                                                                        F I L E D
                                                                 United States Court of Appeals
                                                                         Tenth Circuit
                     UNITED STATES COURT OF APPEALS
                                                                         AUG 14 2003
                                   TENTH CIRCUIT
                                                                    PATRICK FISHER
                                                                             Clerk

 KATHY LEFLER, RAY JUDD,
 MICHAEL TUFT, MATTHEW
 SWAINSTON and the class of
 similarly situated persons,
                                                        No. 01-4228
          Plaintiffs/Appellants,                           (Utah)
                                                (D. C. No. 2:95-CV-1109-S)
 v.

 UNITED HEALTHCARE OF UTAH,
 INC., a Utah corporation, formerly
 known as Physicians Health Plan of
 Utah,,

          Defendant/Appellee.


                             ORDER AND JUDGMENT *


Before TACHA, Chief Circuit Judge, HARTZ and O’BRIEN, Circuit Judges.


      In 1995, Ms. Kathy Lefler and other plaintiffs (Class) brought this class

action against United HealthCare of Utah, Inc. (United), a health maintenance

organization, under the Employee Retirement Income Security Act of 1974



      *
        This order and judgment is not binding precedent except under the
doctrines of law of the case, res judicata and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
(ERISA) 2, seeking to recover benefits due under an employee welfare benefit

plan, 29 U.S.C. §1132(a)(1)(B) 3, and for other equitable relief, 29 U.S.C.

§1132(a)(3). The Class challenged United’s method of calculating co-payments,

which it alleged violated the terms of the plan because it effectively increased

their percentage contribution to the actual cost of covered services. Concluding

United’s practice resulted from a reasonable interpretation of the benefit plan, the

district court granted summary judgment to United and denied summary judgment

for the Class. Exercising jurisdiction under 28 U.S.C. §1291 (2002), we affirm.

      Factual Background

      United is licensed in Utah, but owned by parent United HealthCare Services,

Inc., located in Minnesota. During the class period, 1992 to 1995, United

provided health insurance to approximately 100,000 people in Utah through

employer-sponsored health insurance plans governed by ERISA. In most

instances, employees contributed to the premiums. United was a fiduciary 4 under


      2
          29 U.S.C. §§1001 through 1461 (1995).
      3
       The Class consists of employees and dependents with average claims
between $100.00 and $200.00. The Class abandoned its claims for declaratory
and injunctive relief since United changed its challenged practice in 1995. This
lawsuit is thus limited to what minimal individual refunds might be available to
members of the Class. Of course, attorneys fees and costs are also at stake.
      4
       “[A] person is a fiduciary with respect to a plan to the extent (i) he
exercises any discretionary authority or discretionary control respecting
management of such plan or exercises any authority or control respecting
management or disposition of its assets, . . . or (iii) he has any discretionary

                                          -2-
the plans. Policy terms were stated in a Certificate of Coverage, which along with

its Schedule of Benefits constituted the plan documents for an employer unit. The

Schedule of Benefits varied according to the coverage elected by a particular unit,

but provided for beneficiary co-payments stated as a percentage of eligible

expenses, usually ten or twenty percent.

      The participants were required to obtain health services from “participating

providers” with whom United had negotiated contracts. Among other things, those

providers charged United discounted rates. United calculated participant co-

payments based upon full billed charges but paid providers against the discounted

rates. 5 That is the source of the Class’ dissatisfaction. As a consequence of

United’s practice, the Class members claim to have unknowingly and

inappropriately paid a greater percentage of the actual cost of the service than the

co-payment percentage stated in their Schedule of Benefits.

      In none of the plan documents did United promise to pay the difference




authority or discretionary responsibility in the administration of such plan.” 29
U.S.C. §1002(21)(A).
      5
       For example, if a health service was billed at $1,000.00 and the plan
required a twenty percent co-payment, a participant would pay $200.00 directly to
the provider. And, if United had arranged a discounted fee of $800.00 for the
service, it would pay only $600.00. As a result, the participant’s actual share
would be twenty-five percent, not twenty percent.

