Hewko et al v. Regence Blueshield et al

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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ALASKA
PETER HEWKO,
Plaintiff,
vs.
COFFMAN ENGINEERS, INC.;
COFFMAN ENGINEERS, INC.
WELFARE PLAN; REGENCE BLUE
SHIELD,
Defendants.
Case No. 3:19-cv-00169-JWS
ORDER ON MOTIONS
FOR SUMMARY JUDGMENT
Docs. 77 and 101
I. 	MOTIONS PRESENTED
At docket 77 Defendant Regence Blueshield (Regence) filed a motion for
partial summary judgment, to which Defendant Coffman Engineers, Inc. and
Coffman Engineers, Inc. Welfare Plan (collectively, Coffman) joined at docket 78.
The motion seeks dismissal of Plaintiff’s first two claims, which are based on a
denial of benefits. Plaintiff Peter Hewko (Plaintiff) filed his response and his cross-
motion for summary judgment at docket 101. Regence filed its response/reply at
docket 105. Plaintiff replied at docket 111. Regence filed a surreply with the court’s
permission at docket 118. Oral argument would not be of assistance to the court.
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II. 	BACKGROUND
Plaintiff was formerly employed by Coffman, which provides health insurance
benefits to its employees by and through a self-funded benefits plan, the Coffman
Engineers, Inc. Welfare Plan (the Plan). The Plan is regulated and governed by the
Employee Retirement Income Security Act (ERISA). Regence is the “Claims
Administrator” for the Plan and as such provides administrative services for claims
made under the Plan. Regence has discretion under the Plan, as the Claims
Administrator, to interpret the Plan and make benefit determinations,1 but Regence
does not assume any financial risk or obligations with respect to claims.2 All covered
medical services and supplies are paid for by Coffman.3
In June of 2016, while employed with Coffman and eligible for benefits under
the Plan, Plaintiff suffered a cerebral stroke. He was hospitalized and incurred
substantial medical expenses both during and after his hospitalization, including
expenses stemming from rehabilitative services. The Plan had a provision covering
rehabilitation services. Under that provision, Plaintiff’s rehabilitative therapy was
covered, but the benefit was limited to 30 inpatient days per calendar year and 25
outpatient visits per calendar year.4 In April of 2017, Plaintiff’s mother, Jane
Hewko, learned that there was a provision in the Plan that covered
1 A.R. 3540.
2 A.R. 3542, 3482.
3 A.R. 3482.
4 A.R. 3508, 3586, 3664
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neurodevelopmental therapy services. That provision included coverage for
unlimited inpatient therapy and 25 outpatient therapy visits per calendar year.5
Plaintiff, through his mother, wrote Regence to request that Plaintiff’s family be
reimbursed for out-of-pocket costs related to Plaintiff’s rehabilitation that she
believed should have been covered under the neurodevelopmental therapy provision,
because unlike the rehabilitation services provision it provides unlimited inpatient
therapy.6 Regence denied the request, explaining that it had never received a claim
from one of Plaintiff’s providers that showed Plaintiff was eligible for
neurodevelopmental therapy.7 Regence argues that this decision is correct under the
Plan. It asserts that Plaintiff was only eligible for benefits under the rehabilitation
services provision because, based on what was submitted to Regence by his
providers, therapy was needed to help him regain skills or functions that he had lost
as a result of an illness. It asserts that Plaintiff was not eligible for benefits under the
neurodevelopmental therapy provision because that provision only applies to services
needed to treat delays in normal development and unrelated to an injury or illness.
This ERISA lawsuit followed. Plaintiff asserts three claims against
Defendants.8 The first is based on a denial of benefits. The complaint alleges that
Regence abused its discretion by denying him neurodevelopmental therapy benefits.
