Medical Necessity Archives - McKennon Law Group

Fourth Circuit Appeals Court Finds Insurer Abused Its Discretion by Denying ERISA Health Insurance Benefits Where the Insurer Denied Her Claim as “Not Medically Necessary” Despite Failing to Review Critical Evidence of Medical Necessity

It should not surprise anyone that health insurance companies are motivated and incentivized to deny coverage of costly surgical procedures. Most insurers deny health insurance claims by claiming that a recommended surgery is “not medically necessary” or that the claimant “did not try conservative treatment” prior to undergoing surgery. Does a health insurer abuse its discretion by denying a claim without providing a reviewing doctor with important records that would assist in proving medical necessity? The Fourth Circuit Court of Appeals recently answered this question in the affirmative, ruling that insurers who do not provide important records to their medical reviewers abuse their discretion by denying claims on the grounds that medical procedures are not medically necessary. In Garner v. Central States, __ F.4th __, 2022 WL 1160386 (4th Cir. 2022), the claimant, Dorothy Garner, suffered from back and neck pain that continued to increase despite her taking medication and treating with postural exercise like yoga. Her doctor recommended surgery, based on the results of an MRI. To cover the cost of the surgery, Ms. Garner submitted a claim with Central States as a beneficiary of her husband’s ERISA employee health benefit plan sponsored by United Parcel Service, Inc.

Central States denied Ms. Garner’s claim on the grounds that her $90,000 surgery was not “medically necessary” under the plan provisions. This decision was based on an independent medical review (“IMR”) of Ms. Garner’s claim, conducted by Dr. Francesco Serafini, a physician who is Board-certified in general surgery. But the records that Central States provided to Dr. Serafini for his IMR did not contain either the MRI report that had led her doctor to recommend surgery or his office notes that explained this recommendation. Without access to these missing documents, Dr. Serafini concluded that there was no basis in the provided records to justify Ms. Garner’s surgery, and this conclusion formed the basis for Central States’ denial letter.

Ms. Garner submitted another appeal after having a physician review her file, and Central States conducted another IMR of Garner’s claim, this time by Dr. Brad Ward, a physician who is Board-certified in neurological surgery. Unlike Dr. Serafini, Dr. Ward had full access to Ms. Garner’s medical records, including the MRI report and the office notes. But Dr. Ward also concluded that the surgery was not medically necessary, relying in part on the fact that Ms. Garner had not taken “any conservative measures other than medication.” Central States thus upheld its denial decision.

Ms. Garner filed an ERISA lawsuit against Central States, seeking coverage under the plan for her surgery. The district court, ruling on the parties’ summary judgment motions, found for Ms. Garner because Central States “had not engaged in a ‘reasoned and principled’ decision-making process.” The court’s ruling was based on three points: (1) Central States had not provided Dr. Serafini with the “critically important” MRI records and office visit records, (2) “nothing in the plan required covered individuals to exhaust conservative treatment options before undergoing surgery” and (3) it was undisputed that Garner had unsuccessfully tried postural exercises to relieve her pain.

On Central States’ appeal of the district court’s finding, the Fourth Circuit reviewed Central States’ claim denial to determine whether it had abused its discretion under the plan by denying Ms. Garner’s claim. Even under this abuse-of-discretion standard, which affords deference to Central States in its claims decisions, the Court affirmed that the district court’s decision to deny her claim was an abuse of discretion. The Court provided various substantive items that supported its finding.

First, the court noted that Central States “utterly failed to disclose” Ms. Garner’s pertinent medical records to Dr. Serafini, including her MRI results and her doctor’s notes explaining his surgery recommendation. The court found that these documents “were critical” — the MRI report because it established the underlying medical basis for her surgery, and the office visit notes because they explained why her doctor recommended the surgery. Notably, the reviewing physician had complained of a lack of information during the initial review, and after he completed his report, Central States did not follow up with him or provide him with the MRI or doctor’s notes.

While the Court stopped short of concluding that Central States “acted in bad faith or deliberately withheld documentation,” it emphasized that under ERISA, Central States owed Ms. Garner a “deliberate, principled reasoning process,” but that it had failed to provide such a review. Central States argued that it cured the flaws in its initial review by providing all of Ms. Garner’s relevant records, including the MRI report and the doctor’s notes, to Dr. Ward. However, the Court did not accept this reasoning because Central States had repeatedly indicated that it relied on both doctors’ reports in upholding its decision. Central States’ denial was not “a reasoned determination” because it relied on Dr. Serafini’s report that did not consider the MRI report or the doctor’s notes.