                                           -3-
between the co-payment and the amount billed, or any other specified amount. 6

United did not disclose in the plan documents or in any Explanation of Benefits

provided to the Class members that it had negotiated a discount from participating

providers’ regular, full billed charges. Nor did it reveal the amount it paid to

participating providers (the difference between the co-payment and the discounted

rate). The Certificate of Coverage only described a participating provider as one

with whom United had entered into “a written agreement . . . to provide health

services to covered persons.” (R. at 246).

      During the Class period, Utah Code Ann. §31A-26-301.5(2)(c) provided:

“[T]he insurer shall notify the insured of payment and the amount of payment made

to the provider.” 7 On its Explanation of Benefits, United only indicated the amount

it paid to a provider was a “contracted fee.” (R. at 486-87). But occasionally a bill

from a participating provider to a participant would clearly state the amount paid by

United, and the co-payment methodology employed. There were common instances

where a co-payment was the only amount paid for the service because of United’s

negotiated discounted fee with the provider.

      Borrowing established Medicare practice, United routinely considered the

      6
       This plan contrasts with conventional indemnity insurance in which the
insurer agrees to pay all covered charges exceeding the participant’s co-payment.
      7
       Legislative history establishes the purpose of this language was to pass
through to an insured discount rates negotiated between a health service provider
and a payor-insurer.

                                         -4-
full billed charges submitted by participating providers to be “reasonable and

customary charges” under the plan. In support of this practice, it filed an

affidavit from Dr. William Cleverly, an expert in the health care industry.

According to Dr. Cleverly, hospitals submit a standard charge for services to

insurers and other payors on a form used industry-wide and generated by the

federal Health Care Financing Administration (HCFA), which administers the

Medicare program. But those standard charges are typically discounted in

accordance with individual contracts negotiated between payors and service

providers. Under Medicare, for example, the patient’s percentage co-payment is

calculated against the full billed charge, even though Medicare pays the hospital a

reduced fee set by government regulation and tied to a provider’s reasonable cost.

      United also submitted the affidavit of Terry Cameron, a consultant for

health care providers, who stated individual physicians also submit standard

charges on a widely used HCFA form. Like hospital fees, these charges are based

on a uniform schedule even though the amounts the physicians actually receive

often vary according to the payor. According to Mr. Cameron, the standard

charges are fed into databanks maintained by the Health Insurance Association of

America (HIAA) and others, and used to compile information on reasonable and

customary charges around the country. Significantly, in her deposition, Class

expert Mary Covington, an insurance claims auditor, pointed out that United


                                         -5-
considers any charge at or below the eighty to eighty-fifth percentile of the HIAA

schedules to be “reasonable and customary.” Charges above the eighty to eighty-

fifth percentile were considered ineligible.

      United’s evidence revealed that co-payment methods were routinely

explained to units enrolled in the plan and to the Class members, usually when

employers were comparing different insurance plans in the market or during

enrollment meetings with employees. 8 The declared advantage of this practice

was lower premiums since United’s premiums were experience-rated, that is,

directly tied to actual expenditures for health care service. 9 The named Class

members denied knowledge of this practice. But, in affidavits submitted by

United, two participants who were not named members of the Class stated they

were aware of United’s co-payment methodology. Each considered United’s

practice an advantage since it lowered premium rates and slowed rate increases.

The Minnesota Department of Health, an agency with jurisdiction over United’s

parent company, had approved an identical co-payment methodology. Prior to

1992, the Department’s rules limited co-payments to twenty-five percent of the

provider’s “costs or charges.” To dispel confusion between “cost” and “charge,”


      8
          Affidavits of independent insurance agents Donald Sparks.
      9
       Mr. Sparks’s market research showed that if United was to calculate co-
payment percentages against a discounted fee it would result in an increase of one
percent in cost of premiums for an employer.

                                         -6-
a 1992 amendment to the rules deleted the word “cost” and explicitly limited the

co-payment to twenty-five percent of the “provider’s charge,” defined as “the fees

charged by the provider which do not exceed the fees that provider would charge

any other person . . . .” Minn. R. 4685.0801 (1999). 10 However, there was no

evidence any other insurer in Utah calculated co-payment percentages as United

did during the class period.

