Alexandra H. v. Oxford Health Insurance Inc. Freedom Access Plan

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 15-11513
________________________
D.C. Docket No. 1:11-cv-23948-FAM
ALEXANDRA H.,
Plaintiff - Appellant,
versus
OXFORD HEALTH INSURANCE INC. FREEDOM ACCESS PLAN,
Defendant,
OXFORD HEALTH INSURANCE, INC.,
Defendant - Appellee.
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(August 16, 2016)
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Before HULL, JULIE CARNES, and CLEVENGER, * Circuit Judges.
CLEVENGER, Circuit Judge:
Plaintiff Alexandra H. appeals from the district court’s grant of Defendant
Oxford Health Insurance, Inc.’s motion for summary judgment on Alexandra’s
claim under the Employee Retirement Income Security Act of 1974, 259 U.S.C.
§ 1001 (“ERISA”). Alexandra sought benefits for continued partial hospital
treatment for her anorexia, which were denied on the ground that the level of care
she sought was not medically necessary. After her claim was initially denied
through internal reviews by Oxford, she sought and obtained further review
through an external process provided by the insurance contract between her
employer and Oxford, of which she is a beneficiary. When the external review
proved adverse to her claim, she initiated her ERISA suit in the district court.
Alexandra argues that the district court erred in holding that she is barred
from litigating the issue of medical necessity in her ERISA case on the ground that
the adverse external review of her medical necessity claim already and finally
decided the issue against her. She challenges the district court’s decision on several
grounds. First, she asserts that the record of the external review should be excluded
from the ERISA proceedings. Second, she argues that the contract in suit must be
interpreted pursuant to choice of law stated in the contract (New York), and that
*
Honorable Raymond C. Clevenger III, United States Circuit Judge for the Court of Appeals for
the Federal Circuit, sitting by designation.
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under New York law, the adverse external review decision is not binding on the
medical necessity issue in her ERISA case. And third, she contends that if the
record of the external review is properly in the record before the ERISA court, and
if the result of the external review is deemed to bar her ERISA remedy, then the
external review process is preempted by ERISA, with the effect of the preemption
being that she may proceed with her ERISA case in district court as if the external
review had not occurred.
Understandably, Oxford maintains that the record of the external review
should be before the ERISA court, that the adverse decision of the external review
should preclude further litigation of the medical necessity issue in the ERISA case,
and that the external review process if thusly enforced in the district court is not
preempted by ERISA.
Common in ERISA appeals, the answers to the questions presented can be
found by interpreting the contract that creates the relationships of the parties.
Sometimes, the interpretation process is simple and direct. In other cases, such as
this one, the interpretation process is more complex.
After careful consideration of the parties’ briefs, the record in the case, and
with the benefit of oral argument presented to the court, we conclude that the
district court correctly decided that the record of the external review is properly
before the district court in this ERISA case, but erred in holding that the adverse
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external review decision barred Alexandra from presenting her challenge to the
adverse medical necessity determination. Because the external review process does
not conflict with ERISA, it is not preempted. Accordingly, we affirm in part,
reverse in part and remand for further proceedings.
I. BACKGROUND
While Alexandra was a second grade teacher at St. Ann’s School in
Brooklyn, New York, she was enrolled in an employee benefits plan that provided
healthcare services. The benefits plan was sponsored by her employer and insured
by Oxford. Because the plan relates to employee welfare benefits, it is governed by
ERISA.
A. Employee Benefits Plan and Appeal Process
Alexandra’s benefit plan covers various medical services, including mental
health services. The plan specifically covers “diagnosis and treatment of
Biologically Based Mental Illnesses for adults and children received on an
inpatient, partial hospitalization or outpatient basis.” One of the listed
“Biologically Based Mental Illnesses” that the plan covers is “bulimia and
anorexia.” The plan does not cover services that Oxford determines are not
“Medically Necessary.” The plan defines “Medically Necessary” to mean:
Medically Necessary: Services or supplies as provided by a Hospital,
Skilled Nursing Facility, Physician or other provider required to identify or
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treat your illness or injury and which, as determined by Our [i.e, Oxford’s]
Medical Director, are:
1. Consistent with the symptoms or diagnosis and treatment of your
condition;
2. Appropriate with regard to standards of good medical practice;
3. Not solely for your convenience or that of any provider; and
4. The most appropriate supply or level of service which can safely be
provided. For inpatient services, it further means that your condition
cannot safely be diagnosed or treated on an outpatient basis.
Unless otherwise indicated in this Certificate, determinations as to Medical
Necessity are made by Us [i.e., Oxford], and such determinations are solely
within Our [i.e., Oxford’s] discretion.
The plan thus grants Oxford the sole discretion to determine internally if a
particular kind of healthcare service is medically necessary and therefore covered
by the plan. If a plan beneficiary disagrees with an adverse medical necessity
determination by Oxford, she has two different review processes available to her.
She must first appeal the decision internally, meaning that Oxford itself reviews
the initial adverse medical necessity determination. If Oxford decides to uphold the
adverse determination, the participant can go through a second appeal. The
participant can choose between two second appeal options: 1) a second internal
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appeal conducted by Oxford, or 2) an external appeal administered by the State of
New York. If the participant chooses to do a second internal appeal through
Oxford and Oxford upholds the adverse determination for a second time, the
participant may then choose to pursue an external review. As mandated by New
York Insurance Law § 4914, and as enshrined in Oxford’s plan, the external review
process shall:
- be conducted only by one or a greater odd number of Clinical Peer
Reviewers.
- be accompanied by a notice of Appeal determination which will include
the reasons for the determination. Where the FAD [i.e., final adverse
determination] is upheld on Appeal, the notice will include the clinical
rationale (if any) for the determination.
- be subject to the terms and conditions generally applicable to benefits
under your Certificate.
- be binding on Us [i.e., Oxford] and you [i.e., the participant].
- be admissible in any court proceeding.
Further, and as will be explained later, importantly, the plan states that it is
governed by the laws of the State of New York.
