Opinion
Case No. 1:02-CV-694
July 18, 2003
ORDER
In accordance with the Opinion filed on this date,
IT IS HEREBY ORDERED that Defendant's, Knape-Vogt Manufacturing Employee Health Benefits Plan (the "Plan"), Motion for Entry of Judgment (docket no. 21) is GRANTED.
IT IS FURTHER ORDERED that Plaintiff's, Spectrum Health Continuing Care Group, claim against the Plan is DISMISSED WITH PREJUDICE.
This case is closed as to the Plan.
OPINION
Plaintiff, Spectrum Health Continuing Care Group ("Spectrum"), has sued Defendants Jane Knape ("Jane"), Margaret Knape ("Margaret"), and Knape-Vogt Manufacturing Employee Health Benefits Plan (the "Plan") for breach of a payment agreement for home nursing care that Margaret entered into with Spectrum on behalf of Jane. On November 4, 2002, default was entered against both Jane and Margaret. The Plan, the only remaining Defendant, has moved for judgment to be entered against Spectrum, The Court will dismiss Spectrum's claim against the Plan with prejudice on grounds that neither Jane nor the Plan exhausted their administrative remedies under the Plan and Jane was not a Plan Participant at the time Spectrum rendered its services,
Factual and Procedural Background
I. The Plan
The Plan was created as a self-funded employer group plan to provide payment of certain health care benefits for Knape-Vogt Manufacturing Company ("Knape-Vogt") employees, retirees, and their eligible dependents ("Covered Persons") under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq. The Plan designates Knape-Vogt as Plan Administrator and provides it with the "authority and discretion to control and manage the operation and administration of the Plan." (Plan at 1, A.R. Ex. 2.) Additionally, the Plan authorizes Knape-Vogt to delegate responsibility for the operation and administration of the Plan. (Id.) Initially, Knape-Vogt appointed Administration Systems Research Corporation International ("ASR") as claim administrator. However, effective January 1, 2002, Knape-Vogt replaced ASR with Professional Benefit Retiree Service ("PBRS").
In addition, under the express terms of the Plan, HHS, Inc. ("HHS") was appointed to review, approve, and "certify" that certain medical benefits were covered benefits under the Plan before such benefits are provided. (Id. at 9-10.) Home health care benefits are among the benefits that HHS was required to "certify" as covered under the Plan. (Id. at 10.)
If a Covered Person disagreed with an initial decision of the Plan, including a certification decision by HHS, the Plan required that the participant follow a detailed appeals procedure. (Id. at 49-51.)
If a claim is denied (in whole or in part), the Plan Administrator shall provide the Covered Person with a written notice containing: (1) the reasons for the denial, including reference to the Plan provision upon which the denial is based; (2) a description of additional information which would permit payment of the claim; and (3) an explanation of the claim review procedures of the Plan.
(Id. at 50.) The Plan set forth the following appeal procedure:
A Covered Person may have the denial reviewed by the Plan Administrator by written application to the Plan Administrator within sixty (60) days following denial of the claim. The Covered Person may review pertinent documents related to the determination, and submit issues and comments in writing to the Plan Administrator for a final review and decision.
( Id.)
If a Covered Person does appeal, the Plan Administrator must make a decision on the request for review within sixty days of the date of application, ( Id.) However, "[n]o action at law or in equity shall be brought by a Covered Person to recover a claim on the Plan prior to the exhaustion of remedies provided under the Claim Procedure provisions of the Plan." ( Id.)
While the Plan is intended to be primarily self-funded, insurance coverage supplementing Medicare is purchased for Knape-Vogt retirees who meet the Plan's definition of "Retired Employee" and their dependent spouses who are sixty-five years of age or older, ( Id. at 32-33.) When a "Retired Employee" or a dependent spouse reaches the age of sixty-five, coverage under the Plan becomes secondary to Social Security's Medicare coverage, ( Id. at 33.) The Plan also requires that the dependent spouses of "Retired Employees" make premium contributions for continued Medicare supplemental coverage. ( Id.) If a dependent spouse fails to make the required premium contribution, then the dependent spouse's participation in the Plan automatically terminates. ( Id.)
II. Jane Knape's Coverage Under the Plan
Jane, deceased as of December 12, 2002, was the dependent spouse of a "Retired Employee" of Knape-Vogt. Since Jane reached the age of sixty-five on January 21, 1991, her coverage under the Plan after that date was secondary to her Medicare coverage, and she was required to pay her premiums in order to continue her participation in the Plan. All of the relevant events in this case occurred in or after July 2001. Thus, it is uncontested that Jane's eligibility for coverage under the Plan depended upon her payment of required premiums and that any coverage was secondary to Medicare.
