Do you know what treatment your health plan covers? - Cover Story

Employee benefits plan documents need to spell out specifically what experimental treatments are excluded to avoid costly litigation.

The scenario is an employer's nightmare. An employee's doctor recommends high-dose chemotherapy and an autologous bone marrow transplant (ABMT) to treat her advanced metastatic breast cancer. The company's plan administrator or insurer believes the procedure is experimental or investigative and thus not covered under the group health plan. The case lands in court.

The issue for employers is not only whether to pay for ABMT, which can cost as much as $150,000, or any other experimental or investigative medical procedure, but the fact that exclusionary language in their health plan contracts and benefits handbooks is coming under increasingly intense scrutiny from the courts. As a result, benefits lawyers and consultants say, claimants are bringing more cases for medical procedures and drugs that sponsors believed were excluded under their health plans. And more plan sponsors are being held liable for payment.

Often, a court's decision to order an employer to pay for a procedure has to do with the way the benefits language is structured, and how the self-insured employer or plan sponsor sets criteria for paying or denying payment for experimental procedures. And attorneys say it's not enough to make the exclusions clear in the plan documents. It's just as crucial that a company's marketing materials and benefits communication be consistent with what's in the benefits manual.

Defining the undefinable

Softech Co., a software developer in Spokane, Wash., spent tens of thousands of dollars in legal fees to fight a claim for a lung transplant. The company, which has 1,200 covered lives, is self-insured. Its stop-loss insurance policy would pay only after a claim reaches $250,000.

John Cranford, a production manager with Softech, was diagnosed with lung cancer in 1989. The traditional approach of chemotherapy and radiation therapies was unsuccessful, and the cancer spread to both lungs. In 1991, Cranford's doctor told him a lung transplant was his only hope.

"We felt we had clearly defined in our plan booklet and all materials what constituted an experimental or investigative procedure," says Judy Davis, head of employee benefits. "We did not believe this procedure was covered."

However, the company simply left the definition of experimental and investigative to be determined by experts in the field. And, while Softech was named the administrator in some plan language, the Cigna Life and Health Co., based in Philadelphia, was actually administering the claims, and was responsible for determining coverage. Therefore, the case was not granted a "deferential standard of review" by the court. (A deferential standard of review allows the case to be judged on the merits of the employer's exclusions in its benefits plan language.)

Consultants say the employer is held to a higher standard of review when the wrong administrator is named in the benefits manuals. In this case, the employer was named as administrator when, in fact, the insurer decides what is covered and excluded.

While Cranford's doctors waited for his health to improve before operating, and for a donor, the case was tried in the Fourth U.S. District Court. Softech lost the case of Cranford v. Softech Co. (1991 LEXIS 4987 D.W. 1991), and was ordered to pay for the procedure. Cranford died before the operation could be performed.

"We were ready to do whatever was medically necessary to save John Cranford's life," Davis says. "But, by our standards, and in this circumstance, this procedure was not medically correct. Also, a lung transplant, which could result in medical bills of half a million dollars, would have had a serious impact on Softech's financial health.

"I was certainly not sufficiently aware of steps this company could take to better clarify what procedures we were willing to cover," Davis says. Softech is now working with a benefits consultant to rewrite its plan language to better define experimental treatment. Davis says that she's quite sure the result will be a much longer list of exclusions, and more clearly defined standards by which experimental and investigative are determined. Softech also will name the correct administrator in its benefits materials, in accordance with the Employee Retirement Income and Security Act of 1974, which governs self-insured plans.

"Quite a few employers that maintain their own health plans-don't have adequate documents," says Francesca Bruno, a managing consultant with benefits consultant A. Foster Higgins & Co. Inc., in New York. "Often, they've relied on their insurers in the past. They need to develop a plan document that describes the benefit provisions for the plan--who's eligible, what do they get when they're eligible, what limits does the employer place, what is covered. You'd be amazed at how many self-insured employers are relying on boilerplate plan documents which do not adequately define any of these issues."

