Hammond v. United States Office of Personnel Management et al

Filing 25

ORDER by Judge Daniel L. Hovland denying 17 Motion for Summary Judgment by United States Office of Personnel Management; granting 19 Motion for Summary Judgment by Richard H. Hammond (CP) Distributed to Richard H. Hammond on 11/15/2011. (rs)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NORTH DAKOTA
SOUTHWESTERN DIVISION
Richard H. Hammond,

)
)
ORDER GRANTING PLAINTIFF’S
Plaintiff,
)
MOTION FOR SUMMARY
)
JUDGMENT AND DENYING
vs.
)
DEFENDANT’S MOTION FOR
)
SUMMARY JUDGMENT
United States Office of Personnel
)
Management,
)
Case No. 1:10-cv-094
)
Defendant.
)
______________________________________________________________________________
Before the Court are cross-motions for summary judgment filed on April 6, 2011 and June
6, 2011. See Docket Nos. 17 and 19. The Plaintiff filed a response in opposition to the Defendant’s
motion on June 6, 2011. See Docket No. 22. The Defendant filed a response in opposition to the
Plaintiff’s motion and a reply brief on July 11, 2011. See Docket Nos. 23 and 24. For the reasons
explained below, the Plaintiff’s motion is granted and the Defendant’s motion is denied.

I.

BACKGROUND
The plaintiff, Richard H. Hammond, is a retired federal employee covered by the Federal

Employee Health Benefits Program. The United States Supreme Court has explained:
The Federal Employees Health Benefits Act of 1959 (FEHBA), 5 U.S.C. §
8901 et seq. (2000 ed. and Supp. III), establishes a comprehensive program of health
insurance for federal employees. The Act authorizes the Office of Personnel
Management (OPM) to contract with private carriers to offer federal employees an
array of health-care plans. See § 8902(a) (2000 ed.). Largest of the plans for which
OPM has contracted, annually since 1960, is the Blue Cross Blue Shield Service
Benefit Plan (Plan), administered by local Blue Cross Blue Shield companies.
Empire HealthChoice Assur., Inc. v. McVeigh, 547 U.S. 677, 682 (2006). Richard Hammond is
covered by the Blue Cross and Blue Shield Benefit Service Plan (“Blue Cross/Blue Shield”).

Richard Hammond’s son, Justin Hammond, is covered by Richard Hammond’s health insurance
policy and by Medicare.
Justin Hammond was admitted to the Malibu Horizon residential treatment center in Malibu,
California, for treatment of drug dependency and bipolar disorder on May 13, 2007. He was
discharged on June 10, 2007. Malibu Horizon is licensed as “an adult residential alcohol and/or
drug abuse/recovery or treatment facility.” See Docket No. 9-7, p. 8. Justin Hammond’s treatment
at Malibu Horizon cost $32,648.00. Medicare denied coverage for Justin Hammond’s treatment at
Malibu Horizon because the facility is not a participating provider under Medicare. See Docket No.
9-1, p. 40.
Blue Cross/Blue Shield also denied the claim for coverage. Carol M., a customer care
representative for Blue Cross/Blue Shield, explained the decision in a letter to Richard Hammond
on June 16, 2008:
It has been determined that based on the information that has been provided, the
physician’s progress notes are not daily notes and some of the notes are illegible. It
cannot be determined that the patient was suicidal or homicidal. The patient was
described as being anxious and experiencing [an] increase in auditory hallucinations.
The patient was participating in treatment. There were no co-morbid factors that
require the level of care provided. The patient appears to have sufficient social
support and motivation to participate in a less intensive treatment. The patient’s
symptoms do not appear to meet the criteria guideline provision of the benefit plan
for this level of care during the period reviewed.
See Docket No. 1-6.
Richard Hammond requested that the denial of the claim be reconsidered in letters dated June
30, 2008 and August 14, 2008. See Docket Nos. 1-8 and 1-9. Upon reconsideration of the claim,
Blue Cross/Blue Shield noted that Malibu Horizons is licensed as a residential treatment center.
Page 82 of the Service Benefit Plan brochure (“the brochure”) provides that “[s]ervices performed

