5th Circuit Reverses District Court & Awards Benefits to ERISA Plan Participant for Hospitalization: Herman Examines Dwyer v. United Healthcare

Special counsel Steve Herman recently published an article examining the U.S. Fifth Circuit Court’s reversal of a district court in Dwyer v. United Healthcare, a decision that resulted in the awarding of benefits to an ERISA plan participant for hospitalization. Continue reading below or click here to read on JD Supra.

Case Background

When she was a preteen, E.D. began experiencing symptoms of anorexia nervosa. Her condition worsened, and her parents, the Dwyers, took her to Avalon Hills, a residential treatment facility. Although her weight increased, E.D. still exhibited a number of worrying symptoms. Mr. Dwyer’s employee group benefit health plan, issued by United Healthcare Insurance Company (“United”), provided mental health coverage for his minor daughter.

Initially, United approved full hospitalization benefits for E.D.

Based on some signs of improvement, E.D. was approved by her physicians for a three-day weekend pass so she could leave the facility and visit home. Her doctors wanted to see how E.D. would fare outside of the tightly controlled clinical environment. Unfortunately, the three days were filled with “difficult, negative experiences.” E.D. lost two pounds. She broke down crying on a shopping trip because of her “terrible body image,” and, upon her return to Avalon Hills, she continuously walked with an unnatural gait.

For reasons difficult to understand, United then decided it was appropriate to discharge E.D. entirely. E.D.’s doctors immediately objected, asserting that she could not be stepped down further due to the poor performance on the weekend home, the ongoing fluctuations in her body weight, and her inability to receive the care she needed at the outpatient level.

In July of 2015, United sent a letter rejecting the Dwyers’ appeal. Mr. Dwyer nevertheless decided to pay out-of-pocket to keep E.D. at Avalon Hills until the end of her treatment. His request for the insurer to provide references to specific plan provisions that supported its position received no response.

Dwyer v. United Healthcare

The Dwyers brought a claim for denial of benefits under the Employee Retirement Income Security Act (ERISA). The district court granted summary judgment. On appeal, the U.S. Fifth Circuit reversed, concluding that United’s arguments against coverage were both substantively and procedurally deficient under ERISA.

Substance

After explaining United’s obligations under ERISA and its fiduciary duty to act in the interest of participants and beneficiaries, the court evaluated whether Dwyer was substantively entitled to the claimed benefits under the plan’s terms.

The main substantive dispute was whether E.D.’s care met all requirements for medical necessity. To qualify as Medically Necessary, a claimed health care service must be: (i) In accordance with  Generally Accepted Standards of Medical Practice; (ii) clinically appropriate, in terms of type, frequency, extent, site, and duration, and considered effective for your sickness, injury, mental illness, substance-related and addictive disorders, disease or its symptoms; (iii) not mainly for your convenience or that of your doctor or other health care provider; and (iv) not more costly than an alternative drug, service(s) or supply that is at least as likely to produce equivalent therapeutic or diagnostic results as to the diagnosis or treatment of your sickness, injury, disease or symptoms.

All parties agreed that E.D.’s treatment was in accordance with the first and third requirements, but United disputed the treatment’s satisfaction of requirements two and four. United contended that, in July 2015, E.D.’s continued partial hospitalization at Avalon Hills was not clinically appropriate and was more costly than the therapeutically equivalent treatment of partial hospitalization. The Fifth Circuit court found that United’s denial letters “are not supported by the underlying medical evidence” but are actually “contradicted by the record.”

Procedure

Under ERISA, when health benefits are terminated, the beneficiary is entitled to the procedural right of a full and fair review by the appropriate named fiduciary, which must be based on a meaningful dialogue between the beneficiary and the administrator. Meaningful dialogue, as pointed out by the court, has been described as “an ongoing, good faith exchange of information to ensure that the terms of the plan are applied accurately and the benefits are dispensed fairly.”

In this case, the Fifth Circuit found that, “United not only failed to engage in a meaningful dialogue with Mr. Dwyer; the ERISA fiduciary engaged in no dialogue at all.” Plaintiffs were therefore entitled to statutory penalties.

Conclusions

The Fifth Circuit’s decision stands as a warning to insurers or other plan administrators who might be tempted to disregard the treatment decisions and recommendations made by a beneficiary’s physicians in favor of cost savings, and from ignoring legitimate requests for relevant plan documents and other regulatorily required information.  When an ERISA claim is denied, the participant or beneficiary is entitled to a “full and fair” review by a responsible fiduciary, whose overriding responsibility is to ensure that benefits have been provided in accordance with the terms of the plan.

Steve Herman represents both plaintiffs and defendants in commercial, class action, and professional liability cases. He teaches class actions at both Tulane and Loyola Law Schools and is often asked to provide expert testimony in such matters.