1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA
9 United Air Ambulance LLC, No. CV-17-04016-PHX-SMB
10 Plaintiff, ORDER
11 v.
12 Cerner Corporation, et al.,
13 Defendants. 14 15 Pending before the Court are Cross-Motions for Summary Judgment. Defendants 16 Cerner Corporation and the Health Exchange Incorporated filed a joint Motion for 17 Summary Judgment and corresponding Statement of Facts on April 10, 2019. (Doc. 67, 18 “DMSJ”; Doc. 68 “DSOF”.) Plaintiff United Air Ambulance filed its own Motion for 19 Summary Judgement and Statement of Facts later that day. (Doc. 73, “PMSJ”; Doc. 74, 20 “PSOF”.) Both Plaintiff and Defendants responded to the opposing motion for summary 21 judgment and corresponding statement of facts. (Doc. 83, “Defendants’ Resp.”; Doc. 84, 22 “Resp. to PSOF”; Doc. 88, “Plaintiff’s Resp.”; Doc. 89, “Resp. to DSOF”.) Likewise, both 23 Plaintiff and Defendants filed Replies. (Doc. 90, “Defendants’ Reply”; Doc. 91, 24 “Plaintiff’s Reply”.) Oral argument was held on November 18, 2019. The Court considers 25 the parties respective pleadings and enters the following Order: 26 I. BACKGROUND 27 K.M., a twenty-three-month-old child with an extremely rare bowel disorder, was 28 rushed to the Phoenix Children’s Hospital (“PCH”) emergency room (“ER”) on the 1 morning of March 21, 2017. (PSOF ⁋ 12.) After treatment in the ER, K.M.’s parents faced 2 a decision: (1) admit the child to PCH for continued treatment of the emergent condition 3 afflicting their son, “a possible line infection,” or (2) depart on a pre-arranged air 4 ambulance flight to Boston Children’s Hospital (“BCH”) to address the underlying medical 5 condition which PCH could not treat and under which K.M. had long suffered. They chose 6 the latter. This case is about who pays for that flight. More precisely, this case concerns 7 whether Cerner Corporation (“Cerner”) and its fellow defendants abused their discretion 8 in approving the medical necessity of K.M.’s flight at the pre-authorization stage but later 9 denying United Air Ambulance’s (“UAA”) claim. 10 A. K.M.’s Medical Needs 11 PCH was familiar with K.M.’s medical conditions—short bowel syndrome, 12 secondary to necrotizing enterocolitis in early infancy and parenteral nutrition associated 13 liver disease (“PNALD”)—when he arrived at the ER on March 21, 2017. (PSOF ⁋ 1.) 14 PCH physicians attempted to address K.M.’s complicated medical problems many times 15 in the past, but multiple surgical treatments had largely failed to improve his condition. 16 (PSOF ⁋ 3.) The physicians believed, but could not confirm, that a lack of intestinal 17 musculature complicated K.M’s condition and stymied PCH’s attempted treatment. (PSOF 18 ⁋ 5.) Lacking the required specialized diagnostic equipment, K.M.’s doctors referred him 19 to BCH, one of the few hospitals with the equipment needed to properly diagnose and treat 20 him. (PSOF ⁋ 6.) Cerner approved a second opinion from Dr. Tom Jaksic at BCH for a 21 duodenal mobility study that required inpatient admission. (Doc. 82-1 at 67.) 22 The problem was getting there. Because K.M. was completely reliant on parenteral 23 nutrition and suffered severe peristomal erosion around the central line supplying him vital 24 nutrients, he needed hourly dressing changes to prevent further erosion and possible 25 infection. (PSOF ⁋ 4; Doc. 82-1 at 69, “Dr. Carey Letter”) Dr. Andrew Carey, the 26 Associate Medical Director at BCH’s Center for Advanced Intestinal Rehabilitation 27 supported transport to BCH by air ambulance, concluding that “the degree of peristomal 28 erosion and the frequency of dressing changes required to prevent further skin breakdown 1 and soiling of his sterile central venous line site” made “commercial air flight . . . not 2 appropriate for this patient.” (Dr. Carey Letter.) K.M.’s condition was both rare and 3 serious.1 Dr. Carey continued: 4 Recent pathology suggests a segmental absence of intestinal musculature . . 5 . an incredibly rare diagnosis [that] requires the use of antroduodenal and colonic manometry to detect for abnormalities in peristalsis. This testing 6 requires inpatient level of care and is only available at a select group of 7 centers, of which Boston Children’s Hospital is one. . . . Failure to seek further diagnostic testing will result in ongoing limitations in his ability to 8 advance enteral nutrition which will accommodate progression of his liver 9 disease. Progressive PNALD represents a major source of mortality in patients with intestinal failure and requires specialized care to reduce risk of 10 death. 11 (Id.) Dr. David Notrica, a pediatric surgeon at PCH, corroborated Dr. Carey’s medical 12 opinion and recommendations. (Doc. 82-1 at 73.) He affirmed K.M. “needs an evaluation 13 at [BCH] . . . as soon as possible, and will need medical transport to get there.” (Id.) With 14 physicians at both PCH and BCH concluding that ground transportation was inadequate 15 and instead recommending travel by air ambulance, K.M.’s parents arranged transport with 16 UAA.2 17 On the day of his scheduled flight, K.M. experienced what both parties consider a 18 “medical emergency” and was taken to the PCH ER for treatment. (PSOF ⁋ 12; Doc. 82 19 at 47.) PCH treated K.M. for a “possible line infection” and potential sepsis. (PSOF ⁋ 13.) 20 As Dr. Carey and Dr. Notrica previously established, PCH could not treat K.M.’s 21 underlying condition. (PSOF ⁋⁋ 11-14.) PCH could, however, successfully address K.M.’s 22 most pressing medical needs—the line infection and possible sepsis. (See DSOF ⁋⁋ 44-45.) 23 Both K.M.’s pediatric gastroenterologist and ER physician thus recommended that K.M. 24 be admitted at PCH and not take the UAA flight. (Id.; PSOF ⁋ 13.) But fearing another 25 opportunity to fly K.M. by air ambulance for treatment at BCH would not come, K.M.’s 26
