Schwartz v. Oxford Health Plans, Inc. (Summary)

Schwartz v. Oxford Health Plans, Inc., No. 99 CIV 3369 DC (S.D. N.Y. June 11, 2001)

A woman receiving treatment for cancer at a comprehensive cancer center in New York filed this action against her health plan alleging that the plan should reimburse her for the full amount of the center’s charges unless the plan demonstrates that such charges are significantly greater than the amounts regularly charged by other New York cancer centers for the same procedures and medications. The United States District Court for the Southern District of New York, in consideration of the plan’s Grievance Committee’s decision not to reimburse the woman, held that the appropriate standard of review of the plan’s decision is the “arbitrary and capricious” standard, “but with a caveat.” Two inquiries must also be made: (1) whether the determination made by the administrator is reasonable, in light of the possible competing interpretations of the plan; and (2) whether the evidence shows that the administrator was in fact influenced by such conflict. A de novo review is necessitated, said the court, if it finds that the administrator was in fact influenced by the conflict of interest.

With respect to medical services, the court held that it was not reasonable for the plan to base its determination of whether the center’s rates were “usual, customary, reasonable” [“UCR”] rates by comparing the center’s rates to the rates usually charged by individual physicians.” The Court said – “The rates charged by individual physicians were simply not the usual or customary rates charged by facilities comparable” to the cancer center at which the woman received treatment. The court also held, with respect to the medical services reimbursement, that the plan did have a conflict of interest that adversely affected its determinations – previously accepting and paying the center’s charges, the plan only started substantially reducing the woman’s benefits after it publically announced that it had suffered substantial operating losses. As such, the court reviewed on a de novo basis the plan’s decision not to pay for the medical services, and ruled that the plan’s determination of the UCR rates was incorrect.

Reaching a similar conclusion with respect to the plan’s decision not to fully reimburse for pharmaceutical services, the court held that the plan’s decision to set the UCR on the basis of 110% of the average wholesale price for pharmaceuticals was unreasonable. The court stated that “[the plan’s] decision to ignore the actual retail cost of pharmaceuticals, to ignore other available data regarding the cost of pharmaceuticals, and to use instead an arbitrary figure of 10% above wholesale was not reasonable.” In addition to mentioning the plan’s selective use of data, the court held that the plan was influenced by a conflict of interest with respect to the pharmaceuticals in the same manner as with respect to medical services. As such, the court again reviewed the plan’s decision de novo and held that the plan acted unreasonably and inconsistent with its obligation to reimburse the woman up to a maximum of usual, customary and reasonable rates.