1. Case Name: Des Roches, et al. v. California Physicians’ Service, et al.

2. Type of Treatment Services Denied: Residential and Intensive Outpatient Treatment

3. Lawyers:
a. Plaintiff: Meiram Bendat, Psych-Appeal, Inc.; Daniel Berger, Kyle J. McGee, and Rebecca A. Musarra, Grant & Eisenhofer, P.A.; Jason S. Cowart and D. Brian Hufford, Zuckerman Spaeder, LLP
b. Defendant: Jennifer Romano, Christopher Flynn, Thomas Koegel, Crowell & Morning, LLP

4. Format: Final Order and Judgment Approving Settlement and Dismissing this Action with Prejudice; Order Granting Plaintiffs’ Motion for Attorneys’ Fees and Expenses and Incentive Awards

5. Outline:
a. ERISA Claim? Yes
b. Class Action/or Individual Action: Class Action
c. Defendant: Claims administrator, Mental Health Service Administrator
d. Type of Insurance Plan: Fully insured employee sponsored plan governed by ERISA
e. Type of Coverage Denial: Medical Necessity

6. Legal Pointer: BlueShield’s medical necessity criteria guidelines were questioned as they went against generally accepted professional standards for MH/SUD treatment.

7. Legal Issues and Causes of Action: Plaintiffs contend that Defendants violated legal and fiduciary duties they owed to health insurance plan participants and beneficiaries by improperly restricting the scope of their insurance coverage for residential and intensive outpatient mental health and substance abuse treatment. Plaintiffs further alleged that these restrictions were inconsistent with the terms of the relevant insurance plans and generally accepted professional standards in the mental health and substance abuse disorder treatment community.
a. Ruling: Plaintiffs’ unopposed Motion for Settlement was granted.

8. Narrative Case Description: On August 26, 2016, Plaintiff R.D. was urgently admitted for residential rehabilitation treatment at Evolve Treatment Center due to substance abuse, major depression, and severe emotional disturbance of a child. For the preceding two years, R.D. had abused cannabis, alcohol, hallucinogens, cough syrup, painkillers and nitrous oxide. R.D. had a documented history of shoplifting and theft, and of excessive anxiety, aggression, and anger. R.D. would sleep an average of 12 hours per day, exhibiting a general disinterestedness in normal activities and a lack of motivation, as well as fluctuations in weight. R.D. had undergone multiple outpatient treatments, including psychopharmacological treatment, psychotherapy, and EMDR, prior to admission at Evolve Treatment Center. On August 28, 2015, BlueShield issued a denial letter for R.D.’s residential rehabilitation treatment based on Magellan’s adjudication of the claim. Specifically, the denial letter stated that the substance use/dependency had not caused significant impairment that could not be managed at a lower level of care, that there had not been recent, appropriate professional intervention at a less intensive level of care, that R.D.’s living situation did not undermine treatment or that alterative living situations were appropriate, and that there was no clinical evidence that R.D. was unlikely to respond to treatment at a less intensive and less restrictive level of care. R.D. appealed the denial, which was affirmed on September 3, 2015, stating that the principal reason for the denial was that medical necessity of the treatment at a residential level of care was not established.

On July 6, 2015, D.V. was admitted to an intensive outpatient psychiatric program at Evolve Treatment Center. For more than four years before his admission, D.V. suffered from major depression, which was compounded by abuse of alcohol as well as cocaine, marijuana, benzodiazepine and other drugs. D.V. had been involved in criminal activity and was suspended from school for fighting with a classmate. D.V.’s father abused marijuana and pain pills, as well as alcohol, and had attempted suicide in the past. Additionally, his two paternal aunts died of drug overdoses. D.V. had an unstable childhood with widespread interfamily conflict and had undergone psychiatric treatment at UCLA, residential care and partial hospitalization. After treatment in residential care and in partial hospitalization, D.V. was admitted to an intensive outpatient psychiatric level of care at Evolve Treatment Center. On August 11, 2015, D.V. received a letter from BlueShield denying coverage for the intensive outpatient treatment, stating that the treatment plan did not consider the use of medications to help with craving and relapse prevention, that the provider had not shown that the treatment plan would bring further significant improvement in the problems that required an intensive outpatient treatment program, that the provider had not shown that D.V. had motivation and the ability to follow his treatment plan, that outpatient psychiatric and substance use rehabilitation treatment should be considered and that the provider did not show that D.V.’s treatment plan met the expectations for intensity and quality of service for that level of care. D.V. appealed the denial, which was upheld. The letter denying the appeal stated that the principal reason for the denial was that the medical necessity of treatment at an intensive outpatient program level of care was not established.

