Second Circuit Affirms United’s Denial of “Facility Fee” Payments to Physicians Performing Office-Based Surgeries in New York

In The Med. Soc’y of the State of New York, et al. v. UnitedHealth Grp. Inc., et al., No. 22-2702-CV, 2024 WL 177448 (2d Cir. Jan. 17, 2024), Plaintiffs, representing a class of participants in United-administered plans who received outpatient surgery at office-based surgery venues (OBSs) in New York State, appealed the district court’s judgment in favor of United finding that United did not violate ERISA when it determined that physicians performing office-based surgeries in New York are not entitled to a “facility fee.” Specifically, Plaintiffs challenged the district court’s reliance on evidence outside the “administrative record” and its interpretation of plan terms. The Second Circuit affirmed the judgment of the district court.

United denied payment of OBS facility fees for class members on grounds that their health plans only covered fees for procedures performed at facilities licensed in New York, and OBSs are not licensed facilities. Plaintiffs challenge United’s automated process to adjudicate claims for facility fees as unreasonable under ERISA, pointing to Section 230-d of New York’s Public Health Law, which authorized and regulated surgeries performed at OBSs. After a five-day bench trial, the district court found in favor of United. Plaintiffs appealed on two grounds, both of which the Second Circuit rejected.

First, with respect to Plaintiffs’ argument that the district court improperly considered evidence outside the administrative record, the Second Circuit found no abuse of discretion. The court explained that where a challenge is not to the merits of a decision to deny benefits, but to the procedure used to reach the decision, a district court may consider evidence outside of the administrative record. The district court considered medical coding evidence, industry standards such as Medicare practices, other payors’ OBS facility fee policies, and United’s correspondence with regulators. Because Plaintiffs are challenging United’s claims-adjudication process, the district court did not abuse its discretion by admitting evidence related to that process.

Second, with respect to Plaintiffs’ challenge of the district court’s conclusion that United’s determination that Section 230-d OBSs are not licensed as facilities was a reasonable interpretation of plan terms, the court determined that interpretation of individual plan terms is not relevant to the class claims, but if it were, Plaintiffs do not prevail under the arbitrary-and-capricious standard of review. The court explained: “Plaintiffs argue first that OBSs constitute ‘licensed’ facilities under the term’s plain meaning because OBSs are accredited under Section 230-d of New York State’s Public Health Law, which is a form of licensure. But the district court’s conclusion to the contrary that the term ‘license’ in these plans refers specifically to facilities licensed under Article 28 of New York’s Public Health Law was not without reason. The district court reasonably considered the fact that this construction of the term ‘license’ is consistent with Medicare reimbursement policies and the practices of all major private payers. Plaintiffs argue second that the plain meaning of the plan term ‘facility’ includes OBSs. Here again, we conclude that the district court’s contrary interpretation—noting that United’s plans distinguish between ‘offices’ on the one hand and ‘facilities’ on the other—was not arbitrary and capricious.”