"You can drive a convoy through the loopholes in most policies, if you read the case law on the plan administrators' language used to define 'medically necessary,'" agrees Alice Gosfield, a principal with Gosfield & Associates in Philadelphia. "This is not something that can be approached with just common sense. Insurers and employers win cases when there's an 18-line paragraph describing temporamandible joint syndrome [a condition of the jaw causing severe pain in the head, neck, and occasionally in the shoulders and arms] or a five-line paragraph denying adipose tissue removal [a surgical procedure for obesity that involves removing fat tissue from the stomach]. Because there are so many permutations for an individual treatment, you have to be dead sure about when you will and won't allow it."

Jeffrey Mamorsky, a lawyer and partner with Curtis, Mallet-Prevost, Colt & Mosie, a law firm in New York, says it's difficult to define experimental in less than four or five pages. However, he advises against using language that defines medically necessary as any procedure that is accepted by the medical community in an area. "That only leads to a battle of expert testimony in court," Mamorsky says.

Attorneys also advise that in the case of experimental drugs, employers might decide to pay for anything that is FDA approved. But, specify that the drug has to be applied to a condition for which it's been approved, and prohibit or limit off-label uses.

Arbitrary and capricious

Defining experimental is probably the most difficult part of wording a benefits plan and the area in which many plan sponsors have trouble, attorneys say. The rapid pace of medical technology merely exacerbates the issue. "The definition of 'medically necessary' and the exclusion in most policies for experimental or investigative procedures have been in place for years, says Jacqueline Saue, a lawyer and partner with Foley & Lardner, a law firm in Milwaukee. "But, medical technology is developing more quickly than contract language."

The employer and plan administrator should agree on what is and is not covered and should make sure that this information is presented clearly in the plan booklet and contract, and that all terms are defined according to ERISA standards. And finally, all advertising and in house communication must be consistent with what is in the plan.

One of the first steps, says Mamorsky, is to be sure that the correct party is named as plan fiduciary or administrator in health plan booklets and contracts. Under ERISA guidelines, the party responsible for deciding which treatments, procedures, or drugs are covered under the plan must be named as the administrator. "What employers are forgetting in their rush to save costs through managed care plans and utilization review, is that they are subject to ERISA rules and they must make sure their plan complies with ERISA," says Mamorsky.

Even if the correct administrator or fiduciary is named in the plan, an employer must be certain that its definitions and grounds for exclusion of coverage are not "arbitrary or capricious," according to ERISA. To to this, plan sponsors must use painstakingly detailed language when describing treatments excluded from the plan and have a well-defined standard of review or process by which treatments are excluded as experimental or investigatory.

Benefits attorneys and consultants say that recommended experimental exclusions generally fall into three categories: 1) a consensus of experts standard--for instance, oncologists practicing in a particular state or specialists in the relevant field; 2) a scientific method standard--in which the plan administrator assembles and examines the literature available on the subject; or 3) reliance on a third-party determination--a plan document might state that all procedures covered by some independent third party, such as Medicare, or procedures approved by the American Medical Association would be covered by the plan.

New technology clouds the issue

Another experimental procedure that has been the focus of litigation is ABMT for certain types of cancer, especially breast cancer. In one case in 1990, Paras v. Blue Cross-Blue Shield of Virginia (741 F. Supp. 586; 1990 U.S. District LEXIS 8625), the U.S. District Court of Virginia held that the plan could not deny the participant coverage for the procedure under the plan's experimental-treatment exclusion. The court held that the insurer failed to specify criteria that it used to evaluate coverage in its policy and in its summary plan description.

Further, because the plan had incorrectly identified the responsible fiduciary partner as plan administrator under ERISA guidelines, the case was not granted a deferential standard of review and thus was held to stricter standards. The insurer lost and was ordered to pay for the procedure.

