Killian v. Healthsource Provident Administrators, Inc., 152 F.3d 514 (6th Cir. 1998) – decided June 30, 1998 – United States Court of Appeals for the Sixth Circuit – Robert E. Hoskins

I represented Carolyn Matkin in this case. Ms. Matkin, unfortunately, passed during the pendency of the appeal and the administrator of her estate, Killian, was substituted as the party plaintiff. Killian is one of a series of cases from the 1990s where I represented a plaintiff seeking coverage from an ERISA governed health insurance plan for high dose chemotherapy supported by a peripheral stem cell rescue (HDC/PSCR). In this case, the district court ruled with me and found that plaintiff was entitled to the insurance coverage she sought. (Click here to see the district court opinion.) Actually, the Sixth Circuit reversed the district court on that specific holding and, in the end, never decided the substantive coverage issue. The Sixth Circuit’s Killian opinion is about procedure, procedure, and procedure.

Of the many ERISA cases I have handled over the years, Killian is the most frequently cited. (I am sure that the Supreme Court’s decision in LaRue will pass it; click here to see this site’s discussion of LaRue.) As of March 2008, Killian had been cited over 230 times including several briefs to the United States Supreme Court. In fact, Killian is cited and discussed in the briefs to the United States Supreme Court in Glenn v. Metropolitan Life Insurance Company; (click here to see the opinion of the Supreme Court on Glenn). Killian is the Sixth Circuit’s seminal decision on the impact of a conflict of interest on the applicable standard of review for an ERISA claim.

Killian involved a self-funded ERISA benefit plan. The plan did something very foolish during the course of the pendency of Killian’s claim. Before litigation was instituted and during the review process, I submitted a number of materials to the plan administrator to be considered in conjunction with my client’s appeal of the denied claim decision. The plan refused to consider the information I submitted and wrote to me and actually told me that they would not consider those materials. However, the plan continued to compile materials that were favorable to its cause and did include the materials favorable to a denial in its review process, subsequent to telling me that it would not consider the materials I submitted. That decision by the plan lead directly to the Sixth Circuit’s holding in this very important case. The Sixth Circuit actually held that based upon the materials the plan administrator had ACTUALLY considered that the denial was not an abuse of discretion (the district court had held to the contrary). It is no surprise that the Sixth Circuit would so hold given that the insurer had compiled a “cherry picked” record. However, the Sixth Circuit noted that the case before it was not about substance, but was about procedure. As the court noted:

“The key question, however, is what constitutes the universe of information that Healthsource should have considered. As we shall explain, Healthsource acted arbitrarily and capriciously in formulating the limitations it placed on the information it would take into account.”

The court went on to issue what has become the definitive holding in the Sixth Circuit addressing the conflict of interest factor for ERISA reviews. The court held:

“Healthsource both funds and administers the plan at issue here. Accordingly, it incurs a direct expense as a result of the allowance of benefits, and it benefits directly from the denial or discontinuation of benefits. See Mitchell v. Eastman Kodak Co., 113 F.3d 433, 437 (3d Cir. 1997). That is, “as administrator, it interprets the plan, deciding what expenses are covered, and as insurer of the policy, it ultimately pays those expenses.” Peruzzi v. Summa Medical Plan, 137 F.3d 431, 433 (6th Cir. 1998). Healthsource characterizes this situation as giving rise to a “potential conflict” of interest. This characterization is incorrect: there is an actual, readily apparent conflict here, not a mere potential for one. The question is simply whether Healthsource’s actions vis-à-vis Matkin were improperly influenced by its conflict. In Firestone Tire & Rubber v. Bruch, 489 U.S. 101, 103 L.Ed.2d 80, 109 S. Ct. 948 (1989), the Court noted that “if a benefit plan gives discretion to an administrator or fiduciary who is operating under a conflict of interest, that conflict must be weighed as a ‘factor in determining whether there is an abuse of discretion.’” Id. at 109 (quoting Restatement (Second) of Trusts § 187, Comment d (1959)); see Peruzzi, 137 F.3d at 433.

Healthsource argues that the district court erred with respect to its conclusions regarding the conflict of interest, because Healthsource relied entirely on the advice of independent medical reviewers in concluding that the procedure requested by Matkin was not medically necessary. This is true, as far as it goes: the doctors who actually reviewed Matkin’s request had no financial stake in the performance of the Healthsource plan. This observation, however, does not address the heart of the procedural peculiarities in this review process.

As we have already described, the plan does not prescribe an appeal procedure for the preauthorization context; the appeal procedure to which Healthsource points relates exclusively to claims for procedures that have already been undergone. Thus, Healthsource’s protestations to the contrary notwithstanding, the plan cannot be said to have required Healthsource to reject the additional material; by its terms, the plan simply does not address the proper procedure for appealing from a denial of preauthorization. And as the district court observed, the distinction between an appeal from a claim denial and an appeal from a preauthorization denial is not an empty one. A preauthorization denial implicates wholly different considerations from a denial of a claim for already-accrued costs. In the latter case, the universe of relevant information is frozen at the time that the procedure was undertaken; in the former case, there is a dynamic situation with constantly evolving considerations. This is illustrated rather dramatically here, when Healthsource’s expressed reason for denying coverage was that there was insufficient clinical data supporting use of HDC in Matkin’s circumstances. If a new study definitively proving the efficacy of HDC had come out after Healthsource’s initial denial but before Matkin had undergone treatment, we doubt that Healthsource would take the position that it does not have to consider the study.

We note, further, that Healthsource continued to review information pertaining to Matkin’s request for benefits after the deadline it had communicated to Matkin. The third opinion from Dr. Desch and the information received from the University of Alabama favored Healthsource’s denial of benefits - - but, obviously, it is not open to a plan administrator to curtail consideration of the information propounded by the plan beneficiary, while continuing to accumulate information that bolsters a denial decision already made.

In sum, taking into consideration Healthsource’s conflict of interest, we conclude that Healthsource acted arbitrarily and capriciously. It was not required by the plan to forestall consideration of additional information, and it in fact did consider additional information favorable to the denial of benefits. This behavior makes no sense in the absence of an improper financial motive, and we therefore infer that Healthsource’s actions were shaped by its conflict of interest.”

Interestingly, the Sixth Circuit’s Killian holding that a plan which “both funds and administers the plan at issue” suffers from an inherent and presumed conflict of interest is in direct opposition to one of my cases from the Fourth Circuit, Colucci v. Agfa, 431 F.3d 170 (4th Cir. 2005). (Click here to see this site’s discussion of Colucci.) Colucci dealt with a self-funded plan and the Fourth Circuit held that the mere fact that Colucci’s employer both funded and administered the ERISA plan was not enough, by itself, to cause the court to automatically apply a conflict of interest factor in its deferential review. I petitioned the Supreme Court for certiorari in Colucci because its holding was in direct conflict to Killian. (Click here to see the petition for certiorari in Colucci.) The petition for certiorari was denied and, in my view, Killian and Colucci constitute a clear and direct conflict between the Fourth and Sixth Circuits on the relevant issue. The Supreme Court decided the relevant issue in Glenn holding essentially that the Sixth Circuit's view in Killian is correct and that the Fourth Circuit's view in Colucci was wrong.