Scheff v. Blue Cross Blue Shield of North Dakota

1
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NORTH DAKOTA
)
Gary D. Scheff, 	) 	ORDER RE: MOTION FOR
) 	DISCOVERY
Plaintiff, 	)
)
vs. 	)
)
Blue Cross Blue Shield of North Dakota, 	)
) 	Case No.: 4:15-cv-173
)
Defendant. 	)
_____________________________________________________________________________
Before the Court is Plaintiff Gary D. Scheff’s Motion for Discovery (Doc. No. 40). 	For
the reasons given below, this motion is DENIED.
I. 	Background
The underlying suit stems from a disputed air ambulance bill in the amount of $57,750.
See Doc. No. 33. The following information is drawn from the administrative record in this case.
(Doc. Nos. 47-52).
On December 6, 2013, Scheff presented to the emergency room at Mercy Hospital in
Williston, North Dakota, with abdominal pain and distension. (Doc. No. 47, p. 13-14). He was
diagnosed with a small bowel obstruction. Id. His physician determined that Scheff should be
immediately transported to a hospital in Billings, Montana, which could provide a higher level of
care. (Doc. No. 47, p. 19). Valley Med Flight, Inc. (“VMF”) transferred Scheff to Billings in a
medical transport aircraft. (Doc. No. 47, p. 13-14).
At the time of the medical transport, Scheff participated in an employee welfare benefit
plan through his employer, Go Wireline LLC. The Claims Administrator for the plan was
defendant Blue Cross Blue Shield of North Dakota (“BCBSND”). (Doc. No. 47, p. 28-32).
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Terms of the plan are set forth in a document entitled “Summary Plan Description.” (Doc.
No. 47, pp. 28-113). According to the Schedule of Benefits contained therein, the plan
distinguished between participating health care providers and non-participating health care
providers. Under “Nonparticipating Health Care Providers,” the Summary states:
If a Member receives Covered Services from a Nonparticipating Health Care Provider
within the state of North Dakota, benefit payments will be based on the Allowance and
reduced by an additional 20%. The 20% payment reduction does not apply toward the
Out-of-Pocket Maximum Amount. The Allowance will not exceed 80% of the billed
charge.
The Member is responsible for the 20% payment reduction and any charges in
excess of the Allowance for Covered Services.
(Doc. No. 47, p. 40) (emphasis in original).
The term “Allowance” is defined later in the Summary as “the maximum dollar amount
that payment for a procedure or service is based on as determined by the Claims Administrator.”
(Doc. No. 47, p. 102).
The dollar amounts for specific allowances are not provided in the Summary, but the
allowances at issue in this case are set forth in a document entitled “Blue Cross Blue Shield of
North Dakota Ambulance Fee Schedule.” (Doc. No. 49, p. 13). According to the Ambulance Fee
Schedule, one-way air ambulance service (Code A0430) was assigned a rate of $4,520.73, and
air mileage (Code A0435) was assigned a rate of $14.98 per statute mile. (Doc. No. 49, p. 13).
VMF, the company which provided Scheff the emergency transport, was apparently a
nonparticipating provider. (Doc. No. 49, p. 12). The “Claim Payment Review” provided by
BCBSND in relation to this charge shows that VMF’s charges for the air ambulance transport
were significantly higher than the provided on the BCBSND Ambulance Fee Schedule. (Doc.
No. 49, p. 12). For one-way air ambulance service, VMF charged $21,500, while BCBSND paid
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$4,520.73. For mileage, VMF charged $125.00 per mile, while BCBSND paid $14.98 per mile.
(Doc. No. 49, p. 12-13). The mileage rates were multiplied by 290 (presumably the number of
miles flown by the air ambulance in this case) resulting in a total VMF mileage charge of
$36,250.00 and a total BCBSND mileage payment of $4,344.20. Id.
Ultimately, VMF’s charges totaled $57,750.00, and BCBSND’s reimbursement totaled
$8,864.93. Id. at 12. Scheff was left with a balance of $48,885.07. Id.
