Whitney v. Empire Blue Cross & Blue Shield, 920 F. Supp. at 484.
Prudential, when considering Velez's request for coverage, was exposed to these conflicts. Prudential does not dispute that it serves as both the claims fiduciary for the plan and pays approved claims from its own assets. To the extent that Prudential has discretion to avoid paying claims, it, at the same time, enhances its ability to increase its income. No evidence has been presented to suggest that Prudential has a mechanism to collect from Chemical, Velez's employer, retrospectively for unexpected liability. See Doe, 3 F.3d at 86. Thus, Prudential is at financial risk if the cost of its claims exceeds the premiums it has collected.
Prudential asserts that it is immune from these conflicts and points to its "independent" Medical Care Ombudsman Program ("Ombudsman Program") which reviews the appropriateness of recommended treatment plans submitted to Prudential for coverage. According to Prudential, the Ombudsman Program is an independent corporation which offers expert review of treatment plans.
Prudential's argument that this mechanism eliminates the potential for conflicts is unpersuasive. The reviewers, "experts" in the types of cases they review and selected by the program, compile recommendation reports for Prudential's use. From Prudential's description of the program, it is apparent that the opinions of the reviewers, simply serve as one of a number of factors that inform Prudential's Technology and Clinical Practice Assessment ("TCPA") unit, which makes the ultimate coverage determination. The identity of the reviewers remains secret, thus making it difficult to judge their qualifications or objectivity; it is further unclear how much or little weight Prudential actually affords to those reports in rendering its decisions. Moreover, the TCPA retains responsibility for applying the scientific and medical facts set forth in the Ombudsman Program reports to Prudential's criteria for services covered. For example, in response to the Ombudsman Reports' assertions that it is not clear that tandem therapy is "more effective" than standard therapy, Prudential determined that the procedure was ineffective and therefore not "medically necessary" under the terms of the Plan.
Accordingly, this Court finds that Prudential was influenced by a conflict of interest when it denied plaintiff's benefits. We do not at this point reach the question of whether the conflict was sufficiently serious to trigger de novo review. See Sullivan v. LTV Aerospace, 82 F.3d 1251 (2d Cir. 1996), note 3, infra. In our consideration of whether plaintiff had demonstrated significantly serious questions going to the merits of her case, we therefore apply the arbitrary and capricious standard of review but, as we are required to do, "weigh [in the conflict] as a factor in determining whether there is an abuse of discretion." Firestone, 489 U.S. at 115.
The question remains as to how that arbitrary and capricious standard actually applies here. Since our Court of Appeals has yet to provide a precise methodology for applying the "weighted" Firestone standard, we look to other Circuits. In Whitney v. Empire Blue Cross Blue Shield, 920 F. Supp. 477, the court comprehensively reviewed the various approaches adopted by other Circuits, distilling them into two models: the "continuum approach" and the "two-step" approach. Whitney, 920 F. Supp. at 484.
The "continuum approach," followed by the Fourth and Seventh Circuits imagines the arbitrary and capricious standard as a range, with review being "more penetrating the greater [ ] the suspicion of partiality, [and] less penetrating the smaller the suspicions." Van Boxel, 836 F.2d 1048, 1052-53. Thus, "deference will be lessened to the degree necessary to neutralize any untoward influence resulting from the conflict." Doe v. Group Hospitalization & Medical Services, 3 F.3d at 86; Van Boxel v. Journal Co. Employees' Pension Trust, 836 F.2d 1048 (7th Cir. 1987).
Since the continum approach can be difficult to apply and can result in a lack of clarity and hence a degree of unfairness to health care providers, we apply the "two-step approach" which provides a clearer framework for evaluation, more predictably and a greater measure of protection to both providers and beneficiaries. See Atwood v. Newmont Gold Co., Inc., 45 F.3d 1317, 1322-23 (9th Cir. 1995); Brown, 898 F.2d at 1564-65; Denton v. First National Bank of Waco, 765 F.2d 1295 (5th Cir. 1985); Whitney, 920 F. Supp. at 486. Under that approach, the beneficiary must first provide material and probative evidence tending to show that the fiduciary's conflict of interest was sufficiently serious to cause a breach of the administrator's fiduciary obligation to the beneficiary. Atwood, 45 F.3d at 1323. If the beneficiary "makes the required showing, the principles of trust law require [the court] to act very skeptically in deferring to the administrator who appears to have committed a breach of fiduciary duty." Id. (citing Firestone, 489 U.S. at 111). The court then reviews the denial under the weighted arbitrary and capricious standard, first determining whether the beneficiary proposed a sound, legally correct interpretation of the disputed plan provision that could rival the fiduciary's interpretation. Whitney, 920 F. Supp. at 486. Thereafter, the court evaluates whether the fiduciary was arbitrary and capricious when it adopted a different interpretation. Whitney, 920 F. Supp. at 485.
