Walker v. Regence BlueCross BlueShield of Oregon et al

Filing 57

OPINION AND ORDER - the Court FINDS that the Kirstins claim for additional benefits for the November 2013 air ambulance service is without merit and it is, therefore, ORDERED that #13 Plaintiffs First Amended Complaint is DISMISSED.(Signed by Magistrate Judge John R Froeschner) Parties notified.(sanderson, 3)

United States District Court
Southern District of Texas

ENTERED
IN THE UNITED STATES DISTRICT COURT

June 16, 2017
David J. Bradley, Clerk

FOR THE SOUTHERN DISTRICT OF TEXAS
GALVESTON DIVISION
KIRSTIN WALKER, Individually and as §
Next Friend for LW, a Minor
§
§
V.
§
§
REGENCE BLUE CROSS
§
BLUE SHIELD OF OREGON, ET AL. §

CIVIL ACTION NO. G-15-064

OPINION AND ORDER
On June 6, 2017, this action was tried to this Court by consent from Parties.
Having now considered the evidence and the applicable law, the Court issues this Opinion
and Order.
Kirstin Walker, individually and as next friend for L.W., her minor son, filed suit
against, inter alia, Regence Blue Cross Blue Shield of Oregon (Regence) in an effort to
recover benefits under her health benefit Plan.
The unembellished, undisputed background facts can be briefly stated. At all
pertinent times Kirsten was an employee of Banfield Pet Hospital and a beneficiary of its
health care plan with Regence, which covered her and her family. Kirsten’s minor son
was born with birth defects which caused the loss of his immune system. As a result, even
any minor illness can prove life threatening to L.W. On the two occasions material to this
litigation, L.W. was taken to Memorial Herman Hospital in Katy, Texas, which is close
to Kirsten’s residence. On each occasion the decision was made to “life flight” L.W. to

Memorial Herman Hospital in downtown Houston for the necessary emergency medical
treatment he needed. Under the circumstances, Kirsten was, quite understandably, given
no option to chose which air ambulance service provider would be utilized. The air
ambulance charges were timely sent to Regence for payment. Regence’s processing of
those claims is the crux of this action’s resolution.
THE PLAN
The “Plan” consists of two parts:

the “contract” for Medical Management

International, Inc. d/b/a Banfield Pet Hospital and the “booklet” for Banfield Pet Hospital.
Certain Plan provisions are at play.
The Plan, after the deductible has been met, pays 80% of the “allowed amount” of
the provider’s charges and a beneficiary is responsible for the remaining 20% of that
amount. The allowed amount of benefits paid under the Plan to a provider of services
varies in accordance to the “category” status of the provider. Category 1 and 2 providers
are those with a contract with Regence or another Blue Cross or Blue Shield organization
(participating providers) that caps the payment amount and insulates a beneficiary from
liability for any balance, except the beneficiary’s 20% share of the allowed amount.
Category 3 providers are ones without a covered contract (non-participating providers) and
Regence pays them what the plan administrator determines is a reasonable amount for their
services and the beneficiary is responsible for the balance due the provider plus her 20%
share of the allowed amount.
2

All air ambulance services, when found necessary, are covered by the Plan and
governed by the 80/20 split of the “allowed amount.”
As to non-participating providers, the Plan includes an “Exceptions” paragraph
which reads, in pertinent part, as follows:
In some exceptions cases, We may pay claims from non-participating
Providers . . . based on the Provider’s billed charge, such as in situations
where a Member did not have reasonable access to a participating provider
as determined by Us . . . In any of the exceptions situations, the Member
may be responsible for the difference between the amount that the nonparticipating Provider bills and payment We will make for the Covered
Services (emphasis added).
THE RELEVANT CLAIMS
There are two air ambulance claims’ “Explanations of Benefits” (EOB) that were
sent from Regence to Kirstin that are involved in this litigation. The EOBs indicate that
the service provider, Memorial Herman Hospital Systems, was a Category 1 provider.
The Court, however, believes this to be erroneous. The administrative record contains a
“Task Note” which memorializes a telephone conversation between a Regence investigator
and an employee with Blue Cross Blue Shield Texas (BCBSTX)1 which indicates “that this
ambulance company is not contracted with them.” Based upon that entry, the Court finds
that the air ambulance provider involved was a non-participating provider.