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B. Alexandra H’s Benefits Claim
Alexandra has a history of an eating disorder called anorexia nervosa,
starting when she was 14 years old. According to an intake assessment form from
November of 2009, she has been hospitalized approximately 15 times and
participated in numerous day treatment programs. Alexandra has also been
hospitalized for two suicide attempts.
On December 14, 2010, Alexandra was admitted to Oliver-Pyatt Centers
(“Oliver-Pyatt”), an eating disorder treatment facility in Miami, Florida. She was 5
feet, 6 inches tall and weighed 110 lbs., which was 15 lbs. less than the ideal body
weight of 125 lbs. Alexandra was severely depressed and was restricting and
binging her food. Oliver-Pyatt admitted her for partial hospitalization level of care
to treat her depression and anorexia.
Oxford initially approved Alexandra’s claim for benefits to cover her partial
hospitalization level of care at Oliver-Pyatt from December 14 to December 16. On
December 17, Oxford spoke with Angie Gonzalez, a therapist at Oliver-Pyatt, who
reported that Alexandra weighed 111.4 lbs. and was eating 50-75% of her daily
1,200-calorie meal plan, but was not cooperating with the treatment plan. After
talking with Dr. Lawson, a physician at Oliver-Pyatt, Oxford approved
Alexandra’s partial hospitalization treatment from December 14 to December 26.
After checking in with Oliver-Pyatt on December 27, Oxford approved coverage
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for Alexandra’s continued care at this level through January 3, 2011. There is no
dispute about the coverage from December 14, 2010 through January 4, 2011.
On January 4, 2011, Dr. Lawson reported to Oxford that Alexandra weighed
113 lbs. and was eating 100% of her daily 1,500-calorie diet. Dr. Lawson said that
Alexandra was compliant with the treatment, but continued to have depressive
episodes. Oxford then advised Alexandra that her claim for continued treatment at
the partial hospitalization level of care was denied as of January 5, 2011, because
the treatment was not medically necessary. Oxford explained that Alexandra had
“shown improvement in symptoms and functioning with no severe symptoms at
[that] time” and any ongoing treatment could “be addressed in a[n] intensive
outpatient level of care.” Oxford further informed Alexandra that she could appeal
the decision and gave her a detailed explanation of her appeal rights.
C. Alexandra’s Internal Appeals
On January 5, 2011, Alexandra requested an expedited appeal of the
decision and Oxford’s Medical Director, Dr. Lee Becker, who is board certified in
psychiatry, reviewed the appeal. Dr. Becker also determined that partial
hospitalization was not medically necessary as of January 5, 2011, and notified
Alexandra of his decision by letter on January 6. Dr. Becker informed Alexandra
that his decision was based on her “improvements in the initial precipitating
symptoms” and “there no longer [being] such significant impairments in
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psychosocial functioning, due to severe symptoms/behaviors, [which require] this
intensity of structure and monitoring.” The letter also set forth Alexandra’s appeal
rights.
On January 17, 2011, Alexandra requested a second appeal through Oxford.
The appeal letter contained statements from Oliver-Pyatt staff saying that as of
January 5, when coverage was denied, Alexandra “was struggling with severe
depression and suicidal ideation” and thus it was “highly inappropriate and
dangerous to step her down to a lower level of care.” Oxford’s Dr. Theodore
Allchin, who is board certified in psychiatry and child and adolescent psychiatry,
reviewed Alexandra’s appeal and again approved the denial of coverage finding
that partial hospitalization was not medically necessary as of January 5. By letter
dated February 8, 2011, Oxford informed Alexandra of its decision to uphold the
adverse determination, stating that Alexandra did not meet the medically necessity
criteria because her weight and vital signs were stable and there was “no evidence
that the patient would require a higher level of care without this intensity of
services.” The letter notified Alexandra of her right to an independent external
appeal through the New York State External Appeal Process. The denial letter also
explained that “[a]n external appeal agent’s medical necessity decision is binding
upon both the member and Oxford” and the external review “process is not part of
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the member’s rights under ERISA.” The letter further stated that Alexandra “may
have the right to file a civil action under 502(a) of [ERISA].”
D. Alexandra’s External Appeal
Following her unsuccessful administrative appeals through Oxford,
Alexandra requested an external appeal, as provided under New York Insurance
Law § 4910. Her external appeal was assigned to the Medical Care Ombudsman
Program, MCMC. MCMC had a board certified physician in psychiatry
independently review Alexandra’s case. On March 18, 2011, the physician
concluded that Oxford’s determination that Alexandra’s treatment was not
medically necessary as of January 5 should be upheld. As a result, Oxford did not
reverse its denial of Alexandra’s claim.
E. District Court Proceedings
On November 2, 2011, Alexandra filed suit against Oxford in the U.S.
District Court for the Southern District of Florida, seeking an award of benefits
under ERISA § 502(a)(1)(B). Oxford then provided Alexandra with a copy of the
administrative record, which included the decision from the external appeal. On
June 1, 2012, Alexandra issued a subpoena duces tecum to MCMC, who conducted
the external review. Oxford moved for a protective order to quash the subpoena,
but the district court denied the motion.
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On August 17, 2012, Alexandra moved to strike the external appeal from the
administrative record. The district court granted the motion finding that “the
external appeal proceedings do not constitute a part of the record for purposes of
ERISA review.” Oxford then moved to reconsider the order striking the external
appeal or, alternatively, certify the question for interlocutory appeal. The district
court reconsidered the motion to strike and modified its previous order to include
the external appeal in the administrative record. The district court also stated that
“[b]ecause the external reviewer’s decision is presumably dispositive of the claim,
Plaintiff has three weeks to show cause why judgment should not be granted in
favor of Defendant.” Alexandra responded to the order to show cause. The district
court subsequently issued a second order on August 25, 2014, finding “that the
external appeal upholding Plaintiff’s denial of benefits is conclusive as to the issue
of medical necessity, but Plaintiff may conduct discovery as to whether the
external reviewer had any conflict of interest that may have biased the decision.”
Pursuant to the district court’s order, Alexandra sought discovery against
MCMC in Massachusetts (where MCMC is located) regarding whether MCMC
had any conflict of interest that affected the external appeal. MCMC filed a
protective order against the discovery in Massachusetts court. Meanwhile,
Alexandra asserted she was not able to obtain the discovery that the District Court
in Florida had allowed.
