STEPHANIE LAO, April 30 2024
In Ryan S. v. UnitedHealth Group, Inc., 2024 WL 1561668 (9th Cir. Apr. 11, 2024), the Ninth Circuit Court of Appeals recently overturned a California district court’s dismissal of a lawsuit brought on behalf of a putative class of group health plan participants against UnitedHealth Group, Inc. and its subsidiaries (collectively, “UHC”) alleging violations of the Mental Health Parity and Addiction Equity Act (MHPAEA) and the Employee Retirement Income Security Act of 1974 (ERISA). The Ninth Circuit held that a plaintiff may avoid dismissal by alleging the existence of a procedure used in assessing mental health and substance use disorder (MH/SUD) benefit claims that is more restrictive than those used in assessing medical/surgical claims under the same classification, as long as the allegation is adequately pled. Ryan S. provides valuable insight into the pleading standard plaintiffs must meet when alleging violations of MHPAEA’s mental health parity requirements.
Plaintiff’s Operative Third Amended Complaint Alleges Violations of MHPAEA and ERISA
On July 11, 2019, plaintiff Ryan S. (“Plaintiff”) filed a putative class action against UHC. Plaintiff amended the complaint a total of three times, once as a matter of right and twice on leave from the court. The most recent Ninth Circuit decision addresses Plaintiff’s operative Third Amended Complaint (TAC).
The TAC claims that Plaintiff’s group health plan, which is insured, managed and administered by UHC, provides coverage for outpatient, out-of-network mental health and substance use disorder (MH/SUD) treatment at all levels of care. The plan allegedly covers these services at 70% of covered charges until the deductible/out-of-pocket maximum is met, at which point the plan pays 100% of the covered charges.
Plaintiff, who is a participant in the plan, alleges that he completed two separate outpatient, out-of-network substance abuse disorder programs and received covered laboratory services in connection with the treatments. On both occasions, the providers obtained the required prior authorizations from UHC. However, according to Plaintiff, UHC either provided limited coverage or refused coverage of the services. The TAC asserts that UHC applied a more stringent review process to outpatient, out-of-network MH/SUD treatment claims than comparable medical and surgical (M/S) treatment claims, and that this disparity in review standa rds violates MHPAEA and ERISA’s fiduciary duty of loyalty.
MHPAEA requires, among other things, that any treatment limitations applicable to MH/SUD benefits are “no more restrictive” than those applied to M/S benefits covered by a health plan. MHPAEA differentiates between quantitative treatment limitations and nonquantitative treatment limitations (NQTLs). NQTLs may only be applied to MH/SUD benefits if the internal processes used to apply NQTLs to MH/SUD benefits are no more restrictive than those applied to M/S benefits. The TAC alleges that UHC utilized Algorithms for Effective Reporting and Treatment (ALERT) that proffer a set of criteria which, if not met, subject claims to further peer review which could result in a denial of services.
Plaintiff alleges that ALERT, along with other internal processes, was applied solely to MH/SUD treatments and not to M/S treatments within the same classification. As a result, Plaintiff alleges that UHC refused or limited coverage of his substance abuse disorder treatment based on the impermissible application of ALERT and other internal protocols. In support of the allegations, the TAC cites a 2018 report by the California Department of Managed Health Care, which found UHC violated MHPAEA by applying an algorithm to MH/SUD claims that triggered an additional level of review which could result in denials, but that no additional level or review applied to M/S claims.
The TAC further claims that in violating MHPAEA by applying the ALERT algorithm solely to MH/SUD claims, UHC also violated its fiduciary duty of loyalty to participants under ERISA. The TAC likewise alleges that by refusing to provide coverage for medically necessary MH/SUD treatments, UHC violated the terms of Plaintiff’s plan.