5 A.R. 3501, 3579, 3657
6 A.R. 1355-1357.
7 A.R. 1363-1364.
8 Doc. 61.
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It also alleges that Regence misrepresented the available coverage by telling Plaintiff,
his family, and the hospital that his coverage for restorative therapies was limited to
30 inpatient days and not informing him about the unlimited inpatient benefits
available under the neurodevelopmental therapy provision. The complaint alleges
that Regence abused its discretion when it failed “to engage [in] adequate and
reasonable communications . . . regarding [Plaintiff’s] benefits under [the Plan] and
what was required to obtain those benefits . . . ” and that his appeal rights were not
adequately explained.9
The second claim is one for equitable surcharge. Plaintiff alleges that as a
result of the denial by Regence, he has had to pay for medical, rehabilitative, or
attendant care that should have been paid for under the terms of the Plan. He
requests reimbursement from Defendants.
The third claim is that Regence and Coffman failed to provide requested
information and documents related to the Plan and that this failure prejudiced his
efforts to obtain benefits. He requests an award pursuant to 29 U.S.C. § 1132(c)(1)
and/or (c)(3).
Regence filed this motion for partial summary judgment on Plaintiff’s first
two claims because “they are predicated on [Plaintiff’s] mistaken claim that he is
entitled to neurodevelopmental therapy benefits and that Regence misadvised him
9 Doc. 61 at p. 8.
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regarding whether he was entitled to those benefits.”10 It asserts that the plain
language of the Plan unequivocally covers Plaintiff’s therapy under the rehabilitative
services benefit and that even if there were some ambiguity Regence’s interpretation
is entitled to deference as reasonable. Given that Plaintiff was not eligible for
neurodevelopmental therapy benefits, Regence argues, it did not fail to inform him
about the availably of those benefits. Plaintiff, in turn, requests summary judgment
in his favor arguing that the Plan’s provision for unlimited inpatient
neurodevelopmental therapy benefits applied to his situation and that Regence’s
decision should not be accorded deference under the abuse of discretion standard
because of Regence’s errors and miscommunication. Regence does not seek
summary judgment as to Plaintiff’s third claim.
III. 	STANDARD OF REVIEW
Where an ERISA plan grants “discretionary authority to determine eligibility
for benefits or to construe the terms of the plan” the default standard of review is for
abuse of discretion.11 Here, it is undisputed that the Plan grants Regence
discretionary authority to determine eligibility for benefits and to construe the Plan’s
terms and conditions. Consequently, Regence’s interpretation of the Plan’s
10 Doc. 77 at p.2.
11 Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989); Tapley v. Locals 302 &
612 of Int’l Union of Operating Eng’rs-Emp’rs Const. Indus. Ret. Plan, 728 F.3d 1134,
1139 (9th Cir. 2013).
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provisions addressing rehabilitative and neurodevelopmental therapy benefits is
reviewed for abuse of discretion.
While a Rule 56 motion can be filed in an ERISA case governed by an abuse
of discretion standard, “[t]raditional summary judgment principles have limited
application” in such cases.12 “[T]he usual tests of summary judgment, such as
whether a genuine dispute of material fact exists, do not apply.”13 Instead, a motion
for summary judgment is “merely the conduit to bring the legal question before the
district court.”14
IV. 	DISCUSSION
Regence’s interpretation of the Plan
Plaintiff received coverage for his restorative therapy pursuant to the Plan’s
rehabilitation services provision. The benefits under that provision were limited in
nature. After an inquiry from Plaintiff’s mother as to whether he could be covered
under the more generous neurodevelopmental therapy provision, Regence determined
that Plaintiff was not eligible for benefits under that provision because it only
covered therapy needed to restore function due to a developmental delay and not due
to an illness, such as a stroke. When reviewing Regence’s interpretation of the Plan
for abuse of discretion, the court must grant its decision a “high level of deference.”15
12 Stephan v. Unum Life Ins. Co. of Am., 697 F.3d 917, 929 (9th Cir. 2012).
13 Id. at 930 (quoting Nolan v. Heald College, 551 F.3d 1148, 1154 (9th Cir. 2009)).
14 Id.
15 Tapley, 728 F.3d at 1139.
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The court will not disturb the decision unless the interpretation is “not grounded on
any reasonable basis.”16 Regence’s interpretation of the Plan as to coverage “need
not be the one this court would have reached, but only an interpretation which has
rational justifications.”17 This standard, however, is not necessarily a rubber stamp.
