Howard v. Blue Cross Blue Shield of Arizona

          ORDER

          HONORABLE JOHN J. TUCHI UNITED STATES DISTRICT JUDGE.

         Plaintiff Russell Keith Howard seeks judicial review of Defendant Blue Cross Blue Shield of Arizona's (“BCBSAZ”) denial of insurance coverage under Plaintiff's employee health insurance plan (“the Plan”), pursuant to ERISA, 29 U.S.C. § 1132 et seq. (Doc. 33, TAC.) Both Plaintiff and Defendant submitted Opening Briefs (Doc. 77, Pl.'s OB; Doc. 60, Def.'s OB) and Defendant filed a Response Brief (Doc. 72, Def.'s RB).^[1]

         I. BACKGROUND

         Plaintiff is an employee of Sunstate Equipment Co., LLC (“Sunstate”). (TAC ¶ 8.) Defendant^[2] is the medical insurance provider for Sunstate employees, including Plaintiff. (TAC ¶ 8.) In March 2014, Plaintiff was diagnosed with prostate cancer that required radiation treatment. Plaintiff was medically eligible to receive either photon or proton beam radiation therapy. (TAC ¶10.) Plaintiff alleges that through consultation with his treating oncologist, he determined that proton beam radiation therapy (“PBRT”) would likely be more effective. (TAC ¶ 12.) Plaintiff sought precertification of PBRT, which was denied in May 2014 when Defendant explained in a decision letter that PBRT “does not meet the BCBSAZ medical necessity standards.” (Doc. 63-1 at 3.) Plaintiff subsequently paid out of pocket for the projected cost of the treatment-$105, 625.00. (TAC ¶¶ 12-13.)

         Plaintiff underwent PBRT from June 2014 through September 2015. (TAC ¶ 14.) Plaintiff's medical provider submitted claims for the radiation costs to Defendant, who denied them. (TAC ¶ 15.) In April 2015, the provider appealed Defendant's decision and Defendant again denied Plaintiff's claim on the grounds that PBRT (as opposed to photon beam therapy) was not medically necessary. (TAC ¶ 16.) Plaintiff and his provider filed a second appeal, which was reviewed by a third-party independent reviewer retained by Defendant. (TAC ¶ 17.) Defendant again denied Plaintiff's claim on August 12, 2015. (TAC ¶ 17.) Plaintiff filed his Complaint seeking judicial review of that denial on August 29, 2016.^[3] (Doc. 1.)

         On November 2, 2018, the Court issued an Order (Doc. 81, Nov. 2 Order) denying in part and granting in part Plaintiff's Motion to Admit Non-Record Documents (Doc. 78). In that Order, the Court determined that it must review the denial of Plaintiff's benefits under the abuse of discretion standard. (Nov. 2 Order at 5.) As the parties' briefs were filed before the Court entered the November 2 Order, a significant portion of each brief is devoted to arguments about which standard of review the Court must apply. The Court need not address those arguments again.

         After viewing Plaintiff's Opening Brief in light of an abuse of discretion review, the Court will address the following arguments: 1) Defendant abused its discretion by applying an outdated set of Medical Coverage Guidelines (“MCG”) that failed to consider the improved outcomes of PBRT or any individualized clinical assessment of Plaintiff's condition; and 2) Defendant similarly abused its discretion by ignoring the opinions of Plaintiff's treating oncologists, instead relying largely on the opinions of physicians who specialize in internal medicine and the opinion of one oncologist who was constrained by the rote application of the MCG.

         Further, Plaintiff argues that Defendant operated under a conflict of interest because: 1) Defendant controls the contents of the MCG and thereby dictates what treatments are medically necessary; and 2) Defendant both administers claims and is financially obligated to fund those claims when they exceed the $200, 000 stop loss limit funded by Sunstate.

         II. LEGAL STANDARD

         Under 29 U.S.C. § 1133, every ERISA-covered insurer must “provide adequate notice in writing” of a denial of benefits and must “[set] forth the specific reasons for such denial.” 29 U.S.C. § 1133(1). Further, the insurer must “afford a reasonable opportunity . . . for a full and fair review by the appropriate named fiduciary of the decision denying the claim.” Id. Under § 1132(a)(1)(B), an insurance beneficiary whose claim has been denied may bring suit “to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.” Such an appeal requires a court to interpret the insurance policy as it would any other contract, “in an ordinary and popular sense as would a [person] of average intelligence and experience.” Allstate Ins. Co. v. Ellison, 757 F.2d 1042, 1044 (9th Cir. 1985). If there is ambiguity in the terms of the contract, it must be resolved in favor of the insured. Kunin v. Benefit Trust Life Ins. Co., 910 F.2d 534, 539-41 (9th Cir. 1990).