27 1 Cerner recognized the complexity of K.M.’s condition and assigned a case manager from American Health Holding (“AHH”) to coordinate his care. (DSOF ⁋ 34.) 28 2 Cerner received Dr. Carey and Dr. Notrica’s Letters of Medical Necessity “on or about February 20, 2017.” (DSOF ⁋ 37.) 1 mother signed K.M. out of the PCH ER against medical advice. (PSOF ⁋⁋ 11-14.) Upon 2 arrival in Boston, BCH directly admitted K.M. and successfully treated his gastrointestinal 3 conditions. (PSOF ⁋ 15.) 4 B. The Plan 5 Defendant Cerner is a health care technology company that offers insurance 6 coverage for employees. (DSOF ⁋ 3.) Through its legal subsidiary and third-party benefits 7 administrator, Defendant The Health Exchange, Inc. d/b/a Cerner HealthPlan Services 8 (“CHPS”), Cerner offers a comprehensive benefits package called the Wraparound 9 Benefits Plan.3 (DSOF ⁋ 9.) Among other offerings, the Wraparound Benefits Plan 10 provides medical insurance coverage to Cerner employees and beneficiaries under a 11 component plan, the Healthe Options Component Plan (“the Plan”). (DSOF ⁋ 10.) Both 12 plans are governed by the Employee Retirement Security Act of 1974 (“ERISA”). (DSOF 13 ⁋ 12.) K.M. is a covered beneficiary under the Plan. (DSOF ⁋ 11.) The Plan names Cerner 14 as fiduciary and plan administrator as defined by ERISA and grants Cerner “the exclusive 15 power and authority, in its sole discretion, to construe and interpret the Plan, to determine 16 all questions of Plan coverage and eligibility for benefits, the methods of providing or 17 arranging for such benefits and all other related matters.” (DSOF ⁋ 14.) In turn, Cerner 18 delegates administration and payment of claims to CHPS. (DSOF ⁋ 15.) Cerner and CHPS 19 thus maintain a close working relationship. (See DSOF ⁋⁋ 27-32.) In return for its services, 20 Cerner pays CHPS a monthly administration fee on a per employee covered basis and 21 provides funds to be paid out by CHPS on a weekly basis. (DSOF ⁋⁋ 29-31.) CHPS 22 operates out of a Cerner-owned building in a commercial building campus that Cerner also 23 calls home. (DSOF ⁋ 27.) Employees at CHPS maintain email accounts with Cerner and 24 CHPS. (PSOF ⁋ 56.) 25 The Plan covers ambulatory travel, including by air ambulance, in specific 26 circumstances. (DSOF ⁋⁋ 16-17.) Generally, the Plan reimburses transportation by air 27 ambulance in medical emergencies when ground transportation is not appropriate either
28 3 For purposes of clarity, this Order refers to Cerner and CHPS in their individual capacities and, collectively, as “Defendants.” 1 because a patient needs treatment immediately or because nearby facilities cannot offer 2 appropriate treatment. (See DSOF ⁋ 16.) In relevant part, the Plan reads: 3 Coverage is provided for air ambulance transport for medical emergencies in 4 the following circumstances: 5 • The Participant requires transport to a hospital or from one hospital to another because the first hospital does not have the required services 6 and/or facilities to treat the Participant; and ground transportation is 7 not medically appropriate because of the distance involved, • Or because the Participant has an unstable condition requiring medical 8 supervision and rapid transport 9 (Id.) The provision requires a provider notify Cerner “except in life threatening 10 circumstances.” (Id.) The Plan does not define “medical emergencies.” (See Doc 68-4 at 11 51-59.) The Plan also explicitly disclaims coverage in a range of other circumstances. 12 This provision, titled “Services Not Covered,” reads in part: 13 Any treatment, confinement, or service which is not recommended by, or any 14 operation which is not performed by, an appropriate professional provider; Examination by a Doctor, related laboratory tests, x-rays and vaccines 15 performed in the absence of specific symptoms on the part of the Participant 16 (except as may be specifically provided herein). 17 (DSOF ⁋ 17.) 18 C. The Claims Process 19 To be compensated, a provider of services must file a claim with Cerner. The claims 20 process here entailed navigating seven layers of review. (See DSOF ⁋⁋ 18-26.) Broadly 21 speaking, this claim passed through two main categories of review: preauthorization and 22 claim processing. The Plan allows health care providers to request preauthorization for 23 providing a service to a Plan beneficiary.4 (DSOF ⁋ 17.) When denied, a preauthorization 24 request may be appealed twice. (DSOF ⁋ 19.) The first appeal is evaluated by CHPS, the 25 second by Cerner itself. Specifically, if CHPS denies a providers’ initial appeal, the dispute 26 is elevated to one of two Cerner personnel charged with handling second level appeals— 27 Bogorad and Dr. David Nill review final claims on appeal among their other
28 4 CHPS regularly refers to preauthorization requests as “predetermination” requests in correspondence, using the terms interchangeably. 1 responsibilities. (DSOF ⁋ 23.) Regardless of whether a preauthorization request is 2 approved or denied, a provider must file a formal claim for benefits. (DSOF ⁋ 20.) Like 3 preauthorization requests, claims may be appealed twice if denied. (DSOF ⁋ 21.) 4 Similarly, claim appeals are first reviewed by CHPS, then by Cerner. (DSOF ⁋⁋ 21-23.) 5 To insulate the process from conflicts, Cerner and CHPS have some procedural 6 safeguards. The first claim appeal accords no deference to the original decision. (DSOF 7 ⁋ 24.) Instead, decisions are made “by an individual who did not decide the initial claims, 8 and who is not a subordinate of anyone that decided the initial claim.” (Id.) The second 9 appeal follows the same procedures. (DSOF ⁋⁋ 24-26.) At both appeal levels, the reviewer 10 can consider new information submitted by a claimant and consult a health care 11 professional experienced in the relevant area if necessary. (DSOF ⁋⁋ 24-26.) If denied 12 after a second appeal, a claimant may request an “External Review.” (DSOF ⁋ 26.) Denial 13 of a claim after a second appeal, or, if an external review is requested, confirmation of 14 denial by an external reviewer, renders a claim judgment final. Once a final adverse 15 benefits decision has been rendered and a provider exhausts all remedies available under 16 the Plan, the provider may bring a civil action under ERISA. 17 In this case, UAA submitted both a preauthorization request and filed a formal 18 claim, following the procedures detailed above. This process began with a series of initial 19 inquiries with CHPS by K.M.’s AHH case manager. (DSOF ⁋ 35.) On February 9, 2017, 20 K.M.’s AHH case manager asked CHPS if the Plan covered K.M.’s travel expenses for a 21 second opinion at BCH. (Id.) Eleven days later, AHH confirmed that BCH’s services were 22 medically necessary, but not covered because they were not emergent. The next day, 23 February 21, 2017, UAA called CHPS to inquire into covered costs for air ambulance. 