An ERISA Win

Lawyers handling ERISA claims will enjoy reading this 2015, Fifth Circuit opinion. It is styled, Rebecca Hamsher v. North Cypress Medical Center Operating Company, Limited.
North Cypress provides health insurance to its employees through its self-funded Employee Benefit Plan (the “Plan”). As with many insurers, North Cypress must pre-approve certain medical treatments. If pre-approval is required, but not received, North Cypress may reduce its payment to its beneficiaries, or deny reimbursement altogether.
The Plan has two types of pre-approval. The first is called “precertification,” and it applies to all “hospitalizations” and “inpatient mental disorder/substance use disorder treatments.” To precertify, the covered person or a family member must contact North Cypress’s medical management subcontractor, Meritain Health Medical Management, at least 48 hours before treatment is to begin. Meritain will then determine how many days of treatment are medically necessary. That said, a failure to precertify is not an absolute bar to reimbursement. “If a Covered Person does not obtain precertification, as required for certain benefits under the Plan, eligible expenses will be reduced by $500.”
The second type of pre-approval is more stringent, and is called “prior- authorization” (although it is sometimes referred to in the briefing as “pre- authorization”). Prior-authorization is an absolute precondition to reimbursement; North Cypress will not pay for certain services unless the “service or specialty is not available at North Cypress and prior authorization has been obtained from North Cypress Human Resources Department.” As is relevant here, both inpatient and outpatient hospital services must be prior- authorized. And the Plan defines “hospital” to include “a facility operating legally as a psychiatric hospital or residential treatment facility for mental health and licensed as such by the state in which the facility operates.”
Rebecca Hamsher was employed by North Cypress as a nurse and was insured through its Plan. She was admitted to Timberline Knolls Residential Treatment Center (“Timberline”) in Illinois, where she was diagnosed with various mental disorders. She was treated at Timberline through December 2011, although the administrative record is not clear as to the nature of her treatment. What is clear, however, is that North Cypress did not precertify or prior-authorize her medical treatment.
North Cypress refused to pay. Hamsher internally appealed and North Cypress again denied her claim. It concluded that “based on evidence in the administrative record showing that she failed to obtain the necessary prior authorization,” she “was not eligible to receive benefits.”
North Cypress denied Hamsher’s claim because it concluded that she had neither asked for nor received prior-authorization for “hospital expenses incurred at hospitals other than North Cypress.” Under the terms of the Plan, North Cypress’s denial was proper if Hamsher’s expenses were incurred at a hospital, a category which explicitly includes a “residential treatment facility for mental health and licensed as such by the state in which the facility operates.” If, however, Hamsher received “mental health . . . treatment” at a non-hospital facility, prior-authorization was not required, and she is entitled to at least partial reimbursement.
The problem is that the administrative record is essentially silent as to the nature of Hamsher’s treatment. The court knows that she was treated for various mental disorders at a facility called “Timberline Knolls Residential Treatment Center,” but the record says nothing about whether this facility is a “residential treatment facility for mental health and licensed as such by the state of Illinois.” Rather, the administrative file contains only claim forms, none of which provide an indication as to whether Timberline is a “hospital” as defined under the Plan. The name is suggestive, of course, but title alone does not constitute the type of “substantial evidence” that North Cypress must put forward.
The administrative record cannot support North Cypress’s conclusion that Hamsher was treated at a “hospital.” Its denial of her claim and summary judgment in its favor was improper.
The only remaining question is of remedy. “Remand to the plan administrator for full and fair review is usually the appropriate remedy when the administrator fails to substantially comply with the procedural requirements of ERISA.” The Fifth Circuit practice is different where, as here, the administrator’s denial is “not supported by concrete evidence in the record.” The court has held that granting summary judgment for the plaintiff is appropriate, even if the plaintiff had not moved for summary judgment.
North Cypress had its chance to create a record showing that Hamsher received services at a “hospital.” It simply failed to do so.