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Third Circuit Holds HMO May Seek Reimbursement From Liable Third Parties But Finds Plan Ambiguous On Reimbursement Standard


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In an unpublished opinion, the Third Circuit agreed with the district court that the reasonable cash value reimbursement standard is permitted under ERISA but reversed on the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

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