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After the allotted discovery time passed, both parties moved for summary
judgment. The motions were referred to Magistrate Judge John J. O’Sullivan, who
recommended granting Oxford’s motion for summary judgment and denying
Alexandra’s. Magistrate Judge O’Sullivan found that Alexandra had “not shown
that the external reviewer’s determination of the issue of medical necessity” was
tainted or biased and thus the external review’s decision on medical necessity of
the treatment was binding on the parties. The district court adopted the magistrate’s
recommendations in an order on March 24, 2015, and entered judgment in favor of
Oxford. Alexandra timely appealed to this Court.
II. STANDARD OF REVIEW
We “review de novo a district court’s ruling affirming or reversing a plan
administrator’s ERISA benefits decision, applying the same legal standards that
governed the district court’s decision.” Blankenship v. Metro. Life Ins. Co., 644
F.3d 1350, 1354 (11th Cir. 2011). We also review de novo a district court’s grant
of summary judgment. Forbus v. Sears Roebuck & Co., 30 F.3d 1402, 1404 (11th
Cir. 1994). Summary judgment is appropriate where there is “no genuine issue as
to any material fact and the moving party is entitled to judgment as a matter of
law.” Fed. R. Civ. P. Rule 56(a).
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III. DISCUSSION
A. The Governing Law
Under § 1132 of ERISA, a plan participant or beneficiary may bring a civil
action “to recover benefits due to him under the terms of his plan, to enforce his
rights under the terms of the plan, or to clarify his rights to future benefits under
the terms of the plan.” 29 U.S.C. § 1132(a)(1)(B). While ERISA itself offers no
guidance as to how courts should interpret provisions of an employee welfare
benefits plan, it is well established that federal courts “have the authority to
develop a body of federal common law” to govern the interpretation and
enforcement of benefit plans in ERISA cases. Tippitt v. Reliance Standard Life Ins.
Co., 457 F.3d 1227, 1234–35 (11th Cir. 2006); see also Firestone Tire & Rubber
Co. v. Bruch, 489 U.S. 101, 110 (1989); Pilot Life Ins. Co. v. Dedeaux, 481 U.S.
41, 56 (1987); Hauser v. Life Gen. Sec. Ins. Co., 56 F.3d 1330, 1333 (11th Cir.
1995), as amended on denial of reh’g (Sept. 15, 1995).
In deciding whether to adopt a certain rule into the federal common law,
courts must examine whether the proposed rule would further ERISA’s scheme
and goals. Dixon v. Life Ins. Co. Of N. Am., 389 F.3d 1179, 1183 (11th Cir. 2004).
“ERISA has two central goals: (1) protection of the interests of employees and
their beneficiaries in employee benefit plans; and (2) uniformity in the
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administration of employee benefit plans.” Horton v. Reliance Standard Life Ins.
Co., 141 F.3d 1038, 1041 (11th Cir. 1998) (internal citations omitted).
“When crafting a body of common law, federal courts may look to state law
as a model because of the states’ greater experience in interpreting insurance
contracts and resolving coverage disputes.” Id.; Hauser, 56 F.3d at 1333.
Borrowing from state contract law, the district courts have further developed rules
of contract interpretation for construing ERISA plans. See e.g., Epolito v.
Prudential Ins. Co. of Am., 737 F. Supp. 2d 1364, 1373 (M.D. Fla. 2010); Smith v.
Cont’l Cas. Co., 616 F. Supp. 2d 1286, 1296 (N.D. Ga. 2007); Luton v. Prudential
Ins. Co. of Am., 88 F. Supp. 2d 1364, 1370–71 (S.D. Fla. 2000); Harrison v. Aetna
Life Ins. Co., 925 F. Supp. 744, 748-49 (M.D. Fla. 1996).
We first look to the plain and ordinary meaning of the policy terms to
interpret the contract. Smith v. Cont’l Cas. Co., 616 F. Supp. 2d at 1296 (citing
Bedinghaus v. Modern Graphic Arts, 15 F.3d 1027, 1029–30 (11th Cir.1994)); see
also Billings v. UNUM Life Ins. Co. of Am., 459 F.3d 1088, 1094−95 (11th Cir.
2006). A term is ambiguous if it is susceptible to two or more reasonable
interpretations that can be fairly made. Novak v. Irwin Yacht & Marine Corp., 986
F.2d 468, 472 (11th Cir. 1993); Luton, 88 F. Supp. 2d at 1370–71 (citing Dahl–
Eimers v. Mutual of Omaha Life Ins. Co., 986 F.2d 1379 (11th Cir.1993)). We
have further established that once we conclude a term is ambiguous, the rule of
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contra proferentem requires us to construe any ambiguities against the drafter.
Billings, 459 F.3d at 1095; Jones v. Am. Gen. Life and Acc. Ins. Co., 370 F.3d
1065, 1070 (11th Cir. 2004). These rules of contract interpretation are generally
accepted as part of the federal common law. See Tippitt, 457 F.3d at 1234–37;
Kathryn J. Kennedy, Judicial Standard of Review in ERISA Benefit Claim Cases,
50 Am. U. L. Rev. 1083, 1121–22 (2001) (“In the absence of explicit language,
many of the circuits have used the contract principles of plain meaning and contra
proferentum, if appropriate, to interpret plan provisions, affording the plan
language its “plain meaning” and construing ambiguous language against the
drafting party.”). 1
In the Eleventh Circuit, we have also enforced choice-of-law provisions in
ERISA contracts and used state law to interpret terms in the ERISA contract when
the state law was not unreasonable or fundamentally unfair. Buce v. Allianz Life
Ins. Co., 247 F.3d 1133, 1149 (11th Cir. 2001); Capone v. Aetna Life Ins. Co., 592
F.3d 1189, 1196–97 (11th Cir. 2010). In Buce, we grappled with whether to apply
federal common law or state law to interpret the meaning of “accident” in an
ERISA plan. Walter Buce died in a single-vehicle crash and was later shown to
have been driving under the influence of alcohol. Buce, 247 F.3d at 1136. Buce
1
Our sister circuits appear to be in agreement with these canons of interpretation and have
applied similar rules of construction in ERISA cases. See, e.g., Harris v. The Epoch Grp., L.C.,
357 F.3d 822, 825 (8th Cir. 2004); Perez v. Aetna Life Ins. Co., 150 F.3d 550, 556 (6th Cir.
1998); Bullwinkel v. New England Mut. Life Ins. Co., 18 F.3d 429, 431 (7th Cir. 1994).
