“ . . . [I]n order for Principal to reasonably deny S.W.’s hospital charges, substantial evidence had to support its determination that the primary focus of her hospitalization was mental health treatment, i.e., treatment designed to alter her behavior. While there is certainly evidence that mental health treatment was one focus of S.W.’s hospitalization, we conclude there is insufficient evidence to support the determination that S.W.’s mental health was the primary focus of the hospitalization.“
Wrenn v. Principal Life Ins. Co., 2011 U.S. App. LEXIS 3962 (8th Cir. Iowa Mar. 2, 2011)
This recent opinion by the Eighth Circuit Court of Appeals revisits the standard of review for judicial review of benefit denials in that Circuit.
The facts reveal that “S.W” was a minor that received treatment for an eating disorder. The course of the diagnosis and treatment followed one of those fine lines that occur from time to time where the dichotomy between the psychological and physical etiology of medical symptoms reveal the complex hylomorphic nature of man. We will forgo the factual history (and philosophical observations) at this point, but the full case can be read on the Eighth Circuit’s website (hotlinked above).
Now to the law. Principal was both the insurer and the claims administrator. Principal denied a substantial amount of hospital charges as exceeding its policy limitations.
Relying upon the policy’s ten-day limit for mental health inpatient services, Principal paid benefits for ten days of S.W.’s hospitalization in the 2006 calendar year, and the first ten days of her hospitalization in the 2007 calendar year, but denied payment of hospitalization benefits beyond that time on the ground that the “primary focus” of S.W.’s hospitalization was mental health treatment.
The hospital charges Principal refused to pay totaled $44,260.63.
Mental Health Or Physical Condition?
Was S.W. hospitalized because she was physically in jeopardy of dying (a 15 year old diminished to 77 pounds due to “malnutrition”)? That was clearly the immediate and material cause. But isn’t it also true that her physical health resulted from choices S.W. made that were “mental” or “psychological”? Undoubtedly. So which cause should be viewed as “primary”?
The district court took a go at the question, applying an abuse of discretion standard, and came out in favor of Principal:
The mere fact that Principal arguably could have reached a determination that S.W.’s malnourishment and physical condition were the primary focus of her hospitalization simply cannot change the fact that Principal’s actual decision, that S.W.’s mental health condition was the primary focus of her care, was a reasonable one supported by substantial evidence in the record.
On appeal the plaintiff (S.W.’s father) argued that the district court erred in applying an abuse-of-discretion standard of review because of” procedural irregularities” in Principal’s handling of his claim. Wrenn alternatively argued that Principal abused its discretion in denying his claim.
Wrenn found a sympathetic ear.
In evaluating Principal’s denial of benefits “[u]nder the abuse of discretion standard, the proper inquiry is whether [Principal’s] decision was reasonable; i.e., supported by substantial evidence.” Fletcher-Merrit v. NorAm Energy Corp., 250 F.3d 1174, 1179 (8th Cir. 2001) (internal quotation marks and citation omitted). Thus, in order for Principal to reasonably deny S.W.’s hospital charges, substantial evidence had to support its determination that the primary focus of her hospitalization was mental health treatment, i.e., treatment designed to alter her behavior.
While there is certainly evidence that mental health treatment was one focus of S.W.’s hospitalization, we conclude there is insufficient evidence to support the determination that S.W.’s mental health was the primary focus of the hospitalization.
The case appears to be one in which the Court could have come out either way. The critical factor is whether the Court limits its consideration to the stabilization of S.W.’s medical condition or broadens consideration to include the fact that S.W. required supervision and treatment for irrational choices in view of her physical health.
Standard of Review
As noted at the outset, the case provided an opportunity for the Court to examine its standard of review jurisprudence. The opinion notes some continuing vitality in its pre-Glenn decisions, stating:
[Woo v. Deluxe Corp., 144 F.3d 1157, 1161 (8th Cir. 1998)] held a less deferential standard of review than abuse of discretion applied whenever “(1) a palpable conflict of interest or a serious procedural irregularity existed, which (2) caused a serious breach of the plan administrator’s fiduciary duty[.]” Woo, 144 F.3d at 1160.
After the Supreme Court’s decision in Glenn, the Woo sliding-scale approach is no longer triggered by a conflict of interest, because the Supreme Court clarified that a conflict is simply one of several factors considered under the abuse of discretion standard.
The procedural irregularity component of the Woo sliding scale approach may, however, still apply in our circuit post-Glenn. See Wakkinen v. UNUM Life Ins. Co. of Am., 531 F.3d 575, 582 (8th Cir. 2008) (stating “[w]e continue to examine [a procedural irregularity] claim under Woo“); but see Chronister v. Unum Life Ins. Co. of Am., 563 F.3d 773, 776 (8th Cir. 2009) (analyzing a procedural irregularity, i.e., a plan administrator’s failure to follow its own claims-handling procedures, as one factor under Glenn’s abuse of discretion standard).
Because we conclude Principal abused its discretion, we do not address the extent to which Glenn may have changed the procedural irregularity component of Woo’s sliding-scale approach.
The essential point – for practitioners in the Eighth Circuit, a procedural irregularity remains a point to be argued in a benefit denial case in terms of the prior case law.
Note: This would be a great case to analyze in a course or seminar about the new claims procedure rules, post-PPACA. I like the facts because the case involves an “administrative” denial (internal plan limitations) as well as a “clinical” denial (medical necessity issues), as well as use of some external review (omitted in my discussion above). Under the new rules, insureds will not be able to invoke external review of administrative denials under most states’ versions of the NAIC model act, although, inexplicably, the interim final regulations denials to external review regardless of whether administrative or clinical in the case of self-funded plans subject to the federal external review process.
That opens up the issue of whether a valid distinction really can be made between the two in a case like this anyhow or in any case where comorbidity may play a role in the disease or sickness. None of that was important to the opinion under the applicable law, of course, but the issues presented therein suggest an interesting complexity going forward as the new claims procedures go into effect.