24 (DSOF ⁋ 39.) Quoting the Plan language, supra, UAA was told the Plan only covered 25 travel by air ambulance, like that requested, in “medical emergencies” and any coverage 26 was subject to the terms of the Plan. (DSOF ⁋⁋ 39-40.) On February 28, 2017, CHPS 27 followed-up on the previous phone call and provided AHH written confirmation that 28 coverage for air ambulance was not covered for K.M.’s second opinion at BCH. (DSOF ⁋ 1 41.) Despite this, UAA transported K.M. to Boston on March 21, 2017, (PSOF ⁋ 14.), and 2 sent CHPS a preauthorization request later that day. (DSOF ⁋ 46.) That request was denied 3 on March 24, 2017 for the reasons previously given. UAA appealed on April 24, 2017; 4 CHPS upheld the denial on May 15, 2017. (Doc. 82-7 at 82.) This May 15 appeal denial 5 again quoted the Plan language, (DSOF ⁋ 53), but also explained that K.M.’s requested air 6 ambulance did not meet plan requirements because (1) “he was not requiring rapid 7 transport for a medical emergency” and (2) “he was not inpatient requiring transport from 8 one facility to another for additional services not available at the initial hospital.” (DSOF 9 ⁋ 52.) 10 UAA appealed a second time on July 17, 2017. On the second preauthorization 11 appeal Cerner reversed its’ initial denial. Cerner sent UAA a “certification of medical 12 necessity” affirming the services were “medically necessary but not a guarantee of 13 payment.” (Doc. 82-2 at 6.) This certification letter reminded UAA that all payment 14 determinations were made after a claim was submitted and remained “subject to the terms 15 and limitations of the benefit plan including deductible and/or copayments.” (Id.) The 16 certification was thus “pertinent only if the member has an active policy and premiums are 17 paid up through the time of service.” (Id.) Although the letter “only certifie[d] the medical 18 necessity of the services listed above under the terms of the Plan” it is unclear what 19 practical significance, if any, the letter has on any later claim determination.5 (Id.) At this 20 point, Cerner directed Stratos, a third-party retained to negotiate claim reimbursement 21 between Cerner and providers, to engage UAA. Stratos negotiated a reimbursement of 22 $600,000 with UAA but disclaimed the agreement was a guarantee of payment. (Doc. 82- 23 1 at 3.) UAA signed and returned this “Provider Agreement” on August 24, 2017. (Doc. 24 82-1 at 63.) 25 5 Presumably, the certification affirms that UAA’s transport of K.M. to BCH was 26 “medically necessary” as defined in the Plan. (Doc. 68-4 at 55.) The Plan defines “Medically Necessary” as: commonly recognized by appropriate medical specialists, 27 within standards of good practice; appropriate, effective and consistent with the diagnosis or treatment of an illness or injury; the appropriate supply or level of service that can be 28 safely administered; provided by a hospital or Covered provider; and a drug or supply approved by the U.S. Food and Drug Administration. (Id.) 1 UAA filed a formal claim on August 30, 2017. (DSOF ⁋ 60.) On September 1, 2 2017, Cerner received PCH medical records from K.M.’s March 21, 2017 ER visit prior to 3 the UAA flight. (DSOF ⁋ 61.) The PCH records revealed that K.M. was signed out against 4 the medical advice of K.M.’s pediatric gastroenterologist and ER doctor recommending 5 admission to PCH. (DSOF ⁋ 62.) The physicians determined K.M. was suffering from an 6 emergent condition that could be treated successfully at PCH recommended against 7 transport. (See id.) CHPS denied UAA’s claim on September 13, 2017. (DSOF ⁋ 63.) 8 UAA appealed the initial claim denial on October 12, 2017, noting CHPS’ prior finding 9 that the requested service was medically necessary. CHPS denied this first appeal on 10 October 26, 2017 for the same reasons it denied the initial claim. On December 21, 2017 11 UAA appealed once more. Cerner again denied. (DSOF ⁋ 73.) In the January 26, 2018 12 decision, Ms. Bogorad, Cerner’s claim administrator and final authority for claim 13 determinations on secondary appeal, held “[a]t no point in time did the air transport services 14 provided by UAA qualify for coverage under the Plan.” (DSOF ⁋ 77.) In denying UAA’s 15 claim a final time, Cerner asserted that air ambulance was not covered because K.M.’s 16 underlying condition was non-emergent, K.M.’s emergent condition—sepsis—could be 17 treated at PCH, and the March 21 UAA flight was taken against the medical advice of PCH 18 physicians. (DSOF ⁋ 77.) The denial letter emphasized Cerner’s previous certification of 19 that UAA’s services were medical necessary was “not enough to trigger coverage for air 20 transport services,” because coverage was conditioned on satisfaction of all the Plan terms. 21 (DSOF ⁋ 78.) In short, “medically necessary” did not mean “covered.” 22 UAA requested an Independent External Review (“IER”). After deeming an IER 23 appropriate, CHPS retained AHH to conduct the IER. (DSOF ⁋⁋ 80-82.) AHH reviewed 24 submissions from both parties and affirmed the denial of UAA’s claim. (DSOF ⁋ 85.) In 25 fact, the IER went further. The IER rebutted Cerner’s previous certification of medical 26 necessity and concluded that not only were air ambulance services not covered by the Plan, 27 they were not medically necessary. (DSOF ⁋ 86.) The IER found additional grounds to 28 deny UAA’s claim “since it is not documented that the claimant was taken to the closest 1 facility capable of providing the needed services.” (DSOF ⁋ 86.) This is the first mention 2 of a proximity requirement in the administrative record. 3 II. LEGAL STANDARD 4 The Employment Retirement Income Security Act (“ERISA”) “governs the 5 administration of employer-provided benefit pension plans.” Metro. Life. Ins. v. Parker, 6 436 F.3d 1109, 1111 (9th Cir. 2006). ERISA requires plan administrators, as fiduciaries, 7 to administer their plans “in accordance with the documents and instruments governing the 8 plan insofar as the documents and instruments are consistent with the provisions of 9 [ERISA].” 29 U.S.C. § 1104(a)(1)(D). 10 Courts review the denial of ERISA benefits de novo “unless the benefit plan gives 11 the administrator or fiduciary discretionary authority to determine eligibility for benefits 12 or to construe the terms of the plan.” Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 13 115 (1989). When a plan “unambiguously provide[s] discretion to the administrator”, the 14 standard of review shifts from the default, de novo, to abuse of discretion. Abatie v. Alta 15 Health and Life Ins. Co., 458 F.3d 955, 963 (9th Cir. 2006) (en banc) (citing Firestone Tire 16 & Rubber Co. v. Bruch, 489 U.S. 101, 115 (9th Cir. 1989); see also, Met. Life Ins. Co. v. 17 Glenn, 554 U.S. 105, 110-11 (2008). “Under the abuse of discretion standard of review, 18 ‘the plan administrator’s interpretation of the plan will not be disturbed if reasonable.” Day 19 v. AT&T Disability Income Plan, 698 F.3d 1091,1096 (9th Cir. 2012) (quoting Conkright 20 v. Frommert, 559 U.S. 506, 512 (2010)). “ERISA plan administrators abuse their 21 discretion if they render decisions without any explanation, . . . construe provisions of the 22 plan in a way that conflicts with the plain language of the plan or rely on clearly erroneous 23 findings of fact.” Day, 698 F.3d at 1096. Under the abuse of discretion standard, a court 24 considers “whether application of a correct legal standard was ‘(1) illogical, (2) 25 implausible, or (3) without support in inferences that may be drawn from the facts in the 26 record.’” Salomaa v. Honda Long Term Disability Plan, 642 F.3d 666, 676 (9th Cir. 2011) 27 (quoting United States v. Hickson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc)).6
28 6 In an ERISA benefits case, the traditional summary judgment standards are not necessarily appropriate. Fed. R. Civ. P. 56. When, as here, a plan adminstrator’s 1 A reviewing court should weigh any conflict of interest or procedural irregularity as 2 a factor in its review. Glenn, 554 U.S. at 108. When “the entity that administers the plan 3 . . . both determines whether ran employee is eligible for benefits and pays benefits out of 4 its own pocket,” a conflict of interest is created. Id. “A conflict of interest is a factor in 5 the abuse-of-discretion review, the weight of which depends on the severity of the 6 conflict.” Demer v. IBM Corporation LTD Plan, 835 F.3d 893, 900 (9th Cir. 2016). Even 7 in the face of a conflict, “a deferential standard of review remains appropriate.” This does 8 not mean that plan administrators automatically prevail on the merits, only that a plan 9 administrator’s interpretation of the plan “will not disturbed if reasonable.” Conkright v. 10 Frommert, 559 U.S. 506, 512 (2010) (citation and quotation omitted). Similarly, “when a 11 plan administrator’s actions fall so far outside the strictures of ERISA that it cannot be said 12 that the administrator exercised the discretion that ERISA and the ERISA plan grant, no 13 deference is warranted.” Abatie, 458 F.3d at 972. Alternatively, “[w]hen an administrator 14 can show that it has engaged in an ongoing, good faith exchange of information between 15 the administrator and the claimant, the court should give the administrator’s decision broad 16 deference notwithstanding a minor irregularity.” Id. (internal quotation marks and citations 17 omitted). But “deference” is not a “talismanic word that can avoid the process of 18 judgment.” Salomaa, 642 F.3d at 673 (quoting Glenn, 554 U.S. at 118). “The nature and 19 scope of the alleged violations will significantly affect the standard of review applied by 20 the district court.” Hoffman v. Screen Actors Guild Prod. Pension Plan, 757 Fed. Appx. 21 602, 604 (9th Cir. 2019). 22 A reviewing court should also consider procedural errors in deciding whether a plan 23 administrator abused its discretion. See Salomaa, 642 F.3d at 674. Among other 24 procedural irregularities, inconsistent reasons for denial and evidence of malice are rightly 25 considered. Id. “A small procedural irregularity is a matter to be weighed in deciding 26 whether an administrator's decision was an abuse of discretion, just as a court would weigh
27 determination is reviewed for abuse of discretion, “a motion for summary judgment is merely a conduit to bring the legal question before the district court and the usual tests of 28 summary judgment, such as whether a genuine dispute of material facts exists, do not apply.” Bendixen v. Standard Ins. Co., 185 F.3d 939, 942 (9th Cir. 1999). 1 a conflict of interest.” Horton v. Phoenix Fuels, Co., Inc., 611 F.Supp.2d 977, 986 (D. 2 Ariz. 2009). “Procedural violations of ERISA do not alter the standard of review unless 3 those violations are so flagrant as to alter the substantive relationship between the employer 4 and employee, thereby causing the beneficiary substantive harm.” Gatti v. Reliance 5 Standard Life Ins. Co., 415 F.3d 978, 985 (9th Cir. 2005). 6 III. DISCUSSION 7 A. Conflict of Interest and Standard of Review 8 The Plan unambiguously confers discretionary authority to Cerner as administrator. 9 See Abatie, 458 F.3d at 963 (finding abuse of discretion the proper standard of review when 10 an “ERISA plan unambiguously grant[s] discretion to the administrator.”). More precisely, 11 the Plan names Cerner as fiduciary and plan administrator as defined by ERISA and grants 12 Cerner “the exclusive power and authority, in its sole discretion, to construe and interpret 13 the Plan, to determine all questions of Plan coverage and eligibility for benefits, the 14 methods of providing or arranging for such benefits and all other related matters.” (DSOF 15 ⁋ 14 (emphasis added)). Both parties agree that the abuse of discretion standard applies to 16 this Court’s review of Cerner’s conduct. (DMSJ at 9; PMSJ at 13.) Both likewise concede 17 that Cerner, by funding and administering the Plan, has a structural conflict of interest. 18 (DMSJ at 10; PMSJ at 11.) They disagree as to what weight, if any, this Court should 19 accord that conflict. 20 UAA asks the Court to accord greater weight to Cerner’s conflict of interest above 21 the “higher degree of skepticism” normally applied in such cases. Salomaa, 642 F.3d at 22 666. UAA’s argument is highly speculative. First, UAA makes multiple, unsubstantiated 23 claims—that Ms. Bogorad wears “multiple hats,” that claim reimbursements affect her 24 budget for the other departments in her purview—to infer she has financial incentive to 25 deny claims. UAA is correct that Cerner has a structural conflict of interest generally. 