In July 2001, Jane tendered a check to Knape-Vogt for her required premium contributions. The check was dishonored. In a certified letter dated August 6, 2001, the Plan Compensation and Benefits Manager, Ed Nawrocki ("Nawrocki"), notified Jane that her premium payment check had been returned for insufficient funds and stated that Jane owed $312.00 in past due premiums, (Letter from Nawrocki to Knape of 8/6/01, A.R. Ex. 3.) The $312.00 in past due premiums represented the amount Jane owed for coverage through August 2001. (Plan Mem. of 8/17/01, A.R. Ex. 4.)
On August 17, 2001, Jane's daughter, Margaret, met with Nawrocki to request that the Plan pay for certain prescription drug expenses incurred by Jane. (Nawrocki Notes of 8/17/01, A.R. Ex. 4.) Nawrocki informed Margaret that Jane must remit to the Plan her past-due and currently-due premiums before the Plan would provide Jane with any benefits, ( Id.) Margaret paid the Plan $390.00 via certified check dated August 20, 2001, (Knape Certified Check, A.R. Ex. 5), to cover Jane's premiums through September 2001, (Plan Mem. of 8/17/01, A.R. Ex. 4). The Plan states that it did not receive any premium payments from or on behalf of Jane for coverage from October through December 2001, and there is no evidence in the Administrative Record ("Record") of any such payments.
In a facsimile from Margaret to Nawrocki, dated September 9, 2001, Margaret informed Nawrocki that she was requesting that Jane's physician, Peter Kuhl, M.D. ("Dr. Kuhl"), prescribe home health care services for Jane. In a letter dated September 7, 2001, Dr. Kuhl opined that Jane's condition "requires home health care" and "obviously deserves home care nursing." (Letter from Kuhl to Whom it May Concern of 9/7/01, A.R. Ex. 6.) Pursuant to the terms of the Plan, any request for home health care must be certified by HHS prior to the commencement of the requested service. In a letter dated October 16, 2001, HHS stated that it had found that Jane's request for "Certified Nursing Assistant Care twenty-four hours a day/seven days a week is not medically necessary." (Letter from Dr. Reyelts to Dr. Kuhl of 10/16/01, A.R. Ex, 10.) HHS stated, however, that it recommended "Two or Three nursing visits per day for medication management, hospice, or an extended care facility" in coordination with Medicare. ( Id.) HHS' letter also stated that Jane may appeal HHS' decision within sixty days and that a "supporting clinical rationale is available to you upon written request." ( Id.) Additionally, the letter included a separate page detailing Jane's "Appeal Rights." ( Id.) There is no evidence in the Record that Jane either made a written request for HHS' clinical rationale for its decision or appealed HHS' decision within the sixty-day time period.
It appears that on or around September 12, 2002, while Jane's request was pending a decision on certification, Margaret hired Superior Staffing, Inc. ("Superior Staffing") to provide home health care for Jane. (Letter from Lodden to Jane of 12/13/01, A.R. Ex. 16.) Superior Staffing stopped providing services to Jane on or around October 25, 2001. ( Id.) In a letter dated December 13, 2001, from Superior Staffing Treasurer, Kenneth J. Lodden ("Lodden"), to Margaret, Lodden stated that the Plan informed Superior Staffing that Jane's twenty-four hour care "was not a medical necessity and therefore not covered by insurance." ( Id.)
In a facsimile dated November 16, 2001, from Margaret to Nawrocki, Margaret again requested that the Plan cover Jane's twenty-four hour home nursing care. There is nothing in the Record that indicates that HHS reversed its earlier decision or that Jane had filed an appeal of HHS' certification. However, on November 19, 2001, Margaret signed a contract for home health care services "for Jane Knape" with Worth Home Care ("Worth"), a subsidiary of Spectrum. (Worth Contract, A.R. Ex. 13.) In the contract with Worth ("Worth Contract"), Margaret checked a box indicating that she had executed a "Medical Durable Power of Attorney" for Jane, but she also checked a box indicating that a copy of the power of attorney was not attached. ( Id. at 3.) There is no evidence in the Record that Margaret had actually executed a power of attorney for Jane, and Spectrum does not raise this point in its brief. The Worth Contract also contained a purported assignment to Worth of any benefits and insurance proceeds to which Jane was entitled. ( Id. at 1-2.) There is no evidence in the Record to explain why Jane did not personally sign the Worth Contract. Worth provided home heath care service to Jane starting on or around November 11, 2001, through May 31, 2002.
On each of the signature lines of the contract, Margaret signed: "Margaret Knape for Jane Knape."
