United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 09-3658
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Corey Wrenn, individually and as *
parent and next friend of S.W., *
a minor, *
*
Appellant, *
* Appeal from the United States
v. * District Court for the
* Northern District of Iowa.
Principal Life Insurance Company; *
Principal Financial Group, Inc., *
*
Appellees. *
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Submitted: September 23, 2010
Filed: March 2, 2011
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Before BYE, BEAM, and SMITH, Circuit Judges.
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BYE, Circuit Judge.
Corey Wrenn appeals an order granting judgment in favor of Principal Life
Insurance Company and Principal Financial Group, Inc. (collectively Principal) on
Wrenn's claim for medical benefits under a plan governed by the Employee
Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001-1461.
Reviewing the denial of benefits for an abuse of discretion, the district court upheld
Principal's decision. Wrenn contends the district court should have reviewed
Principal's decision under a de novo standard because of procedural irregularities in
the handling of the claim; in the alternative, Wrenn argues Principal's denial was
unreasonable and should be reversed even under the more deferential abuse-of-
discretion standard. We agree with this latter argument, and therefore reverse.
I
On December 8, 2006, the Children's Hospital in Omaha, Nebraska, admitted
S.W. under an emergency admission. She was fifteen years old at the time and
weighed only seventy-seven pounds. At seventy-seven pounds, her body weight and
mass were below the fifth percentile for her age. Lab work indicated she was
suffering from severe malnutrition, revealing an abnormal EKG,1 hypoglycemia,2 and
a low blood platelet count. Her low platelet count placed her at significant risk for a
spontaneous hemorrhage or difficulty clotting if she were to suffer a fall. Because of
her orthostatic3 pulse while standing, she was placed on fall precautions, which
included the use of a wheelchair and supervised bathroom privileges.
The focus of her hospitalization was her calorie intake and limitations on her
physical activity in order to increase her body weight. The goal was for her to obtain
a body weight of at least eighty-nine pounds before discharge would be considered,
with an overall target weight of 105 pounds. In order to assess the progress in her
physical condition, her doctor ordered that she be weighed daily each morning. Her
input (caloric intake) and output (body waste) were compared initially to measure
progress.
1
Electrocardiogram.
2
Below normal blood sugar levels.
3
Orthostatic hypotension describes a condition in which a person's blood
pressure drops dramatically when the person stands up.
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At the beginning of her hospitalization, S.W. was placed on a regular diet of
800 calories per day with Gatorade four times a day. Her caloric intake was gradually
increased from 800 calories per day to 3,400 calories per day. Nutrition Data Progress
Sheets were filled out weekly to track her treatment progress. Initially, she was not
allowed to exercise. Her level of exercise gradually increased from none, to stretching
only, to being permitted to engage in aerobic exercise. Because of her poor physical
condition, she was prescribed a special mattress to prevent skin breakdown, as well
as several medications, creams and vitamins. She had continued problems with stools
and bloating while her dietary issues and low body weight were being addressed.
Eleven days after her admission, S.W.'s physical condition had finally improved
enough that she was removed from wheelchair precautions, but she remained on fall
precautions. The daily progress notes prepared by S.W.'s treating physician, Dr.
Martin Harrington, consistently listed hypotension, orthostatic pulse, and
bradycardia4 as S.W.'s chief problems. Fourteen days after S.W.'s hospitalization, the
daily progress note prepared by Dr. Harrington states: "Continue inpt tx [inpatient
treatment] as body/vital signs [are] slowly healing from malnutrition." Nineteen days
after her admission, the section of the daily progress notes listing the patient's
subjective state of mind reflects S.W.'s understanding that her hospitalization was
related to her physical condition: "Since my vitals are getting better, will that shorten
my stay?"
By January 2, 2007, twenty-five days after her admission, S.W. had gained a
little over eight pounds, increasing her weight to 85.2 pounds. On January 8, 2007,
a full month after her initial admission, S.W.'s lab work was finally within normal
limits and she had reached a body weight of eighty-seven pounds, ten pounds more
than when she was admitted. On January 12, the Children's Hospital expected S.W.'s
weight to be stabilized by January 18, 2007, at which time it was deemed safe to
4
Bradycardia is an abnormally low heart rate.
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consider transferring her to outpatient care. She was finally discharged from the
hospital on January 17, 2007, forty days after her initial admission. The next day,
S.W. began treatment in the Children's Hospital's partial hospital program (PHP) for
eating disorders. At the time of her admission into the outpatient program, S.W.'s
body weight had reached 91.8 pounds, just above the eighty-nine pound goal set for
her discharge from full hospitalization.