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or billed by schools, residential treatment centers, halfway houses, or members of their staffs” are
not covered. See Docket No. 9-1, p. 2. The brochure also provides that members pay a $400
copayment and 40% of the Plan allowance for “room and board and ancillary charges for
confinement in a treatment facility for rehabilitative treatment of alcoholism or substance abuse.”
See Docket No. 9-1, p. 2. Upon reconsideration, Blue Cross/Blue Shield again denied coverage and
provided the following justification:
The patient is a 29 year old male patient with a history of Bipolar Disorder and
Polysubstance Dependence. The patient was admitted into the RTC (Residential
Treatment Center) LOC (Level of Care) at the Horizon Malibu Facility on 5/13/2007
and was discharged on 6/10/2007.
However, the clinical notes provided are for the summer of 2005. There are no notes
found in this chart that correspond to the LOS in question. On 7/27/2007, Dr.
Mohammed, MC, writes in this patient’s Initial Psychiatric MSE (Mental Status
Examination): “Patient appears stated age, illegible, anxiety, good eye contact,
cooperative, depressed mood, decreased attention and concentration, no acute
psychiatric symptoms, no suicidality or homicidality, illegible, poor to fair
judgment.” There is no notation of any type of acute intoxication and/or withdrawal
symptomatology, or, of any type of acute medical decompensations or problems
needing 24 hour nursing care, or, for the patient needing 24 hour supervision for any
reason.
...
24 hour care in a structured setting is needed because the patient has cognitive
deficits, and/or a personality disorder and needs to have his behavior shaped, he
cannot control his impulses without 24 hour care, has a limited readiness to change
despite consequences, is a danger to himself or others, is in danger of relapse without
this 24 hour structure, has a moderately high risk environment, lacks social support
or will be victimized without 24 hour care.
Dr. Mohammed did not document any of these elements in his Initial Psychiatric
Evaluation and the MSE as well, and therefore, the medical necessity criteria, as
discussed by the American Society of Addiction Medicine, for the RTC LOC were
not met and the stay is considered not medically necessary.
See Docket No. 9-9, pp. 10-11.

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Jennifer Childs-Biddle, a Grievance/Appeals representative, communicated Blue Cross/Blue
Shield’s decision to Richard Hammond by letter on November 17, 2008. Childs-Biddle explained,
“[P]age 64 [of the brochure] states admission to non-covered facilities, such as nursing homes,
extended care facilities, schools and residential treatment centers are not covered.” See Docket No.
9-1, p. 19 (emphasis in original). She noted that Blue Cross/Blue Shield had not received all of
Justin Hammond’s medical records and stated, “Since all information was not received and the
information received was not sufficient to determine these services were medically necessary the
Federal Employee Program is unable to reconsider your claim at this time.” See Docket No. 9-1,
p. 20. Childs-Biddle also informed Richard Hammond that he could appeal the denial of his claim
to the Office of Personnel Management (“OPM”) by sending a written request within 90 days.
Richard Hammond responded by letter on December 3, 2008. Richard Hammond stated that
Blue Cross/Blue Shield made the following errors in its reconsideration of the claim:
1.

Malibu is a dual diagnosis facility.

