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Sounding an alarm that could unsettle both employers and the managed care industry, a federal judge has taken one of America's largest corporations to task for "arbitrary and capricious" behavior after it denied payments for most of the four-month psychiatric hospital stay of an employee insured through its capitated managed care plan.
Judge Ellen Bree Burns of the U.S. District Court in Connecticut held the Xerox Corporation and its benefits plan administrator responsible for violations of the federal Employees Retirement Income Security Act--better known as ERISA--ruling that the company failed to provide the employee's case a "full and fair review," as the law requires, before it approved a reimbursement denial.
The employee, Kimberly Crocco, was hospitalized for treatment of major depression accompanied by suicidal thoughts.
The denial of coverage for hospitalization beyond the first month was recommended by a psychiatrist employed by American PsychManagement (APM), which was responsible for reviewing mental illness treatment claims for Xerox. The judge dismissed the managed care firm as a defendant, finding that Xerox but not APM was responsible for the ERISA violation.
The contract between the two companies states that "Xerox agrees that APM's determinations as to the appropriateness and/or medical necessity of hospital admissions, lengths of stay, or outpatient treatment are advisory only and that all final determinations as to the payment of benefits are solely the independent responsibility of Xerox."
This, the ruling states, means that for ERISA purposes, Xerox and its plan administrator are left with the fiduciary responsibility for conducting a review that is in the employee's best interest.
Xerox is self-insured, so claims are paid out of its funds. It contracted with APM for prospective case management in 1988 after becoming concerned about a rise in employee mental health care costs of more than 20 percent annually. Employees were informed that recommendations by a therapist for inpatient mental illness treatment would need APM's approval if they wanted to be reimbursed.
In her February 11 decision, the judge faulted Xerox and its plan administrator, Patricia Nazemetz, for failing to do more than just assure that the managed care firm properly followed established procedures in arriving at the decision to deny the employee's reimbursement claim.
She rejected Nazemetz's contention that she was required only to review the managed care company's procedures to assure that they were followed. Burns ruled instead that ERISA demands that the employer and its representative "do more than check [the company's] procedures and the superficial rationality of its decision."
Her ruling also points out that Nazemetz should have known that the employee's appeal merited further review because the benefits administrator had earlier been alerted to conflicts among APM, its psychiatrist reviewer, the patient, and the treating psychiatrist over several issues relating to the case.
Both ERISA and Xerox's own benefits documents require the plan administrator to "act solely in the exclusive interest" of employees covered by the plan, the judge pointed out. This means that the employer, before it endorses a benefits-related decision, must consider evidence from all parties, not just from its contracted managed care reviewer.
In this case, Nazemetz, whom Xerox designated to review reimbursement appeals, paid insufficient attention to evidence submitted by the patient/employee and the treating psychiatrist. She made no attempt to speak to the employee or her psychiatrist as part of the review, nor did she examine the medical record or ask an independent third party to review this devastating denial of insurance payment. Nazemetz's actions amounted to a "cursory and one-sided" review, Judge Burns stated.
She rejected Xerox's argument that Nazemetz was not qualified to conduct a review of medical decisions and options, stating that the employer's obligation is to give all sides an equal hearing. Potentially troubling to employers and managed care companies was the judge's ruling that allowing an employer with fiduciary responsibility for a worker to turn over obligations for a complete, unbiased review "to an organization that refuses all fiduciary responsibility would strip [ERISA's] full and fair review requirement of meaning."
The court ordered Xerox to conduct another review of the insurer's decision and the patient's appeal, this time adhering to the standards mandated by ERISA. After doing so, it can still concur with the decision to deny the employee three months of hospitalization reimbursement, as recommended by the original reviewer. The decision also continues the court's jurisdiction over the review process until Nazemetz completes it and reports back to the judge.
Burns's ruling highlighted the legal quagmire in which companies may find themselves when their fiduciary responsibility to act in the best interest of their employees conflicts with actions by managed care firms they have hired to reduce or rein in health care expenditures. It also sent a signal to all employers that their bottom line cannot be the primary factor underlying health care reimbursement decisions.
The treating psychiatrist in this case, Jack Schoenholtz, M.D., medical director of Rye Hospital Center in New York, believes this case illustrates the fundamental problem posed by managed and capitated medical care. Calling the judge's decision "courageous," he said that conflicts like this one have "victimized American medicine along with its patients, with the quality of employees' care playing second fiddle to employers' boundless financial aspirations."
[Kimberly Crocco v. Xerox Corp., No. 5:91-CV-779, U.S. District Court, District of Connecticut]
(Psychiatric News, May 16, 1997)