Many plan administrators and insurers reserve the right to do an independent scientific review, but as various Blue Cross and Blue Shield plans have discovered, the criteria used in decision making can then be judged inadequate or otherwise at fault, attorneys say. In Paras v. Blue Cross-Blue Shield of Virginia, for instance, the court found that the Blue Cross and Blue Shield Association's technology evaluation criteria was unpersuasive, since the criteria are not part of the plan, and the plan nowhere stated that the Blue Cross criteria determine a treatment's experimental status. In other words, the health plan did not contain the Blue Cross and Blue Shield Association's technology evaluation criteria, so the insured could not know what standard was being used in determining whether a procedure is considered experimental, according to court documents.

Striving for consistency

Even when a plan's exclusions are clearly spelled out and defined, consultants say there is a danger that advertising, internal memos, or even verbal statements may put an employer in jeopardy.

"It doesn't end with the document," says Gosfield. "Lawyers can draft fabulous documents, but if the people who make decisions say the wrong things to the subscriber, you're in court."

In one recent case, an employee's policy paid for treatment related to her pregnancy, but did not cover in vitro fertilization. The employer in this case asked not to be identified. The employer's policy noted that it would pay for medically necessary services in the treatment of illness and pregnancy. But an internal document said the company would pay only for services done "in the body and the illness of infertility." Because that document proved that the provider considered infertility an illness, the employee won her case.

Life and death decisions

Saue also believes that precertification may work against a plan sponsor. "Today most nonemergency procedures have to be precertified. In the past, treatment was retroactively approved. The difference is that when a plan's approval is retroactive, and then it comes before a court, the only question is who's going to pay for treatment that has already been rendered. But if the choice is between making an insurer or corporation pay a $200,000 bill or a young person's life, you can imagine which side most people will come down on," Saue says.

Even when the procedure has been provisionally paid for until the case is decided, and the health plan administrator's definition of terms and standards of review have been upheld in court, the nightmare for the employer may not be over.

In Clark v. Kmart Corp. (91-3723 3rd Circuit U.S.C. of Appeals), a panel of three federal appellate court judges in Pennsylvania ruled two to one that the health care plan--a self-insured plan administered by Blue Cross and Blue Shield of Pennsylvania--was within ERISA guidelines and its own plan definitions when it denied coverage for ABMT to Theresa Clark, an employee with advanced breast cancer. That decision is being appealed by the employee, and if the appeal is heard, the case will go before all 26 federal judges in Pennsylvania. The appeal questions the authority of the three-judge panel.

"We have already paid for this procedure," says Don Motlord, director of health benefits at Kmart Corp., the national retailer, based in Troy, Mich. Kmart covers 260,000 lives. (When the case first went to trial, the court ordered Kmart to pay for the procedure on a contingency basis, until the case was decided.) "We want to hold to our plan language," adds Morford. "If the final ruling goes against the plan, then it becomes an open door to pay just about anything."

In recent years, Hallmark Cards Inc., the greeting card and gift manufacturer and retailer based in Kansas City, Mo., has relied less on the general exclusionary wording of "experimental and investigative" and has specifically excluded more procedures, such as lung transplants and ABMT as a treatment for most cancers. The company, with 64,000 covered lives, also has attorneys who specialize in employee benefits law, review any changes made in its policies, plan booklets, or any printed material relating to its benefits plan.

There are many different approaches to defining "medically necessary and "experimental and investigatory." Mamorsky says he doesn't believe the two latter terms can be defined adequately in less than four or five pages. Other insurers and administrators use language that defines non-experimental as anything generally accepted by the medical community in their area. Using this standard often leads to a battle of expert testimony in court. Also, what is covered and excluded under this definition will also vary according to geographical location, Saue says.

Many benefits managers feel frustration at the lack of flexibility in today's legal system.

Kmart's Morford says, "You could say very specifically, 'We will pay for heart transplants, but not bone marrow transplants.' We have tried to stay away from that as much as possible because it takes away from our flexibility. To the extent that the bone marrow transplant is appropriate for a specific condition, we want to pay for it. Instead, we're all being forced to word plans so that there is no gray, no ability to make judgments."

Kim Anderson is a freelance writer in Missoula, Mont. This is her first article for B&H.

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