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Abuse of Discretion and Substantial Evidence

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  • Abuse of Discretion and Substantial Evidence

    A new case out of the Fifth Circuit explores the abuse of discretion analysis utilized at the district court level. The Court of Appeals in this case held that failed to apply the necessary analysis, and as a result, reversed the decision. The case involved Cigna and Humble; a five-bed, physician-owned hospital in Texas.
    For several months, Cigna processed Humble’s claims without dispute. However, after processing a high-dollar charge for “a fairly noncomplex, outpatient surgical procedure” Cigna began flagging Humble’s claims and sent a survey to all of its members who had received treatment at Humble. As a result, Cigna concluded that Humble was engaging in “fee-forgiving” and intentionally inflating its prices to increase reimbursement fees.
    Cigna sued Humble, and Humble counterclaimed under ERISA and Texas state common law. Humble moved for Judgement on Partial Findings, and the district court granted the motion. The district court concluded that Cigna’s claims and defenses failed as a matter of law, and awarded Humble a sizeable amount of damages and penalties. This appeal followed.
    With respect to administrator interpretation, the court held:
    where an administrator’s interpretation is supported by prior case law, it cannot be an abuse of discretion—even if the interpretation is legally incorrect. See, e.g., Hinkle ex rel. Estate of Hinkle v. Assurant Inc., 390 F. App’x 105, 108 (3d Cir. 2010) (holding that usually “where the courts of appeals are in disagreement on an issue, a decision one way or another cannot be regarded as arbitrary or capricious”); McGuffie v. Anderson Tully Co., No. 3:13-cv-888(DCB)(MTP), 2014 WL 4658971, at *3–4 (S.D. Miss. Sept. 17, 2014) (holding that administrator did not abuse its discretion where “case law supports the Plan’s interpretation . . . prior to suit” and the administrator’s decision is supported by substantial evidence). We do not adopt this reasoning as a bright-line rule because even if a legally incorrect interpretation is supported by prior case law, employing the interpretation could cause a plan administrator to abuse its discretion. Under the present circumstances, however, we conclude Cigna did not abuse its discretion.
    After agreeing that Cigna’s interpretation fell within its discretion, the court then looked to whether Cigna’s response to Humble’s charges was based on substantial evidence.
    As part of its investigation, Cigna sent surveys to members who had received medical treatment at Humble, requesting “additional information.” Among other things, the surveys asked what the member had been told regarding “responsibility for any non-paid costs, i.e., deductible, coinsurance.” Cigna received 154 responses. Many members indicated that Humble had informed them that they would not be charged their full member cost-share. For example, Member “R.R.” received $25,191.00 worth of care at Humble. She spoke with Humble before the surgery and four months after surgery and was informed that “everything was covered [at] 100%.” Under her insurance plan, she should have been billed $2,745.83. Likewise, Member “M.N.” was charged just $276 for $27,600.00 worth of treatment and told that this amount “was all [he] was responsible for.” Humble should have charged M.N. $6,974.49 under the plan. Cigna argues that “[t]hese records clearly supported Cigna’s belief that Humble was fee-forgiving.” We agree. Accordingly, we reverse the district court’s judgment that Cigna underpaid Humble’s claims and abused its discretion under ERISA § 502(a)(1)(B)
    The full opinion is attached below.
    Attached Files