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had a Personal Accident Insurance Plan, which provided that the plan was to be
interpreted under the laws of the State of Georgia. Id. His wife brought suit to
claim the benefit under the plan for her husband’s death after the insurance
company denied the claim. Id. at 1136–37. The insurance company reasoned that
Buce’s death was not an accident because the policy required the injury to be
caused by accidental means, which required some sudden, unexpected, and
unforeseen act that led to the injury. Id. at 1137. This definition of “accident,”
referred to as “accidental means,” was consistent with Georgia law. Id. at 1144.
Because Buce had been intoxicated at the time of the accident, the insurance
company determined that his death was not an accident within the meaning of the
policy. Id. at 1137.
We explained that when deciding whether to honor a choice of law provision
in an ERISA plan, “[t]he pertinent question is whether the principles of liability
agreed upon by the parties are inconsistent with the language of ERISA or the
policies that inform that statute and animate the common law of the statute.” Id. at
1148. We held that Georgia’s interpretation of accident, while subject to
formidable criticism, was not contrary to ERISA. Id. at 1148–49. “Where a choice
of law is made by an ERISA contract, it should be followed, if not unreasonable or
fundamentally unfair.” Id. at 1149. Finding no signs of unreasonableness or
unfairness, we upheld the choice of law provision.
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We again honored a choice of law contract contained in an ERISA welfare
benefit plan in Capone v. Aetna Life Ins. Co., 592 F.3d 1189 (11th Cir. 2010),
holding that a choice of law provision should be followed as long as it is consistent
with ERISA and not unreasonable or fundamentally unfair.
In this case, Alexandra argues that New York state law should apply to
interpret the insurance contract because her benefits plan states that it is governed
by New York law. In 1998, the State of New York enacted New York Law Ch.
586, S. 7838, titled “Public Health, Insurance—Contract Terms—External
Appeals.” 1998 Sess. Law News of N.Y. Ch. 586 (S. 7838) (McKINNEY’S).
Section 4910 “established an enrollee’s right to an external appeal of a final
adverse determination by a health care plan.” 2 The procedures for the external
appeal process were laid out in § 4914. Relevant to this case, § 4914 provides that
an external appeal shall “(i) be conducted only by one or a greater odd number of
clinical peer reviewers, (ii) be accompanied by a notice of appeal determination
which shall include the reasons for the determination; provided, however, that
where the final adverse determination is upheld on appeal, the notice shall include
the clinical rationale, if any, for such determination,(iii) be subject to the terms and
conditions generally applicable to benefits under the evidence of coverage under
2
The only difference in the law as enacted in 1998 from its current state is that “enrollee” has
been changed to “insured.” See N.Y. Ins. Law § 4910 (“There is hereby established an insured’s
right to an external appeal of a final adverse determination by a health plan.”)
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the health care plan, (iv) be binding on the plan and the insured, and (v) be
admissible in any court proceeding.” N.Y. Ins. Law § 4914(b)(4)(A).
Alexandra’s ERISA plan parrots this language almost verbatim and declares
that an external appeal from Oxford will be binding on both parties and admissible
in any court proceeding. Alexandra points to a body of New York court cases that
consistently interpret the “binding” language in the New York statute, as repeated
almost verbatim in Oxford’s plan. While these cases are not ERISA cases, they are
all interpreting New York Insurance Law § 4914, which is central to this case.
The first such case, in time, is Nenno v. Blue Cross & Blue Shield of W. New
York, 303 A.D.2d 930 (N.Y. App. Div. 2003), reh’g and appeal denied, 306
A.D.2d 960, (N.Y. App. Div. 2003). In Nenno, the Appellate Division of the New
York Supreme Court3 considered the meaning of the language in New York
Insurance Law § 4914, specifically the phrases “binding of the plan and the
insured” and “admissible is any court proceeding.” Nenno, 303 A.D.2d at 932. The
Nenno family had a health insurance policy that covered up to $3,000 per year of
private duty nursing case and unlimited care in a skilled nursing facility for their
son Jeffrey, who was born with cerebral palsy-quadriplegia. Id. at 930−31. In 1986,
the insurance company agreed to pay for private, in-home skilled nursing care
because the cost of the in-home care was less than the alternative cost of the
3
In the New York court system, the Appellate Division of the Supreme Court resides just below
the Court of Appeals, which is the highest court in New York.
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unlimited skilled nursing care. Id. at 931. The insurance company covered this cost
up until 2001, when it then determined that the in-home level of care was no longer
medically necessary and thus was no longer covered by insurance. Id. The Nenno
family appealed the decision twice through the insurance company’s internal
appeal process, with both appeals affirming the adverse determination that the care
was not medically necessary. Id. The Nennos then pursued an independent external
appeal, as provided by New York law, that again upheld the adverse finding.
The Nenno family commenced a breach of contract action in state court and
the insurance company moved to dismiss the complaint based on res judicata or
collateral estoppel, arguing that the external appeal was binding and precluded the
lawsuit. Id. The Appellate Division held that the “binding” language in New York
Insurance Law § 4914 did not bar Nennos’ action. Id. at 932. The court reasoned
that while § 4914 provides that the external appeal shall “be binding on the plan
and the insured,” the statute also declares that the external appeal shall “be
admissible in any court proceeding.” Id. The court also pointed to § 4907, which
ensures that “[t]he rights and remedies conferred in this article upon insureds and
health care providers shall be cumulative and in addition to and not in lieu of any
other rights or remedies available under law.” Id. Thus, the court determined that
New York Legislature “made clear that insureds and health care providers are
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entitled to pursue all of their rights and remedies available in a court of law,
regardless of whether they have sought and obtained an external appeal.” Id.