      District Court Decision Under Review

      In addition to its claims under 29 U.S.C. §1132(a)(1)(B), 11 the Class

alleged United breached its fiduciary responsibility. It sought, under 29 U.S.C.

§1132(a)(3), 12 to impose a constructive trust for monies it contends were

improperly held as a result of United’s co-payment methodology.



      10
         In spite of protests from organizations taking a position identical to that
of the Class in this case, an administrative law judge recommending adoption of
the amendment wrote, “[t]he proposed rules are intended to clarify that the
provider’s charge is a proper basis for calculating the co-payment.” Minn. Office
of Administrative Hearings, Report of Administrative Law Judge, 11-0900-6030-
1, p.5 (1992), 1992 WL 811246, p.4.
      11
        “A civil action may be brought – (1) by a participant or beneficiary . . .
(B) to recover benefits due to him under the terms of his plan, to enforce his
rights under the terms of the plan, or to clarify his rights to future benefits under
the terms of the plan.” 29 U.S.C. §1132(a)(1)(B).
      12
         “A civil action may be brought – (3) by a participant, beneficiary, or
fiduciary (A) to enjoin any act or practice which violates any provision of this
subchapter or the terms of the plan, or (B) to obtain other appropriate equitable
relief (i) to redress such violations or (ii) to enforce any provisions of this
subchapter or the terms of the plan. 29 U.S.C. §1132(a)(3).

                                          -7-
      With respect to the §1132(a)(1)(B) claim, the district court found both the

Class’s interpretation of the plan language (co-payment percentages should be

applied against a provider’s discounted rate) and United’s interpretation of the

same language (co-payment percentages should be applied against the full billed

charge) to be reasonable. Because the policy language was susceptible to two

reasonable interpretations, the district court concluded it was ambiguous.

However, since United enjoyed the prerogative to construe policy terms and

conditions, and since its construction was not arbitrary or capricious, the district

court granted summary judgment to United. Since the Class presented an

arguable § 1132(a)(1)(B) claim, the district court, relying on Varity Corp. v.

Howe, 516 U.S. 489 (1996), concluded its § 1132(a)(3) claims were foreclosed

and dismissed them.

      Standard of Review

       We review de novo the district court’s grant of summary judgment under

Fed. R. Civ. P. 56(c), viewing the evidence and reasonable inferences to be drawn

from it in the light most favorable to the nonmoving party. Simms v. Okla. ex rel.

Dep’t of Mental Health & Substance Abuse Servs., 165 F.3d 1321, 1326 (10th Cir.

1999), cert. denied 528 U.S. 815 (1999). However, there is a nuance to the

standard of review as it applies to a §1132(a)(1)(B) claim. It concerns United’s

exclusive right, under its Certificate of Coverage, to construe the terms and


                                          -8-
conditions of the plan. The Supreme Court has held “a denial of benefits

challenged under §1132(a)(1)(B) is to be reviewed under a de novo standard

unless the benefit plan gives the administrator or fiduciary discretionary authority

to determine eligibility for benefits or to construe the terms of the plan.”

Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). In such an

instance, the exercise of fiduciary discretion is reviewed under an arbitrary and

capricious standard. Chambers v. Family Health Plan Corp., 100 F.3d 818, 825

(10th Cir. 1996). But, if the fiduciary has a conflict of interest, 13 a court applying

the standard “must decrease the level of deference given to the conflicted

[fiduciary’s] decision in proportion to the seriousness of the conflict.” Id.; see

also Firestone, 489 U.S. at 115. The conflict is weighed as a factor in

determining the level of deference, which “will be decreased on a sliding scale in

proportion to the extent of conflict present, recognizing the arbitrary and

capricious standard is inherently flexible.” McGraw v. Prudential Ins. Co. of

America, 137 F.3d 1253, 1258 (10th Cir. 1998). If the conflict of interest is so

strong as to eliminate any deference, we will independently construe the plan

according to ordinary rules of contract interpretation. Otherwise, we will uphold

the fiduciary’s interpretation if it is reasonable.