1

BCBSTX was the “Host Plan” for the Texas geographical region and was responsible
for providing provider contracting services and claim handling services on BCBSO’s behalf.
3

The February 23, 2013, Claim
The total ambulance charges from Memorial Herman for the February 23, 2013,
services were $5,625.00. Originally, on March 17, 2013, the EOB indicates that Regence
identified and treated Memorial Herman as a Category 1 provider and determined that
Kirstin had no responsibility for any unpaid balance and that her share of the claim was
only $200.25. On May 12, 2013, Regence reprocessed the claim and, treating Memorial
Herman as a Category 3 provider, determined Kirstin’s responsibility to be $4,416.42; this
reprocessed claim appears to be based upon one proper interpretation of the Plan.
However, following inquiries from Kirstin, Regence again reprocessed the claim and on
June 23, 2013, it determined Kirstin’s responsibility to be $1,125.00; this calculation
appears to have been done in accordance with the “Exceptions” provision of the Plan with
Regence agreeing to pay the claim “based upon the provider’s billed charge” and it, too,
would be a proper discretionary interpretation of the Plan. Nevertheless, on July 7, 2013,
Regence reprocessed the claim once again and determined Kirstin’s share to be only the
originally calculated $200.25. Frankly, the Court is at a loss as to how this reprocessing
can be explained in accordance with the Plan since Regence paid in excess of its 80%
share, however, it does not matter because this claim, while useful and instructive, is not
in dispute.

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The Disputed November 20, 2013, Claim
This air ambulance claim totaled $14,620.50. Although the EOB still identified
Memorial Herman as a Category 1 provider, Regence paid the claim in accordance with
the Plan’s Category 3 non-participating provider provisions and determined Kirstin’s
responsibility to be $11,273.00.2 Kirstin called Regence and requested that the claim be
reviewed. During that review it was confirmed, as evidenced by the aforementioned “Task
Note,” that Memorial Herman’s ambulance company was a non-participating provider and
the claim had been correctly paid. Obviously, Regence declined, on this occasion, to treat
the claim as an “Exception.” Further complaints from Kirstin proved fruitless and
Memorial Herman later billed her for the balance which she ultimately paid in full. This
lawsuit soon followed.
LEGAL STANDARDS
This Court has previously found the Regence Plan to be covered by ERISA.
Generally, a claimant who is denied benefits under an ERISA plan must exhaust all
available administrative remedies afforded by a plan before filing suit for their recovery.
Lacy v. Fulbright & Jaworski, 405 F.3d 254, 256 (5th Cir. 2005).

Under certain

circumstances, however, the failure to exhaust a plan’s administrative remedies can be

2

Plaintiff has not challenged the reasonableness of Regence’s determinations of its
“allowed amounts.”
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disregarded. One such exception has been raised in this case: non-compliance with the
requirements of 29 C.F.R. § 2560.503-1(g).
A Court’s review of a benefit determination by the plan administrator is under the
abuse of discretion standard.3 First, the Court must determine whether the administrator
correctly interpreted the plan. In answering this question, the Court must consider (1)
whether the administrator has given the plan a uniform construction; (2) whether the
interpretation is consistent with a fair reading of the plan; and (3) any unanticipated costs
resulting from different interpretations of the plan. Wildbur v. ARCO Chemical Co., 974
F.2d 631, 637-38 (5th Cir. 1992).

Second, the Court must determine whether the

administrator abused his discretion in handling the claim. “A plan administrator abuses
its discretion if it acts ‘arbitrarily or capriciously.’” Truitt v. Unum Life Insurance Co. of
America, 729 F.3d 497, 508 (5th Cir. 2013) (“A decision is arbitrary and capricious only
if it is ‘made without a rational connection between the known facts and the decision or
between the found facts and the decision.’”) Id. “In addition to not being arbitrary and
capricious the plan administrator’s decision to deny benefits must be supported by
substantial evidence.” Anderson v. Cytec Industries, Inc., 619 F.3d 505, 512 (5th Cir.
2010).

