F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
MAR 4 1999
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT
RUSSELL JONES AND SUSAN
JONES,
Plaintiffs-Appellants, No. 97-4142
vs.
THE KODAK MEDICAL
ASSISTANCE PLAN,
Defendant-Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
(D.C. No. 94-CV-256C)
Brian S. King (Butch L. Johnson with him on the briefs), King & Isaacson, P.C.,
Salt Lake City, Utah, for the Plaintiffs-Appellants.
Matthew M. Durham (John A. Anderson with him on the briefs), VanCott,
Bagley, Cornwall, & McCarthy, Salt Lake City, Utah, for the Defendant-Appellee.
Before BALDOCK, KELLY, and MURPHY, Circuit Judges.
KELLY, Circuit Judge.
Plaintiffs-Appellants Russell Jones and Susan Jones appeal from entry of
summary judgment for Defendant-Appellee Kodak Medical Assistance Plan
(“KMED” or “Plan”) on claims to recover health benefits under the Employee
Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1001-1461.
The Joneses contend that the district court (1) should have reviewed KMED’s
decision to deny benefits for substance abuse treatment with less deference
because of the Plan Administrator’s alleged conflict of interest; (2) erred in
concluding that the criteria upon which the Plan Administrator based his decision
were part of the Plan and thus could not be reviewed; (3) should have held that
the Plan Administrator acted arbitrarily and capriciously. Our jurisdiction arises
under 28 U.S.C. § 1291, and we affirm.
Background
Plaintiff-Appellant Russell Jones worked for Eastman Kodak and was a
participant in the KMED Plan. His wife, Susan Jones – at all relevant times a
beneficiary of the Plan – had an alcohol abuse problem for which she sought
treatment. Under the Plan, treatment for mental health and substance abuse
problems are subject to pre-certification requirements, and the Plan Summary
explicitly states that failure to obtain pre-certification may result in the reduction
or denial of benefits. See Aplt. App. at 306, 308-310. According to the Plan
Summary, American PsychManagement (“APM”) administers the managed care
review process under which the medical appropriateness of substance abuse
treatment is assessed. See Aplt. App. at 308. KMED informs Plan participants
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that it “does not cover expenses for services and items that are considered
medically unnecessary, experimental, or investigational.” Aplt. App. at 310.
The Plan Administrator has “full discretionary authority in all matters
related to the discharge of his responsibilities . . . including, without limitation,
his construction of the terms of the Plan and his determination of eligibility for
Coverage and Benefits.” Aplt. App. at 297A. The Plan Administrator is an
Eastman Kodak employee, and the Plan is entirely self-funded, which means that
Eastman Kodak employees do not contribute toward the premiums. Rather,
payment for covered medical care comes out of company revenues. See Aplt.
App. at 269, 272, 300.
On March 30, 1993, Sierra Tucson Hospital in Arizona contacted APM to
obtain pre-certification for inpatient alcohol treatment of Mrs. Jones. APM
denied pre-certification the same day on the grounds that (1) inpatient care was
not medically necessary and (2) it would be too difficult for Mrs. Jones’ family to
participate in an out-of-state-program. APM determines the medical
appropriateness of inpatient substance abuse treatment according to six criteria,
three of which the patient must meet. Of the three criteria, one must be a history
of either “structured outpatient rehab with less than one year sobriety/abstinence
following completion of the outpatient program” or “two hospitalizations for
detox with failure to follow up with structured outpatient rehab.” Aplt. App. at
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335. Mrs. Jones did not meet these requirements.
After APM denied pre-certification for the Sierra Tucson program, Mrs.
Jones suffered an alcoholic episode in which she contemplated suicide and,
consequently, was admitted for a short stay at Charter Canyon Hospital in Utah,
the state in which the Joneses resided. APM pre-certified this course of action.
Dissatisfied with Charter Canyon, however, Mr. Jones notified APM on April 1,
1993, that he planned to take Mrs. Jones to Sierra Tucson. Mrs. Jones received
inpatient treatment at Sierra Tucson from April 1 to May 1, 1993. Based on
APM’s refusal to pre-certify the Sierra Tucson program, the Plan declined to
cover these services.