UHC’s Motion to Dismiss the TAC
In its motion to dismiss, UHC argued that the TAC failed to provide sufficient detail to support a finding that a more restrictive limitation was applied to Plaintiff’s MH/SUD claims than to analogous M/S claims, and that Plaintiff’s claims were merely conclusory. In addition, UHC argued that Plaintiff failed to sufficiently allege the existence of a “categorical” practice applicable to the denial of his claims and to identify corresponding M/S services to which less stringent internal processes were applied. UHC also argued that Plaintiff could not rely on the cited 2018 report, as the report did not address claim denials related to Plaintiff’s case. Further, UHC argued that Plaintiff failed to establish that UHC acted in a fiduciary capacity and failed to allege facts sufficient to show how UHC’s alleged practices resulted in the denial of his claims. Lastly, UHC argued that Plaintiff failed to identify the specific plan term conferring the benefit to which Plaintiff claims he was entitled. The district court granted UHC’s motion, and Plaintiff appealed.
Ninth Circuit Ruling and Findings
The Ninth Circuit reversed the district court’s ruling as to Plaintiff’s MHPAEA and ERISA fiduciary breach claims, finding Plaintiff plausibly alleged violations of MHPAEA and ERISA. However, the Ninth Circuit affirmed the dismissal of Plaintiff’s claims based on a violation of the terms of his plan, finding Plaintiff had failed to identify any specific plan terms that the alleged practices would violate.
The court identified three types of cases involving ERISA plan violations of MHPAEA (Ryan S. involves the third type):
- Facial Exclusion cases: A plan explicitly excludes types of treatment available for MH/SUD issues that are offered for comparable M/S issues, an exclusion that is discriminatory on its face.
- As-applied cases: A plan applies an otherwise facially neutral plan term unequally between MH/SUD and M/S benefits.
- Internal Process cases: A plan applies a more stringent internal process to MH/SUD claims than to M/S claims.
The court rejected UHC’s position that Plaintiff was required to support the existence of a “categorical practice,” finding that handling MH/SUD claims more stringently violates MHPAEA regardless of whether the disparity in treatment results in a uniform denial of claims. Additionally, the court found Plaintiff was not required to specifically identify M/S treatments that received more gracious processing, as UHC had asserted. Instead, the court held it is sufficient for a plaintiff to define an analogous category of claims very broadly, with any other M/S treatment within the same classification being a qualified comparator. The court held that to require a plaintiff, who may not have received M/S treatment in the same classification as their MH/SUD treatment, to determine the process applied to those M/S treatments would “create a serious obstacle to meritorious [MHPAEA] claims.”
Ultimately, for a plaintiff to bring an internal process case, it is sufficient to provide facts that indicate the existence of a procedure used in assessing MH/SUD benefit claims that is more restrictive than those used in assessing other claims under the same classification. A denial of claims for MH/SUD benefits by itself would not support an inference that a defendant employed processes in violation of MHPAEA. However, the court found that Plaintiff went beyond this standard by referencing the 2018 report discussed above in addition to his own denied claims, providing the additional context necessary to render Plaintiff’s allegations plausible. Since the investigation underlying the report was conducted concurrently with the denial of Ryan’s claims — and the report suggests that, at that time, all MH/SUD outpatient claims were subjected to a more restrictive review process — a sufficient nexus existed between the report’s findings and the denials in question to support Plaintiff’s claims.
The court further held that because Plaintiff sufficiently alleged his MHPAEA claim, so too did he sufficiently allege a breach of fiduciary duty claim. However, the court upheld the dismissal of Plaintiff’s claim alleging violation of the plan’s terms, on the grounds that Plaintiff failed to identify a specific plan term that UHC failed to follow in its administration of the plan.
Future Considerations
In light of the relatively low pleading standard the Ninth Circuit has set, group health plans and their sponsors, administrators and fiduciaries should pay carefu l attention to the internal processes they utilize in determining coverage for MH/SUD benefits as compared to M/S benefits. The Ninth Circuit’s ruling may significantly impact the health care industry, especially with proposed MHPAEA regulations anticipated to be finalized this year. Considering plans have already struggled to provide adequate analyses to demonstrate that internal processes applying NQTLs to MH/SUD coverage were not more restrictive than those applied to M/S coverage, it is likely that defendants utilizing these internal processes will face similar difficulties when scrutinized by courts under the requirements of MHPAEA and the new proposed regulations.