The issue of defining “binding” within the context of New York Insurance
Law § 4914 came up for the second time before the Supreme Court of New York
County4 in Vellios v. IPRO, External Review Agent, 1 Misc. 3d 468 (N.Y. Sup. Ct.
2003). In Vellios, the New York court dealt with a similar set of procedural facts:
Loula Vellios was denied coverage of her brain cancer treatment because the
treatment was part of an experimental program. Vellios, 1 Misc. 3d at 469–70.
Such experimental programs were not covered by Vellios’s health care plan. Id. at
470. Like the Nennos family, Vellios appealed the adverse determination internally
through her insurance company, which upheld the denial of coverage. Id. Vellios
then pursued an external appeal. Id. The external appeal again determined that the
insurance company’s denial of coverage was proper. Id. at 471. Vellios filed suit
against the external appeal agent challenging the external appeal determination.5
Id. The external appeal agent moved to dismiss, contending, as relevant here, that
the external review was binding on Vellios. Id. The court followed Nenno and
4
In New York state, the Supreme Courts are trial courts. Decisions of the Supreme Courts may
be appealed first to Appellate Terms of the Supreme Court, thereafter to Appellate Divisions of
the Supreme Court, and finally to the Court of Appeals.
5
Vellios also filed suit against the superintendent of her insurance company, but the claim was
dismissed because the court found that the ultimate determination of an external appeal rested
with the external appeal agent. Vellios, 1 Misc. 3d at 471. The court explained that the
superintendent did not have any power to alter or review the external appeal decision and thus
there was no action made by the superintendent which could be reviewed by the court regarding
the external appeal. Id.20
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found that this argument had no merit because the “binding” language in § 4914
was not meant to prevent insureds or heath care providers from pursuing their legal
rights and remedies under the law. Id. at 471–72. Instead, the court understood the
term “binding” in § 4914 to “mark the end of any administrative appeal,” but not to
bar court review. Id. at 472.
In a third case, Schulman v. Grp. Health Inc., 39 A.D.3d 223 (N.Y. App.
Div. 2007), the Appellate Division again held that external appeals do not preclude
an insured from seeking redress in court. Following both Nenno and Vellios, the
court explained that the “[t]he primary purpose of this external appeal law [i.e.,
New York Insurance Law § 4914] was to create a new layer of independent and
impartial administrative review, which did not previously exist, and which would
provide consumers with a low-cost, expedited review option in addition to the
courts.” Schulman, 39 A.D.3d at 224. The court determined that barring judicial
review would go against the statutory scheme and the legislative intent of the
external appeal law. Id. If the external appeal did preclude judicial review, the
court stated that there would be no mechanism for reviewing erroneous or arbitrary
external appeal decisions. Id. The court found that such an outcome would be
inconsistent with the statute’s purpose and detrimental to both insurers and
insureds. Id.21
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In New York’s most recent case on this issue, Mercy Flight Cent., Inc. v.
Kondolf, 41 Misc. 3d 483 (N.Y. City Ct. 2013), the court dealt with a slightly
different factual situation.6 In Mercy Flight, James Kondolf fell down the stairs
while under the influence of alcohol and drugs and suffered a head laceration.
Mercy Flight Cent., 41 Misc. 3d at 486. An ambulance responded to the scene and
called for Mercy Flight Central, Inc.’s air transport services to get Kondolf to a
trauma center. Id. Kondolf’s insurance company denied coverage for the air
transport on the basis that it was not medically necessary. After losing an internal
appeal, Kondolf pursued an external appeal, which also found the flight service not
medically necessary. Id. at 485. Mercy Flight Central then brought suit against
Kondolf to recover expenses for the flight service. Id. Kondolf argued, among
other things, that he was not responsible for the expenses because the flight service
was not medically necessary. Id. at 487–88. Kondolf contended that the external
appeal decision finding on medical necessity was binding on Mercy Flight Central,
citing New York Insurance Law § 4914(b)(4). Id. Relying on the Appellate
Division precedents in Nenno and Schulman, the Mercy Flight court held that the
external appeal was not dispositive of the medical necessity finding and that Mercy
Flight could challenge the issue in court. Id. at 490–91, 492.
6
Like Vellios, Mercy Flight was decided by a trial court, the City Court of Canandaigua.
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Additionally, the legislative history of the New York Insurance Laws
explains that the purpose of the addition of the external appeal process to challenge
a denial of benefits is to provide a cost effective, independent and impartial layer
of review in addition to court review. New York Bill Jacket 1998 S.B. 7838, Ch.
586 (“In establishing a procedure for appeals to be heard by an external review
agent, the bill provides a mechanism for consumers to obtain an independent,
impartial opinion regarding coverage determinations.”); Id. (“Currently, certain
insurance and HMO policies exclude coverage for . . . procedures or services
which are not deemed to be ‘medically necessary,’ without providing for an
external review of that determination. Not only is there a lack of uniformity among
plans regarding standards for coverage, the court system has been forced to deal
with disputes arising over these issues, and the approach is costly to both patients
and third-party payors.”). However, New York Insurance Law § 4907 demands,
this external review is not to alter or impede and insured’s rights under ERISA.
ERISA is also silent on which standard of review applies to actions
challenging adverse benefit determinations. However, the Supreme Court has
established a framework for determining the proper standard for reviewing ERISA
cases. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989); see also Metro.
Life Ins. Co. v. Glenn, 554 U.S. 105 (2008). In an ERISA case, the standard of
review for summary judgment depends on whether the administrator had discretion
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to deny a claim. In Firestone Tire & Rubber Co. v. Bruch, the Supreme Court said
that “a denial of benefits challenged under [ERISA] § 1132(a)(1)(B) is to be
reviewed under a de novo standard unless the benefit plan gives the administrator
or fiduciary discretionary authority to determine eligibility for benefits or to
construe the terms of the plan. . . . [I]f a benefit plan gives discretion to an
administrator or fiduciary who is operating under a conflict of interest, that conflict
must be weighed as a factor in determining whether there is an abuse of
discretion.” Firestone, 489 U.S. at 115.