Effective January 1, 2002, Knape-Vogt changed its insurance carrier for Medicare eligible retirees and their dependant spouses. Knape-Vogt retirees and their dependent spouses were notified of the proposed change, directed to execute applications for the new insurance coverage, and to pay the first month's premium. The last notice was sent to retirees and dependent spouses on December 11, 2001. (Last Notice to Jane, A.R. Ex. 15.) It is undisputed that Jane received the notices, including the December 11, 2001, notice. ( Id.) There is no evidence in the Record that Jane made the appropriate application to the new insurance carrier or made the requisite premium payment.
The total cost of Jane's home health care by Worth exceeded $142,000.00. (Letter from Irish To Whom it may concern of 5/25/02, A.R. Ex. 19.) Spectrum has received no payment of Jane's outstanding balance from either the Knapes or the Plan. On August 18, 2002, Spectrum sued Jane, Margaret, and the Plan for breach of the Worth Contract The case was removed to this Court on September 27, 2002. On November 4, 2002, default was entered against Jane and Margaret. Thus, the Plan is the only remaining Defendant.
Discussion
Spectrum alleges that HHS Improperly refused to certify Jane's request for twenty-four hour home health care. Spectrum further contends that if HHS had properly certified Jane's request, then the Plan is obligated to pay for Worth's services. Finally, Spectrum contends that it may assert Jane's right to be reimbursed for Worth's services because Jane assigned her rights and benefits to Worth. The Plan argues that it has no liability because: (1) there was never a recognized, valid assignment; (2) Jane had not paid her required premiums beyond October 1, 2001, thus Jane was not covered under the Plan after that date; and (3) the twenty-four home health care services requested by Jane were not medically necessary. Following a thorough review of the Record, the Court will dismiss Spectrum's suit against the Plan with prejudice on grounds that neither Jane nor Spectrum exhausted administrative remedies following HHS' denial of Jane's certification request and Jane was not a Plan Participant at the time Spectrum rendered its services.I. Failure to Exhaust Administrative Remedies
"A health care provider may assert an ERISA claim as a `beneficiary' of an employee benefit plan if it has received a valid assignment of benefits." Cromwell v. Equicor-Equitable HCA Corp., 944 F.2d 1272, 1277 (6th Cir. 1991): see also Bower v. Buckeye Vill. Market Employee Benefit Plan. Nos. 98-3003, 98-3044, 1999 WL 397962, at *2 (6th Cir. June 4, 1999) (per curium). However, "`an assignment cannot create rights not held by the assignor,'" because "`the assignee stands in the shoes of the assignor' and may raise only those claims that the insured-assignor could raise in a direct action." Cedars-Sinai Med. Ctr. v. Mass. Mut. Life Ins. Co., No. 94-55065, 1995 WL 564757, at *2 (9th Cir. Sept 21, 1995) (quoting Misic v. Bldg. Serv. Employees Health Welfare Trust, 789 F.2d 1374, 1377 (9th Cir. 1986)). Spectrum may thus only assert rights that Jane, if living, could assert against the Plan.
The Court does not herein make any findings with regard to the validity of the assignment clause of the Worth Contract because the validity of the assignment clause is only relevant if Jane actually possessed a right under the Plan to bring this suit at the time it was filed. Since the Court concludes that Jane did not possess such a right, the validity of the assignment clause is moot.
The portion of the Plan entitled "CLAIMS PROCEDURE" sets forth the way in which a Covered Person may challenge a decision by the Plan. (Plan at 49-51.) It states that a Covered Person must file an appeal with the Plan Administrator within sixty days of the date of the Plan's initial decision. (Id. at 50.) If a Covered Person elects not to avail himself of the right to appeal, then the Covered Person is prohibited from later bring suit against the Plan pursuant to the Plan's "LEGAL PROCEEDINGS" clause. (Id. at 50-51.)
Under the administrative scheme of ERISA, a claimant may not file suit in federal court until the claimant has exhausted all administrative remedies available under the claimant's pension plan. Miller v. Metro. Life Ins. Co., 925 F.2d 979, 986 (6th Cir. 1991) ("The administrative scheme of ERISA requires a participant to exhaust his or her administrative remedies prior to commencing suit in federal court"). "[T]he exhaustion requirement enables plan fiduciaries to `efficiently manage their funds; correct their errors; interpret plan provisions; and assemble a factual record which will assist a court in reviewing the fiduciaries' actions.'" Baxter v. C. A. Muer Corp., 941 F.2d 451, 454 (6th Cir. 1991) (per curiam) (quoting Makar v. Health Care Corp. of Mid-Atlantic, 872 F.2d 80, 83 (4th Cir. 1989)). The exhaustion requirement "is the law in most circuits despite the fect that ERISA does not explicitly command exhaustion." Ravencraft v. UNUM Life Ins. Co. of Am., 212 F.3d 341, 343 (6th Cir. 2000). Unless the court finds that the claimant meets one of the exceptions to the exhaustion requirement, including futility of the administrative process or inadequacy of the administrative remedy, Baxter. 941 F.2d at 453 (citing Springer v. Wal-Mart Ass'n Group Health Plan, 908 F.2d 897, 899 (llth Cir. 1990)), the court will dismiss the claimant's suit without prejudice, Ravencraft. 212 F.3d at 344 (holding that dismissal without prejudice is proper when dismissing an action solely for failure to exhaust administrative remedies).