The Joneses pursued their claim through all levels of appeal available
under the Plan. During this process, the Plan Administrator sent relevant medical
information about Mrs. Jones to an independent reviewer, Dr. Richard B.
Freeman, who concluded: “[T]he patient did not meet APM’s admission criteria.
Therefore the case manager acted appropriately according to APM’s guidelines.”
Aplt. App. at 378. However, Dr. Freeman also opined that “the APM criteria are
too rigid and do not allow for individualization of case management.” Aplt. App.
at 379. The Plan Administrator nevertheless denied the Joneses’ claim, and they
filed suit in federal district court.
On June 10, 1996, the district court granted KMED’s motion for summary
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judgment on the grounds that (1) the Plan Administrator’s decision was neither
arbitrary nor capricious and (2) KMED’s failure to include the APM criteria in its
Plan documents did not violate the disclosure requirements of ERISA. The
Joneses were allowed to amend their complaint to allege that the APM criteria
themselves were arbitrary and capricious. But the court subsequently granted
KMED’s second motion for summary judgment because it found that the APM
criteria constituted part of the Plan and thus lay outside the scope of judicial
review. This appeal followed.
Discussion
We consider the district court’s conclusions of law de novo when reviewing
a grant of summary judgment. See Averhart v. U.S. West Management Pension
Plan, 46 F.3d 1480, 1484 (10th Cir. 1994). Summary judgment is appropriate “if
the pleadings, depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment as a matter of
law.” Fed. R. Civ. P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-
48 (1986). After reviewing the record, we conclude that there were no material
facts in dispute in this case.
Because the Plan Administrator had full discretion to determine eligibility
for benefits, the district court properly reviewed the decision to deny Mrs. Jones
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coverage for the Sierra Tucson program under the arbitrary and capricious
standard. See Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 111 (1989).
A. Conflict of Interest
The Joneses contend that the Plan Administrator acted under a conflict of
interest and that, consequently, the court should have given less deference to his
ruling. In support of their position, they cite Chambers v. Family Health Plan
Corp., 100 F.3d 818, 825 (10th Cir. 1996), in which we noted that “all of the
circuit courts agree that a conflict of interest triggers a less deferential standard of
review.” However, rather than viewing a conflict of interest as presumptive
evidence that the plan administrator’s decision was arbitrary and capricious, the
Tenth Circuit has adopted a sliding scale, decreasing the level of deference in
proportion to the severity of the conflict. See id. at 826. The conflict is treated
as one factor in determining whether an abuse of discretion occurred. See id.
Before applying the sliding scale, a court first must decide whether there
was a conflict of interest. See, e.g., Chojnacki v. Georgia-Pacific Corp., 108 F.3d
810, 815 (7th Cir. 1997). In the Joneses’ case, the Plan specifically provided that
its participants “[had] a right to expect ‘fiduciaries’ – the persons who are
responsible for the administration of each plan – to act solely in the interest of
participants and their beneficiaries.” Aplt. App. at 330. The Plan Administrator
was an Eastman Kodak employee, and it is reasonable to assume that the
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employer was conscious of health costs.
However, we decline to hold that a per se conflict of interest exists simply
because the fiduciary works for the company funding the plan. See
Chojnacki,108 F.3d at 815; Hickey v. Digital Equip. Corp., 43 F.3d 941, 946 (4th
Cir. 1994). But see, e.g., Peruzzi v. Summa Med. Plan, 137 F.3d 431, 433 (6th
Cir. 1998) (conflict of interest inherent in self-funded plans). In determining
whether a conflict of interest existed, the court should consider several factors,
including – by way of example only – whether: (1) the plan is self-funded; (2) the
company funding the plan appointed and compensated the plan administrator; (3)
the plan administrator’s performance reviews or level of compensation were
linked to the denial of benefits; and (4) the provision of benefits had a significant
economic impact on the company administering the plan. If the court concludes
that the plan administrator’s dual role jeopardized his impartiality, his
discretionary decisions must be viewed with less deference. See Charter Canyon
Treatment Ctr. v. Pool Co., 153 F.3d 1132, 1135 (10th Cir. 1998); McGraw v.