Second, the Court focused on Central States’ basing its denial on Ms. Garner’s not trying conservative treatment before having surgery. The record indicated that Ms. Garner “had tried postural exercises such as yoga without relief.” Also, the reason why she had the MRI done was that her pain had continued “despite her efforts at conservative treatment over the past several months,” including medication. Central States could not require Ms. Garner to receive conservative treatment “as an absolute condition” to finding that her surgery was medically necessary. By not allowing Central States to “add a new term to the plan, a term for which Garner did not bargain, and about which she lacked any notice,” the Court precluded it from using subjective terminology to “move the goal posts” by requiring ever more “conservative” treatment in order to find her surgery to be medically necessary.

Third, the court observed Central States’ persistence in attempting to justify its improper denial of Ms. Garner’s claim through vague terms. The court noted that Central States “repeatedly failed to handle Garner’s claim in a sensitive and fair-minded manner.” After “no fewer than three opportunities to give [Ms.] Garner’s claim the reasoned consideration that it deserved…[i]t would neither encourage the careful and efficient resolution of benefits claims, nor would it be fair to [Ms.] Garner, to permit Central States a fourth opportunity. Three strikes are enough.”

While the court’s reasoning hints that insurers have significant leeway in their claims review processes under the abuse-of-discretion standard of review, insurers must use a fair and reasoned claim review process in deciding claims. When they do not do so, the courts will not condone this conduct.

The claims review process can be daunting for claimants who are simply trying to obtain much-needed care or treatment, and even more so when insurance companies use unfair means to justify denying legitimate health insurance claims. McKennon Law Group PC is highly experienced in handling denied ERISA health insurance claims, especially those based on an alleged lack of medical necessity.

Bain v. Oxford Health Insurance: Judge Finds Insurer Liable for Breach of Fiduciary Duty Under ERISA As Medical Necessity Guidelines Were Inconsistent With Medical Standards of Care

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.

Ninth Circuit Rules that California’s Mental Parity Act Requires Health Insurers to Pay for Certain “Medically Necessary” Treatment for Mental Illnesses

In an important decision, the Ninth Circuit Court of Appeals ruled that California’s Mental Health Parity Act (“Parity Act” ) requires that health insurers cover certain medically necessary treatment for certain mental illnesses, even if the insurance policy explicitly excludes such coverage. In Harlick v. Blue Shield of Calif., __ F.3d __ (9th Cir. August 26, 2011), the Ninth Circuit reversed the district court’s granting of Blue Shield of California’s motion of summary judgment, and held that under the Parity Act, Blue Shield was required to provide medically necessary health insurance benefits for mental illnesses on par with the treatment for physical illness covered under Harlick’s ERISA-governed health insurance plan.

The California legislature enacted the Parity Act in 1999 after finding that “[m]ost private health insurance policies provide coverage for mental illness at levels far below coverage for other physical illnesses.” 1999 Cal. Legis. Serv. ch. 534 (A.B.88), § 1 (West). The legislature further found that coverage limitations resulted in inadequate treatment of mental illnesses, causing “relapse and untold suffering” for people with treatable mental illnesses, as well as increases in homelessness, increases in crime and significant demands on the state budget. Id. Accordingly, plans that come within the scope of the Act – including the ERISA-governed plan established by Harlick’s employer – must cover all “medically necessary” treatment for nine listed mental illnesses (including anorexia nervosa), but can apply the same financial limits – such as yearly deductibles and lifetime benefits – that are applied to coverage for physical illnesses.

In March 2006, Jeanene Harlick (“Harlick”) was advised by her doctors to seek treatment for her anorexia nervosa at a residential treatment facility. After Harlick and her doctors concluded that none of the in-network treatment facilities suggested by Blue Shield could provide effective treatment, Harlick registered at Castlewood Treatment Center, a facility outside of the state and outside of Blue Shield’s treatment network. Harlick was at Castlewood, a residential treatment facility, for more than 8 months. However, Blue Shield refused to pay for Harlick’s care, because the plan specifically stated that “residential care” was not covered.

Harlick sued Blue Shield, but after the parties stipulated that Blue Shield’s decision would be reviewed under the abuse of discretion standard of review, the district court granted Blue Shield’s motion for summary judgment.

In reviewing Harlick’s case, the Ninth Circuit evaluated whether Blue Shield abused its discretion in denying Harlick’s request for coverage for her treatment at Castlewood. In ERISA cases, if there is a conflict of interest (i.e., same entity pays benefits and makes the coverage decision), than the administrator’s review and claim decision is “tempered by skepticism,” even if it is reviewed under the abuse of discretion standard. Here, while the Court did not find that Blue Shield abused its discretion in denying Harlick’s claim, it did find that Blue Shield was responsible for Harlick’s residential care, based upon the Parity Act. The Ninth Circuit stated:

Harlick’s Plan does not itself require that Blue Shield pay for residential care at Castlewood for her anorexia nervosa. However, California’s Mental Health Parity Act provides that Blue Shield “shall provide coverage for the diagnosis and medically necessary treatment” of “severe mental illness” including anorexia nervosa. Blue Shield is foreclosed from asserting that Harlick’s residential care at Castlewood was not medically necessary. We therefore conclude that Blue Shield is obligated under the Parity Act to pay for Harlick’s residential care at Castlewood, subject to the same financial terms and conditions it imposes on coverage for physical illness.