      13
        “[A] fiduciary shall discharge his duties with respect to a plan solely in
the interest of the participants and beneficiaries . . . .” 29 U.S.C. §1104(a)(1).

                                           -9-
      Like the district court, we conclude United is a conflicted fiduciary.

“[W]hen an insurance company serves as ERISA fiduciary to a plan composed

solely of a policy or contract issued by that company, it is exercising discretion

over a situation for which it incurs direct, immediate expense as a result of

benefit determinations favorable to plan participants.” Pitman v. Blue Cross &

Blue Shield of Okla., 217 F.3d 1291, 1296 (10th Cir. 2000) (quotation marks and

citation omitted). As well, savings United realized from its challenged practice

contributed to the vitality of its business and its competitive position in the

insurance industry. 14 Id.

      While we recognize United’s conflict of interest, it is not so strong as to

eliminate deference to its interpretation of the plan if that interpretation is

otherwise reasonable. Its challenged practice, being systemic and not arbitrarily

or capriciously applied to individual plan participants or beneficiaries, diminishes

the level of its conflict. To be sure, the plan design purposefully results in cost


      14
        United argues any savings it realized in its co-payment methodology were
passed on to its enrolled units in the form of lower premiums, since premiums
were experience-rated. While this may have benefitted plan participants and
beneficiaries when employees contributed to premiums, they did not always do so.
Nevertheless, United argues premium savings realized by enrolled units positively
affected all plan participants and beneficiaries by enabling the enrolled unit to
maintain broad coverage and/or forestall rate increases. In this way, United
argues, lower premiums contributed to the overall health of the employer unit,
indirectly benefitting employees. While plausible, these arguments do not
diminish the market advantage enjoyed by United as a result of its co-payment
methodology.

                                          -10-
shifting to the Class members who access health services by requiring them to pay

a greater portion of the actual cost of those services. But plan design is immune

from judicial review. Jones v. Kodak Med. Assistance Plan, 169 F.3d 1287, 1292

(10th Cir. 1999). As we consider the reasonableness of United’s interpretation of

the plan, we are reminded a fiduciary’s interpretive decision

            need not be the only logical one nor even the best one.
            It need only be sufficiently supported by facts within
            [its] knowledge to counter a claim that it was arbitrary
            or capricious. The decision will be upheld unless it is
            not grounded on any reasonable basis. The reviewing
            court need only assure that the [fiduciary’s] decision
            fall [s] somewhere on a continuum of
            reasonableness–even if on the low end.
Kimber v. Thiokol Corp., 196 F.3d 1092, 1098 (10th Cir. 1999) (quotation marks

and citations omitted) (emphasis in the original). Significantly, it is of no

moment that the Class’s interpretation of the Certificate language is also

reasonable. We test only to determine if United’s interpretation is reasonable. As

stated in Kimber, “[d]eferential review does not involve a construction of the

terms of the plan; it involves a more abstract inquiry–the construction of someone

else’s construction.” Id. at 1100 (quoting Morton v. Smith, 91 F.3d 867, 871 n.1

(7th Cir. 1996) (citations omitted)).




                                         -11-
      Discussion

      §1132(a)(1)(B) Claim

      With these principles in mind, we consider the reasonableness of United’s

interpretation of the ambiguous language. 15 Applying the appropriate standard of

review, the district court concluded United’s interpretation was reasonable and

sustained by its evidence. We agree.

      The Class first argues since co-payment is against eligible expense only

there must perforce be some portion of an expense which United considered

ineligible. While it is thus far correct, it further asserts the ineligible portion of a

claim is the spread between the full billed charge and the discounted fee with the

provider, especially since the provider is prohibited by agreement with United and

by Utah statute from collecting this amount from the class member. As a result,

claims the Class, the eligible expense against which the co-payment should be

applied is the discounted fee. This argument is strained.

