The United States Fifth Court of Appeals has upheld a district court ruling that a health plan violated the Employee Retirement Income Security Act by refusing payment to a hospital for health services it felt were not "reasonable and customary," according to court documents. Further, the court upheld a ruling that the plan administrator abused discretion in denying the claim.
The case stems back to 2003 when a member of the Little Rock, Ark.-based Crain Automotive's self-funded health plan received medically necessary heart stents and inpatient treatment at Baptist Memorial Hospital DeSoto (Miss.). The cost for the member's inpatient stay totaled more than $41,000. Baptist Health Services Group was a preferred provider for the health plan, and as such, agreed to discount charges for all inpatient and outpatient services by 15 percent.
BMHD submitted a claim to the health plan for the cost of services, minus 15 percent. However, when Larry Crain, owner of Crain Automotive, received the claim, he refused to pay it, believing it to be "excessive," according to court documents. Mr. Crain attempted to negotiate a greater discount with the hospital, but BMHD refused. The claim remained unpaid but was never officially denied, and in Aug. 2005, BMHD filed suit under ERISA for the recovery of the plan's benefits as well as legal fees and costs. The district court ruled in favor of the hospital, determining, among other things, the plan administrator incorrectly interpreted the plan and abused his discretion by arbitrarily determining the charges to be unreasonable.
The appellate court upheld the lower court's ruling. Specifically, the court ruled that the administrator incorrectly interpreted the plan when he took it to mean the plan could exclude any charges that exceeded "customary and reasonable" rates. The court ruled, instead, the plan covered any customary and reasonable rates or negotiated rates. Thus, because BMHD's claim included the negotiated discount, the health plan was required to pay it. Additionally, the court ruled, even if the interpretation had been legally correct, Mr. Crain abused his discretion by arbitrarily determining the charge was unreasonable, rather than supporting the determination with evidence, as case law requires.
While the disputed charges in the case fell within the payor's negotiated rates, the ruling has implications for payors' dealings with out-of-network providers because it upholds previous case law requiring "reasonable and customary" determinations to be based on factual evidence. "The ruling implies that payors may not uniformly adopt an unreasonably low fee schedule for OON services," says Scott Becker, JD, CPA, a partner at McGuireWoods.
View the appellate court ruling here.
The case stems back to 2003 when a member of the Little Rock, Ark.-based Crain Automotive's self-funded health plan received medically necessary heart stents and inpatient treatment at Baptist Memorial Hospital DeSoto (Miss.). The cost for the member's inpatient stay totaled more than $41,000. Baptist Health Services Group was a preferred provider for the health plan, and as such, agreed to discount charges for all inpatient and outpatient services by 15 percent.
BMHD submitted a claim to the health plan for the cost of services, minus 15 percent. However, when Larry Crain, owner of Crain Automotive, received the claim, he refused to pay it, believing it to be "excessive," according to court documents. Mr. Crain attempted to negotiate a greater discount with the hospital, but BMHD refused. The claim remained unpaid but was never officially denied, and in Aug. 2005, BMHD filed suit under ERISA for the recovery of the plan's benefits as well as legal fees and costs. The district court ruled in favor of the hospital, determining, among other things, the plan administrator incorrectly interpreted the plan and abused his discretion by arbitrarily determining the charges to be unreasonable.
The appellate court upheld the lower court's ruling. Specifically, the court ruled that the administrator incorrectly interpreted the plan when he took it to mean the plan could exclude any charges that exceeded "customary and reasonable" rates. The court ruled, instead, the plan covered any customary and reasonable rates or negotiated rates. Thus, because BMHD's claim included the negotiated discount, the health plan was required to pay it. Additionally, the court ruled, even if the interpretation had been legally correct, Mr. Crain abused his discretion by arbitrarily determining the charge was unreasonable, rather than supporting the determination with evidence, as case law requires.
While the disputed charges in the case fell within the payor's negotiated rates, the ruling has implications for payors' dealings with out-of-network providers because it upholds previous case law requiring "reasonable and customary" determinations to be based on factual evidence. "The ruling implies that payors may not uniformly adopt an unreasonably low fee schedule for OON services," says Scott Becker, JD, CPA, a partner at McGuireWoods.
View the appellate court ruling here.