S.W. was covered under a group health insurance policy issued to her father,
Corey Wrenn, through his employer. The policy was issued by Principal and is
governed by ERISA. Principal is both the insurer and the claims administrator.
Provisions in the policy limit the benefits available for "Mental Health,
Behavioral, Alcohol or Drug Abuse Treatment Services."5 Most notably, the policy
had a limit of "not more than 10 days of inpatient services each calendar year for each
insured person" for mental health, behavioral, alcohol or drug abuse treatment
services. In addition, the policy provided that "[i]n the event the Member or
Dependent receives Treatment or Services from more than one condition during the
same period of time, benefits will be paid based on the primary focus of the Treatment
or Service, as determined by The Principal." Appellant's App. at 13 (emphasis added).
5
The policy defines "Mental Health, Behavioral, Alcohol or Drug Abuse
Treatment Services" as follows:
Treatment or Service provided to alter a person's behavior, regardless of
the cause of that behavior, including but not limited to: individual,
family or group psychotherapy; psychological testing; electroconvulsive
therapy; psychiatric diagnostic interview or examination; behavior
modification; psychiatric, alcohol or drug abuse medication
management; biofeedback; alcohol or drug abuse rehabilitation or
counseling services; hypnotherapy; narcosynthesis; milieu or other
therapies (physical, occupational, or speech therapy) used to diagnose or
treat mental health, behavioral, alcohol or drug abuse problems.
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Relying upon the policy's ten-day limit for mental health inpatient services,
Principal paid benefits for ten days of S.W.'s hospitalization in the 2006 calendar year,
and the first ten days of her hospitalization in the 2007 calendar year, but denied
payment of hospitalization benefits beyond that time on the ground that the "primary
focus" of S.W.'s hospitalization was mental health treatment. The hospital charges
Principal refused to pay totaled $44,260.63.
Wrenn filed an administrative appeal of Principal's denial. Principal denied the
appeal. Wrenn was entitled to a second level of appeal, referred to as a voluntary
appeal, and he filed one of those as well. Principal again denied the claim.
On February 7, 2008, Wrenn filed a complaint in federal district court
challenging Principal's denial of the claim. Principal performed a supplemental
review after litigation commenced pursuant to an agreement between the parties.
During the supplemental review, Principal received a report from a psychiatrist it
asked to examine the file. The psychiatrist's report found that S.W.'s hospitalization
was medically necessary (i.e., "does meet General medical necessity criteria for
treatment at the acute inpatient eating disorder level"), for the first twenty-one days
of hospitalization from December 8, 2006, through December 29, 2006. Nonetheless,
Principal again denied Wrenn's claim by letter dated January 9, 2009.
After the supplemental review failed to resolve the dispute, the parties
submitted the matter to the district court on the record and on briefs. Noting the
policy granted Principal discretionary authority to determine eligibility for benefits,
the district court reviewed Principal's decision under an abuse of discretion standard,
considering as a factor Principal's conflict as both insurer and plan administrator. See
Metro. Life Ins. Co. of Am. v. Glenn, 554 U.S. 105, 115-19 (2008) (clarifying the
standard of review that should apply to a conflicted plan administrator). In applying
a straight abuse-of-discretion review, the district court rejected Wrenn's claim that
procedural irregularities in the manner in which Principal handled the claim triggered
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a less deferential standard of review under the sliding scale approach set forth by the
Eighth Circuit in Woo v. Deluxe Corp., 144 F.3d 1157, 1161 (8th Cir. 1998).
Under an abuse-of-discretion standard, the district court determined Principal's
denial of the claim was reasonable. In relevant part, the district court stated:
The mere fact that Principal arguably could have reached a determination
that S.W.'s malnourishment and physical condition were the primary
focus of her hospitalization simply cannot change the fact that Principal's
actual decision, that S.W.'s mental health condition was the primary
focus of her care, was a reasonable one supported by substantial
evidence in the record.
Addendum at 21.
Wrenn filed a timely appeal. On appeal, Wrenn argues the district court erred
in applying an abuse-of-discretion standard of review because of procedural
irregularities in Principal's handling of his claim. Wrenn alternatively argues
Principal abused its discretion in denying his claim.