HHS' letter to Dr. Kuhl, which was copied to Jane, was the Plan's initial decision that Jane's request for twenty-four hour home health care was not medically necessary. That letter stated;
If you wish to appeal this determination, please send pertinent medical information to HHS, Health Option(r) within 60 days of the above date. HHS, Health Options(r) supporting clinical rationale is available to you upon written request.
(Letter from Dr. Reyelts to Dr. Kuhl of 10/16/01, A.R. Ex. 10.) The letter also contained a detailed explanation of the Plan's appeal procedure. (Id.) The Plan, through HHS, complied with the provisions of the Plan's "INITIAL DECISION" clause. There is no evidence in the Record, however, that Jane ever exercised her appeal rights. Additionally, Spectrum does not contend that it asserted Jane's appeal rights as Jane's assignee within the sixty-day time period. It is thus undisputed that Jane waived her right to appeal HHS' certification decision, and with it her right to bring the instant suit in federal court. Therefore, even if the Worth Contract constituted a valid assignment of Jane's rights under the Plan to Spectrum, Spectrum may not assert a right that Jane never possessed.
Spectrum has not demonstrated that either Jane or it met any of the exceptions to the exhaustion requirement, including futility of the administrative process or inadequacy of the administrative remedy. There is no evidence in the Record that Jane could not have brought an appeal, nor is there any evidence that an appeal would have been an inadequate remedy. The Record also shows that Spectrum's subsidiary, Worth, began providing services to Jane in mid-November 2001. Thus, the sixty-day time period to appeal HHS' October 16, 2001, certification decision did not expire until over one month after the execution of the alleged assignment clause. Exhaustion was therefore not futile and the potential administrative remedy was not inadequate. Accordingly, Spectrum's suit against the Plan is procedurally barred.
II. Jane Was Not a Plan Participant
Under the Plan, a retiree's dependent spouse's participation in the Plan terminates on the date on which the dependent spouse fails to make payment of the requisite premium contribution. The Plan states:
RETIREE COVERAGE
The Plan will allow any eligible Participant who retires and meets the definition of a "Retired Employee" to continue the Group Health Coverage for themselves and their Dependents(s), When a Retiree or a covered Dependent spouse reaches age sixty-five (65), coverage under this Plan will automatically become secondary to Social Security's Medicare coverage parts A and B for that person. Retirees are eligible for Plan A only.
The Dependant spouse of a deceased Retiree may continue to receive coverage under the Plan until the earlier of:
. . .
C. The date on which the Dependent spouse fails to make any required contribution for coverage;
. . . .
(Plan at 32-33.)
The Plan further states:
In order for the Plan to pay any benefits, all of the following requirements must be met:
A. An expense must be incurred by a Covered Person while [the] Plan is effective and the Covered Person participates in the Plan. . . .
( Id. at 8.)
Thus, the Plan is not responsible for payment of any expenses incurred by a retiree's dependent spouse after the retiree's dependent spouse has failed to make payment of the requisite premium contribution.
The last premium contribution made by or on behalf of Jane occurred in August 2001. That payment, made by Margaret, provided Jane with Medicare supplemental coverage under the Plan through the end of September 2001, Spectrum seeks payment for services that it rendered to Jane beginning in November 2001. Thus, the services provided by Spectrum to Jane commenced after Jane ceased to be a Plan Participant due to Jane's lack of premium contribution payment. Accordingly, the Plan is not liable for payment of Spectrum's services.
III. Dismissal
Since this action will be dismissed on the merits, as well as on procedural grounds, dismissal of Spectrum's claim against the Plan will be with prejudice, Ravencraft 212 F.3d at 344. Spectrum may, however, still pursue collection of its outstanding accounts from the defaulted Defendants.
Conclusion
For the foregoing reasons, Spectrum's claim against the Plan will be dismissed with prejudice. An Order consistent with this Opinion with be entered.