HLD, v. 33, n. 4 (April 2005)
Third Circuit Holds HMO May Seek Reimbursement From Liable
Third Parties But Finds Plan Ambiguous On Reimbursement Standard
A health maintenance organization (HMO) may seek reimbursement under
the Employee Retirement Income Security Act (ERISA) from third parties that are
liable for expenses paid by the plan on behalf of its members, the Third
Circuit held recently. But the appeals court reversed a lower court ruling
dismissing the members' complaint, finding that the plan was ambiguous as to
the standard of reimbursement--"reasonable cash value" or "actual cash paid"--to
use under the circumstances.
Kimberly Brunn and Ashley Emanis (plaintiffs) sued HMO Prudential Health Care Plan,
Inc. (PruCare) in federal district court for
violating the terms of the ERISA-governed plan by recovering reimbursement from
its members when third parties were liable for medical expenses paid by PruCare. The plan's reimbursement clause provides that
members must reimburse PruCare from any third-party
recoveries "the reasonable cash value of any benefits provided directly by PruCare" and "the actual cost paid by PruCare
for medical services required by the covered person."
The district court granted PruCare's
motion to dismiss the complaint, holding that the Federal Health Maintenance
Organization Act permitted PruCare to subrogate
recoveries from third parties. The district court also ruled that "the Plan
documents clearly allow for reimbursement of the 'Reasonable Cash Value' for
any service provided by a 'Participating Health Care Provider.'"
In an unpublished opinion, the Third Circuit agreed with the
district court that the reasonable cash value reimbursement standard is
permitted under ERISA but reversed on the ground that the language in the
particular plan at issue was ambiguous as to when that standard, as opposed to
the "actual cost paid" standard, is allowed. Because of this ambiguity,
extrinsic evidence is necessary to resolve the issue and dismissing the
complaint would be improper.
In the appeals court's view, accepting PruCare's
interpretation of when the reasonable cash value standard applies--namely, when
the services are provided by participating healthcare providers--would render
the actual cost paid language superfluous. On the other hand, the agreement
defines reasonable cash value as "[t]he cash value assigned to a service or
supply provided, ordered or authorized by a Participating Health Care
Provider." The only distinguishing factor between the two standards is whether
the benefits are "provided directly by PruCare" but
the plan fails to define what this means, the appeals court said.
The appeals court found nothing in the plan explaining when to
use the reasonable cash value standard as opposed to actual cost paid standard.
Thus, the appeals court reversed the district court's judgment and remanded for
further consistent proceedings.
Bruun v. Prudential Health Care Plan, Inc.,
No. 03-4469 (3d Cir. Feb. 16, 2005). To read the case, go to http://www.ca3.uscourts.gov/opinarch/034459np.pdf