Scheff brought the instant complaint under the Employee Retirement Income Security
Act of 1974 (“ERISA”) to recover the remaining balance from BCBSND, along with interest,
attorneys’ fees, and costs. He amended his complaint several times. See Doc. Nos. 1, 18, 33.
The action was stayed on November 16, 2016, to allow Scheff to re-submit his claim to
the BCBSND claims administrator. (Doc. No. 32). After completion of this process, including an
appeal submitted on March 16, 2019 (Doc. No. 51, p. 2), Scheff’s claim was again denied. (Doc.
No. 40, p. 3). The stay was lifted on November 13, 2018. (Doc. No. 39).
Shortly thereafter, Scheff filed the instant motion for leave to serve discovery requests on
BCBSND. (Doc. No. 40). BCBSND responded in opposition, and Scheff replied. (Doc. No. 41,
42). The administrative record was filed on May 11, 2020. (Doc. Nos. 47-52).
II. 	Applicable Law
Federal Rule of Civil Procedure 26(b)(1) defines the general scope of discovery in federal
courts as follows:
Parties may obtain discovery regarding any nonprivileged matter that is relevant to
any party's claim or defense and proportional to the needs of the case, considering the
importance of the issues at stake in the action, the amount in controversy, the parties'
relative access to relevant information, the parties' resources, the importance of the
discovery in resolving the issues, and whether the burden or expense of the proposed
discovery outweighs its likely benefit. Information within this scope of discovery need
not be admissible in evidence to be discoverable.
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Fed. R. Civ. P. 26(b)(1).
The scope of discovery in ERISA cases is further curtailed, as described below.
A. 	General Prohibition on Discovery in ERISA Cases and Limited Exceptions
Under the Employee Retirement Income Security Act of 1974 (“ERISA”), a person who
is denied benefits under an employee benefit plan may challenge that denial in federal court. 29
U.S.C. § 1001 et seq., see § 1132(a)(1)(B). 	In ERISA cases, review is generally limited to
evidence that was before the administrator, and discovery is not allowed. See Jones v. ReliaStar
Life Ins. Co., 615 F.3d 941, 945 (8th Cir. 2010). This limitation on evidence ensures
“expeditious judicial review of ERISA benefit decisions” and prevents “district courts from
becoming substitute plan administrators.” Donatelli v. Home Ins. Co., 992 F.2d 763, 765 (8th Cir.
1993).
Yet there are some narrow exceptions to this general rule. A district court may permit the
admission of additional evidence if the plaintiff shows “good cause” for the court to do so.
Brown v. Seitz Foods, Inc., Disability Ben. Plan, 140 F.3d 1198, 1200 (8th Cir. 1998). Discovery
may be permitted to establish either a palpable conflict of interest or serious procedural
irregularity. See Farley v. Arkansas Blue Cross & Blue Shield, 147 F.3d 774, 776 n.4 (8th Cir.
1998). However, a conflict of interest or procedural irregularity “will ordinarily be apparent on
the face of the administrative record or will be stipulated to by the parties.” Farley, 147 F.3d at
776 	n.4. 	As 	such, 	“the 	district 	court 	will 	only 	rarely 	need 	to 	permit 	discovery 	and
supplementation of the record to establish these facts.” Id. (emphasis added). For instance, in
Jones, the Eighth Circuit held that an exception to the general prohibition on discovery was
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unwarranted when the defendant conceded to the existence of a conflict of interest. Jones, 615
F.3d at 945.
In situations where a conflict of interest is not apparent from the record, a district court
may permit discovery “if the plaintiff makes a showing of good cause.” Menz v. Procter &
Gamble Health Care Plan, 520 F.3d 865, 871 (8th Cir. 2008) (citing Brown, supra) (emphasis
added).
Furthermore, at least some courts have found additional justification for permitting
increased discovery into conflict-of-interest factors after the 2008 Supreme Court case of Metro.
