Opinion ID: 154172
Heading Depth: 2
Heading Rank: 3

Heading: FHP's Decision

Text: 29 Although ERISA gives a plan beneficiary the right to judicial review of benefit denials, the statute did not establish the standard of review for such decisions. In Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989), the Supreme Court held that a denial of benefits challenged under Section(s) 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan. 30 In this case, the Plan excludes from coverage medical [or] surgical . . . procedures . . . which in the judgment of FHP are experimental. The Plan expressly gives FHP discretion to determine whether to deny a claimant insurance benefits for an experimental procedure. Thus, under Firestone, a reviewing court must uphold FHP's decision to deny Chambers benefits unless it was arbitrary and capricious. 1 Though the magistrate judge recognized that an arbitrary and capricious standard applied, the magistrate reasoned that she should give less deference to FHP's decision because FHP operated under a conflict of interest in deciding the plaintiff's claim. She concluded that because every Board member who decided Chambers's claim had a financial interest in FHP, a pure arbitrary and capricious standard was inappropriate. We agree and thus address exactly how such a conflict of interest affects our standard of review. 31 In Firestone, the Supreme Court briefly discussed the effect of a conflict of interest on the standard of review of an administrator's decision. The Court stated: 32 Of course, if a benefit plan gives discretion to an administrator or fiduciary who is operating under a conflict of interest, that conflict must be weighed as a `facto[r] in determining whether there is an abuse of discretion.' 33 Id. at 115 (quoting Restatement (Second) of Trusts Section(s) 187 cmt. d (1959)). Since Firestone, all of the circuit courts agree that a conflict of interest triggers a less deferential standard of review. The courts, however, differ over how this lesser degree of deference alters their review process. 34 Some circuits use a sliding scale approach. Under this approach, the reviewing court will always apply an arbitrary and capricious standard, but the court must decrease the level of deference given to the conflicted administrator's decision in proportion to the seriousness of the conflict. See Sullivan v. LTV Aerospace & Defense Co., 82 F.3d 1251, 1255 (2d Cir. 1996) ([We] adhere to the arbitrary and capricious standard of review in cases turning on whether the decision was based on an alleged conflict of interest, unless the conflict affected the choice of a reasonable interpretation.); Taft v. Equitable Life Assurance Soc'y, 9 F.3d 1469, 1474 (9th Cir. 1993) (Because [of a conflict of interest], we therefore impose a more stringent version of the abuse of discretion standard . . . .) (internal quotations omitted); Doe v. Group Hospitalization & Medical Servs., 3 F.3d 80, 87 (4th Cir. 1993) (In short, the fiduciary decision will be entitled to some deference, but this deference will be lessened to the degree necessary to neutralize any untoward influence resulting from the conflict.); Wildbur, 974 F.2d at 638 (We note that the arbitrary and capricious standard may be a range, not a point. There may be in effect a sliding scale of judicial review of trustees' decisions . . . --more penetrating the greater is the suspicion of partiality, less penetrating the smaller that suspicion is . . . .); Van Boxel v. Journal Co. Employees' Pension Trust, 836 F.2d 1048, 1052-53 (7th Cir. 1987) ([F]lexibility in the scope of judicial review need not require a proliferation of different standards of review; the arbitrary and capricious standard may be a range, not a point. There may be in effect a sliding scale of judicial review of trustees' decisions.). 35 Other circuits apply a presumptively void test. Under this approach, a decision rendered by a conflicted plan administrator is presumed to be arbitrary and capricious unless the administrator can demonstrate that either (1) under de novo review, the result reached was nevertheless right or (2) the decision was not made to serve the administrator's conflicting interest. As the court in Brown v. Blue Cross & Blue Shield, 898 F.2d 1556, 1566-67 (11th Cir. 1990), cert. denied, 498 U.S. 1040 (1991), explained: 36 [W]hen a plan beneficiary demonstrates a substantial conflict of interest on the part of the fiduciary responsible for benefits determinations, the burden shifts to the fiduciary to prove that its interpretation of plan provisions committed to its discretion was not tainted by self-interest. That is, a wrong but apparently reasonable interpretation is arbitrary and capricious if it advances the conflicting interest of the fiduciary at the expense of the affected beneficiary or beneficiaries unless the fiduciary justifies the interpretation on the ground of its benefit to the class of all participants and beneficiaries. 37 See also Atwood v. Newmont Gold Co., 45 F.3d 1317, 1323 (9th Cir. 1995) (Where the affected beneficiary has come forward with material evidence of a violation of the administrator's fiduciary obligation, we should not defer to the administrator's presumptively void decision.); Kotrosits v. GATX Corp. Non-Contributory Pension Plan for Salaried Employees, 970 F.2d 1165, 1173 (3d Cir.) ([W]here such a party shows the kind of conflict of interest that could realistically be expected to bias the decision makers [Firestone] counsels in favor of withholding deference.), cert. denied, 506 U.S. 1021 (1992). 