26 Cerner tasks a wholly-owned subsidiary, CHPS, with determinations and payments of 27 claims on the Plan. Bogorad is not immune from that conflict. The record does not 28 demonstrate that that the budget for claims determinations is any way intermingled with 1 any other general funds. (See DSOF ⁋⁋ 29-32.) Second, aside from basic money-saving 2 incentives operative in the claim decisions of every plan administrator, UAA points to no 3 credible evidence that financial incentives infected the claims process here. UAA correctly 4 notes that CHPS and Cerner are co-located and maintain open lines of communication 5 evidenced by dual email accounts. (Doc. 84 at ⁋ 56.) But this relational closeness only 6 bolsters the existence of Cerner’s structural conflict of interest. Given the obvious, 7 legitimate explanations for the close working relationship, this does not warrant overly 8 exacting scrutiny. Cerner’s conflict of interest demands additional skepticism within the 9 abuse of discretion review, but its claim determinations are not presumptively suspect 10 because CHPS and Cerner have relational closeness expected of a parent and subsidiary. 11 On the other hand, Defendants believe the conflict of interest deserves no weight. 12 (DMSJ at 10.) They argue UAA’s failure to identify how the alleged conflict of interest 13 influenced the process in this case obviates the need for additional scrutiny beyond the 14 abuse of discretion standard. (Doc. 83 at 3-6.) That is, the existence of a structural conflict 15 of interest only merits a “higher degree of skepticism” when a party points to a specific 16 example where the alleged conflict influenced the dispute. Defendants position imposes 17 an improper burden of proof on plaintiffs unsupported by controlling case law.7 Salomaa 18 is instructive. The lack direct evidence that a conflict affected the claims process is 19 unsurprising in ERISA cases. Salomaa, 642 F.3d at 676 (determining that because the 20 record usually does not disclose direct evidence of an insurance company’s conflict—like 21 claims-handling history in other cases or internal directives to claims managers in how to 22 evaluate claims—"we are ordinarily ignorant of much of what we are supposed to weigh.”). 23 In ERISA cases, courts do not require direct evidence a conflict of interest manifestly 24 affected the outcome of a case. Rather, conflicts of interest justify a court’s “additional 25 skepticism” because of the unique incentives of ERISA’s statutory scheme. Id. 26 7 Although a plan administrator should be granted “broad deference notwithstanding a 27 minor irregularity” when “an administrator can show it has engaged in an ongoing, good faith exchange of information [with] the claimant,” the Court finds no case that willfully 28 ignores an actual conflict of interest merely because the administrator appears to have operated in good faith. See Abatie, 458 F.3d at 972. 1 Specifically, ERISA gives insurance companies “special protection . . . against claims,” 2 increasing the “incentive to be more unfair . . . because [they] cannot be subjected to the 3 punitive damages for bad faith that are the bogeymen of insurance companies.” Id. 4 Regardless of whether UAA proves the conflict of interest affected Cerner’s decision- 5 making here, the incentives inherent in ERISA cases remain unchanged and require a court 6 review with additional skepticism. See Demer, 835 F.3d 893, 903 (“[T]he lack of such 7 specific evidence does not mean that there is no conflict of interest.”) (emphasis in 8 original). The Court accordingly reviews Cerner’s conduct under the deferential abuse of 9 discretion standard, but with the additional skepticism required by Cerner’s structural 10 conflict of interest. 11 B. Procedural Irregularities 12 With Cerner’s conflict of interest established, the Court analyzes the two main 13 stages of the claims process—preauthorization and claim—to weigh the significance of 14 any procedural irregularity. Like a conflict of interest, procedural irregularities can 15 “reduce[] the deference owed to an administrator’s decision to deny benefits” and heighten 16 judicial scrutiny. Abatie, 458 F.3d at 972 (citing Fought v. UNUM Life Ins. Co. of America, 17 379 F.3d 997, 1006 (10th Cir. 2004)). “A more serious procedural irregularity may weigh 18 more heavily.” Id. As discussed below, the record does not suggest “wholesale and 19 flagrant violations of the procedural requirements of ERISA” that necessitate de novo 20 review, but the steady drum of procedural irregularities adds weight to Cerner’s conflict of 21 interest and undermines the credibility of their claim denial justifications. Id. at 971. 22 a. Preauthorization 23 Defendants initial denial of UAA’s preauthorization request was reasonable. 24 Admittedly, CHPS provided little explanation for their denial of UAA’s initial 25 preauthorization request.8 More was not needed. The terse denial simply quoted the 26 relevant Plan provision, explaining that “air transport for a second opinion is not a covered 27 benefit under the plan.” (DSOF ⁋ 41) (emphasis added). CHPS italicizes “medical
28 8 The email follows multiple recorded phone conversations with UAA. All uniformly communicated UAA’s services were not covered under the Plan. (DSOF ⁋⁋ 28-41.) 1 emergencies” in the quoted plan language to seemingly infer that second opinions do not 2 fall in that prerequisite category. (DSOF ⁋ 41.) Notably, this denial came on the heels of 3 multiple recorded phone conversations consistently explaining Defendants position. While 4 not verbose, this initial interpretation was a reasonable lay interpretation of the Plan’s plain 5 language. 6 Problems surface in Defendants handling of the first appeal from the denial of this 7 preauthorization request. On first appeal, CHPS affirmed the initial denial and offered a 8 slightly more detailed, but confused explanation. Interpreting the Plan language, CHPS 9 supports the initial preauthorization denial with two apparently independent justifications: 10 (1) K.M. “was not requiring rapid transport for a medical emergency”; and (2) “he was not 11 inpatient requiring transport from one facility to another for additional services not 12 available at the initial hospital.” (Doc. 82-2 at 4) (emphasis added). This misconstrues the 13 Plan’s plain language. See Day, 698 F.3d at 1096. The Plan logically reads to provide air 14 ambulance coverage in two general circumstances—neither require inpatient status.9 15 CHPS’s first justification reasonably interprets the Plan’s plain language.10 The 16 second justification blatantly misreads the plain language of the Plan to require “inpatient” 17 status.11 The provision clearly states otherwise. The provision covers “transport to a 18 hospital or from one hospital to another.” (DSOF ⁋ 16) (emphasis added). There is nothing 19 in the language to require inpatient status. A denial of coverage premised upon such
