The U.S. District Court for the Southern District of Texas recently ruled on motions for summary judgment by both parties in North Cypress Medical Center Operating Company, Ltd v. Cigna Healthcare, holding that Cigna’s application of its “fee forgiveness” protocol (the “Protocol”) in the administration of benefit claims for medical services rendered by North Cypress was legally incorrect and constituted an “abuse of discretion” under ERISA. Cigna performed claims administration services as a third-party service provider for employer-sponsored, self-funded group medical plans and as the insurer under employer-sponsored, fully-insured group medical plans (collectively, the “Plans”). North Cypress was an out-of-network healthcare services provider (an “OON Provider”) that offered to waive or discount patients’ cost-sharing obligations in exchange for prompt payment for its billed services. When North Cypress submitted the patients’ benefit claims to Cigna, Cigna applied the Protocol, which significantly reduced or denied the claim payments to North Cypress based on an exclusion in each of the Plans to the effect that a Plan would not pay for charges for which the participant (i) was not obligated to pay, (ii) was not billed, or (iii) would not have been billed except that such charges were covered under the Plan (the “Exclusion”). The court, relying on its decision earlier this year in Connecticut General Life Insurance Company v. Humble Surgical Hospital, LLC, held that Cigna’s interpretation of the Exclusion was legally incorrect under ERISA because the average plan participant would not interpret the Exclusion to mean that no coverage would be provided under the Plans based solely on a waiver or reduction of his or her cost-sharing obligations. The court also found strong inferences that Cigna did not act in good faith in applying the Protocol, based on substantial evidence that Cigna’s primary motivation was not to root out fee forgiveness but rather to pressure North Cypress into negotiating an in-network contract with Cigna. Accordingly, the court determined that Cigna’s application of the Protocol constituted an “abuse of discretion” under ERISA.
In light of this court’s decision favoring an OON Provider, as well as the Humble Surgical Hospital, LLC case cited above, we advise employers sponsoring group health plans to carefully review the exclusions in their plan documents to ensure they are comprehensive and written in a manner which is easily understood by an average plan participant. In particular, if an employer or its third-party claims administrator intends to administer the Protocol or a similar claims review mechanism, such as to reduce the cost or volume of benefit claims submitted by OON providers, the plan language must clearly state the implications of a participant’s failure to fully pay his or her cost-sharing obligations under the plan.