38 In Pitman v. Blue Cross & Blue Shield, 24 F.3d 118 (10th Cir. 1994), we touched upon the appropriate standard of review when a conflict of interests exists. In remanding the case, we offered the Fourth Circuit's view of Firestone in Doe v. Group Hospitalization & Medical Servs., 3 F.3d 80 (4th Cir. 1993). We stated: 39 To the extent that Blue Cross has discretion to avoid paying claims, it thereby promotes the potential for its own profit. . . . . In short, the fiduciary decision will be entitled to some deference, but his deference with be lessened to the degree necessary to neutralize any untoward influence resulting from the conflict. 40 24 F.3d at 123 (quoting Doe, 3 F.3d at 86). In purporting to offer the sliding scale approach to the district court on remand, however, we cited two other cases which have expressly adopted the presumptively void test. Id. (citing Brown, 898 F.2d at 1568, and Bass v. Prudential Ins. Co. of America, 764 F. Supp. 1436, 1440 (D. Kan. 1991)). Thus, some of the district courts in our circuit have employed the presumptively void test when there is a conflict of interest. See Torre v. Federated Mut. Ins. Co., 897 F. Supp. 1332, 1360-62 (D. Kan. 1995); Torre v. Federated Mut. Ins. Co., 854 F. Supp. 790, 814 (D. Kan. 1994). But see Hammers v. Aetna Life Ins. Co., 925 F. Supp. 718, 722 (D. Kan. 1996) (Deference is greatly diminished, however, when the claims administrator is acting under a conflict of interest.). In this case, the magistrate judge joined this trend by expressly adopting the presumptively void test developed by the Eleventh Circuit in Brown and used in Torre and Bass. 41 We reject the presumptively void test as inconsistent with our holding in Pitman and the Supreme Court's dictum in Firestone. We conclude that the sliding scale approach more closely adheres to the Supreme Court's instruction to treat a conflict of interest as a facto[r] in determining whether there is an abuse of discretion. Firestone, 489 U.S. at 115. Moreover, as we stated in a pre-Firestone decision, the arbitrary and capricious standard is sufficiently flexible to allow a reviewing court to adjust for the circumstances alleged, such as trustee bias in favor of a third-party or self-dealing by the trustee. Sage v. Automation, Inc. Pension Plan & Trust, 845 F.2d 885, 895 (10th Cir. 1988). 42 In sum, we review de novo the magistrate judge's application of the arbitrary and capricious standard to FHP's decision denying Chambers benefits. Pitman, 24 F.3d at 121. Thus, we will uphold FHP's decision unless it was arbitrary and capricious, keeping in mind that FHP's conflict of interest is merely a factor in applying this flexible standard. 43
44 We hold that FHP did not act arbitrarily and capriciously in concluding that the PTE procedure was experimental. We agree with the magistrate judge that in deciding to deny Chambers his benefits, the Board members, who were stockholders of FHP, operated under a significant conflict of interest. Despite this, the evidence strongly supports FHP's decision. On May 1, 1990, the following evidence was before FHP: 45 (1) Despite twenty years of experience with PTE, the procedure still had a 13% to 15% mortality rate at UCSDMC and a 30% to 50% rate in France; 46 (2) Dr. Moser and his staff at UCSDMC were the only practice group successfully performing the procedure; 47 (3) Dr. Moser, who originated the procedure and would supervise the plaintiff's treatment, described the procedure as an experiment with nature. 48 (4) The medical community performed the PTE procedure in an almost exclusively investigational setting at only two teaching facilities, UCSDMC and Duke University; 49 (5) Medical practitioners at other major medical institutions, such as the Mayo Clinic, referred their patients to UCSDMC for the procedure; 50 (6) The Health Care Financing Administration, an organization responsible for determining national government-funded coverage, had not decided whether to cover the procedure or not; 51 (7) Blue Cross and Blue Shield of Kansas, the state's largest insurer, strongly considered the procedure experimental; 52 (8) Blue Cross and Blue Shield's written guidelines defined procedures as experimental if performed only in investigational settings; 53 (9) Employees at Dorth Coombs, a Wichita company that administers healthcare plans, stated that the company would cover PTE because the procedure was in the Physician's Current Procedural Terminology book; 54 (10) Medical directors of Equicor and Prime Health, two Kansas health maintenance organizations, had never heard of the procedure; 55 (11) The Oschsner Clinic, a health maintenance organization in New Orleans, covered the procedure on a case-by-case basis; 56 (12) The medical department responsible for handling California medicare considered the procedure to be investigational. 57 We conclude that although the Board suffered from a conflict of interest, FHP's determination that PTE was an experimental procedure was reasonable in light of the administrative record. Accordingly, we find that FHP's decision to deny Chambers benefits was not arbitrary and capricious.