         When a court reviews a benefits decision for abuse of discretion, it must determine whether it is “‘left with a definite and firm conviction that a mistake has been committed,' and [it] may not merely substitute [the court's] view for that of the fact finder.” Salomaa v. Honda Long Term Disability Plan, 642 F.3d 666, 676 (9th Cir. 2011) (quoting United States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009)). Under this deferential standard, “even decisions directly contrary to evidence in the record do not necessarily amount to an abuse of discretion.” Boyd v. Bert Bell/Pete Rozelle NFL Players Retirement Plan, 410 F.3d 1173, 1178 (9th Cir. 2005). In fact, “[a]n ERISA administrator abuses its discretion only if it (1) renders a decision without explanation, (2) construes provisions of the plan in a way that conflicts with the plain language of the plan, or (3) relies on clearly erroneous^[4]findings of fact.” Id. (citing Bendixen v. Standards Ins. Co., 185 F.3d 939, 944 (9th Cir. 1997)). In short, courts “will uphold the decision of an ERISA plan administrator ‘if it is based upon a reasonable interpretation of the plan's terms and was made in good faith.'” Id. (quoting Estate of Shockley v. Alyeska Pipeline Serv. Co., 130 F.3d 403, 405 (9th Cir. 1997)).

         While the abuse of discretion standard typically allows for consideration of less extrinsic evidence than does its more lenient de novo counterpart, courts are still required to consider the potential effects of an alleged conflict of interest. Lukas v. United Behavioral Health, 504 Fed.Appx. 628, 629 (9th Cir. 2013) (“A procedural irregularity, like a conflict of interest, is a matter to be weighed in deciding whether an administrator's decision was an abuse of discretion”). In examining a potential conflict of interest, courts may “consider evidence outside the administrative record to decide the nature, extent, and effect on the decision-making process of any conflict of interest; the decision on the merits, though, must rest on the administrative record once the conflict (if any) has been established.” Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 967 (9th Cir. 2006). “While [a] conflict does not displace the deferential standard of review, it is one of the several, case-specific factors the Court considers in determining whether a plan administrator abused its discretion in denying a benefits claim.” Puccio v. Standard Ins. Co., 80 F.Supp.3d 1034, 1040 (N.D. Cal. 2015). Even if a court identifies a conflict of interest, “[t]he level of skepticism with which a court views a conflicted administrator's decision may be low if a structural conflict of interest is unaccompanied, for example, by any evidence of malice, of self-dealing, or of a parsimonious claims-granting history.” Id. at 970.

         Normally, “a plaintiff suing under [§ 1132] bears the burden of proving his entitlement to contractual benefits.” Horton v. Reliance Standard Life Ins. Co., 141 F.3d 1038, 1040 (11th Cir. 1998). The Ninth Circuit has specifically adopted this burden standard in the de novo context, and the Court sees no reason why this burden would not apply in the more deferential abuse of discretion review. See Muniz v. Amec Const. Mgmt., Inc., 623 F.3d 1290, 1295 (9th Cir. 2010) (citing Horton, 141 F.3d at 1040). However, “if the insurer claims that a specific policy exclusion applies to deny the insured benefits, the insurer generally must prove the exclusion prevents coverage.” Horton, 141 F.3d at 1040 (citing Farley v. Benefit Trust Life Ins. Co., 979 F.2d 653, 658 (8th Cir. 1992)).

         Where an insurer denies coverage for treatment because it finds the treatment is not medically necessary, “[t]he Ninth Circuit has not considered whether the requirement of medical necessity is a term of coverage or an exclusion.” Baxter v. MBA Grp Ins. Trust Health & Welfare Plan, 958 F.Supp.2d 1223, 1229 (W.D. Wash. 2013). At least one district court of the Ninth Circuit has concluded, based on opinions from three other circuit courts, that “medical necessity” does not constitute an exclusion, and thus the burden remains with the plaintiff. Id. at 1229-30 (citing Farley, 979 F.2d at 658; Fuja ...