20 9 Notably, CHPS’s interpretation at this stage directly conflicts with Cerner’s later interpretations at the claims stage, (DSOF ⁋ 77), and with their pleadings before this Court. 21 (See DMSJ at 12.) 10 CHPS’s explanation of the Plan seemingly replaces an “unstable condition requiring 22 medical supervision”—the Plan language detailing one of the two instances where air ambulance travel is covered—with “medical emergency”, the language from the 23 provision’s prefatory clause. The relevant Plan language provides “coverage . . . for medical emergencies [when] the Participant has an unstable condition requiring medical 24 supervision and rapid transport.” (DSOF ⁋ 16.) It is unclear whether CHPS merely confused the two terms, consciously defined “medical emergencies” as “unstable 25 conditions requiring medical supervision”, or unartfully held that coverage under the provision was simply not triggered because although K.M. appeared to need medically 26 supervised transport, he did not require rapid transport.10 Despite the confused explanation, because K.M.’s underlying condition was considered “stable”—and thus, not 27 a “medical emergency” or “unstable condition requiring medical supervision”—reasonable grounds for denial existed. 28 11 This gross misreading of the plain language of the plan is found in numerous communications at multiple levels of claims processing at both Cerner and CHPS. 1 misreading is precisely the type of “illogical,” “implausible” interpretation that qualifies as 2 an abuse of direction. Salomaa, 642 F.3d at 676 ; see also Day, 698 F.3d at 1096. (“ERISA 3 plan administrators abuse their discretion if they . . . construe provisions of the plan in a 4 way that conflicts with the plain language of the plan”). 5 On second appeal, Cerner reversed the denial of UAA’s preauthorization request, 6 and instead, certified the medical necessity of UAA’s air ambulance services. Cerner tries 7 to pin this reversal on UAA. They argue UAA misrepresented K.M.’s medical status by 8 selectively disclosing health records excluding PCH’s March 21st ER records where two 9 doctors’ recommended against the UAA flight. But this does not explain Cerner’s drastic 10 interpretive pivot. It is worth establishing what Cerner knew at this decision point. An 11 email chain between Bogorad and K.M.’s case manager demonstrates Cerner knew the 12 following: (1) Travel by air ambulance was considered medically necessary by Dr. Notrica 13 at PCH and Dr. Carey at BCH; (2) K.M.’s underlying condition was “stable” and “non- 14 emergent”; (3) on the day of transport, doctors at PCH wanted to admit K.M. to treat 15 possible sepsis; (4) PCH could successfully treat K.M. for sepsis but not his underlying 16 condition; (5) K.M. was signed-out of the PCH ER against medical advice. (Doc 82-4 at 17 6-8.) The email chain also includes an initial negotiated estimate for UAA’s services of 18 $39,865.12 (Doc 82-4 at 8.) Even if UAA’s selective disclosure of medical records caused 19 Cerner to believe K.M. “require[d] rapid transport for a medical emergency” at the time of 20 the UAA flight, at no point do the medical records indicate that K.M. was “inpatient.” 21 Cerner denied the first preauthorization appeal because the Plan required K.M. to be 22 inpatient status. Both the administrative record and Bogorad’s deposition demonstrate 23 Cerner knew K.M. was outpatient at the time of the UAA flight. (See Doc. 82-4 at 6, 8.) 24 UAA’s selective medical records disclosure cannot create a record of K.M. being inpatient. 25 The record contains no meaningful explanation for these changing interpretations. Neither 26 do Defendants pleadings. The Court finds Defendants attempt to blame the anomaly on 27 UAA unavailing.
28 12 Prior to the initial denial of UAA’s formal claim, this estimate would balloon to $600,000. (Doc. 82-1 at 63.) 1 b. The Claim 2 The problems continue at the claims stage. Cerner quickly backtracked from 3 approving UAA’s preauthorization request and denied both UAA’s formal claim and, 4 eventually, both appeals. Cerner denied UAA’s first level appeal for two reasons: (1) air 5 ambulance services were not recommended by an “appropriate provider”13; and (2) the 6 record did not support an “emergent need” that required “air ambulance transport . . . from 7 one hospital to another.” (Doc. 82 at 48-49.) Each justification is problematic. 8 First, as to (1), Defendants now argue the Dr. Notrica and Dr. Carey letters 9 recommending treatment at BCH and transport by air ambulance do not qualify as 10 “recommendations from appropriate providers” because they address K.M.’s underlying 11 bowel condition, not the emergent sepsis that would trigger coverage.14 (Defendants’ Reply 12 at 6.) That K.M.’s underlying bowel condition does not qualify as a “medical emergency” 13 under the Plan may be a rational reading, but the treatment of Dr. Notrica and Dr. Carey’s 14 recommendations raises an eyebrow. Particularly in circumstances like K.M.’s, where a 15 chronic non-emergent condition increases the likelihood of emergent events identical to 16 the one K.M. suffered on March 21, 2017, consideration of such recommendations seems 17 appropriate.15 The denial letter does not attempt to parse the emergent and non-emergent 18
19 13 Cerner did not previously rely on this justification when considering UAA’s preauthorization request and related appeals. 20 14 The nuanced argument Defendants make at the pleading stage is largely absent from the 21 administrative record. (See Defendants’ Reply at 6.) The First Appeal denial letter cites only the recommendations against transport made by K.M.’s PCH gastroenterologist and 22 emergency room physician on the day of the UAA flight. (Doc. 83 at 44-46.) Dr. Carey and Dr. Notrica’s earlier recommendations are not considered. (Id.) In examining ERISA 23 claims, the Ninth Circuit has applied the “general rule that ‘an agency’s order must be 24 upheld, if at all, on the same basis articulated in the order by the agency itself,’ not a subsequent rationale articulated by counsel.” Jebian v. Hewlett-Packard Co. Employee 25 Benefits Organization Income Protection Plan, 349 F.3d 1098, 1104 (9th Cir. 2003) 26 (quoting Fed. Pow. Comm’n v. Texaco, Inc., 417 U.S. 380, 397, 94 S.Ct. 2315, 41 L.Ed.2d 141 (1974)). The Court will do so here. 27 15 Defendants do not contest that because of his underlying, chronic condition—PNALD— K.M. “has had multiple central line associated blood stream infections (CLABSI), which 28 also represents a major source of mortality in patients with intestinal failure.” (Dr. Carey Letter.) 