The United States Court of Appeals for the Eighth Circuit (“Federal Appellate Court”) held in its opinion filed on March 20, 2020 that Blue Cross Blue Shield of North Dakota (BCBSND) did not abuse its discretion by partially denying the plaintiffs’ claim for air-ambulance benefits under an employee health plan.
In 2013, Valley Med Flight, Inc. (VMF), a provider of air-ambulance services, terminated its participation agreement with BCBSND following a dispute over BCBSND’s reimbursement rates. On January 10, 2014, BCBSND sent participating healthcare providers a memorandum informing them that VMF had terminated its participation agreement and that, as a result, patients could be exposed to collection of fees in excess of the payment made by BCBSND. BCBSND encouraged healthcare providers to use participating air-ambulance service providers rather than VMF to avoid exposing patients to this expense.
On January 13, 2014, BCBSND sent participating healthcare providers an Ambulance Reimbursement Notice stating that, effective January 1, 2014, “[a]ir ambulance rates for HCPCS codes A0430, A0431, A0435 and A0436 have been increased and are based on 150 percent of the 2013 Medicare rural air ambulance rates.” The 2014 rate for code A0430, a base-rate fee, was $6,601.01. The 2014 rate for code A0435, a mileage fee, was $18.72 per mile.
On January 15, 2014, Plaintiff Melissa Mitchell was admitted to the Towner Medical Center emergency room in Cando, North Dakota with complaints of cardiac distress. The attending physician decided to transfer her to a hospital in Grand Forks, North Dakota for a higher level of care for cardiology consult. Due to weather and road conditions, it was necessary to use an air ambulance to transport Ms. Mitchell. VMF provided the transportation and administered intravenous fluids during the flight. BCBSND did not dispute that air-ambulance transportation was medically necessary or that Ms. Mitchell did not choose VMF as the service provider.
At the time, Ms. Mitchell was enrolled through her husband’s employer in an employee welfare benefit plan (the Plan), which was fully insured by BCBSND and issued by BCBSND. She signed an authorization and assignment permitting VMF to submit a claim directly to BCBSND for reimbursement under the Plan.
The Plan provides that BCBSND will pay 80% of the Allowed Charge for medically necessary Ambulance Services (after any deductible). The Plan defines “Allowance or Allowed Charge” as “the maximum dollar amount that payment for a procedure or service is based on as determined by BCBSND.” The Plan also distinguishes between services provided by participating healthcare providers and services provided by non-participating healthcare providers. “When Covered Services are received from a Participating Health Care Provider, a provider discount provision is in effect. This means the Allowance paid by BCBSND will be considered by the Participating Health Care Provider as payment in full, except for Cost Sharing Amounts, Maximum Benefit Allowances or Lifetime Maximums.” However, “[i]f a Member receives Covered Services from a Nonparticipating Health Care Provider within the state of North Dakota, benefit payments will be based on the Allowance . . . . The Member is responsible for . . . any charges in excess of the Allowance . . . .”
On January 22, 2014, VMF submitted a claim to BCBSND billing a total of $33,200 for transporting Ms. Mitchell. The charges were divided among three billing codes: a $21,500 base-rate charge (A0430), a $11,250 mileage charge (A0435), and a $450 medical-supply charge for the intravenous fluids (A0398).
On March 26, 2014, BCBSND issued an explanation of benefits (EOB) partially paying and partially denying VMF’s claim. BCBSND paid the Mitchells $5,280.81 on the base-rate charge, $1,479.17 on the mileage charge, and $0 on the medical-supply charge. The EOB explained that, as to the first two charges, “[b]enefits are provided for 80% of the [BCBSND] allowance for this service.” As to the third charge, the EOB stated that “[t]his service is included in the payment made for a related procedure.” This left a total of $26,440.02 remaining on VMF’s bill. As a non-participating provider, VMF could seek to recover this outstanding balance from the Mitchells. VMF and the Mitchells requested further review, but BCBSND reaffirmed its decision.
