conditions about what healthcare providers can and do charge. Roy Harmon over at his Health Plan Law blog had a good discussion of some of the high points of the decision back in June when it was released. I won’t attempt to re-plow the ground Roy has covered but his comments on the decision are worth a look. There are a couple of additional aspects of the decision that were of interest to me. First, I was intrigued by the court’s discussion of whether a “fixed policy” of denying certain claims based on internal insurance company guidelines constituted a basis to excuse the obligation that exists for plan participants and beneficiaries to exhaust pre-litigation appeal remedies. In this case, the great majority of claims at issue had not gone through any pre-litigation review process. The claimants argued that the failure to do so should be excused because UHC had made clear their policy of applying the objectionable UCR methodology to all claims. Thus, the claimants argued, appealing the application of the methodology would have been “substantively futile” and the exhaustion requirement should be waived. The court appeared to agree that if the claimants could prove that pre-litigation appeals to UHC would have been a waste of time and effort, the obligation to exhaust administrative appeals would have been excused. But the court rejected the claimants premise: the undisputed facts suggested that not only could UHC have altered its application of the UCR process but that, at times in the past, it had actually done so in response to pre-litigation appeals. The second aspect of the decision I found interesting is its holding that while claims for unpaid benefits based on the terms of the UHC insurance policy are subject to ERISA’s requirement to exhaust pre-litigation appeals, claims for breach of fiduciary duty based on ERISA’s statutory requirements are not. The court is on solid ground here both analytically and in terms of having good company from other district and circuit courts. However, defendants in ERISA cases are, rightly, concerned that acceptance of this argument may open the door to lawyers taking garden variety benefit recovery claims and, through artful pleading, turning them into claims for breach of fiduciary duty simply to avoid the exhaustion hurdle. In this case the district court assures us that is not a problem: its review of the pleadings shows that the claimants’ breach of fiduciary duty claims are based on the statute’s fiduciary duty requirements rather than assertions that UHC violated the requirements of the insurance policies. The court adds that, in any event, UHC makes no argument that the breach of fiduciary duty claims are benefit recovery claims in disguise. This makes me wonder exactly how the plaintiffs' complaint frames the breach of fiduciary duty claims. I’ll look into that and report back.
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