1 aspects of K.M.’s condition or their corresponding recommendations. Instead, Cerner 2 makes no mention of Dr. Carey’s recommendation and includes only a small excerpt— 3 three fragmented sentences emphasizing the “second opinion” language—from Dr. 4 Notrica’s letter. Defendants argue that, being made one month prior to treatment, the 5 doctors’ recommendations “cannot be reasonably considered recommendations for 6 treatment on March 21, 2017.” (Defendants’ Reply at 6.) Here, however, Cerner’s refusal 7 to consider the earlier recommendations undermines the reasonableness of their review. 8 As recommendations for treatment of a longstanding, chronic condition the medical 9 opinions carry more presumptive validity over time than a prescription for passing malady. 10 Dr. Notrica and Dr. Carey recommended treatment and travel by air ambulance to address 11 a chronic condition that still afflicted K.M. on March 21, 2017. Combined with the 12 complexity of K.M.’s condition, the recommendations merited consideration. By 13 recommending costly medical treatment requiring a cross-country flight, the letters 14 implicitly contemplate that some passage of time is likely before treatment at BCH given 15 the significant logistical hurdles, long travel, and the potential for immediate treatment 16 upon arrival. 17 Second, as to (2), Defendants denial of UAA’s first claim appeal identifies two 18 distinct requirements to qualify for coverage—the patient must suffer a “medical 19 emergency” and also require “air ambulance transport . . . from one hospital to another.” 20 The first requirement, permitting coverage only in “medical emergencies,” is explicitly 21 supported by the plain language. (See DSOF ⁋ 16.) However, the Plan leaves “medical 22 emergencies” undefined. (See Doc 68-4 at 51-59.) In their pleadings, the parties argue 23 over the proper definition of “medical emergency.”16 (Plaintiff’s Resp. at 8; Defendants’ 24
25 16 Defendants offer definitions from medical dictionaries to conclude that medical emergencies necessarily include a sense of urgent need and that “a chronic condition, no 26 matter its severity, is not an emergency.” (Defendants’ Reply at 6.) A lay interpretation of emergency supports Defendants position. On the other hand, UAA rejects this 27 interpretation and contends that K.M.’s emergent condition—sepsis—is inextricably tied to his chronic condition—PNALD. (Plaintiff’s Resp. at 8.) Because the medical 28 emergency here directly arose from his chronic PNALD, coverage for air ambulance is warranted. (Id.) 1 Reply at 6.) Both parties’ arguments have merit.17 But in examining ERISA claims, the 2 Ninth Circuit applies the “general rule that ‘an agency’s order must be upheld, if at all, on 3 the same basis articulated in the order by the agency itself,’ not a subsequent rationale 4 articulated by counsel.” Jebian v. Hewlett-Packard Co. Employee Benefits Organization 5 Income Protection Plan, 349 F.3d 1098, 1104 (9th Cir. 2003) (quoting Fed. Pow. Comm’n 6 v. Texaco, Inc., 417 U.S. 380, 397, 94 S.Ct. 2315, 41 L.Ed.2d 141 (1974)). Despite the 7 reasonableness of Cerner’s present interpretation, a post-hoc rationalization of what 8 constitutes a “medical emergency” is of limited probative value in evaluating their 9 justification for claim denial at this stage. The Plan does not define “medical emergency.” 10 (See Doc 68-4 at 51-59.) Neither does Cerner’s order. (See Doc. 82-1 at 21-24.) Cerner’s 11 determination at first level appeal merely quotes the Plan language without explanation, 12 then denies UAA’s appeal. (Id.) Hardly a model of clarity, this communication certainly 13 does not explain Cerner’s reversal and Plan interpretation “in a manner calculated to be 14 understood by the claimant.” Saffon, 522 F.3d at 870 (quoting Booton v. Lockheed Medical 15 Benefit Plan, 110 F.3d 1461, 1463 (9th Cir. 1997). 16 Additionally, Defendants interpretation of the Plan here is inconsistent with their 17 prior interpretation at the preauthorization stage. At the preauthorization stage, both 18 Bogorad and Dr. David Nill, the individuals charged with final claims determinations, 19 knew K.M. sought UAA’s services a “non-emergent” condition on March 21, 2017. They 20 knew, on “[t]he day of transport, he was ill but the acute care he needed could have been 21 provided, like many times in the past, by Phoenix Children’s.” (Doc. 82-4 at 8.) They 22 reversed the preauthorization request denial anyway. As mentioned previously, 23 17 Defendant’s interpretation possibly leads to somewhat perverse results. The arbitrary 24 categorization of chronic conditions as “non-emergent” and sudden illness as “emergent” rapidly breaks down as the severity of a chronic condition increases. Consider a patient has 25 a chronic condition like K.M.’s, but with a nearly 100% mortality rate. This chronic condition, when untreated, likely leads to emergent events that increase in both severity 26 and regularity over time. Under Defendants Plan interpretation, the patient could only qualify for air ambulance coverage in medical emergencies. But, given that the Plan 27 arbitrarily separates the emergent events that stem from the chronic condition, the patient would never be covered for necessary transport by air ambulance if local hospitals are 28 unable to treat the chronic condition. Medical insurance does not offer limitless coverage, but such arbitrary interpretation acts like a death sentence. 1 Defendants attempt to blame their reversal on UAA’s provision of selective medical 2 records is unavailing. Given that Defendants do not define “medical emergency” at any 3 point in the review process, the reversal at the preauthorization stage indicates inconsistent 4 Plan interpretation at a minimum. Applying the additional skepticism required by Cerner’s 5 conflict of interest, this inconsistency casts reasonable doubts on the claim process. See 6 Nolan v. Heald College, 745 F.Supp.2d 916, 926 (N.D. Cal. 2010) (“[F]ailure to distinguish 7 a contrary . . . determination, failure to explain the evidence necessary to make a successful 8 appeal and selective use of evidence are all factors that support ‘giving more weight to the 9 conflict.’”) (quoting Glenn, 128 S. Ct. at 2352). 