In accordance with this framework, we apply the following six-step test to
determine which standard is appropriate in a given case:
(1) Apply the de novo standard to determine whether the claim
administrator’s benefits-denial decision is “wrong” (i.e., the court disagrees
with the administrator’s decision); if it is not, then end the inquiry and affirm
the decision.
(2) If the administrator’s decision in fact is “de novo wrong,” then determine
whether he was vested with discretion in reviewing claims; if not, end
judicial inquiry and reverse the decision.
(3) If the administrator’s decision is “de novo wrong” and he was vested
with discretion in reviewing claims, then determine whether “reasonable”
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grounds supported it (hence, review his decision under the more deferential
arbitrary and capricious standard).
(4) If no reasonable grounds exist, then end the inquiry and reverse the
administrator’s decision; if reasonable grounds do exist, then determine if he
operated under a conflict of interest.
(5) If there is no conflict, then end the inquiry and affirm the decision.
(6) If there is a conflict, the conflict should merely be a factor for the court
to take into account when determining whether an administrator’s decision
was arbitrary and capricious.
Blankenship v. Metro. Life Ins. Co., 644 F.3d 1350, 1355 (11th Cir. 2011). Thus, in
ERISA cases, the default standard of review is de novo unless the plan vests
discretion in the plan administrator to determine benefit claims. Firestone, 489
U.S. at 115.
B. Application of Governing Law to this Case
The issue in this case is whether the external review precludes Alexandra
from bringing an ERISA action under 29 U.S.C. § 1132(a)(1)(B) in district court to
challenge the medically necessity determination of her treatment. However, as an
initial matter, we must determine whether the external review is part of the
administrative record. If it is not, there is no need to determine whether it is
binding on the parties in district court.
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1. Whether the External Review is Part of the Administrative Record
On Alexandra’s motion to strike the external appeal from the record, the
district court initially decided that the external review was not part of the
administrative record and granted Alexandra’s motion. [Doc. 111] The court
reasoned that an external review operates alongside the review process provided by
ERISA and does not supplant or supplement the ERISA process. The court further
stated the court’s role in an ERISA case is to review the decision of the plan
administrator, here Oxford. Because Oxford could only actively affirm the external
appeals result, the court determined that Oxford had no discretion in the external
review determination. Without this discretion, the court held that the external
review was not part of the administrative record before Oxford. 7 Oxford moved to
reconsider and after a hearing and additional briefing on the issue, the court
reversed. [Doc. 127] The court instead decided that the external review is part of
the administrative record because it informed Oxford’s ultimate decision to deny
benefits in this case.8
7
Because the court determined that the external review was not part of the administrative record
and the court’s role was only to review the administrative decision, the court stated that the
arbitrary and capricious standard applied when reviewing Oxford’s decision to deny benefits.
8
While the court found that the external appeal was ultimately part of the record, the court
determined that this result changed the standard of review that applied to this case. The court
explained that because Alexandra pursued an optional, yet binding, external appeal, the resulting
external decision removed Oxford’s discretion to deny benefits. Accordingly, the court held that
the de novo standard of review applied because Oxford’s discretion in the matter had been
removed.
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It is well established that in reviewing a denial of ERISA benefits, the
relevant evidence is limited to the record before the administrator at the time the
decision was made. Glazer v. Reliance Standard Life Ins. Co., 524 F.3d 1241, 1246
(11th Cir. 2008); Jett v. Blue Cross & Blue Shield of Alabama, Inc., 890 F.2d 1137,
1139 (11th Cir. 1989) (stating that the court’s review is “based upon the facts as
known to the administrator at the time the decision was made”). Alexandra argues
that the administrative record closed on February 8, 2011, when Oxford denied
Alexandra’s claim for a second time by issuing a final adverse determination.
Thus, Alexandra maintains that the external review is not part of the administrative
record reviewable by the court because it came after the agency had concluded its
internal appeals and conclusively denied Alexandra’s benefits claim. Oxford
contends that it did consider the external review because Oxford would have been
required by the benefits plan to reverse its denial decision if the external review
had so found. Because it would have inherently been required to comply with the
external appeal agent’s decision, Oxford argues that the external review is part of
the administrative record. We agree with Oxford.
The record shows that Oxford received the decision from the external review
on March 18, 2011. Factually, the external review was part of Oxford’s
administrative file. Oxford’s records acknowledge that the external review upheld
the decision to deny benefits and so Oxford did not change its decision to deny
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coverage. The benefits plan states that “[i]f the External Appeal Agent overturns
Our decision that a service was not Medically Necessary or approves coverage of
an experiment or investigational treatment, We will provided coverage subject to
the other terms and conditions of this Certificate.” Accordingly, Oxford would
have been obligated to provide coverage if the external review had declared
Alexandra’s treatment medically necessary. It follows that Oxford’s ultimate
decision on Alexandra’s claim would not have been made until after Oxford
received the external review. Thus, the administrative record before Oxford should
include the external review.
This result is also proper as a matter of fairness and reasonable expectations.
Alexandra elected to appeal the adverse benefits determination externally before
bringing a civil action in court. Her plan allowed her to pursue this additional
external appeal, but also mandated that the external review be admissible evidence
in any court proceeding. If the external appeal decision had instead determined that
Oxford had wrongly denied Alexandra’s claim but Oxford refused to cover the
claim, Alexandra would most certainly expect that the external appeal be included
in the administrative record in a court action to recover her benefits. In the reality
that the external review upholds the adverse determination, as here, the inclusion
of the external review should be the same in fairness to Oxford. Alexandra is
seemingly asking for a win-win situation where if she wins the external appeal, it’s
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in the record, if she loses, it’s out. But she cannot have it both ways. The inclusion
of the external appeal in the record cannot depend on which party it benefits.
Because the external review was part of the material that Oxford considered in
making its decision on Alexandra’s benefits claim, it is part of the administrative
record regardless of what the external reviewer decided on the merits of the claim.
And, finally, as a matter of contract, Alexandra claims the benefit of a contract that
expressly provides that the external review is admissible in court.
