Lawsuits from non-network providers have been on the rise recently due to the sharp rise in their billing rates, more providers moving out-of-network, and self-insured health plans reducing reimbursement rates. One of the ways that health plans have curtailed out-of-network reimbursement rates is through reasonable and customary reductions. A health plan is required to disclose the methodology used to determine R&C under ERISA claims procedure rules.


In Zack v. McLaren Health, plan documents provided that out-of-network claims would be paid at 60% of the “reasonable and customary” amount, and it did not define of that term. However, it limited out-of-network reimbursement to 60% of the in-network allowance. The court ordered the claim to be recalculated based on the ordinary meaning of the term – the prevailing market rates.


Plan Sponsors should review their documents to ensure key terms that are used to determine benefits and exclusions are clearly defined and explained. Additionally, plan sponsors should confirm that their claims administrators are providing specific explanations in their notices of adverse benefit determinations and are disclosing the internal criteria and fee schedules when appropriate.