First, United refused to keep paying for residential treatment, and insisted that E.D. was ready to step down to Avalon’s next lower level of treatment, a partial hospitalization program (“PHP”). United denied Mr. Dwyer’s appeal of this decision, and thus E.D. stepped down to PHP.
However, E.D. continued to struggle in PHP. She spent hours per day in treatment and every meal needed to be monitored. A three-day weekend pass designed to test whether E.D. was ready for discharge was a disaster, “filled with difficult, negative experiences,” during which she lost two pounds.
At this time, “[f]or reasons that are difficult to understand…United decided it was appropriate to discharge E.D. entirely.” United terminated coverage of E.D.’s PHP treatment, contending that she was ready for outpatient-only treatment. Mr. Dwyer appealed this decision, but again United upheld it. This time Mr. Dwyer rejected United’s assessment, kept E.D. in the PHP program at Avalon Hills, and paid out of pocket for her treatment.
Meanwhile, Mr. Dwyer was engaged in another battle with United over the cost of E.D.’s treatment. United did not have a contract with Avalon Hills. However, it did have a contract with MultiPlan, a network provider that “connects insurers with out-of-network providers so that insurers do not have to make arrangements individually with those providers.”
As a result, because United had an agreement with MultiPlan, which in turn had an agreement with Avalon Hills, Mr. Dwyer reasonably believed that he would be required to pay the rate negotiated by United and MultiPlan for E.D.’s treatment instead of United’s more onerous out-of-network rates. Indeed, at first United paid claims at the MultiPlan rate. However, without warning it suddenly stopped doing so, resulting in substantial out-of-pocket payments by Mr. Dwyer.
Mr. Dwyer and Avalon Hills “repeatedly asked United to explain this discrepancy” but they did not get satisfactory answers. Eventually, Mr. Dwyer submitted an appeal in which he asked why United had shifted its payment rationale. He explained that it was difficult for him to “make critical coverage decisions” about E.D.’s treatment when he had “no idea what reimbursement formula” United would apply. United never responded to this appeal.
As a result, Mr. Dwyer initiated this action in 2017. In 2019 the district court held a bench trial, and then issued a written decision almost four years later, in April of 2023. The court ruled in United’s favor on both issues presented, deciding that United did not err in terminating E.D.’s PHP coverage, and that its payment rate was appropriate. Mr. Dwyer appealed.
Under de novo review, the Fifth Circuit reversed on both issues. On the medical necessity of E.D.’s PHP treatment, the court ruled that “United’s denial letters are not supported by the underlying medical evidence. In fact, they are contradicted by the record.” The court listed each of United’s justifications for denying E.D.’s claim, including “you have made progress,” “you have achieved 100% of your ideal body weight,” “you are eating all your meals,” and “you are not trying to harm yourself…[or] others,” and, most cryptically, “you are better,” and explained why each item was either untrue or irrelevant. The Fifth Circuit agreed with Mr. Dwyer that to the extent E.D. had improved, it was because she was constantly monitored in daily treatment. These gains would have quickly evaporated if she had been discharged and therefore did not justify the denial of ongoing treatment coverage.
The Fifth Circuit also criticized the way United handled E.D.’s claim, emphasizing that ERISA requires a “full and fair review” involving a “meaningful dialogue between the beneficiary and administrator.” The court ruled that United had failed this test: “United not only failed to engage in a ‘meaningful dialogue’ with Mr. Dwyer; the ERISA fiduciary engaged in no dialogue at all.” The court found that “[n]o explanation was provided or offered” for United’s denial, and that its letter “said nothing about the plan provisions or how E.D.’s medical circumstances were evaluated under the plan.” The court cited cases from the Ninth and Tenth Circuits in stating, “We therefore join a growing number of decisions rejecting similar denial letters issued by United across the country.”
Finally, the court addressed the MultiPlan issue. Citing its en banc precedent Vega v. National Life Ins. Servs., Inc., 188 F.3d 287 (5th Cir. 1999), the court noted that “ERISA requires both the beneficiary and the fiduciary to avail themselves of the administrative process… When one party forfeits that process, it requires us to direct entry of judgment for the opposing party.” Because United never responded to Mr. Dwyer’s appeal on this issue, this rule ended the court’s inquiry and required judgment in his favor.
The court rejected United’s arguments to the contrary, ruling that (1) United’s hearsay argument was “bizarre” because hearsay rules do not apply to ERISA proceedings, (2) waiver and estoppel may not be able to create coverage under state insurance laws, but those doctrines do apply in ERISA cases, and (3) United could not advance new arguments in litigation about the plan’s payment provisions because “United is not entitled to offer such post hoc arguments… United is limited to the arguments it made at the administrative level, which were none.” In any event, the Fifth Circuit ruled that Mr. Dwyer’s understanding was correct, and that the agreed-upon MultiPlan rate should apply.
As a result, although it took seven years of litigation, the case was an unqualified success for Mr. Dwyer and another appellate defeat for United. The action will now be remanded to the district court for further proceedings as to the appropriate remedies.
