In a recent decision by the U.S. District Court for the Northern District of California, Bain v. Oxford Health Insurance, 2020 WL 808236, the Court held that it is an abuse of discretion for an insurance company to rely on unreasonable medical necessity guidelines, to decide benefit claims, when these guidelines are inconsistent with the standards of care generally accepted in the field of mental health treatment.  In Bain, the Plaintiffs filed a lawsuit against the plan administrator of their health insurance plan and its affiliate United Behavioral Health (collectively, “UBH”) after their daughter’s claim for mental health services was repeatedly denied.  In making its coverage determinations for mental health services, UBH utilized “Level of Care Guidelines” (“LOC Guidelines”), which were not formally part of the Plan.

While the Bain’s lawsuit was filed in July 2015, it was stayed in April 2017 due to another class action lawsuit, Wit v. United Behavioral Health, No. C-14-2346 JCS (N.D. Cal.) pending against UBH.  In Wit, the plaintiffs asserted that UBH breached its fiduciary duty because it developed LOC Guidelines which were “far more restrictive than [the standards of care] that are generally accepted [in field of mental health treatment] even though Plaintiff’s health insurance plans provide for coverage of treatment that is consistent with generally accepted standards of care, and by prioritizing cost savings over member’s recovery of benefits.”  Plaintiffs maintained that UBH “improperly adjudicated and denied [their] requests for coverage by … relying on the overly restrictive [LOC] Guidelines.”

On the claim for breach of fiduciary duty, the Judge in Wit found in favor of the plaintiffs and held that “by adopting ‘unreasonable’ Guidelines that do not reflect generally accepted standards of care, UBH breached its fiduciary duty.”  The LOC Guidelines were found to be flawed as follows: (1) The LOC Guidelines significantly narrowed the scope of coverage by excessively emphasizing “acute symptoms and stabilizing crises while ignoring the effective treatment of underlying conditions;” (2)  The LOC Guidelines “actively seek to move patients to the least restrictive level of care at which [patients] can be safely treated, even if a lower level of care may be less effective for that patient;” (3) The LOC Guidelines fail to address the unique needs of children and adolescents; and (4) The LOC Guidelines “deviated from generally accepted standards of care by using an overly broad definition of ‘custodial care’ and an overly narrow definition of ‘active’ treatment and ‘improvement’.”

Based on the decision in Wit, the Bains filed a Motion for Judgment asserting that they were entitled to judgment on their claim based on the ruling in Wit, specifically because (1) in Wit, the Judge found in favor of the plaintiffs on their claim for benefits and (2) that the doctrine of collateral estoppel bars UBH from relitigating the Bains’s claim.

The Bains’s Motion for Judgment was denied in part and granted in part.  The Court did agree with the Bains that it should give collateral estoppel effect as to the “standard of review” to be applied to UBH’s decision to deny benefits.  The Wit court had previously determined the standard of review to be applied is abuse of discretion, meaning that the UBH’s denial would only be overturned if it was not reasonable.  The Bains argued that the Court’s review for abuse of discretion should factor in a significant conflict of interest, since UBH is both paying out on claims of benefits and deciding claims of benefits.  Therefore, the Bains argued the LOC Guidelines were based on financial considerations rather than medical considerations.  The Court agreed there was a conflict of interest as to the LOC Guidelines and applied a significant amount of skepticism to UBH’s decision to deny the Bains’s benefits. The Court in Bains ultimately held that UBH abused its discretion in denying the Bains’s claim for benefits and remanded the case to the plan administrator for a renewed evaluation.

Lack of medical necessity is the most frequent basis for health insurance denials.  As Bains demonstrates, an insurer’s medical necessity guidelines may be out of step with reasonable standards in the medical community.  Fighting with your insurer over a legitimate claim for health, life, long-term disability or other insurance benefits can be a daunting task.  If you believe your claim for benefits was unjustly denied, please contact us.