We thus conclude that the external review is part of the administrative
record in this case.
2. Whether the External Review is Binding on the Parties in Federal
Court
Because the external review is part of the administrative record, we now turn
to the central question of whether the external review bars Alexandra from
challenging the medically necessity of her treatment in court.
Section 1132 of ERISA allows a participant or beneficiary of an employee
benefits plan to bring a civil action “to recover benefits due to him under the terms
of his plan, to enforce his rights under the terms of the plan, or to clarify his rights
to future benefits under the terms of the plan.” 29 U.S.C. § 1132(a)(1)(B). Before
bringing such an action in district court, the participant must “exhaust available
administrative remedies under their ERISA-governed plans.” Springer v. Wal-Mart
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Associates’ Grp. Health Plan, 908 F.2d 897, 899 (11th Cir. 1990). This exhaustion
requirement appears to only apply to internal appeals and does not encompass
external appeal remedies, such as the one at issue in this case. Id. at 901 (finding
that the ERISA plaintiff was required to exhaust her internal appeals process
before bringing a civil action); see also Rush Prudential HMO, Inc. v. Moran, 536
U.S. 355, 385 (2002) (“[ERISA] simply requires plans to afford a beneficiary some
mechanism for internal review of a benefit denial, 29 U.S.C. § 1133(2), and
provides a right to a subsequent judicial forum for a claim to recover benefits, §
1132(a)(1)(B).” (emphasis added)).
Consistent with ERISA, Alexandra’s insurance policy allows for internal
appeals of adverse determinations on benefits claims. After pursuing at least one
internal appeal through Oxford, the insured may request an external appeal.
Specifically, the plan provides for an external review conducted “through the New
York State External Appeal Process.” The plan states that the external appeal
determination will “be binding on Us and you” and “be admissible in any court
proceeding,” repeating almost verbatim what is required for external appeals in
New York Insurance Law § 4914(b)(4)(A)(iv)–(v). The external appeal is reviewed
by an independent entity certified by the state to conduct such appeals.
Alexandra opted to pursue an external appeal after two unsuccessful
attempts to appeal the denial of benefits through Oxford internally. The external
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appeal upheld Oxford’s decision, agreeing that partial hospitalization treatment
was not medically necessary. The district court found that because the plan
declared that the external appeal was binding, the external appeal was conclusive
on the medical necessity issue. Thus, the court precluded Alexandra from
challenging the medical necessity of her treatment in court and limited review of
the external appeal to whether the external review was bias or inaccurate.
To determine whether the district court properly found that the external
review is binding on the medical necessity issue and thereby prevents Alexandra
from challenging this finding on the merits in court, we must interpret the language
of the benefits plan. This is an ERISA plan and thus, as discussed above, the rules
of contract interpretation from the federal common law apply.
Alexandra’s benefits plan states that the plan “is governed by the laws of the
State of New York.” The plan also specifies that “[t]he laws of the State of New
York shall be applied to interpretations of this Certificate.” The choice of New
York law thus becomes important when interpreting what “binding” means in the
plan.
From our discussion above of the New York case law concerning § 4914, it
is clear and undisputed that New York courts have consistently held that the term
“binding” does not preclude an insured from challenging the merits of an external
appeal in court. Nenno, 303 A.D.2d at 932; Schulman, 39 A.D.3d at 224; Vellios, 1
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Misc. 3d at 472; Mercy Flight Cent., Inc., 41 Misc. 3d at 490–91. Instead, New
York courts have explained that “binding” means the external review decision
marks the end of the administrative appeal process. Vellios, 1 Misc. 3d at 472(“The provision making the external appeal agent’s determination binding must be
construed to mean that it marks the end of any administrative appeal, inasmuch as
there is no one, including the Superintendent of Insurance, empowered to conduct
a further review, but that it does not bar a review of the determination by a court.”).
Oxford does not seriously contest what the New York cases stand for (i.e.,
that “binding” does not mean binding on the merits and thus does not preclude
challenging the medical necessity determination). Oxford also does not belittle the
New York case law on the ground that it comes from a level below the Court of
Appeals. The relevant law is long-standing and settled in New York insurance law.
See 70 N.Y. JUR. 2D INSURANCE § 1507; William Pitsenberger, “Sez Who?”: State
Constitutional Concerns with External Review Laws and the Resulting Conundrum
Posed by Rush Prudential Hmo v. Moran, 15 Conn. Ins. L.J. 85, 102 (2008).
Instead, Oxford argues that the New York case law does not apply to this case
because the state cases construing the term “binding” did not involve ERISA-
governed plans.9 The district court agreed and declined to consider the New York
9
Further, Oxford argues that we should not apply the New York cases because they are res
judicata cases. We do not find this distinction helpful. Instead, this argument ignores the true
issue in this case: whether the external review is binding in such a way as to preclude Alexandra
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case law to interpret the benefit plan. Instead, the district court stated that it is only
bound by federal common law ERISA interpretations, citing Schultz v. Metro. Life
Ins. Co., 994 F. Supp. 1419, 1421 (M.D. Fla. 1997) (where the court declined to
rely on Florida state court decisions to define what qualified as an “accident” under
an ERISA plan and instead using federal common law to interpret “accident”).
As discussed above, to develop the federal common law, courts may look to
state law as an example. Tippitt, 457 F.3d at 1235. “To decide whether a particular
rule should become part of ERISA’s common law, courts must examine whether
the rule, if adopted, would further ERISA’s scheme and goals, which include: (1)
protection of the interests of employees and their beneficiaries in employee benefit
plans; and (2) uniformity in the administration of employee benefit plans.” Id.
(internal citation omitted). Adopting New York’s interpretation of “binding” would
further these goals.
ERISA allows a plan participant to bring suit “to recover benefits due to him
under the terms of his plan.” 29 U.S.C. § 1132(a)(1)(B). ERISA specifically allows
a plan participant to challenge a decision on benefits in court. If the external review
is not binding, there is no interference with this ERISA remedy. An insured is able
to bring a civil action regardless of whether or not they pursue an external appeal.
from bringing her claim in district court. The issue here is the same. The res judicata issue
presented in the New York case law speaks directly on this point, making it all the more relevant.