10 UAA points to increased cost of its services to explain Defendants about-face from 11 preauthorization approval. (PMSJ at 13.) The price of UAA’s services jumped from a 12 $40,000 initial estimate to a $600,000 negotiated cost. (Doc. 82-1 at 3.) Cerner was 13 undeniably aware of the increased cost. (Doc. 82-1 at 3.) While no evidence indicates that 14 Cerner relied upon or considered cost in denying UAA’s claim, the dramatic cost increase 15 stands out as of the only factual distinctions between preauthorization request approval and 16 claim denial. Standing alone, the inference that Cerner may have considered cost does not 17 merit finding an abuse of discretion. However, in light of the other procedural irregularities 18 and structural conflict, the effect of the cost differential merits consideration. 19 Comparing the information available to Cerner when overturning the 20 preauthorization request denial with the information on hand at claim denial reveals two 21 important differences. First, the increased cost of UAA’s services is significant and was 22 unknown when preauthorization was granted. Second, at the claim stage Cerner now had 23 the complete medical reports from PCH and statements of K.M.’s PCH pediatric 24 gastroenterologist and ER physician recommending admission to PCH and against 25 transport to BCH. It is unclear what, if any, determinative information Cerner learned from 26 these reports that it did not have available at the second preauthorization appeal. At that 27 earlier stage, Cerner understood K.M. could be treated at PCH but was signed-out against 28 medical advice. Based on Defendants’ stated Plan interpretation, this alone was sufficient 1 to deny coverage. Although the two PCH physicians’ statements provide more detail, the 2 fundamental information later used to justify claim denial—that K.M. was signed out 3 against medical advice of doctor’s at PCH—was always available. Bogorad infers as 4 much. At deposition, Bogorad could not identify what specific facts from the PCH medical 5 records informed Cerner’s reversal, instead stating the “additional information . . . gave us 6 more transparency” and the “medical records [were] much more nuanced.” (Doc. 81-4 at 7 12). 8 Cerner’s review of UAA’s second claim appeal largely rolls-up all the previous 9 arguments made to support claim denial in one comprehensive summary. Unsurprisingly, 10 Cerner minimizes, selectively cites, or entirely omits adverse evidence in similar manner 11 to that detailed above. 12 IV. CONCLUSION 13 a. Summary Judgment 14 In an ERISA benefits denial case, a district court “is making something akin to a 15 credibility determination about the insurance company’s or plan administrator’s reason for 16 denying coverage under a particular plan and a particular set of medical and other records.” 17 Abatie, 458 F.3d at 969. This case asks whether an ERISA plan administrator with a 18 conflict of interest dutifully reviewed a provider claim for a child with complex, 19 interrelated medical conditions—some chronic, some emergent; some covered, some not. 20 Examining the “actual reasons stated by the [plan administrator],” reveals Defendants 21 engaged in a concerted effort to find valid reason to deny UAA’s claim. Pannebecker v. 22 Liberty Life Ass. Co. of Boston, 542 F.3d 1213 (9th Cir. 2008). In this case, Defendants 23 interpretation of an undefined term, “medical emergencies”, is central. In review of UAA’s 24 preauthorization request and claim, Defendants largely relied on other grounds to justify 25 denial. When invoked, Defendants failed to communicate a consistent interpretation of 26 “medical emergencies” to apprise UAA of evidence necessary to make a successful appeal. 27 Defendants vacillate between interpreting the Plan reasonably and inexplicably. They 28 construed “provisions of the plan in a way that conflicts with the plain language of the 1 plan,” Boyd v. Bert Bell/Pete Rozelle NFL Players Retirement Plan, 410 F.3d 1173, 1178 2 (9th Cir. 2005), interpreted the Plan inconsistently, failed to “distinguish a contrary . . . 3 determination,” Nolan, 745 F.Supp.2d at 926, failed “to explain the evidence necessary to 4 make a successful appeal,” id., and selectively used evidence to insulate their decisions. In 5 total, Defendants offered five distinct justifications to deny UAA’s claim at different stages 6 of the review process. Defendants denials grew more forceful after the quoted claim cost 7 went from $40,000 to $600,000. The reasonableness of the plan administrator must be 8 judged skeptically because here, “the plan acts as judge in its own cause.” Boyd, 410 F.3d 9 at 1178. Considering Defendants conduct with the appropriate skepticism, the Court finds 10 the litany of procedural irregularities erode Defendants credibility to sufficiently 11 undermine the stated reasons for denying coverage. Thus, the Court holds Defendants 12 abused their discretion in review of UAA’s claim. 13 b. Attorneys’ Fees Award 14 UAA moves for attorneys’ fees under 29 U.S.C § 1132(g)(1). (PMSJ at 17.) 15 ERISA permits district courts to award reasonable attorney’s fees and costs to either party. 16 See 29 U.S.C § 1132(g)(1). “A plan participant who prevails in an action to enforce rights 17 under the plan is ordinarily entitled to a reasonable attorney’s fee if the participant 18 ‘succeed[s] on any significant issue in litigation which achieves some of the benefit . . . 19 sought in bringing the suit’ and if not special circumstances make an award unjust.” Barnes 20 v. Independent Auto. Dealers of Cal. Health & Welfare Benefit Plan, 64 F.3d 1389, 1397 21 (9th Cir. 1995) (quoting Losada v. Golden Gate Disposal Co., 950 F.2d 1395, 1401 (9th 22 Cir. 1991)). To fully assess the award of attorneys’ fees, the Court requires Plaintiff submit 23 a motion and supporting documentation seeking costs and attorney’s fees in accordance 24 with LRCiv. 54.1 and 54.2, Rules and Practice Civil, District of Arizona. 25 Accordingly, 26 IT IS ORDERED Defendant’s Motion for Summary Judgment (Doc. 67) is 27 DENIED. 28 IT IS FURTHER ORDERED Plaintiff’s Motion for Summary Judgment (Doc. 1|| GRANTED. 2 IT IS FURTHER ORDERED that Plaintiff may submit the required memorandum || and supporting documentation of attorney fees within 30 days of the of this Order. 4 IT IS FURTHER ORDERED the Clerk of the Court shall terminate this action 5 || and enter judgment accordingly. 6 Dated this 4th day of December, 2019. 7 8 — . RP 9 SO —
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