Under ERISA’s claims and appeals regulations, participants and beneficiaries are entitled to a “full and fair” review process. In St. Joseph’s Hospital of Marshfield Inc. v. Carl Klemm Inc., a federal district court in Connecticut ruled that a plan beneficiary was not given a full and fair review when the plan’s third-party administrator (“TPA”) made both the initial decision to deny benefits and the appeal determination.
St. Joseph’s Hospital provided medical care to a beneficiary of a self-funded health plan sponsored by Carl Klemm Inc. and administered by a TPA. The Hospital submitted a claim based on an assignment of benefits from the plan beneficiary. The TPA denied the Hospital’s claim for payment, notified it of its appeal rights and, upon appeal, once again denied payment.
According to ERISA’s claims and appeals regulations, a plan’s appeal procedure will not be deemed to provide a plan participant with a full and fair review unless the review on appeal is performed by an appropriate named fiduciary who is neither the individual who made the initial decision nor a subordinate of such individual. The court held that the plan failed to substantially comply with the regulations because the entity that initially denied the claim was the same entity that handled the appeal.
While the opinion does not provide much detail regarding the court’s analysis, it appears that the court placed significant emphasis on the fact that both the original denial letter and the appeal letter used the term “we” to refer to the decisionmaker. The original denial letter stated that “we have determined that certain charges are not payable by the Plan.” Likewise, the appeal letter stated that “[t]he determinations we have made and the reasons for them are set out below.” The opinion does not indicate whether different individuals signed the letters; the court simply noted that both letters were written by the TPA.
Because language contained in the notice of the appeal decision demonstrated that the same entity made the initial denial decision and reviewed the appeal, the court found that the plan had failed to provide a reasonable opportunity for a full and fair review. The court remanded the action to the plan administrator to provide the claimant an opportunity for a full and fair review. Presumably, such a review would have to be performed by an entity other than the TPA.
This case represents one of the most aggressive interpretations yet of ERISA’s claims and appeals regulations. Most insurers and third-party administrators routinely handle both the initial decisionmaking and the appeal, albeit assigning a different individual or committee to perform each function. In light of this case, plan administrators should carefully review their claims and appeals procedures to determine whether the language used in communications to plan participants and beneficiaries makes a sufficiently clear distinction between the entity or individual making the original decision and the decisionmaker on appeal.