2.
The intake officials at Malibu Horizon did contact Blue Cross and obtained
the necessary standard pre-authorization before admitting Justin. Once Blue Cross
has pre-authorized treatment, Blue Cross no longer has the option of not paying the
claim by alleging that the treatment is “not medically necessary.”
3.
The records for the dates of service of May 31, 2007 to June 10, 2007 were
sent to Blue Cross initially. Several months later Blue cross requested the older
records and at that time the records from 2005 were sent. During the processing of
this claim I have had to deal with numerous Blue Cross claims persons at numerous
locations. You need to find the 2007 records that you have.
4.
The medical records from Malibu Horizon should contain both Dr.
Mohammad’s and Dr. Weyland’s records. If you need a letter from either or both
doctors, please let me know or you may contact them directly.
See Docket No. 9-9, p. 17. Childs-Biddle replied in a letter that appears to be erroneously dated
November 17, 2008. She explained that Blue Cross/Blue Shield had no record of pre-authorization
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for Justin Hammond’s treatment and that Blue Cross/Blue Shield had reviewed all of the medical
records it was provided.
Richard Hammond appealed Blue Cross/Blue Shield’s decision to OPM on January 20, 2009.
Hammond asserted that Blue Cross/Blue Shield had improperly determined that Justin Hammond’s
stay at Malibu Horizon was not medically necessary, that Malibu Horizon had received preauthorization, that Blue Cross/Blue Shield had received all of the necessary medical records, and
that Malibu Horizon is licensed as a “dual-diagnosis facility” and not a “residential treatment
facility.” See Docket No. 9-1, pp. 14-17.
On February 17, 2009, Blue Cross/Blue Shield provided an “Explanation of Denial Report”
to OPM. See Docket No. 9-1, pp. 8-12. Blue Cross/Blue Shield described the pertinent portions of
the brochure as follows:
Member was referred to pages 62-64 of the 2007 Service Benefit Plan brochure (SBP
hereafter) that outlines the facility benefits for inpatient hospital services, which
states for non-member facilities, the member is liable for a $300 per admission copayment for unlimited days, plus 30% of the Plan allowance, and any remaining
balance after the Plan’s payment. Page 64 of the brochure also advises admission to
non-covered facilities, such as nursing homes, extended care facilities, schools and
residential treatment centers are not covered. Page 82 of the 2007 SBP that outlines
the facility benefits for inpatient mental health services related to substance abuse,
which states the member is liable for a $400 co-payment per day plus any difference
between our Plan allowance and the billed amount, and all charges after 28 days per
lifetime. Page 82 also advises residential treatment centers are not covered. Member
was referred to page 116 of the 2007 SBP that provides the definition of Medical
Necessity; pages 108-109 of the SBP that advises how the Plan provides secondary
benefits when Medicare is primary; and page 19 of the brochure that advises noncovered services do not accumulate toward your $6000 out-of-pocket maximum for
non-participating providers.
See Docket No. 9-1, p. 8.
Blue Cross/Blue Shield also responded to the concerns Richard Hammond raised in his
appeal. Blue Cross/Blue Shield stated that it had no record of any pre-certification or authorization
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of Justin Hammond’s treatment. Blue Cross/Blue Shield explained that it reviewed Malibu
Horizon’s licensure and “[t]here are no indications on the licensure that Malibu Horizon Corp is a
dual licensed facility.” See Docket No. 9-1, p. 11. Blue Cross/Blue Shield also noted that “there
is documentation of a call in August of 2007 where Malibu Horizon Corp. contacted the Plan and
was advised there were no benefits for an out of network Residential Treatment Center.” See
Docket No. 9-1, p. 11. Blue Cross/Blue Shield maintained its position that Justin Hammond’s
treatment at Malibu Horizon was not covered by Richard Hammond’s health insurance policy.
On March 27, 2009, Dee T. Harrell, Insurance Benefits Claims Examiner for OPM, informed
Richard Hammond by letter that OPM had denied his appeal. Harrell explained:
Our review process examines the Plan’s actions to assure that the Plan administered
benefits according to the contract guidelines. The Plan’s brochure is the contractual
statement of benefits for the BCBS Service Benefit Plan. As indicated on Page 82
of the 2007 Service Benefit Plan brochure under, Non-preferred (Out-of-Network)
benefits it says, residential treatment centers are not covered. Therefore, because
the services that Justin received were provided in a Residential Treatment Center, we
must concur with the Plan.
See Docket No. 9-1, p. 3 (emphasis in original). Harrell also said there was no evidence that Justin
Hammond’s treatment was pre-certified or authorized, and that non-covered services, such as
treatment at a residential treatment center, do not count towards the $6,000.00 maximum out-ofpocket costs. Finally, Harrell informed Richard Hammond, “[Y]ou have the right to litigate against
the Office of Personnel Management in Federal court if you are not satisfied with the outcome of
your appeal.” See Docket No. 9-1, p. 4.
On December 28, 2010, Richard Hammond filed a complaint requesting “that the Court order
OPM to direct Anthem Blue Cross to pay the claim in the amount of $32,648.00 to the Plaintiff.”
See Docket No. 1. On April 6, 2011, OPM filed a motion for summary judgment. See Docket No.