Life Ins. v. Glenn, where the Court held that conflicts of interest exist in ERISA cases whenever
the same entity both determines benefits eligibility under an ERISA plan and pays the benefits
out of its own pocket. Glenn, 554 U.S. 105, 128 S. Ct. 2343, 2344, 171 L. Ed. 2d 299 (2008).1
B. 	Significance of Standard of Review
A federal court reviewing a plan administrator’s denial of ERISA benefits exercises a de
novo 	standard 	of 	review 	“unless 	the 	benefit 	plan 	gives 	the 	administrator 	or 	fiduciary
discretionary authority to determine eligibility for benefits or to construe the terms of the plan.”
Waldoch v. Medtronic, Inc., 757 F.3d 822, 829 (8th Cir. 2014), as corrected (July 15, 2014)
quoting Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d
80 (1989). If the plan grants such authority, the plan administrator’s decision is reviewed for
abuse of discretion, a “deferential” standard. Waldoch, 757 F.3d at 829, 832.
1 The Eighth Circuit has not decided whether Glenn affects discovery limitations in ERISA cases. See Atkins v.
Prudential Ins. Co., 404 F. App'x 82, 85 (8th Cir. 2010) (“We have not yet decided whether Glenn affects discovery
limitations under ERISA. . .”). District courts have varied on the subject. See Winterbauer v. Life Ins. Co. of N.
Am., 2008 WL 4643942, at *4-5 (E.D. Mo. Oct. 20, 2008) (surveying district-court interpretations of Glenn); see
also Barnes v. Ascension Health Alliance, 2017 WL 3006882, at *2 (E.D. Mo. July 14, 2017) (same).
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Certain past cases have based the decision on whether to allow discovery on the standard
of review. For instance, the Eighth Circuit stated in 1998 that “[a]dditional evidence gathering is
ruled out on deferential review, and discouraged on de novo review to ‘ensure expeditious
judicial review of ERISA benefit decisions and to keep district courts from becoming substitute
plan administrators.’” Brown, 140 F.3d at 1200, citing Cash v. Wal–Mart Group Health Plan,
107 F.3d 637, 641–42 (8th Cir.1997). Yet the rule has evolved such that the above exceptions
appear to apply in both deferential and de novo review. See Frerichs v. Hartford Life & Accident
Ins. Co, 2011 WL 13352169, at *3 (D. Minn. May 17, 2011) (summarizing Eighth Circuit cases
acknowledging that limited discovery can be permitted even in deferential review cases upon a
showing of good cause).
Additionally, the question of standard of review may itself be a ground for admission of
evidence beyond the administrative record. The general rule prohibiting discovery “is relaxed
when evidence is admitted for the limited purpose of determining the proper standard of review.”
Waldoch, 757 F.3d at 830.
In sum, limited discovery may be permissible in certain ERISA cases, but only upon
plaintiff’s showing of good cause and in the court’s discretion.
III. 	Analysis
Scheff gives several justifications for his discovery request, some of which appear to run
together. They can be roughly sorted into four broad categories. First, Scheff cites BCBSND’s
status as “back-up insurer” as a “palpable conflict of interest.” Second, he ascribes BCBSND’s
reimbursement decision to its “contentious litigation” with Valley Med Flight, the air ambulance
provider. 	Third, he opines that the language of the appeal denials (authored after the case was
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resubmitted to BCBSND) indicates that the denials were actually written by attorneys. Lastly, he
appears to argue that BCBSND’s decision was unjustified in general.
A. 	BCBSND’s Role as Back-Up Insurer
Scheff first argues that BCBSND’s status as back-up insurer constituted a “palpable
conflict of interest,” creating “financial and other improper motivations” which allegedly guided
their adjudication of Scheff's claim. He cites the United States Supreme Court case of
Metropolitan Life Ins. Co. v. Glenn on the subject:
Often the entity that administers the plan, such as an employer or an insurance
company, both determines whether an employee is eligible for benefits and pays
benefits out of its own pocket. We here decide that this dual role creates a conflict
of interest; that a reviewing court should consider that conflict as a factor in
determining whether the plan administrator has abused its discretion in denying
benefits; 	and 	that 	the 	significance 	of 	the 	factor 	will 	depend 	upon 	the
circumstances of the particular case.
Glenn, 554 U.S. at 108, citing Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109
S.Ct. 948, 103 L.Ed.2d 80 (1989).
