New ERISA Disability Claim Regulations – Part 2
On April 1, 2018, a new disability claim regulation came into effect. The regulation was promulgated by the United States Department of Labor (referred to herein as “DOL”) under the authority of the Employee Retirement Income Security Act of 1974 (“ERISA”) and applies to all employee benefit plans that provide disability benefits.
This is the second in a series of nine blog posts that will summarize important features of the new regulation. The last blog post discussed the history of DOL’s regulation of the disability claim process under ERISA, the rationale for revising the existing regulation, and the types of plans that are covered by the new regulation.
The new regulation amended the existing regulation in the following eight areas:
1. Conflicts of interest involving claims adjudicators and medical and vocational consultants.
2. Additional disclosures required with denial notices.
3. Disclosure of plan criteria.
4. Requires notifications to be made in a “culturally and linguistically-appropriate manner.”
5. Disclosure of new evidence and new rationales prior to denial on review.
6. Disclosure of contractual limitations period deadline.
7. Enhanced remedy for a plan’s violation of the regulation.
8. Expansion of the definition of “adverse benefit determination.”
This blog post will cover the new provisions relative to conflicts of interest involving the plan’s claims adjudicators and medical and vocational consultants.
I. Summary of the Changes to the 503 Regulation
A. Avoiding Conflicts of Interest
1. The Rule
29 C.F.R. § 2560.503-1(b)(7) prohibits a plan from providing financial incentives to its claim adjudicators and medical and vocational consultants.
(b) * * * (7) In the case of a plan providing disability benefits, the plan must ensure that all claims and appeals for disability benefits are adjudicated in a manner designed to ensure the independence and impartiality of the persons involved in making the decision. Accordingly, decisions regarding hiring, compensation, termination, promotion, or other similar matters with respect to any individual (such as a claims adjudicator or medical or vocational expert) must not be made based upon the likelihood that the individual will support the denial of benefits.
2. The DOL’s Comments
The independence and impartiality rules are not limited to persons responsible for making the decision:
In the Department’s view, the text of paragraph (b)(7) is clear that the independence and impartiality requirements are not limited to persons responsible for making the decision.
For example, the independence and impartiality rules apply to consulting experts who do not decide whether to allow the claim but who may “support the denial of benefits.”
The Rule is not limited “to individuals the plan directly hires.” Thus, the independence and impartiality rules govern apply to consultants hired and compensated by third-party service providers, as is typically the case.
The DOL’s final rule publication states:
Similarly, a plan cannot contract with a medical expert based on the expert’s reputation for outcomes in contested cases, rather than based on the expert’s professional qualifications.
During the rule-making process, commentators questioned whether the independence and impartiality requirements would result in claimants requesting discovery into “statistics and other information on cases in which the medical expert expressed opinions in support of denying rather than granting disability benefits” and, more generally, the “reputation” of the consultant. In response, the DOL stated that its preamble statement concerning consultants being hired based on historical outcomes of their cases rather than qualifications, a so-called “reputation” hire, represents one way that the independence and impartiality rules could be violated.
Regarding the issue of discovery, the DOL stated that the requirements of the rule do not expand the scope of “relevant documents” subject to the disclosure requirements of section 2560.503-1(g)(1)(vii)(C) and (h)(2)(iii) of the 503 Regulation. However, the DOL added:
or do the independence and impartiality requirements in the rule prescribe limits on the extent to which information about consulting experts would be discoverable in a court proceeding as part of an evaluation of the extent to which the claims administrator or insurer was acting under a conflict of interest that should be considered in evaluating an adverse benefit determination.
The impartiality of the plan’s medical consultants is a huge issue in ERISA disability litigation. The treating provider rule does not apply. Black & Decker Disability Plan v. Nord, 538 U.S. 822, 831 (2003). Instead, courts have held that it is not an abuse of discretion for a plan to rely on the opinions of its own consulting physician, even if the consultant never examined the claimant. Black & Decker, 538 U. S. at 834. Cf. Boyd v. Liberty Life Assurance Co., 362 F.Supp.2d 660, 669 (W.D.N.C. 2005). (a treating physician’s “opinion as to the severity of the impairment and the interference to the patient’s ability to work that such an impairment causes, generally should not be rejected ‘unless the adjudicator can point to persuasive, contradictory medical evidence.’”).
It seems likely that the DOL’s commentary will embolden claimants to request discovery in the “statistics” concerning the outcomes of claims referred to the plan’s consultants. Some courts have allowed such discovery under the 2002 Regulation:
However, the information Hartford has been ordered to produce – statistics concerning claims referred to Dr. Fuchs and MES by Hartford, the number of cases in which Dr. Fuchs found claimants to be suffering from restrictions preventing work, and any agreements or guidelines pursuant to which MES operated – goes to potential bias within Hartford’s referral process, which may be relevant on the question of its structural conflict of interest. The Court will therefore overrule Defendant’s objection regarding third-party vendors.
Bruce v. Hartford, 21 F. Supp. 3d 590, 598 (E.D. Va. 2014).