      A straightforward approach to determining “eligible expense” is more

reasonable. “Eligible expenses” under the policy are defined as “reasonable and




      15
         To the district court, the Class argued the terms of the plan were
ambiguous. On appeal, it continues that argument but adds an alternative. It now
claims the plan terms are not ambiguous and should be read in its favor. Even if
the alternative argument has merit, we decline to consider it since it is a theory
not presented to the district court. Tele-Communications, Inc. v. Commissioner of
Internal Revenue, 104 F.3d 1229, 1233 (10th Cir. 1997).

                                          -12-
customary charges 16 for health services.” (R. at 244). Since covered “health

services” 17 include only those deemed “medically necessary,” 18 when presented

with a claim United must apply a two-step test for eligibility. First, is the service

“medically necessary?” If not, the service charge is an ineligible expense.

Second, is the charge presented for the service “reasonable and customary?” If

not, it is ineligible. Reasonable and customary charges for medically necessary

services are thus eligible expenses and in turn determine the co-payment.

      The Class next takes issue with United’s interpretation of “reasonable and

customary charges” under the plan. It argues the Certificate language referring to

reasonable and customary charges “incurred,” means those costs incurred by

United, and since the cost incurred by United is based on the discounted fee it is

this sum against which a class member’s co-payment percentage ought to be


      16
        “‘Reasonable and Customary Charges’ - fees for Covered Health Services
and supplies which, in PLAN’s judgment, are representative of the average and
prevailing charge for the same Health Service in the same or similar geographic
communities where the Health Services are rendered and which do not exceed the
fees that the provider would charge any other payor for the same services.” (R. at
247) (emphasis added).
      17
        “‘Health Services’ - the health care services and supplies Covered under
the Policy, except to the extent that such health care services and supplies are
limited or excluded under the Policy.” (R. at 245).
      18
        “‘Medically Necessary’ - those Health Services which are determined by
PLAN to be necessary to meet the basic health needs of an individual.
Determination of Medical Necessity is done on a case-by-case basis and considers
several factors including, but not limited to, the standards of the medical
community.” (Id.)

                                         -13-
applied. This is, again, a strained reading of the Certificate. “Co-payment” is

defined as the class member’s responsibility for “health services provided.” (R.

at 243). Health services are provided to the Class members, not United.

Therefore the charge for the service is incurred by the Class member, not United.

      The Class also claims United’s interpretation of the phrase “reasonable and

customary charges” is unreasonable because United exercised no “judgment,” as

the Certificate required, as to whether the full billed charge was “representative

of the average and prevailing charge for the same health service in the same or

similar geographic communities where the health services are rendered and which

do not exceed the fees that the provider would charge any other payor for the

same services.” (R. at 247). According to the Class, United’s only exercise of

judgment was in negotiating the discount rate, and thus the discount rate

constitutes the “reasonable and customary charge.” However, the evidence from

the Class’s own witness, Mary Covington, is contrary. United routinely

considered any charge at or below the eighty to eighty-fifth percentile of the

HIAA schedules to be “reasonable and customary.” That is a rational exercise of

judgment and not unreasonable since the practice mirrored Medicare methodology

and was explicitly approved by the Minnesota Department of Health.

      Lastly in that vein, the Class argues the full billed charge is not a

“reasonable and customary charge” because it exceeds “the fees that the provider


                                         -14-
would charge any other payor for the same services.” As an example of such a

lower fee, the Class again points to the discount rate which United negotiated

with its participating providers. This argument breaks down if in fairness we

undertake to compare discount rates other payors might have negotiated with the

same providers, to see if those rates are lower than United’s rates. The Class’s

suggested interpretation of “reasonable and customary charge” demands this

comparison. As the district court ably pointed out, it is impossible to compare

other payor-provider negotiated rates because of the proprietary and confidential

nature of such competitor agreements. In the absence of this information, the

Class could never be assured United’s negotiated rate did not exceed another

insurer’s negotiated rate. Since the Class’s interpretation of the Certificate,

offered to rebut the reasonableness of United’s interpretation, would result in

impossibility of contract performance due to the inability to compare other

negotiated rates, the district court rightly favored United’s position.