II
In an ERISA case such as this, we apply de novo review both to the district
court's determination of the appropriate standard of review, as well as to the plan
administrator's decision to deny benefits. See Tillery v. Hoffman Enclosures, Inc.,
280 F.3d 1192, 1196 (8th Cir. 2002) (addressing our review of the standard of review
in an ERISA case); Manning v. Am. Republic Ins. Co., 604 F.3d 1030, 1038 (8th Cir.
2010) (addressing our review of the plan administrator's decision).
Wrenn first argues that procedural irregularities in the manner in which
Principal handled this claim should have triggered a standard of review less
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deferential than abuse of discretion under the sliding scale approach adopted in Woo,
144 F.3d at 1160.6 We find it unnecessary to resolve this issue, as we conclude
Principal's decision cannot stand even when reviewed for abuse of discretion.
In evaluating Principal's denial of benefits "[u]nder the abuse of discretion
standard, the proper inquiry is whether [Principal's] decision was reasonable; i.e.,
supported by substantial evidence." Fletcher-Merrit v. NorAm Energy Corp., 250 F.3d
1174, 1179 (8th Cir. 2001) (internal quotation marks and citation omitted). Thus, in
order for Principal to reasonably deny S.W.'s hospital charges, substantial evidence
had to support its determination that the primary focus of her hospitalization was
mental health treatment, i.e., treatment designed to alter her behavior. While there is
certainly evidence that mental health treatment was one focus of S.W.'s
hospitalization, we conclude there is insufficient evidence to support the determination
that S.W.'s mental health was the primary focus of the hospitalization.
6
Woo held a less deferential standard of review than abuse of discretion applied
whenever "(1) a palpable conflict of interest or a serious procedural irregularity
existed, which (2) caused a serious breach of the plan administrator's fiduciary duty[.]"
Woo, 144 F.3d at 1160. After the Supreme Court's decision in Glenn, the Woo
sliding-scale approach is no longer triggered by a conflict of interest, because the
Supreme Court clarified that a conflict is simply one of several factors considered
under the abuse of discretion standard. The procedural irregularity component of the
Woo sliding scale approach may, however, still apply in our circuit post-Glenn. See
Wakkinen v. UNUM Life Ins. Co. of Am., 531 F.3d 575, 582 (8th Cir. 2008) (stating
"[w]e continue to examine [a procedural irregularity] claim under Woo"); but see
Chronister v. Unum Life Ins. Co. of Am., 563 F.3d 773, 776 (8th Cir. 2009)
(analyzing a procedural irregularity, i.e., a plan administrator's failure to follow its
own claims-handling procedures, as one factor under Glenn's abuse of discretion
standard). Because we conclude Principal abused its discretion, we do not address the
extent to which Glenn may have changed the procedural irregularity component of
Woo's sliding-scale approach.
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First, it is clear S.W.'s severe malnutrition, a physical condition, was the reason
for her admission to the hospital. Her physical health was unstable as shown by a
number of objective criteria. The lack of proper nutrition had caused an orthostatic
pulse, an abnormal EKG, hypoglycemia, and a low blood platelet count. Her unstable
condition could have resulted in additional physical injury in an outpatient setting,
because her low platelet count placed her at significant risk for a spontaneous
hemorrhage or difficulty clotting if she suffered a fall. The hospital setting allowed
her doctors to require her to use a wheelchair and to monitor her use of the bathroom
in order to prevent a fall. S.W.'s malnutrition had also compromised the integrity of
her skin, and the hospital setting allowed the use of a special mattress to prevent skin
breakdown. Finally, the hospital setting allowed S.W.'s caloric intake and exercise to
be closely monitored in order to stabilize her weight, lab work, and vital signs. All
of this evidence indicates the primary focus of the hospitalization itself was S.W.'s
physical health.
Second, to the extent the treating physician's subjective intent in treating S.W.
can be gleaned from the medical records, the records indicate his primary focus was
on S.W.'s physical health, rather than her mental health. The daily progress notes
consistently list S.W.'s chief problems as physical conditions (i.e., hypotension,
orthostatic pulse, and bradycardia) rather than mental conditions. Similarly, S.W.'s
continued admission to the hospital was tied to her physical health rather than her
mental health. One of Dr. Harrington's progress notes specifically states "[c]ontinue
inpt tx as body/vital signs [are] slowly healing from malnutrition." The medical
records also reflect S.W.'s understanding that her continued admission to the hospital
was related to her physical health rather than her mental health, when she asked
whether the improvement in her vital signs would shorten her stay. All of this
evidence points to S.W.'s physical health as being the primary reason for the
hospitalization.