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In fact, if we were to find the other way and hold that the external review is
binding on the issue of medical necessity, the result would actually undermine the
remedial scheme outlined in ERISA. If this were the case, the external appeal
would act as binding arbitration and prevent the plan participant from utilizing
their ERISA remedy.
Further, federal common law also requires us to honor a plan’s choice of law
provision as long as the state law is not unreasonable or fundamentally unfair.
Buce, 247 F.3d at 1149. There is nothing in the record to suggest applying New
York is unreasonable or unfair in this case. Alexandra was employed as a teacher
in New York and obtained the benefits plan through this employment. The plan
contains a valid choice of law provision, putting both parties on notice of the
governing law. Under such circumstances, it is reasonable to expect New York law
to apply to any disputes over the plan. Consequently, in this case, it is appropriate
to interpret “binding” as New York does and hold that the external appeal is not
binding so as to preclude judicial review. Thus, the district court erred in declining
to give the New York cases their proper weight.
As a matter of New York state law, the external review has uniformly been
declared to be not dispositive of a medical necessity determination. Because of the
choice of law provision in the plan, we accept New York’s interpretation and hold
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that the external appeal decision does not bar judicial review of the merits in this
case.
In preparation for the external appeal process, Alexandra signed a consent
form releasing her medical records to the external appeal agent for review. The
consent form reads the following, in relevant part:
I acknowledge that the decision of the external appeal agent is binding. I
agree not to commence a legal proceeding against the external appeal agent
to review the agent’s decision; provided, however, this shall not limit my
right to bring an action against the external appeal agent for damages for bad
faith or gross negligence, or to bring an action against my health plan.
(emphasis added).
The last sentence of this consent form speaks directly to the issue of whether
Alexandra was precluded from bringing suit in court. In signing this waiver,
Alexandra was informed that she would still be able to bring civil action against
Oxford. This form further solidifies that under New York Insurance Laws, an
insured is able to pursue her rights under ERISA in addition to the external appeal
and bring an action in district court if she so choses. A reasonable person in
Alexandra’s position would understand that by pursuing an external appeal and
signing this consent form, she reserved her right to sue her health plan.
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3. Whether the external appeal process is preempted by ERISA
The final question is whether the New York state law allowing external
review is preempted by ERISA. Under 29 U.S.C. § 1144(a), Congress provided
that ERISA “shall supersede any and all State laws insofar as they may now or
hereafter relate to any employee benefit plan.” However, Congress also carved out
certain state laws that are not preempted by ERISA, including any state law that
“regulates insurance.” 29 U.S.C. § 1144(b)(2)(A); see also New York State
Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645,
651 (1995). In order to qualify as a law that “regulates insurance,” and thus be
saved from ERISA’s preemption clause, the state law must 1) “be specifically
directed toward entities engaged in insurance” and 2) “substantially affect the risk
pooling arrangement between the insurer and the insured.” Kentucky Ass’n of
Health Plans, Inc. v. Miller, 538 U.S. 329, 342 (2003).
Neither party contests the fact that the New York Insurance Laws “regulate
insurance.” New York Insurance Law § 4910(a) provides “[t]here is hereby
established an insured’s right to an external appeal of a final adverse determination
by a health plan.” The law explicitly refers to “the insured” and regulates how the
insured can pursue an external appeal that the provider must honor. New York
Insurance Law §§ 4910, 4914. This adds a term that insurers must make available
for insureds in benefit plans and thus “substantially affects the risk pooling
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arrangement between the insurer and the insured.” Therefore, the New York law
does “regulate insurance” and is not preempted by ERISA under § 1144(a).
We also recognize a second type of preemption, referred to as complete
preemption. Connecticut State Dental Ass’n v. Anthem Health Plans, Inc., 591 F.3d
1337, 1344 (11th Cir. 2009). In the context of ERISA, Congress intended for the
civil remedies under the ERISA enforcement scheme, 29 U.S.C. § 1132(a), to “be
the exclusive vehicle for actions by ERISA-plan participants and beneficiaries
asserting improper processing of a claim for benefits.” Pilot Life Ins. Co. v.
Dedeaux, 481 U.S. 41, 52 (1987). Accordingly, “any state-law cause of action that
duplicates, supplements, or supplants the ERISA civil enforcement remedy
conflicts with the clear congressional intent to make the ERISA remedy
exclusive.” Aetna Health Inc. v. Davila, 542 U.S. 200, 209 (2004). If a state law
provides such a replacement remedy, the state law is preempted under ERISA.
Alexandra raises the preemption issue contingently in the event we were to
affirm the district court’s interpretation of “binding” in the plan and hold that the
external review is binding on the merits. Her theory, in that event, is that Oxford’s
plan, so understood, would include in the ERISA-governed plan a binding
arbitration for the issue of medical necessity.
Because the external review process in the Oxford plan is not binding on the
merits of the medical necessity issue, we perceive no preemptive effect from the
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external review process. There is no concern that the insured’s rights under ERISA
are being intruded on. Thus, there is no complete preemption problem because the
external review is not binding and thus does not replace or erase any ERISA
remedy.
IV. CONCLUSION
For the foregoing reasons, we hold that the district court correctly
determined that the external review is part of the administrative record and thus is
included in the court’s analysis. However, the court erred in determining that the
external review was binding on the parties as to the medical necessity of
Alexandra’s treatment. The external review cannot preclude Alexandra from
challenging the Oxford’s denial of her benefits under ERISA in a district court.10
We therefore affirm in part and reverse and remand in part to allow Alexandra to
argue the medical necessity issue in district court.
AFFIRM IN PART, REVERSE IN PART AND REMAND.
10
In the event that we reverse the district court on the preclusive effect of the medical necessity
issue (as we do), Oxford asks this Court to greet and decide the merits of the medical necessity
issue in this appeal. We decline Oxford’s invitation. We also deem it prudent to give the district
court, in the first instance, the opportunity to reconsider its view that de novo review applies
here, where the external review is stripped of its estoppel effect on the issue of medical necessity.
38