Under the best of circumstances, plaintiffs face a difficult challenge when they seek to overturn health benefit claim denials. But recent developments in litigation involving health benefits — specifically benefits for mental health treatment — have sent a message to health insurers that they need to be more transparent in adjudicating claims.
The U.S. District Court for the District of Montana recently issued a decision that, while unfavorable to the plaintiffs on the merits, will still be of great assistance to future plaintiffs, especially if their claims allege violation of the Mental Health Parity and Addiction Equity Act, 29 U.S.C. Sec. 1185a.
In W.H. v. Allegiance Ben. Plan Mgmt., 2024 U.S. Dist. LEXIS 99272; 2024 WL 2830792 (D. Mont., June 4), the court had occasion to address such a situation. The case was brought against the third-party administrator of a self-funded health benefit plan and involved residential behavioral health treatment for a minor, Z.H., who suffered from severe depression with a history of suicidal ideation and a suicide attempt.
When the claims for the services Z.H. received were denied, the plaintiffs unsuccessfully submitted pre-litigation appeals and then filed suit alleging claims for benefits due under the terms of the plan and for violations of the Parity Act.
Because Parity Act violations are often not apparent based solely on the terms of the plan, in order to prove such a violation, plaintiffs need to prove that the plan imposed more restrictive limitations on mental health treatment than limitations on treatment for analogous medical and surgical treatment.
The defendant utilized proprietary guidelines known as the Milliman Care Guidelines to adjudicate claims involving both mental health treatment as well as for medical and surgical treatment.
The plaintiffs requested that the plan provide copies of both sets of guidelines, but their request was ignored. The court found the failure to provide the requested documents was a violation of both the law under the Employee Retirement Income Security Act that governed the claim, as well as a violation of the Parity Act’s regulations.
According to 29 U.S.C. Sec. 1024(b)(4), participants are entitled to receive “the latest updated summary, plan description, and the latest annual report, any terminal report, [and] the bargaining agreement, trust agreement, contract, or other instruments under which the plan is established or operated.”
The Parity Act regulations, at 29 C.F.R. Sec. 2590.712(d)(3), explain that documents constituting “[i]nstruments under which the plan is established or operated” are “documents with information on medical necessity criteria for both medical/surgical benefits and mental health and substance use disorder benefits, as well as the processes, strategies, evidentiary standards, and other factors used to apply a nonquantitative treatment limitation with respect to medical/surgical benefits.”
According to an earlier case, M. S. v. Premera Blue Cross, 553 F. Supp. 3d 1000, 1035 (D. Utah 2021), “evaluation criteria used to determine medical necessity for analogous medical/surgical benefits is within the scope of 29 U.S.C. Sec. 1024(b)(4) and must be provided to plan participants upon written request.”
Based on that ruling, the court here found the plaintiffs were entitled to “[a] complete copy of the medical necessity criteria utilized by the Plan for skilled nursing facilities, sub-acute inpatient rehabilitation treatment, and inpatient hospice treatment.”
The court further ruled that the plaintiffs were entitled to “[c]opies of documents identifying the processes, strategies, evidentiary standards, and other factors used to apply a nonquantitative treatment limitation with respect to medical/surgical benefits and mental health or substance use disorder benefits under the plan.”
The consequence for not providing the documentation the plaintiffs sought was that the defendants were assessed a penalty under 29 U.S.C. Sec. 1132(c), which provides a penalty of up to $110 per day after a 30-day period elapses between a request for documents and when the documents are provided (plus attorney fees).
The court pointed out the failure to provide necessary documents “harmed Plaintiffs’ ability to adequately access financial benefits to which they believed they were also entitled.”
Although the court determined that the benefit denial was warranted, the court nonetheless deemed the penalty appropriate for non-compliance with required disclosures. The court also pointed out: “It does not matter whether Defendants’ refusal was based on a good faith misreading of the law or a bad faith intention; statutory penalties are appropriate.”
The 7th U.S. Circuit Court of Appeals addressed a similar issue in Mondry v. American Fam. Mut. Ins. Co., 557 F.3d 781 (7th Cir .2009). Applying much the same analysis as the district court in Montana, the 7th Circuit determined that guidelines used to adjudicate health benefit claims must be disclosed if they were utilized in rendering the claim determination.
In Mondry, the guidelines were at variance with the plan’s definition of medical necessity, and the plaintiffs ultimately secured the payment of benefits, unlike the plaintiffs in W.H. However, the lessons taught by both rulings are the same.
The two cases instruct that every attorney who represents health benefit claimants must, as a matter of course, request copies of claim adjudication guidelines from both the insurer and the named plan administrator.
In cases involving mental health treatment where there may be a potential Parity Act violation, it is also incumbent upon counsel for the insured to not only request the guidelines applicable to the claim determination, but to also request guidelines utilized to adjudicate medical and surgical claims.
The reason for doing so is because a Parity Act violation may be dependent on proof that the standards that need to be met to recover benefits for mental health treatment may be more restrictive than those applied to claims involving skilled nursing facilities, sub-acute inpatient rehabilitation treatment and inpatient hospice treatment.
The second lesson for plaintiffs is to plead a claim for statutory penalties. Plaintiffs’ lawyers need to be careful, though, since such a claim may be asserted only against the plan administrator.
Thus, since only the plan administrator may be found liable for non-compliance with a request to produce required documents, even if the plan’s third-party administrator or insurer was the sole party involved in rendering the claim decision, a request needs to be sent to the named plan administrator, whose identity is typically gleaned from the summary plan description provided to plan participants.
There is a third lesson as well, but that lesson is for plan administrators. Since the plan administrator may be assessed penalties for failing to produce documents, it is incumbent on the plan administrator to obtain the necessary documentation from the third-party administrator and produce the documents if a request is made. As the court found in W.H., ignorance is no excuse.
Mark DeBofsky is a shareholder at DeBofsky Law Ltd.
This article was first published by Chicago Daily Law Bulletin on July 10, 2024.
