Quick Hits

• The Ninth Circuit recently set a broad pleading standard to allege a violation of the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008.
• The Mental Health Parity and Addiction Equity Act requires that any limitations on “mental health or substance use disorder benefits” in an ERISA plan be “no more restrictive than the predominant treatment limitations applied to substantially all [covered] medical and surgical benefits.”
• The broader standard may make it more difficult to challenge claims under the act at the pleading stage.

The standard established in Ryan S. makes it difficult to challenge a Parity Act claim at the pleading stage, which will open up Parity Act lawsuits to discovery. The Ninth Circuit’s opinion also makes it easier to bring a putative class action based on a Parity Act violation, as the Ryan S. matter is an alleged putative class action.

Background

Ryan S. brought a putative class action under the Employee Retirement Income Security Act of 1974 (ERISA) against UnitedHealth Group, Inc., and its subsidiaries. He alleged that UnitedHealth applied a more stringent review process to benefits claims for outpatient, out-of-network mental health and substance use disorder treatment than to otherwise comparable medical/surgical treatment. As the Ninth Circuit noted, “The Parity Act requires that any limitations on ‘mental health or substance use disorder benefits’ in an ERISA plan be ‘no more restrictive than the predominant treatment limitations applied to substantially all [covered] medical and surgical benefits.’”

Ryan S. alleged that his mental health benefit claim had been denied in violation of the Parity Act, and he cited a 2018 report by the California Department of Managed Health Care (DMHC) that concluded that UnitedHealth processed mental health claims differently.

According to the report, claims submitted for outpatient mental health treatment were evaluated using a process called Algorithms for Effective Reporting and Treatment (ALERT). ALERT identified how often an enrollee received outpatient, out-of-network treatment and whether the enrollee made progress in the program. If ALERT determined that certain criteria were not met, a claim was not denied, but it was referred for peer review, which could result in a denial of services. UnitedHealth staff members told the DMHC that no comparable additional review process applied to medical/surgical treatment. The DMHC determined that the approval processes for outpatient mental health services and analogous medical care were not comparable, and that utilization management review was being applied in a more stringent manner for outpatient mental health services.

The Ninth Circuit’s Decision

A key fact was that UnitedHealth’s utilization management review process did not necessarily lead to the denial of a mental health claim. The report from the DMHC stated that “the case [is] referred for peer review … which could result in a denial of services.” (Emphasis added.) Mental health claims have to be managed and the progress of a patient monitored. This monitoring often results in the use of peer reviews to determine if the treatment is still medically necessary under the terms of the particular benefit plan. Mental health treatment often does not fit into a predictable timeline—the length and level of treatment vary significantly based on a host of factors, whereas the treatment for a broken bone, or a recovery from surgery, more often falls into predictable timelines. As a result, mental health claims typically need to be monitored in a manner that is different from most medical/surgical claims. Nonetheless, the Ryan S. court concluded that the alleged differences in UnitedHealth’s monitoring processes with respect to mental health and medical/surgical claims could be the basis of a claim for relief for breaches of the Parity Act. This would be the case, the court found, even if the monitoring of the mental health claims results in a valid denial:

Even if all those denials were independently valid, the mere fact that the reasons to deny coverage were identified only because the [mental health/substance use disorder] claims were subjected to an additional layer of scrutiny could violate the Parity Act.

In other words, according to the Ninth Circuit, even a process that results in a correct decision can still be a basis for a Parity Act violation.

Conclusion

There is some good news for group health plans. This is a pleading standard. A plaintiff still must prove the existence of a violation of the Parity Act. However, given the pleading standard, the Ryan S. opinion opens the door to putative class actions based on alleged Parity Act violations and likely will result in situations in which discovery and class certification litigation will be more common.