Judging from the language of the plan, it does appear that BCBSND is liable for any
portions of claims exceeding the “stop-loss” point of $25,000. See, e.g., Doc. No. 49, p. 19.
Since BCBSND both determines whether Scheff was eligible for benefits and paid those benefits
over the amount of $25,000, its dual role creates a conflict of interest as contemplated in Glenn.
But, as Glenn dictates, “the significance of the factor will depend upon the circumstances of the
particular case.” Glenn, 554 U.S. at 108. The Eighth Circuit has held that such discovery is only
appropriate if “a conflict of interest is not apparent from the record,” and then only upon a
showing of good cause. Menz, 520 F.3d at 871 (citing Brown, supra) (emphasis added).
Here, the conflict of interest is apparent from the record. The situation is analogous to
Jones, where the court held that an exception to the general prohibition on discovery was
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unwarranted because the defendant conceded that it was both insurer and administrator. Jones,
615 F.3d at 945. As BCBSND notes in its response, the essential facts regarding its status as
back-up insurer are clear from the administrative record. It is unclear what further information
Scheff is seeking. His allegation of bias due to BCBSND’s dual role fails to constitute good
cause for discovery.
B. 	Litigation with VMF
Scheff also argues contends that a conflict of interest exists based on the existence of
another suit between the defendants and Valley Med Flight. He writes:
Mr. Scheff’s claims denial also appears to be the product of improper
motives – his provider had recently ended its participation agreement with
BCBSND. BCBSND and VMF have also been engaged in contentious litigation
with each other, particularly during the time period in which Mr. Scheff’s appeals
upon stipulated remand were being administered. See Valley Med Flight, Inc. v.
Blue Cross Blue Shield of North Dakota, No. 3:16-cv-70 (D.N.D. 2016). Mr.
Scheff believes his air ambulance claim (and perhaps more than 100 other
transport claims) was caught in the middle of the dispute.
(Doc. No. 40, p. 4).
Scheff then alleges that BCBSND’s “legal warring” with Valley Med Flight caused
“financial and other improper motivations to infect the entire process,” resulting in an unfair
benefits determination.
Scheff’s assertions on this subject are nothing more than speculation. They do not
constitute good cause to conduct discovery.
C. 	Denial Authorship
Scheff's third justification for discovery is his suspicion regarding the authorship of his
final denial letter. Specifically, he hypothesizes that the letters denying his most recent appeal
were, in fact, “written by lawyers using ‘pen names’ of BCBSND employees.’” This impression
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was apparently prompted by the “legalistic and highly technical details” and “verbose, lawyerly
explanations” contained therein. On this foundation, he requests a variety of discovery, including
metadata, to ascertain “the true authors of the denial letters.”
Scheff failed to include a copy of the denial letter for the Court’s review. But even if he
had, the Court cannot see how his accusations could possibly merit further inquiry. As BCBSND
points out in its response, Scheff cites no authority for the proposition that a claims denial could
not be drafted by an attorney. Scheff attempts to answer this with a further hypothetical, arguing
that if the denials were drafted by “outside counsel, under retainer to litigate multiple, similar
issues,” then those individuals would have a conflict of interest. Again, this is purely speculative.
Against the background of ERISA cases and the general rule that discovery is not permitted,
Scheff cannot justify discovery into a conflict of interest on the basis that such discovery could,
hypothetically, reveal a conflict of interest. His circular reasoning is insufficient to constitute
good cause for the wide-ranging discovery he requests.
D. 	Alleged Lack of Evidentiary-Based Rationale
Scheff's final justification for discovery is closely linked to his argument on the merits on
the underlying case. In his words, “[t]he crux of Mr. Scheff's case is that BCBSND’s actions in
setting a reimbursement rate payable under Mr. Scheff's Plan were not based on any substantial
evidence, analysis, or evaluation.” (Doc. No. 40, p. 5). He accuses BCBSND of failing to justify
its air ambulance reimbursement rate and/or failing to disclose any documentation of such
justification, thereby violating its fiduciary duties under ERISA. He criticizes the Ambulance Fee
Schedule for “[saying] nothing in terms of how BCBSND determined its rate. . . The outcome of
Plaintiff’s remand was predetermined.” On the basis of this “extremely problematic” behavior,
Scheff requests discovery “for evaluating the conflicts and determining the appropriate standard
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of review.” He also implies that other beneficiaries may not have been treated consistently by
BCBSND.