Federal Appellate Court Opinion
The Federal Appellate Court stated that a plan administrator does not abuse its discretion so long as its decision is “reasonable.” When determining whether an administrator’s plan interpretation is reasonable, the Eighth Circuit uses a five-factor test:  whether BCBSND’s interpretation is consistent with the goals of the Plan,  whether BCBSND’s interpretation renders any language in the Plan meaningless or internally inconsistent,  whether BCBSND’s interpretation conflicts with the substantive or procedural requirements of the ERISA statute,  whether BCBSND has interpreted the words at issue consistently, and  whether BCBSND’s interpretation is contrary to the clear language of the Plan.
The Federal Appellate Court stated that because BCBSND both determines whether an employee is eligible for benefits and pays benefits out of its own pocket, it operates under an inherent conflict of interest, which the Federal Appellate Court stated it considers as a factor in its abuse-of-discretion review. However, the dispositive principle remains that where plan fiduciaries have offered a ‘reasonable interpretation’ of disputed provisions, courts may not replace it with an interpretation of their own—and therefore cannot disturb as an ‘abuse of discretion’ the challenged benefits determination.
The Federal Appellate Court stated, “Although BCBSND provided this information [that it interpreted the “Allowed Charge” for air-ambulance services as 150% of the 2013 Medicare rural air-ambulance rates] to participating healthcare providers on January 13, 2014, it did not similarly notify plan participants. BCBSND also did not provide this information in its initial EOB or in its responses to VMF and the Mitchells’ requests for further review. Like the district court, we find it “troubling that the participants of the plan themselves [we]re not provided this information outright” … It is especially disconcerting that BCBSND refused to explain the basis for its reimbursement rate when it initially processed the Mitchells’ claim. However, we agree with the district court that the delay in providing this information does not by itself render BCBSND’s interpretation unreasonable given that the Mitchells “were ultimately provided this information through the claim process.””
The Federal Appellate Court stated, “The Plan circularly defines the “Allowed Charge” as “the maximum dollar amount that payment for a procedure or service is based on as determined by BCBSND.” The Mitchells have not identified any rule prohibiting Mr. Mitchell’s employer from giving such broad discretion to BCBSND and, absent such a rule, an employer’s decision to give broad discretion to a plan administrator is an unreviewable matter of plan design … Even if the Mitchells are correct that a plan administrator might nonetheless violate its fiduciary duties if it set a reimbursement rate so low that it failed to act “in the interest of the participants and beneficiaries,” 29 U.S.C. § 1104(a)(1), we cannot say that BCBSND’s interpretation of the “Allowed Charge” for air-ambulance services as 150% of the Medicare rural air-ambulance rates violated that basic duty.”
However, “This does not mean that BCBSND’s discretion is limitless. Its interpretation could be unreasonable if it was not “consistent with the goals of the Plan” or if BCBSND had not “interpreted the words at issue consistently” … The Mitchells suggest that BCBSND’s interpretation is inconsistent with the Plan’s goal to ensure that members are not held personally responsible for large medical expenses. But this is an imprecise description of the Plan’s goal. The Plan’s only explicit purpose is to “provide, among other things, various benefits to Members in the Plan.” It is consistent with that purpose to provide benefits in accordance with the Plan’s terms and to otherwise deny them—even if doing so results in members being held responsible for large payments. Nor have the Mitchells shown that BCBSND failed to consistently interpret the “Allowed Charge” for air-ambulance services. The record indicates that BCBSND has used Medicare rates as the applicable benchmark rates since 2009.”
The Federal Appellate Court further held: “we consider BCBSND’s conflict of interest. BCBSND interprets the Plan language, pays participants’ claims, and adjudicates their appeals. It was also involved in a dispute with VMF over its reimbursement rate for air-ambulance services shortly before the Mitchells’ claims were submitted. This provides a good reason to be suspicious of BCBSND’s interpretation. But here, the Plan gives BCBSND broad discretion to determine the “Allowed Charge” for air-ambulance services, and BCBSND has adopted a consistent interpretation, tied to an external benchmark, which is compatible with both the Plan’s language and its purpose. Under these circumstances, we cannot say that BCBSND abused its discretion.”
Source Mitchell v. Blue Cross Blue Shield of North Dakota, No. 18-2784.
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