The Court then turned to the question of whether Harlick’s treatment was medically necessary. Blue Shield did not dispute that treatment at Castlewood was medically necessary until supplemental briefing filed after oral argument. Blue Shield argued that it should be allowed to reopen its administrative process in order to determine whether Harlick’s residential care was medically necessary. The Court explained an ERISA administrator’s obligations:

ERISA and its implementing regulations are undermined ‘where plan administrators have available sufficient information to assert a basis for denial of benefits, but choose to hold that basis in reserve rather than communicate it to the beneficiary.’ Mitchell v. CB Richard Ellis Long Term Disability Plan, 611 F.3d 1192, 1199 n.2 (9th Cir. 2010) (quoting Glista v. Unum Life Ins. Co. of Am., 378 F.3d 113, 129 (1st Cir. 2004)). Claimants should not be ‘sandbagged by a rationale the plan administrator adduces only after the suit has commenced.’ Mitchell, 611 F.3d at 1199 n.2 (quoting Jebian v. Hewlett-Packard Co. Employee Benefits Org. Income Prot. Plan, 349 F.3d 1098, 1104 (9th Cir. 2003)) (some internal quotation marks omitted). Just as claimants should present all of their arguments for granting the claim to the insurer during the administrative process, an insurer should tell the claimant all of its reasons for denying the claim. Cf Diaz v. United Agric. Employee Welfare Benefit Plan & Trust, 50 F.3d 1478, 1483 (9th Cir. 1995).

During the administrative process, Blue Shield never said that it was denying the claim because treatment at Castlewood was not medically necessary.

The Court therefore concluded that by not including as a reason for denial of the claim that the treatment was not medically necessary, Blue Shield waived this reason to deny the claim:

Blue Shield has discretion to determine whether treatment is medically necessary during the administrative review process. But Blue Shield had to tell Harlick the “specific reasons for the denial” – not just one reason, if there was more than one – and provide a “full and fair review” of the denial. 29 U.S.C. § 1133 (emphasis added). Blue Shield told both Harlick and her mother, as well as the DMHC, that medical necessity was not the reason for its denial of Harlick’s claim. It cannot now bring out a reason that it has “held in reserve” and commence a new round of review. See Mitchell, 611 F.3d at 1199 n.2.

Thus, even if it is expressly excluded from a plan, a California insurer is now obligated to ensure that coverage for certain medically necessary treatment for mental illness is on par with the coverage provided for necessary treatment for physical illnesses. This ruling will thus have significant application to coverage for mental illnesses, especially autism.

Insurance Commissioner Jones Charges that Blue Shield Improperly Denied Health Insurance Coverage for Necessary Autism Treatment

California Insurance Commissioner Dave Jones recently announced that the California Department of Insurance is investigating whether Blue Shield of California Life and Health Insurance Company (“Blue Shield”) failed to comply with the California Mental Health Parity Act. Specifically, Blue Shield is required to respond to an Order to Show Cause regarding its handling of claims for treatment of autism.

During a recent hearing before the California Senate Select Committee on Autism, Department of Insurance representatives testified that Applied Behavior Analysis (“ABA”) therapy must be covered by California health insurers. While ABA therapy is proven to improve the lives of children with autism, the Department of Insurance charges that Blue Shield violated the California Mental Health Parity Act by:

Denying coverage on the ground that ABA isn’t “medically necessary”
Denying coverage on the ground that ABA is “experimental”
Denying coverage on the ground it is available only for services performed by a licensed provider and ABA providers are not licensed
Denying coverage on the ground that ABA is not a “health care service,” but instead is a service for “learning disabilities or behavioral problems or social skills training/therapy”
Not including ABA providers in its network
Refusing to provide insureds with definitive denials of coverage within 30 days of receiving a claim, thereby preventing insureds from invoking IMR [independent medical reviews]

The Department of Insurance’s investigation of Blue Shield began after the parents of two autistic children sought the Department’s assistance after Blue Shield denied coverage for ABA therapy, despite a finding following an independent medical review that the therapy was medically necessary. The Department of Insurance explained that its Order to Blue Shield was necessary to “ensure that insurance companies are in full compliance with California’s mental health parity law.”

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