In support of his request, Scheff cites numerous ERISA provisions, including: 29 C.F.R.
§ 2560.503-1 for the proposition that plan provisions must be applied “consistently with respect
to similarly situated claimants;” 29 C.F.R. § 2560.503-1(g)(1)(v)(A) for the requirement that
internal rules relied upon in making adverse determinations must be provided to the claimant; 29
C.F.R. § 2560.503-1(h)(2) regarding the requirement of full and fair review of claims; and, 45
C.F.R. § 147.136(D) stating the requirement that claims be adjudicated in a manner designed to
ensure “independence and impartiality of the persons involved in making the decision.”
Addressing first his requests for documentation of other individuals’ air ambulance
claims and benefit determinations, Scheff's claims are unavailing. He argues that if he was
indeed treated consistently with respect to similarly-situated claimants, then BCBSND “should
have no difficulty providing the documentation showing that it pays these same amounts to all its
claimants, as well as supporting documentation concerning how it arrived at the determined
maximum allowable amount.” But determination of benefit eligibility under a plan is “an
individualized matter with each claim to be considered on its own merits.” Ratliff v. Jefferson
Pilot Fin. Ins. Co., 489 F.3d 343, 348 (8th Cir. 2007). And the mere possibility that a similarly-
situated claimant could have been treated differently fails to constitute grounds for discovery.
Scheff presents no convincing reason why discovery is necessary.
His final argument goes to the evidence underlying BCBSND’s decision. In essence,
Scheff is dissatisfied with BCBSND’s use of the Ambulance Fee Schedule to adjudicate his
benefit claim. When BCBSND points to the Ambulance Fee Schedule as justification for its
reimbursement decision, Scheff responds that the fee schedule fails to explain how the fees
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themselves 	were 	determined. 	Yet 	Scheff 	fails 	to 	show 	the 	significance 	of 	this 	missing
explanation. The Court certainly agrees that rules, guidelines, or protocol which a plan
administrator relied upon in making adverse determination must be provided to a claimant. If
BCBSND had failed to do so, supplementation of the record would be ordered. But here,
BCBSND has provided its guidelines. 2 The Court cannot see how its failure to provide the
underlying rationale or thought process behind the fee schedule is “extremely problematic.”
Scheff cites no law stating that such information is required, and BCBSND’s failure to comply
with a non-requirement does not raise the specter of a procedural irregularity.
Scheff is welcome to make whatever attack he wishes against BCBSND’s Ambulance
Fee Schedule on the merits. But he fails to raise any suspicion of a serious procedural irregularity
or conflict of interest such that discovery is appropriate in this case.
Nor is the Court persuaded by the argument that “BCBSND’s abuse of the remand
process” raises any questions as to the appropriate standard of review requiring supplemental
evidence. While the determination of the appropriate standard of review is entirely out of the
undersigned’s hands, Scheff presents no good cause for additional discovery on the matter.
IV. 	Conclusion.
In ERISA cases, discovery is the exception, not the rule. Scheff appears to have a number
of vigorous arguments as to the merits of this case. Yet his disagreement with the substance of
BCBSND’s decision does not rise to the level of a conflict of interest justifying discovery. The
Court is not persuaded that this is one of the “rare” cases where discovery should be permitted.
Farley, 147 F.3d at 776. Accordingly, Scheff's motion (Doc. No. 40) is DENIED.
2 BCBSND also provides a letter shedding at least some light on the calculations behind
its schedule. See Doc. No. 49, p. 14 (“Air ambulance rates for HCPCS codes A0430, A0431 and
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IT IS SO ORDERED.
Dated this 10th day of June, 2020.
/s/ Clare R. Hochhalter
Clare R. Hochhalter
United States Magistrate Judge
A0436 have been increased and are based on the 2012 Medicare rural air ambulance rates.”)
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