The court must closely read the contested terms and apply basic principles of contract
interpretation to the analysis.18 Consequently, Regence’s interpretation constitutes an
abuse of discretion standard if it: (1) conflicts with the plain language of the Plan; (2)
“renders nugatory” other provisions in the Plan; or (3) “lacks any rational nexus” to
the primary purpose of the Plan.19
The court turns first to the plain language of the Plan’s neurodevelopmental
therapy provision. That provision reads as follows:
NEURODEVELOPMETAL THERAPY. . .
The Plan covers inpatient and outpatient neurodevelopmental therapy
services. . . . To be covered, such services must be to restore or
improve function. Covered Services include only physical therapy,
occupational therapy and speech therapy and maintenance service, if
significant deterioration of the Claimant’s condition would result
without 	the 	service. 	You 	will 	not 	be 	eligible 	for 	both 	the
Rehabilitation Services benefit and this benefit for the same services
for the same condition.20
16 Id. (quoting Oster v. Barco of Cal. Emps.’ Ret. Plan, 869 F.2d 1215, 1218 (9th Cir.
1988)).
17 Id. at 1140 (quoting Smith v. CMTA-IAM Pension Trust, 654 F.2d 650, 655 (9th Cir.
1981)).
18 Id.
19 Id.
20 A.R. 3501, 3579, 3657. There is a slight difference in wording in the 2018 version, but
that difference is not relevant to the court’s analysis.
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Read alone, the provision covering neurodevelopmental therapy is unclear because
the term “neurodevelopmental” is not defined in the Plan, and the use of the phrase
“restore or improve lost function” could reasonably suggest that it covers therapy
needed to regain function a claimant once had. However, Regence’s determination
that this provision covers therapy needed only as a result of delays in normal
development does not conflict with its plain language. It falls within the ordinary
sense of the term “neurodevelopmental,” which is defined as “relating to, or
involving the development of the nervous system.”21 Development, in turn, is
defined as “related to growth” or “[t]he growth or formation of an organ or other
structure that is a natural part of the anatomy of an organism.”22 Neurodevelopmental
disorders are generally described as “a group of conditions with onset in the
developmental period[,] . . . typically manifest[ing] in early development . . . and are
characterized by developmental deficits that produce impairments of personal, social,
academic, or occupational functioning.”23 Indeed, Regence’s interpretation
corresponds with the Washington Administrative Code’s description of
“neurodevelopmental therapy” as consisting of therapy needed “to restore or improve
function based on developmental delay.”24
21 Neurodevelopmental, Oxford English Dictionary,
https://www.oed.com/view/Entry/126386 (last visited April 14, 2021).
22 Development, Oxford English Dictionary, https://www.oed.com/view/Entry/51434 (last
visited April 14, 2021).
23 Diagnostic and Statistical Manual of Mental Disorder, S2H1 (5th ed. 2013).
24 Wash. Admin. Code 284-43-5642(10)(a)(i). The parties do not dispute that Washington
law applies under the Plan.
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Regence’s interpretation of neurodevelopmental therapy as applying only to
those needing therapy because of a developmental delay does not render other
provisions in the Plan “nugatory.” To the contrary, this interpretation is all the more
reasonable when considered in light of the rehabilitation services provision. The
rehabilitative services provision in the 2016 version of the Plan reads as follows:
REHABILITATION SERVICES . . .
The 	Plan 	covers 	inpatient 	and 	outpatient 	rehabilitation 	services
(physical, 	occupational 	and 	speech 	therapy 	services 	only) 	and
accommodations as appropriate and necessary to restore or improve
lost function cause by Illness or Injury. 	You will not be eligible for
both the Neurodevelopmental Therapy benefits and this benefit for the
same services for the same condition.25
It specifically identifies when coverage under this provision is triggered: when a
claimant needs therapy to restore or improve “lost function caused by Illness or
Injury.”26 A stroke falls within the Plan’s definition of illness.27
The distinction between rehabilitative therapy and neurodevelopmental
therapy is even more clear in the revised rehabilitation services provision as it is set
forth in the 2017 and 2018 versions of the Plan, which read as follows:
The 	Plan 	covers 	inpatient 	and 	outpatient 	rehabilitation 	services
(physical, 	occupational 	and 	speech 	therapy 	services 	only) 	and
accommodations as appropriate and necessary to help a person regain,
maintain, or prevent deterioration of a skill or function that has been
acquired but then lost or impaired due to Illness, Injury or disabling
condition. You will not be eligible for both the Neurodevelopmental
25 A.R. 3508.
26 A.R. 3508.
27 A.R. 3544, 3624, 3702.
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Therapy benefit and this benefit for the same services for the same
condition.28
The provision clarifies that it applies when rehabilitation is needed to help a claimant
regain a function that he once had but lost, which would be the situation occurring
with a stroke. Nothing about Regence’s interpretation lacks a rational nexus to the
purpose of the Plan.
In sum, the court concludes that Regence’s interpretation of the Plan and its
resulting decision that Plaintiff did not qualify for the neurodevelopmental therapy
benefit was not an abuse of discretion. It is a reasonable to conclude that a claimant
can only be covered for restorative services under the neurodevelopmental therapy
provision if those services are meant to restore normal levels of functioning after a
diagnosis of developmental delay and that such services rendered after a stroke fall
under the rehabilitative services provision.
Other factors related to abuse of discretion review
Plaintiff argues that this court should apply a level of skepticism to Regence’s
decision here, because “a claims administrator’s discretionary authority can be
overrode (sic) when there is evidence of bias driven decision making or flagrant
procedural violations.”29 The abuse of discretion standard is not outright replaced by
a de novo standard except in the “rare class of cases” where the “administrator
engage[d] in wholesale and flagrant violations of procedural requirements of ERISA”
28 A.R. 3586, 3664-65.
29 Doc. 101 at p. 24.
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such as “failing to comply with virtually every applicable mandate of ERIA.”30
Instead, the existence of a procedural irregularity is simply a factor to be considered
in deciding whether an administrator’s decision was an abuse of discretion.31
Evidence that the administrator “engaged in an ongoing, good faith exchange of
information” with the claimant suffices to accord broad deference to the decision
despite any procedural errors.32 The same is true of a conflict of interest. It is a
factor to be considered on a case-by-case basis.33 “An egregious conflict may weigh
more heavily (that is, may cause the court to find an abuse of discretion more readily)
than a minor, technical conflict might.”34 Even in a situation where there is a
structural conflict of interest—where the same entity which makes the benefits
determination is that same entity funding the ERISA plan— the decision will still be
accorded deference if unaccompanied by “evidence of malice, of self-dealing, or of a
parsimonious claims-granting history.”35
While Plaintiff acknowledges that Regence does not have a structural conflict
of interest because it does not fund the Plan, it argues that the court should
nonetheless look skeptically upon its decision given its overall conduct here. In
support of his position, he cites this court’s decision in Mason v. Federal Express
30 Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 971 (9th Cir. 2006).
31 Id. at 972.
32 Id. (internal quotation marks omitted).
33 Id. at 968.
34 Id.
35 Id.
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Corporation.36 In Mason, this court concluded that the plan administrator was
operating under a conflict of interest even though a structural conflict was not
present. It gave credence to the argument that the claims administrator had financial
incentives to provide favorable financial results for the company funding the ERISA
plan based on specific factual and procedural irregularities related to the
administrator’s review of the claimant’s medical record—including the
administrator’s attempt to influence a medical determination regarding whether the
claimant was disabled.37
There are no equivalent irregularities or potential conflicts in the record here.
Plaintiff points to two denials by Regence to show that its decision making was
irregular here. A couple of months after his stroke, Regence denied Plaintiff’s pre-
authorization request for a neurorehabilitative program offered through Rehab
Without Walls, a home health care service.38 Coverage for Rehab Without Walls
depended on the Plan’s separate home health care provision, not the
neurodevelopmental therapy provision. Indeed, the program offered through Rehab
Without Walls was described as a home neurorehabilitative program, not a
neurodevelopmental program.39 Regence denied the preauthorization request
because it concluded that Rehab Without Walls provided and charged for premium
36 165 F. Supp. 3d 832 (D. Alaska 2016).
