In Mitchell v. Blue Cross Blue Shield of N.D., 2020 U.S. App. LEXIS 8818 (8th Cir. Mar. 20, 2020), the Eighth Circuit upheld the payment of 150% of Medicare rates for an out-of-network air ambulance flight, although the patient's health plan did not expressly provide for the use of such rates.

On January 15, 2014, Valley Medical Flight transported the patient via fixed-wing air ambulance when she presented to a rural medical center with an emergency cardiac condition that required treatment at a larger hospital. The patient was covered under a benefit plan (the "Plan") sponsored by her husband's employer and issued by Blue Cross Blue Shield North Dakota ("BCBSND"). The ambulance provider billed BCBSND $33,200, which included a $21,500 charge for the ambulance base rate (HCPCS A0430), an $11,250 mileage charge for the 90-mile flight (HCPCS A0435), and a $450 charge for IV fluids (A0398). In March 2014, BCBSND partially allowed the claim and paid a total of $6,759.98, leaving the patient and her husband responsible for the remainder. BCBSND based the payment amount on 150% of the 2013 Medicare rates for rural air ambulance. In addition, BCBSND denied the separate $450 charge for IV fluids because it was included in the "payment made for a related procedure," namely the air ambulance base rate.

The members then sued BCBSND under ERISA, contending that the payment was arbitrary and capricious, because the Plan did not state that out-of-network services would be reimbursed at 150% of Medicare rates, and that the rate of payment was so low as to violate BCBSND's fiduciary duty to act in the interest of plan members. With regard to out-of-network reimbursement, the plan simply provided that the "allowance" or "allowed charge" was the "maximum dollar amount that payment for a procedure" was based on "as determined by BCBSND." Because the plan did not contain express language calling for the use of Medicare rates on air-ambulance claims, BCBSND relied on a 2014 letter, which had been sent to participating providers, but not plan members. The letter stated that BCBSND would cover air ambulance base rates and mileage charges at 150% of the 2013 Medicare rural air ambulance rate.

The district court affirmed BCBSND's payment of Medicare rates for the base rate and air mileage charges, but overturned BCBSND's denial of the $450 charge for IV fluids, finding that BCBSND's position was an improper post-hoc rationale. The members appealed.

The Eighth Circuit concluded that BCBSND had acted reasonably in basing the ambulance provider's payment on 150% of Medicare rates. First, the plan granted BCBSND discretion, and payment of 150% Medicare rates did not contravene any plan language or render any of its terms superfluous. Second, although BCBSND had not provided the plaintiffs advance notice that payment would be based on 150% of Medicare rates, it ultimately disclosed the basis for the payment during the claim review process. Third, the use of the Medicare rates did not amount to a prohibited post-hoc rationale because those rates had been set forth in the letter BCBSND sent to participating providers just two days before the flight. Fourth, while the plaintiffs contended that BCBSND's payment rate subjected them to excessive balance bill liability—in violation of BCBSND's duty to act for the exclusive purpose of providing benefits to plan members—no rule prohibited the plan sponsor from granting BCBSND broad discretion to determine the allowed amount for the flight. Setting air ambulance reimbursement in accordance with an objective external standard, namely Medicare rates, did not violate any duty BCBSND had to act in the members' interests. The court found that indexing the allowed amount to an external benchmark, such as the "usual and customary amount," or Medicare rates, permits a court to evaluate the reasonableness of the claims administrator's payment decisions.

The court then reversed the district court's determination that BCBSND had adopted a prohibited post-hoc rationale for its denial of the separate charge for IV fluids administered during the flight. After Valley Medical Flight initially submitted its claim, BCBSND issued an EOB explaining that the plan did not cover the separate medical supply charge because it was included in the base rate for air ambulance services. BCBSND therefore had not raised this ground for the denial for the first time in the litigation, and the basis for the denial was consistent with the plan's definition of ambulance services.

This case can be cited for the proposition that a health plan's claims administrator may validly exercise its discretion to base reimbursement for out-of-network services on Medicare rates, even when the plan does not call for the application of such rates, at least when the claims administrator has previously notified participating providers that such rates will be used.