Pagan v. NYNEX Pension Plan, 52 F.3d 438 (2d Cir. 1995), upon which defendant heavily relies, is consistent with the two-step approach. Pagan acknowledges that the existence of an alleged conflict, while not altering the arbitrary and capricious standard of review, "becomes a factor in determining whether there is an abuse of discretion." Pagan, 52 F.3d at 422 (citing Firestone, 489 U.S. at 115).
In that case, the court applied the traditional arbitrary and capricious standard because, unlike here, plaintiff adduced no evidence of a conflict of interest and thus failed "to explain how such an alleged conflict affected the reasonableness of the [reviewing] Committee's decision." 52 F.3d at 443. Here, in contrast, plaintiff has presented specific facts indicating Prudential's conflicting interests.
"Inasmuch as [the plan fiduciary] purports to rely upon a policy exclusion to justify its denial of coverage, it bears the burden of showing the applicability of that exclusion." Kekis v. Blue Cross and Blue Shield of Utica-Watertown, Inc., 815 F. Supp. 571, 578 (N.D.N.Y. 1993). That burden does not, of course, relieve Velez of her burden of establishing her entitlement to interlocutory relief. Thus, Velez is still required to show that Prudential's decision to deny her coverage, in light of the conflicts, was not arbitrary and capricious. This Court, applying the two-step approach, finds that plaintiff has raised substantial issues that are fair ground for litigation going to whether defendant acted arbitrarily and capriciously in denying her coverage.
Having already determined that Prudential denied Velez's request for precertification under the influence of conflicts, this Court must determine whether those conflicts were sufficiently serious to affect Prudential's benefit determination.
As a fiduciary, Prudential cannot disregard any policy requirement, nor can it implicitly incorporate into the policy any term that does not expressly appear. See Shelden v. Barre Belt Granite Employer Union Pension Fund, 25 F.3d 74 (2d Cir. 1994) ("[the arbitrary and capricious] standard may well be met if the trustees have, for example, 'imposed a standard not required by the plan's provisions or interpreted the plan in a manner inconsistent with its plan needs.'" (citing Miles v. New York State Teamsters Conference, 698 F.2d 593, 599 (2d Cir.) cert denied, 464 U.S. 829, 78 L. Ed. 2d 108, 104 S. Ct. 105 (1988); Clarke v. Bank of New York, 687 F. Supp. 863, 867 (S.D.N.Y. 1988). "The fiduciary's duties are dictated by the policy, such that a fiduciary who ignores the terms of the policy and inserts its own terms acts arbitrarily and capriciously." Kekis, 815 F. Supp. at 579.
Prudential claims, as one of the grounds for its denial, that the tandem treatment is medically unnecessary. As defined under the plan, a service is "medically necessary" if it is the opinion of the appropriate specialty of the United States medical profession is "that [the treatment] is safe and effective for its intended use, and that its omission would adversely affect the person's medical condition." Prudential has apparently interpreted this provision as permitting coverage of only those procedures that are more effective than other standard treatments. One of two Ombudsman Program reports relied upon by Prudential in making its benefits determination states that tandem transplants are "unproven to be superior to single courses" of the treatment. The second report similarly noted that "there is some data indicating that double transplant is safe, but there is little data on it's effective [sic] as compared with single cycle HDC . . ." While Prudential based its determination on its assessment that HDC-ABMT was not superior to the standard treatment, that is not the requirement of the Plan's criteria. The imposition of a standard not required by the plan's provisions is certainly evidence that tends to show Prudential's conflicts influenced its decision making. Atwood, 45 F.3d at 1323.
This Court must next address the second step of the inquiry: whether the employee has proposed a sound interpretation of the plan. See Whitney, 920 F. Supp. at 486. As previously noted, plaintiff has already offered a sound interpretation of the "medically necessary" provision of the plan that rivals the interpretation advanced by Prudential.
