The Medical Society of the State of New York v. UnitedHealth Group Inc.

Background

The plaintiffs were the Medical Society of the State of New York, the Society of New York Office Based Surgery Facilities, and Columbia East Side Surgery, P.C. The defendants were UnitedHealth Group Inc., United HealthCare Services, Inc., United HealthCare Insurance Company, United HealthCare Service LLC, Optum Group, LLC, Optum, Inc., and Oxford Health Plans LLC, collectively called “United.”

The dispute concerned United’s administration of health plans governed by the Employee Retirement Income Security Act of 1974 (ERISA). The plaintiffs argued that United violated ERISA by refusing to pay separate “facility fees” for surgeries performed in physician offices. The opinion addressed two counts:

- Count I: Columbia East Side sought benefits for 31 claims involving 29 patients. The claims sought $1,507,102.33 in facility fees, and United had paid Dr. Darrick Antell $400,000 in professional fees for the procedures. - Count II: Columbia East Side, the Medical Society, and the Society of New York Office Based Surgery Facilities sought class-wide declaratory and injunctive relief. They alleged that United systematically failed to review plans adequately to determine whether facility fees should be paid for office-based surgeries.

The court held a five-day bench trial in February 2022 and then considered the parties’ post-trial briefs.

Legal standard

ERISA permits a plan participant or beneficiary to sue to recover benefits due under a plan. When a plan gives the administrator discretion to interpret the plan or determine eligibility, the court reviews a benefits denial under an arbitrary-and-capricious standard. Under that standard, a denial may be overturned if it lacks a reason, lacks substantial supporting evidence, or is legally wrong.

The court also applied ERISA’s claims-procedure requirements. Those requirements call for reasonable procedures designed to ensure that benefit decisions follow the plan documents and are applied consistently, as well as notices stating the specific reasons for a denial and providing a meaningful opportunity for review. The court identified reasonableness as the substantive standard for evaluating United’s procedures.

Findings about United’s plans and procedures

United administered both fully insured and self-funded ERISA plans. The plans generally distinguished between facilities and physician offices. Hospitals and other qualifying facilities commonly received facility-fee reimbursement, while physician-office services appeared as a separate coverage category without a separate facility fee. No plan in the record expressly stated that a physician office was a facility entitled to a separate facility fee.

The court found that United reviewed plan language before agreeing to administer plans and incorporated the relevant terms into automated and manual claims-processing systems. Around 2005, United personnel reviewed its plan language, industry practices, coding standards, state law, and reimbursement policies to determine whether physician offices were entitled to facility fees. The court credited testimony that hundreds of plan documents had been reviewed and did not require those payments.

United used a process called a “C Flag” when a physician office sought a facility fee. The process interrupted automated payment, asked the provider to show facility licensure, and explained that an office without that licensure should use the office place-of-service code. Explanation-of-benefits letters sent to patients and providers stated that the claim was denied because United could not verify that the provider was licensed to bill as a facility.

The court also considered New York law. Article 28 of the New York Public Health Law governs hospitals and freestanding ambulatory surgery centers. Office-based surgery under section 230-d is performed in a location other than an Article 28 hospital, and physician offices operate under the physician’s medical license rather than an Article 28 facility license. The court found that New York law did not require insurers to pay separate facility fees for surgery performed in a physician’s office.

Conclusions on Count II

The court found for United on the claim for declaratory and injunctive relief. It concluded that United sufficiently reviewed the relevant plan terms and reasonably determined that the plans did not require separate facility-fee payments to physician offices. Medicare reimbursement practices, other insurers’ practices, and New York law provided relevant context for United’s interpretation, although those sources did not themselves determine what any particular plan covered.

The court also found that United’s C Flag process was a reasonable way to administer benefits consistently with the plan terms. United was not required to reconsider an entire plan document every time a new claim was submitted. The court further found that the different versions of United’s explanation-of-benefits language adequately told patients and providers that the claims were denied because the entity was not licensed to bill as a facility and explained how the provider could seek reconsideration.

Conclusions on Count I

The court likewise found for United on Columbia East Side’s benefit claims. United had discretion to decide coverage questions, and the plaintiffs did not show that United’s interpretation was unreasonable. The plans covering the 31 claims distinguished offices from facilities, some defined a facility by requiring an Article 28 license, and none expressly provided facility-fee benefits for physician offices.

Because Columbia East Side was not an Article 28-licensed facility, the court concluded that United reasonably determined it was not entitled to separate facility fees. The court therefore found for United on Count I.

Disposition

The court found in favor of the defendants on all counts. It directed the Clerk of Court to enter final judgment for the defendants and close the case.