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Third, the record indicates the criteria for discharging S.W. were always
directly tied to her physical health, rather than her mental health. The only discharge
goal ever discussed in the record was for S.W. to reach a stable body weight of eighty-
nine pounds before the Children's Hospital would consider discharging her to an
outpatient treatment program. Significantly, the record shows a correlation between
the body weight goal of eighty-nine pounds and the stabilization of S.W.'s lab work
and vital signs. The Children's Hospital could have obtained its discharge goal –
increasing S.W.'s body weight – with treatment modalities focusing solely on her
physical health (caloric intake and regulation of her physical activities) without ever
addressing the mental aspects of her condition. This evidence strongly indicates the
primary focus of the hospitalization was S.W.'s physical health.
Fourth, although S.W. received mental health treatment while she was
hospitalized, the record lacks any evidence indicating the hospitalization was
necessary to the mental health treatment. In other words, there is no evidence
indicating S.W.'s mental health treatment could not, or would not, have been provided
on an outpatient basis but for the fact S.W.'s poor physical health required
hospitalization. During oral argument, Principal contended the primary focus of
S.W.'s hospitalization was mental health treatment because the medical records "show
that there is no difference in the [mental health] treatment being provided. She was
doing exactly the same things, going to the same classes, having the same therapy, by
the same psychiatric practitioners, both nurse and physician, during inpatient and
outpatient. The only difference is they were four hours a day instead of all day long."
Thus, Principal concedes there was no substantive change to S.W.'s mental health
treatment after she was discharged from the hospital.
Rather than proving S.W.'s mental health was the primary focus of her
hospitalization, we believe the substantive similarity in mental health services
provided to S.W. during both her inpatient and outpatient periods of care proves just
the opposite. Evidence that the mental health professionals could, and did, provide
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S.W. the exact same services whether she was hospitalized or not reasonably leads us
to conclude the reason for the hospitalization was something other than the provision
of mental health services.
Fifth, the record lacks any evidence indicating S.W.'s discharge from the
hospital was connected to, or dependent upon, progress made in the treatment of her
mental health. While there is clear evidence connecting the discharge decision to an
objective measure of S.W.'s physical health (her body weight), Principal points to no
evidence in the record (and we could find none) indicating the discharge decision was
related to some objective measure of the progress in addressing the psychological
components of S.W.'s illness. It does not appear the Children's Hospital was primarily
concerned with altering S.W.'s behavior (the hallmark of Principal's definition of
mental health treatment) before it would consider discharging her.
For example, the record reflects that S.W.'s condition of anorexia nervosa
primarily manifested itself in two ways – a difficulty controlling the urge to restrict
food intake and a difficulty controlling the urge to exercise. The record contains
"Daily Safety Contracts" which required S.W. to rank the severity of her obsessive
thoughts, thoughts of suicide, anger, urges to restrict food intake, to exercise, to purge,
to binge, etc. The severity of the urges were listed on a scale of one to ten, with one
corresponding to "NEVER" and ten corresponding to "ALWAYS." Throughout her
hospitalization, S.W. consistently ranked the urges to restrict food intake and the urge
to exercise higher than the other categories. The daily contracts show S.W. made little
progress in controlling her urges to restrict food intake and to exercise during her
hospitalization, ranking both urges at a high of "6" on the day after her admission, and
still as high as "4" on January 3, 2007 (whereas she consistently ranked all other
categories at or near zero). Indeed, while the record shows S.W. made some progress
in those two areas of her mental health between December 10 and December 25, she
actually appears to have regressed between December 25 and January 14, four days
before her discharge.
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If the primary focus of S.W.'s hospitalization was her treatment for mental
health, we would expect to find some evidence connecting her discharge goal to
progress in affecting a change in her mental health, i.e., controlling her urges to
restrict food intake or to exercise. There is, however, no evidence of that sort in the
record. Thus, even assuming that S.W. made progress in some aspects of her mental
health during her hospitalization, the absence of any evidence connecting such
progress to the decision to discharge her clearly indicates mental health was not the
primary focus of the hospitalization itself.
III
The presence of evidence directly connecting S.W.'s initial and continued
admission and her discharge to objective measurements of her physical health,
coupled with the absence of evidence connecting S.W.'s discharge decision to
improvements in her mental health, clearly indicate Principal unreasonably concluded
the primary focus of S.W.'s hospitalization was treatment for mental health. We
therefore reverse and remand with directions to enter judgment in Wrenn's favor.
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