Because it is possible that the various clauses within the policy suggest that various forms of chemotherapy treatment as well as procedures involving bone marrow transplants are covered, this Court further finds that the policy is subject to multiple interpretations as to whether tandem HDC-ABMT treatment is excluded under the Plan's "experimental" provision. The Plan contains a number of provisions that list services that Prudential covers and those that it does not. Included in those services covered are "treatment by x-ray, radium or any radioactive substance, or by chemotherapy." Plan, p. 16. The Plan also includes as a covered service "any services and supplies . . . that are required for a live donor as a result of a surgical transplant procedure which is not an experimental procedure." As noted earlier, defendant concedes that the bone marrow transplant in and of itself is not experimental under the plan. Indeed, it is under the terms of the Plan that Prudential guaranteed coverage for plaintiff's first round of HDC-ABMT treatment.
Because of the ambiguity, a reasonable interpretation of these two clauses is that if single HDC-ABMT treatment is covered, tandem treatment is similarly covered. This constitutes a "sound" interpretation and thereby satisfies plaintiff's burden on the issue.
Since Velez has met her burden of putting forward a "sound" interpretation of the plan, the next question is whether Prudential, in determining that Velez's treatment was "medically unnecessary" and "experimental" was acting arbitrarily and capriciously when it adopted a different interpretation. "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." Brown, 898 F.2d at 1566-67.
In justifying its denial, Prudential first relies on the terms of the protocol that Velez submitted in support of her application for precertification. Prudential makes much of the protocol's description of the proposed treatment as part of a research study to determine whether sequential high-dose treatment was more effective treatment than single dose treatment. Prudential cites to terms of the Plan under which Prudential has the discretion to deny a service if it is "under study or in a clinical trial to evaluate its safety or efficacy." Yet, Prudential has also stated that it would be willing to fund single-dose treatment described in research protocols. Prudential's varying application of its "under study or . . . clinical trial" exclusion, and consequential denial of Velez's tandem treatment, provides support for plaintiff's contention that Prudential abused its discretion in denying plaintiff's request for precertification.
As further evidence of that abuse, this Court notes that Prudential initially denied Velez's request for precertification on the ground that the treatment simply was not "medically necessary." When plaintiff requested reconsideration, Prudential changed its reasons for the denial, stating that the procedure was "experimental/investigatory." Such abrupt shifts in position by Prudential without elaboration or justification are clear indicia of capriciousness.
Moreover, the equities weigh in favor of plaintiff. The urgency of plaintiff's request for relief and the fact that any delay in granting relief will diminish the treatment's chance of success gravitate in favor of the relief sought. Her doctors have expressed the belief that, if the treatment does not cure Velez of her cancer, it will at least substantially extend her life.
Prudential points to no specific harm that it would suffer beyond the cost of the second phase of the tandem treatment. Although the cost of treatment is certainly not insignificant, as multiple myeloma is a rare form of cancer, Prudential has not shown that the result in this case is likely to result in a flood of similar cases. Cf. Dozsa v. Crum & Forster Insurance Co., 716 F. Supp. at 14
As previously noted, the party seeking preliminary injunction need only prove either likelihood of success on the merits or sufficiently serious questions going to the merits to make them fair ground for litigation and a balance of hardships tipping decidedly toward the party requesting the preliminary relief. Kekis, 815 F. Supp. 571 at 584; Jackson Dairy, 596 F.2d at 72. Velez has met the test for a preliminary injunction. She is likely to succeed on the merits. She has certainly demonstrated sufficiently serious questions going to the merits, making them fair ground for litigation, and the balance of hardships tipping sharply in her favor.
Under Rule 65(c) of the Federal Rules of Civil Procedure, "no restraining order or preliminary injunction shall issue except upon the giving of security by the applicant." The security required shall be "in such sum as the court deems proper, for the payment of such costs and damages as may be incurred or suffered by any party who is found to have been wrongfully enjoined." Fed. R. Civ. P. 65(c). Accordingly, the plaintiff is ordered to post a bond of one thousand dollars within three business days of the date of this Order.
In conclusion, plaintiff's motion for a preliminary injunction is granted. Defendant shall forthwith precertify plaintiff's second phase of HDC-ABMT treatment.
Dated: White Plains, New York
October 18, 1996
BARRINGTON D. PARKER, JR.
UNITED STATES DISTRICT JUDGE