37 Id. at 850-56.
38 A.R. 517-19.
39 A.R. 511.
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home health services that were not medically necessary.40 This specific denial itself
is not at issue in this case41 and the denial does not otherwise cast doubt on
Regence’s interpretation of the neurodevelopmental therapy provision. It does not
suggest a concerning irregularity or inconsistency in the record, a failure to
investigate, or the presence of bias or self-dealing.
The same is true of Regence’s 2018 denial of Plaintiff’s pre-authorization
request for a long-term stay at Quality Living in Omaha, Nebraska, which is a skilled
nursing facility providing rehabilitation services. Coverage for this stay had to meet
the requirements under the Plan’s skilled nursing facility provision, although
Plaintiff, through his mother, asserted it could be covered under the
neurodevelopmental therapy provision. Regence denied the request as not medically
necessary, but Plaintiff appealed that decision, and as a result of that appeal, Regence
approved a limited 10-day stay under the Plan’s skilled nursing facility provision.
Plaintiff now argues that the 10-day stay was far less than what was authorized under
any of the various therapy provisions; but whether a longer stay should have been
authorized under the skilled nursing facility provision is not at issue in this case.
Rather, the complaint alleges that this stay should have been authorized pursuant to
his neurodevelopmental therapy benefits, which Regence reasonably determined
40 A.R. 517.
41 There was no appeal filed to challenge Regence’s determination that the offered home
health services of Rehab Without Walls was medically necessary, and the complaint in this
case does not address this issue specifically.
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were not available to Plaintiff. The facility did not propose treatment that could be
coded as neurodevelopmental therapy. Indeed, the record shows that the Quality
Living representative told Regence that the facility was not providing developmental
therapy services and that it was her understanding that stroke victims were not coded
as having developmental conditions.42 Again, nothing about Regence’s limited
authorization suggests the presence of bias or self-dealing, a failure to review the
claim, or some other inconsistency.43
Plaintiff argues that procedural errors and misleading communications by
Regence as to his neurodevelopmental therapy benefits weigh heavily against
Regence in the abuse of discretion analysis. He relies on a letter his mother received
on August 31, 2017 from Regence.44 That letter was in response to her July 26, 2017
letter to Regence, in which she challenges Regence’s failure to inform her about the
Plan’s neurodevelopmental therapy benefits.45 Her letter is premised on her belief
that Plaintiff was in fact eligible for such benefits; she complains in the letter that if
Regence would have informed her about the availability of these benefits Plaintiff
would have been able to remain in the hospital longer, and she asserts that the Plan’s
neurodevelopmental benefits should have covered more of his rehabilitation.
42 Doc. 111-2 at pp. 12-14.
43 Indeed, Regence points to evidence that the 10-day stay could be extended depending on
whether his providers at Quality Living could show that Plaintiff had made progress at the
facility during his stay. A.R. 1184-85.
44 A.R. 1363-1364.
45 A.R. 1356-57.
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Regence’s response letter states that the Plan does in fact provide for
neurodevelopmental therapy benefits but that “[b]enefits are applied to services on
claims submitted to Regence based on the diagnosis codes listed on the claims by the
performing providers.”46 Regence goes on to explain that Plaintiff’s care providers
had not submitted any claims with the necessary neurodevelopmental diagnosis code
and therefore he was not eligible for reimbursement under that provision.47 While
the letter does not explain why Plaintiff’s injuries do not fall within the confines of
the neurodevelopmental therapy provision, it places the onus on Plaintiff to discuss
the diagnosis with his providers. The letter is not egregiously misleading, nor does it
guarantee coverage under the neurodevelopmental therapy provision. In it, Regence
clearly rejects Plaintiff’s request for reimbursement and explains that Plaintiff will
not be able to receive such benefits unless Regence receives a claim from his treating
providers that is coded as neurodevelopmental. The denial is consistent with its own
internal communications.48
Plaintiff also argues that Regence failed to respond to his attorney’s letter
dated January 25, 2019.49 Like this lawsuit, the letter is premised on the assumption
that Plaintiff had been entitled to neurodevelopmental benefits and therefore more of
his therapy should have been covered under the Plan. It also specifically challenges
