Last week, the US Court of Appeals for the Ninth Circuit, in its third opinion in the case, reversed a lower court’s decision allowing patients challenging United Behavioral Health’s (UBH) internal mental health coverage guidelines to seek reprocessing of their benefits claims as three certified classes.

Though the plaintiffs can continue to pursue fiduciary breach claims and possibly some limited benefit denial claims, the Ninth Circuit held that the certified classes for ERISA benefits claims improperly included plaintiffs whose claims had been denied by UBH based on internal guidelines that were not challenged in the litigation. 

The Claims

As background, the plaintiffs originally sued UBH on behalf of three putative classes, alleging that UBH improperly denied or limited coverage for mental health and substance use disorder benefits in plans administered by UBH. Specifically, the plaintiffs challenged the denial of benefits as improper under ERISA – 29 U.S.C. §§ 1132(a)(1)(B) and (a)(3)(B). Alternatively, the plaintiffs claimed that UBH breached its ERISA fiduciary duties under 29 U.S.C. §§ 1132(a)(1)(B) and (a)(3)(A). The theory underpinning both claims was that UBH improperly developed, and relied on, its own internal guidelines that were inconsistent with state-mandated criteria and with the terms of the class members’ benefits plans, which required that any treatments approved be consistent with generally accepted standards of care (GASC). 

The “Denial of Benefits” Classes and Trial Court Decisions

The plaintiffs sought relief through three proposed “denial of benefits” classes: two classes that suffered benefit denials based on UBH’s use of its allegedly sub-standard guidelines (the “guideline classes”) and one class that also suffered benefit denials based on UBH’s failure to follow those same internal guidelines, but where state mandates allegedly applied (the “state mandate class”). The US District Court for the Northern District of California certified all three proposed classes. 

Following a 10-day trial, that court ruled that UBH wrongfully denied benefits and breached its fiduciary duties because its guidelines impermissibly deviated from GASC, the applicable benefit plan terms, and state law-mandated criteria. The district court determined that UBH had a conflict of interest in its administration of the plan benefits due to its dual role as plan administrator and insurer, and it was motivated by that conflict in putting in place its restrictive guidelines.

The Appeal

The most recent decision is the third by the Ninth Circuit in this case. First, in a complete blow to the plaintiffs, the court held that the district court failed to defer sufficiently to UBH’s coverage determinations. Then, the court withdrew that order, reversing the district court’s class certification decision. Last week, the court withdrew its second order, but still ruled mostly in favor of UBH, this time largely reversing the district court’s class certification decision.

The Opinion on Class Certification

In its most recent decision, the Ninth Circuit confirmed that the plaintiffs had standing to pursue their claims. It then determined that while class certification for the fiduciary breach claim was appropriate, the denial of benefits classes impermissibly included plaintiffs whose benefits had been denied based on portions of UBH’s guidelines that were not challenged in the litigation. In other words, the plaintiffs failed to link all class members’ denials to specific challenged portions of the guidelines. By including those members without at least some showing that the challenged portions of the guidelines impacted those specific patients’ coverage denials, the Ninth Circuit explained, the district court had enlarged those plaintiffs’ substantive rights in violation of the Rules Enabling Act. That said, the Ninth Circuit decertified only the broader guideline classes; it did not decertify the state mandate class. 

The Opinion on the Merits

As to the merits of the case, the Ninth Circuit reiterated an earlier conclusion that the district court erred in its determination that the benefit plans at issue, each of which was governed by ERISA, required UBH’s internal guidelines to align with GASC. Initially, the Ninth Circuit held, UBH’s dual role as administrator and insurer did not amount to a conflict of interest. Moreover, under an abuse of discretion standard, UBH’s interpretation did not conflict with plan terms. Although the plaintiffs’ plans may have mandated that each treatment be performed consistent with GASC, the Ninth Circuit explained, that did not mean that UBH was compelled to cover all treatments consistent with GASC. The court reversed the district court’s decisions on the merits “to the extent” it was based on the conclusion that the benefit plans required UBH’s guidelines to be consistent with GASC.

Looking Ahead: Back to the District Court and Potential Future Challenges

Although the Ninth Circuit’s latest opinion was largely a win for UBH, the future of the case remains in question. The plaintiffs could petition the Ninth Circuit for rehearing of this most recent opinion. At this juncture, the case has been remanded to the district court, which will consider whether the plaintiffs’ claims for breach of fiduciary duty are truly “disguised claim[s] for benefits,” in which case exhaustion of administrative remedies must be demonstrated for the classes. The district court may also be prompted to determine “the extent to which” its conclusions on the merits were based on its determinations as to what the benefit plan terms required. 

Regardless, the lesson for plaintiffs in similar cases is this: plaintiffs must ensure, whenever possible, that all proposed class members’ claims are specifically tied to challenged payer policies. Failure to do so may result in similar setbacks for class action plaintiffs challenging plan benefit denials.