      Moving to a new but related topic, the Class claims United violated Utah

law requiring an insurer to inform a claimant as to the amount it paid the

provider. That violation, the Class argues, makes United’s co-payment

methodology impermissible. 19 This argument was not presented to the district


      19
        The Class also argues violation of Utah law renders United’s methodology
unreasonable. This argument is not persuasive because if United strictly complied
with the statute the Class would, at most, have been explicitly put on notice of

                                         -15-
court [on the Class’s benefit recovery claim under §1132(a)(1)(B)] and we will

therefore not consider it on appeal. Tele-Communications, Inc. v. Commissioner

of Internal Revenue, 104 F.3d 1229, 1233 (10th Cir. 1997). Nor will we consider

the related theory, first presented on appeal by the Class in its Reply Brief, that

the doctrine of promissory estoppel under Utah law provides remedial relief. Id.

For the same reason, we will not consider the Class’s argument that the policy

incorporated ERISA, and therefore fiduciary obligations set out in ERISA are

plan terms subject to enforcement under §1132(a)(1)(B). Id.

      Finally, the Class urges application of the doctrine of contra proferentem to

construe the ambiguous language of the plan against the drafter, United. The

district court declined to do this, either on the basis of state or federal common

law, on the grounds of ERISA pre-emption. Were it not for the fact the plan

confers sole and exclusive discretion upon United to construe its terms, albeit

reasonably and subject to increased scrutiny in the case of a conflict of interest,

contra proferentem might apply. But the doctrine is plainly inapposite where a

reviewing court is determining the reasonableness of the construction of the

contract by one of the parties to it instead of construing the language of the

contract itself. “[W]hen a plan [fiduciary] has discretion to interpret the plan




United’s co-payment methodology, which begs the question presented here: the
reasonableness of the methodology itself.

                                         -16-
and the standard of review is arbitrary and capricious, the doctrine of contra

proferentem is inapplicable.” Kimber, 196 F.3d at 1100.

      We conclude United’s interpretation of the Certificate language was a

reasonable one. Considering a health service provider’s full billed charge to be

“reasonable and customary” harmonizes well with Medicare practice, an identical

procedure explicitly approved by state regulators in Minnesota, and with the

Certificate requirement the charge of the provider cannot exceed charges to any

other payor for like services.

      §1132(a)(3) Claim

      The Class sought equitable relief under 29 U.S.C. §1132(a)(3), claiming

United, as a 29 U.S.C. §1002(21)(A) fiduciary, breached its fiduciary duty by

failing to inform the class of its discounting practice 20and improperly denying, de

facto, benefits under the plan. The Class also argues the plan, by its terms,

incorporated Utah law, specifically Utah Code Ann. §31A-26-301.5, requiring

detailed payment notification to an insured. The argument continues – since

United only vaguely described its practice, it violated Utah law and, a fortiori, the




        “A summary plan description of any employee benefit plan shall be
       20

furnished to participants and beneficiaries . . . . The summary plan description . . .
shall be written in a manner calculated to be understood by the average plan
participant, and shall be sufficiently accurate and comprehensive to reasonably
apprise such participants and beneficiaries of their rights and obligations under
the plan.” 29 U.S.C. §1022(a).

                                         -17-
plan itself.

       We agree with the district court that consideration of a claim under 29

U.S.C. 1132(a)(3) is improper when the Class, as here, states a cognizable claim

under 29 U.S.C. §1132(a)(1)(B), a provision which provides adequate relief for

alleged class injury. “[W]e should expect that where Congress elsewhere provided

adequate relief for a beneficiary’s injury, there will likely be no need for further

equitable relief, in which case such relief normally would not be ‘appropriate’.”

Varity, 516 U.S. at 515. Dismissal of the §1132(a)(3) claim was proper as a matter

of law.

       Conclusion

       For the reasons given, we AFFIRM the judgment of the district court.

                                        Entered by the Court:

                                        TERRENCE L. O’BRIEN
                                        United States Circuit Judge




                                          -18-