46 A.R. 1363.
47 A.R. 1364.
48 A.R. 1359-62.
49 A.R. 3367-71.
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Regence’s denial for pre-authorization to stay at Quality Living. Regence argues that
it did discuss the letter with Plaintiff’s attorney and was told that it was not an appeal
of any specific decision but rather was a legal complaint.50 The letter was routed to
Regence’s legal department.51 Plaintiff disputes the veracity of Regence’s account
and maintains that Regence did not properly follow up on this appeal letter.52 The
court need not decide the issue, because even if Regence failed to properly process
the letter as an appeal, any such irregularity does not warrant a finding that Regence
abused its discretion in handling Plaintiff’s continued demands for
neurodevelopmental therapy benefits. There was an open line of communication
between Regence and Plaintiff, and Regence told Plaintiff that none of his providers
coded the services rendered to him as neurodevelopmental to warrant the application
of those Plan benefits.
In his reply, Plaintiff provides the transcripts of phone calls between his
mother and a Regence representative in late 2018 as evidence that Regence admitted
that he should have received neurodevelopmental therapy benefits or at least
egregiously misled him as to Regence’s position. Indeed, in the first conversation it
appears that the representative did not understand the neurodevelopmental therapy
50 Doc. 105 at pp. 9-10; Doc. 106.
51 Doc. 105 at p. 10; Doc. 106. Regence filed a motion to supplement the administrative
record with an internal email that included task notes related to these discussions. Plaintiff
did not file an objection to the motion itself, but he objects to the relevancy and veracity of
these notes in his reply brief.
52 Doc. 111 at p. 20.
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benefit or what could trigger eligibility for the benefit. She was clearly confused as
to how the neurodevelopmental therapy benefit differed from the rehabilitative
services benefit.53 She made many, what appear to be, incorrect or misleading
statements. However, a review of these conversations indicate this representative
nonetheless made clear that the benefits Regence provides under the Plan depends on
what the health care provider codes for treatment.54 She told Plaintiff’s mother she
would call the provider at issue, which was Quality Living, and discuss her
understanding of the benefit.55 The Regence representative then placed a call to
Quality Living and that facility’s representative informed her that it does not bill
treatment as developmental because, while there is no age restriction on who can
obtain developmental therapy, such treatment does not apply to people requiring
rehabilitation due to a stroke.56 After that discussion, on December 5, 2018,
Regence’s representative told Plaintiff’s mother that she had researched the issue
further and that a stroke is not considered neurodevelopmental under the applicable
list of diagnosis codes.57 She stated that neurodevelopmental therapy occurs when a
patient needs to regain a function that he never had.58
53 See, e.g, doc. 111-1 at pp. 14-15.
54 Id. at pp. 5, 22.
55 Id. at pp. 15, 19.
56 Doc. 111-2 at pp. 12, 14.
57 Doc. 111-3 at pp. 2-3.
58 Id.
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These various discussions show that Regence was in fact working with
Plaintiff and engaging in a good faith effort to understand the full possibility of his
benefits and to be responsive to his continued demand for coverage under the Plan’s
neurodevelopmental therapy benefit. Consequently, despite any procedural errors or
miscommunications that may have occurred, there is nothing in the record casting
doubt on whether Regence’s interpretation should be accorded deference.
V. 	CONCLUSION
Based on the preceding discussion, Regence’s motion for partial summary
judgment at docket 77 is GRANTED. Plaintiff’s cross motion for summary judgment
at docket 101 is DENIED. 	Plaintiff’s claims for denial of benefits and equitable
surcharge are hereby dismissed.
IT IS SO ORDERED this 19th day of April, 2021, at Anchorage, Alaska.
/s/ John W. Sedwick
JOHN W. SEDWICK
Senior United States District Judge
Case 3:19-cv-00169-JWS Document 120 Filed 04/19/21 Page 18 of 18