Prudential Ins. Co. of America, 137 F.3d 1253, 1259 (10th Cir. 1998).
When considering KMED’s second motion for summary judgment, the
district court should have inquired whether a conflict of interest existed before
stating that the alleged conflict represented a factor in its analysis. However, this
error was harmless because Mrs. Jones failed to satisfy the criteria for the pre-
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certification of the Sierra Tucson program. Moreover, she has not presented any
evidence for us to conclude, on appeal, that a conflict of interest existed.
B. Reviewability of APM Criteria
In granting KMED’s second motion for summary judgment, the district
court found that the unpublished APM criteria were part of the Plan’s terms and,
hence, that it could not review them. We agree.
A plan participant has right to know where she stands with respect to her
benefits. See Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 118 (1989);
Blair v. Metropolitan Life Ins. Co., 974 F.2d 1219, 1221 (10th Cir. 1992).
However, ERISA’s disclosure provisions do not require that the plan summary
contain particularized criteria for determining the medical necessity of treatment
for individual illnesses. See Stahl v. Tony’s Bldg. Materials, Inc., 875 F.2d
1404, 1407 (9th Cir. 1989); Pompano v. Michael Schiavone & Sons, Inc., 680
F.2d 911, 914 (2nd Cir. 1982). Indeed, such a requirement would frustrate the
purpose of a summary – to offer a layperson concise information that she can read
and digest. See Stahl, 875 F.2d at 1409. In the instant case, the Plan Summary
expressly authorized APM to determine eligibility for substance abuse treatment
according to its own criteria. The APM criteria did not need to be listed in Plan
documents to constitute part of the Plan.
Because we consider the APM criteria a matter of Plan design and
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structure, rather than implementation, we agree that a court cannot review them.
See Averhart v. U.S. West Management Pension Plan, 46 F.3d 1480, 1488 (10th
Cir. 1994); see also Hein v. Federal Deposit Ins. Corp., 88 F.3d 210, 215 (3d Cir.
1996) (court must enforce plan “as written” unless it violates a specific ERISA
provision). “ERISA does not mandate that employers provide any particular
benefits.” Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 91 (1983). Indeed, an
employer may draft a benefits plan any way it wishes; it does not act as a
fiduciary when it sets the terms of the plan. See Averhart, 46 F.3d at 1488. We
hold that the district court properly granted summary judgment for KMED on the
issue of whether the APM criteria were arbitrary and capricious.
C. Plan Administrator’s Decision
The Joneses challenge the district court’s determination that the Plan
Administrator did not act arbitrarily and capriciously. Under the relevant
standard of review, a court may not overturn a plan administrator’s decision if it
was reasonable, given the terms of the plan, and made in good faith. See Siemon
v. AT&T Corp., 117 F.3d 1173, 1177 (10th Cir. 1997); Averhart, 46 F.3d at 1484.
Even considering the alleged conflict of interest, ruling that inpatient care at
Sierra Tucson was medically unnecessary and geographically inappropriate does
not appear unreasonable. An impartial reviewer, Dr. Freeman, agreed with the
Plan Administrator that Mrs. Jones “clearly [did] not meet the established
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American Psychmanagement criteria for admission to an inpatient rehabilitation
service.” See Aplt. App. at 379. Because the APM criteria were part of the
language of the Plan shielded from judicial review, and because Mrs. Jones
presented no evidence that the criteria were applied in a discriminatory manner in
her case, the Plan Administrator’s reliance on them was neither arbitrary nor
capricious. See Sheppard & Enoch Pratt Hosp., Inc. v. Travelers Ins. Co., 32 F.3d
120, 126 (4th Cir. 1994) (noting, inter alia, that administrator’s interpretation
must be “consistent with the goals of the plan” and “applied consistently”).
The judgment of the district court is AFFIRMED.
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