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17. OPM contends there are no genuine issues of material fact and the administrative record reveals
that OPM’s decision was not arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with law. On June 6, 2011, Richard Hammond filed a response in opposition to OPM’s
motion and a cross-motion for summary judgment. See Docket Nos. 19 and 22. Hammond contends
the administrative record is incomplete, the contractual terms are ambiguous, Blue Cross/Blue
Shield and OPM did not act in good faith, and Malibu Horizon is a “dual diagnosis facility.”

II.

STANDARD OF REVIEW
Initially, the Court notes that Richard Hammond is appearing pro se. Pro se litigants are held

to lesser pleading standards than other parties and pro se complaints are to be liberally construed.
Whitson v. Stone Cnty. Jail, 602 F.3d 920, 922 n.1 (8th Cir. 2010).
An appeal from a decision by the Office of Personnel Management is controlled by 5 C.F.R.
§ 890.107, which states, in pertinent part:
(c)

Federal Employees Health Benefits (FEHB) carriers resolve FEHB claims
under authority of Federal statute (5 U.S.C. chapter 89). A covered
individual may seek judicial review of OPM’s final action on the denial of
a health benefits claim. A legal action to review final action by OPM
involving such denial of health benefits must be brought against OPM and
not against the carrier or carrier’s subcontractors. The recovery in such a suit
shall be limited to a court order directing OPM to require the carrier to pay
the amount of benefits in dispute.

(d)

An action under paragraph (c) of this section to recover on a claim for health
benefits:
...
(3)

Will be limited to the record that was before OPM when it rendered
its decision affirming the carrier’s denial of benefits.

5 C.F.R. § 890.107.
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The Administrative Procedure Act provides the standard of review for federal district courts
reviewing the decisions of federal agencies:
To the extent necessary to decision and when presented, the reviewing court
shall decide all relevant questions of law, interpret constitutional and statutory
provisions, and determine the meaning or applicability of the terms of an agency
action. The reviewing court shall-...
(2)

hold unlawful and set aside agency action, findings, and conclusions
found to be-(A)

arbitrary, capricious, an abuse of discretion, or otherwise not
in accordance with law;

...
In making the foregoing determinations, the court shall review the whole
record or those parts of it cited by a party, and due account shall be taken of the rule
of prejudicial error.
5 U.S.C. § 706(2)(A).
In Nesseim v. Mail Handlers Benefit Plan, 995 F.2d 804 (8th Cir. 1993), the Eighth Circuit
Court of Appeals held that OPM decisions are to be reviewed “under the section 706(2)(A) arbitrary
and capricious standard.” Nesseim, 995 F.2d at 807. The Court must conduct a “searching and
careful” review of the administrative record to determine whether OPM’s decision is “arbitrary,
capricious, an abuse of discretion, or otherwise not in accordance with law.” South Dakota v.
Ubbelohde, 330 F.3d 1014, 1031 (8th Cir. 2003) (quoting Citizens to Preserve Overton Park, Inc.
v. Volpe, 401 U.S. 402, 416 (1971)); 5 U.S.C. § 702(2)(A). A court is not allowed to substitute its
judgment for that of the administrative agency. Bowman Transp., Inc. V. Arkansas-Best Freight
Sys., 419 U.S. 281, 285 (1974) (citing Citizens to Preserve Overton Park, Inc., 401 U.S. at 416).
In addition, the Court is not to provide a reason for the agency’s decision. “The OPM’s decision
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must stand or fall on the propriety of the reasons given.” Nesseim, 995 F.2d at 807 (citing Camp
v. Pitts, 411 U.S. 138, 143 (1973) (per curiam)).

III.

LEGAL DISCUSSION
The Office of Personnel Management (“OPM”) contends that its decision to deny coverage