3

The Parties do not dispute that the proper standard in this case is abuse of discretion.
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ANALYSIS
It is undisputed that Kirstin did not utilize the Plan’s available levels of
administrative appeals before suing Regence. However, Kirstin now argues that she is
deemed to have exhausted her administrative remedies because, inter alia, Regence failed
to comply with the requirements of 29 C.F.R. § 2560.03-1(g). That regulation required
Regence to, inter alia, notify Kirstin of the specific reasons for any adverse determination
to pay benefits by referencing the specific plan provisions relied upon in making the
determination.
The EOB from Regence simply states “This service is not payable. Refer to the
specific Exclusions section in the member’s benefits plan.” One problem with this nonspecific notification is immediately apparent since, as Regence pointed out, it actually paid
the “not payable” claim. Another problem that is not readily apparent, but is equally nonspecific, is that the referenced “Exclusions” section of the Plan offers absolutely no
enlightenment on why the claim was so meagerly paid. There is case law to support
Kirstin’s argument that a plan administrator’s failure to comply with the regulatory
requirements will result in a finding that a claimant shall be deemed to have exhausted the
available administrative remedies. See, Parton v. the United State Life Insurance Co. in
the City of New York, No. 2:13-cv-203, 2014 WL 12531459 (N.D. Tex., Aug. 12, 2014).
See also, SunTrust Bank v. AETNA Life Insurance Co., 251 F.Supp. 2d 1282, 1289-90
(E.D. Va. 2003). Moreover, Kirstin’s arduous but successful verbal “exhaustion” of
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Regence’s administrative review of the earlier ambulance claim could have indicated to
Kirstin that she could properly initiate the appeals process by her verbal inquiries, but
Regence simply ignored her efforts, thereby rendering the procedures unavailable. In fact,
there is no evidence in the record that Regence ever communicated to Kirstin the specific
reasoning behind its determination of the disputed claim.
On the facts of this case, Kirstin makes a persuasive argument that Regence’s
procedural defense should fail. The Court, however, need not make that finding because
even assuming Kirstin were deemed to have exhausted the available administrative
remedies, the administrative record supports the conclusion that the plan administrator
correctly interpreted the Plan in his determination of the claim.
Kirstin argues that the administrator has not given the Plan a uniform construction
because of how the February air ambulance claim was paid. While the Court agrees that
the evidence can be considered in deciding whether the administrator’s plan interpretation
was correct, see Denton v. First National Bank of Waco, Texas, 765 F.2d 1295 (5th Cir.
1985), the Plan itself gives the administrator the discretion to “over-pay” a nonparticipating provider when a claimant had no reasonable access to a participating one, as
was the case with the emergency necessity of the February air ambulance service. But the
exercise of that discretion to arguably “over-pay” a particular claim, does not result in the
future relinquishment of that discretion as to any subsequent similar claim. Cf. Morse v.
Stanley, 732 F.2d 1139, 1144 (2d Cir. 1984) (“Whether the Trustees had in the past
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granted acceleration [lump sum benefits] to employees who requested it does not mean that
they donned a discretionary straight-jacket which held them bound to grant acceleration
in all cases as a matter of course.”) Accordingly, the administrator’s determination of the
November claim is consistent with a fair reading of the Plan’s discretionary “Exception”
provisions; unfortunately, for Kristin, the plan administrator on this occasion exercised his
discretion to not apply the exception. Moreover, Kirstin’s straight-jacket proposition
would result in substantial “unanticipated” costs to the Plan: Kirstin seeks to have the Plan
absorb over $10,000.00 of an otherwise “not covered amount” of the November claim as
compared to the $120.00 “over payment” of the February claim.
Having found that the record supports the administrator’s treatment of Memorial
Herman as a non-participating provider, the record also supports the determination of the
November claim. As stated above, Kirstin has offered no evidence beyond speculative
inference, that the administrator’s determination of the reasonable amount payable for the
claim was erroneous.

Therefore, since the Court must accept that unchallenged

determination by the administrator, it is clear that the claim was paid in accordance with
the 80/20 split provided by the Plan and that Kirstin is also responsible for the remaining
balance due Memorial Herman.

Thus, the record evidence establishes that the

administrator made one correct determination of the November claim. While his election
to deny the claim an “Exception” status may seem callous, it cannot be found to be an
abuse of discretion.
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Having found that Regence made a proper determination of the November air
ambulance claim, the Court need not address the potential liability, if any, of Blue Cross
Blue Shield of Texas or Health Care Service Corporation.
In conclusion, the Court FINDS that the Kirstin’s claim for additional benefits for
the November 2013 air ambulance service is without merit and it is, therefore, ORDERED
that “Plaintiff’s First Amended Complaint” (Instrument no. 13) is DISMISSED.
DONE at Galveston, Texas, this

16th

10

day of June, 2017.