for Justin Hammond’s treatment at Malibu Horizon is not arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law. After reviewing Blue Cross/Blue Shield’s
denial of coverage for Justin Hammond’s treatment, OPM concluded, “[B]ecause the services that
Justin received were provided in a Residential Treatment Center, we must concur with the Plan.”
See Docket No. 9-1, p. 3. Richard Hammond contends that Malibu Horizon is actually licensed as
a “dual diagnosis facility” and not a “residential treatment center.” He further contends that OPM’s
interpretation of the brochure is arbitrary, capricious, and not in accordance with law because
Malibu Horizon should be considered a “treatment facility for rehabilitative treatment of alcoholism
or substance abuse.” See Docket No. 9-1, p. 2.
Page 82 of the Blue Cross/Blue Shield Service Plan brochure provides, “Inpatient care to
treat substance abuse includes room and board and ancillary charges for confinements in a treatment
facility for rehabilitative treatment of alcoholism or substance abuse” are covered and the member
pays a $400 copayment per day plus 40% of the Plan allowance. See Docket No. 9-1, p. 2 (emphasis
added). Page 82 also explains that “[s]ervices performed or billed by schools, residential treatment
centers, halfway houses, or members of their staffs” are “[n]ot covered.” See Docket No. 9-1, p. 2
(emphasis added). Neither the Blue Cross/Blue Shield brochure nor the administrative record

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include any definitions as to what constitutes a “treatment facility for rehabilitative treatment of
alcoholism or substance abuse” or a “residential treatment center.”
Malibu Horizon’s license states that Malibu Horizon is licensed “to operate and maintain an
adult residential alcohol and/or drug abuse/recovery or treatment facility.” See Docket No. 9-7, p.
8. OPM summarily concluded that Malibu Horizon is a “residential treatment center,” rather than
a “treatment facility for rehabilitative treatment of alcoholism or substance abuse” and, as a result,
there is no coverage. The Court has carefully reviewed the entire administrative record. The
administrative record does not reveal any meaningful distinction between the terms “residential
treatment center” and a “treatment facility for rehabilitative treatment of alcoholism or substance
abuse.” The Court finds the two terms to be vague and ambiguous at best. “Where one party drafts
and controls the contractual terms of a contract” it is appropriate “to construe any ambiguity in such
contract against the drafter.” Porous Media Corp. v. Midland Brake, Inc., 220 F.3d 954, 960 n.8 (8th
Cir. 2000) (citing Current Tech. Concepts v. Irie Enterprises, Inc., 530 N.W.2d 539, 543 (Minn.
1995)). In addition, the general rule of contract construction is to construe ambiguous insurance
policies in favor of providing coverage. Lindsay v. Safeco Ins. Co. of Am., 447 F.3d 615, 619 (8th
Cir. 2006) (citing Am. Econ. Ins. Co. v. Otte, 869 S.W.2d 179, 181 (Mo. 1993)).
The Court finds that OPM’s decision to deny coverage because Malibu Horizon is considered
to be a “residential treatment center,” rather than a “treatment facility for rehabilitative treatment
of alcoholism or substance abuse” was arbitrary and capricious. The terms are neither defined in
the Blue Cross/Blue Shield Benefit Service Plan brochure nor anywhere else in the administrative
record. The terms are vague and ambiguous, and arguably synonymous. The administrative record
does not reveal any reasoned analysis on the part of Blue Cross/Blue Shield or OPM leading to the

10

conclusion that Malibu Horizon is a “residential treatment center” and therefore no coverage exists.
A decision by Blue Cross/Blue Shield or OPM to classify Malibu Horizon as a “treatment facility
for rehabilitative treatment of alcoholism or substance abuse” and provide coverage would have
been equally reasonable. Construing the insurance policy and brochure against Blue Cross/Blue
Shield and in favor of coverage, the Court finds that Malibu Horizon is a “treatment facility for
rehabilitative treatment of alcoholism or substance abuse” and Justin Hammond’s treatment for drug
dependency and mental health issues at Malibu Horizon is covered by Richard Hammond’s policy.

IV.

CONCLUSION
The Court has carefully considered the parties’ briefs, the entire record, and relevant case

law. The Court finds that OPM’s decision to affirm Blue Cross/Blue Shield’s denial of coverage
was arbitrary and capricious. Accordingly, the Court reverses OPM’s decision, the Defendant’s
motion for summary judgment (Docket No. 17) is DENIED and the Plaintiff’s motion for summary
judgment (Docket No. 19) is GRANTED. The Court ORDERS OPM to direct Blue Cross/Blue
Shield to pay the Plaintiff’s claim and provide coverage in accordance with the policy and brochure.
IT IS SO ORDERED.
Dated this 15th day of November, 2011.
/s/ Daniel L. Hovland
Daniel L. Hovland, District Judge
United States District Court

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