On July 7, 2015, C.G. was admitted for residential treatment at the Sanctuary Centers of Santa Barbara. For years before his admission, C.G. struggled with numerous, severe mental illnesses, including depression, bipolar disorder, and a pervasive developmental disorder. His treatment included hospitalization, residential care and use of mood stabilizers and antipsychotics. Due to his disorder, C.G. withdrew from college and could not maintain steady employment. He also struggled to retain medication compliant. In the months prior to his residential admission, C.G. had begun acting aggressively towards his parents and gained 50 pounds within a short period of time. Despite attempts to stabilize C.G. with outpatient treatment, he became more manic and was subsequently hospitalized at UCLA. C.G. was transferred to a locked psychiatric unit at Aurora Las Encinas Hospital. Due to concerns with C.G.’s poor judgment, poor insight, and remaining complaint with his prescribed antipsychotic and mood stabilizer, C.G. was referred for residential treatment. After evaluation, the Sanctuary’s clinical director concluded that C.G. was incapable of providing for his own daily living needs without intercession from a focused and structured residential program that would not merely maintain the crisis (hospital setting) but provide the skills necessary for C.G. to reintegrate into the local community so that he could maintain maximum functional capacity on a long-term basis. On July 9, 2015, C.G. received a letter from BlueShield denying coverage for his residential treatment. The letter stated that residential psychiatric treatment was not medically necessary based on the 2015 Magellan Medical Necessity Criteria because the acuity, signs, and symptoms of his condition were not likely to require hospital treatment in the absence of a 24hrs/day residential supervision and treatment. Additionally, the letter stated that C.G. did not appear to be a serious risk to self or others that would require a residential treatment program and that he did not appear to have required treatment and supervision seven days per week/24-hours per day to be able to return a less intensive level of care. The letter stated that medical necessity criteria appeared to have been met for psychiatric partial hospital (PHP) treatment. C.G. appealed, and the denial was affirmed, stating that the reason for the denial was that there was no attempt to initiate care at a lower level such as partial hospitalization.

Plaintiffs’ plans covered in- and out-of-network treatments for illnesses and injuries as well as for mental illnesses and substance use disorders described in DSM-5 of the APA. As such, the plans covered residential and intensive outpatient treatment for mental illnesses and substance abuse disorders. To be entitled to insurance benefits paying for such treatment, the plans required that the treatment be medically necessary, as defined by generally accepted professional standards. The plans delegated the responsibility for adjudicating mental health and substance abuse claims to Magellan as the Mental Health Service Administrator (MHSA). Pursuant to this delegation, Magellan adopted, and BlueShield approved, the adoption of Medical Necessity Criteria Guidelines (MNCG) developed by Magellan’s parent company, Magellan Health, Inc. The MNCGs under which mental health and substance abuse claims were adjudicated provided that coverage for residential treatment would be authorized only where the claimant had had “recent (i.e., in the past 3 months), appropriate professional intervention at the less intensive level of care” (the “fail-first” criterion).

Plaintiffs argued that fail-first protocols were inconsistent with generally accepted professional standards in the mental health and substance abuse disorder treatment community and that Magellan’s MNCGs ignored a host of residential placement criteria enumerated by national medical specialty organizations such as the AACAP and ASAM, including the necessity of erring on the side of caution and approving levels of care consistent with the judgments of the treating mental health professionals based on the professionals’ direct access to their patients, in the absence of compelling evidence that such levels of care were unwarranted. Plaintiffs further argued that the MNCGs deviate from ASAM standards by conditioning residential rehabilitation treatment on a “severely” dysfunctional living environment, which was a far more restrictive condition than ASAM provided. With respect to intensive outpatient treatment for substance abuse disorders, Plaintiffs contend that the MNCGs were similarly problematic as it imposed an improper “motivation” requirement. Additionally, the intensive outpatient treatment guidelines required that the treatment plan for the patient was “reasonably expected to bring about significant improvement;” however, such a requirement had no basis in generally accepted medical practices. Therefore, Plaintiffs alleged that the Defendants systematically denied mental health and substance abuse claimants the residential and intensive outpatient treatment they needed unless such claimants could meet a set of requirements different from, and often conflicting with, the generally accepted professional standards for treatment.

Plaintiffs later filed an Unopposed Motion for Preliminary Approval of Class Action Settlement, which was granted. The settlement included the provision that Defendants, who had stopped using the challenged guidelines on March 5, 2017, agree to 1) not resume use of the challenged guidelines to determine claims for benefits for members of BlueShield health benefit plans, and 2) issue a bulletin to the appropriate personnel conducting medical necessity reviews instructing them not to rely upon previous denials of a class member’s coverage requests to support a future denial of coverage requests on the basis of lack of medical necessity. Additionally, Defendants would pay $7,000,000 for the benefit of the class to be allocated, after deduction of attorneys’ fees, costs, expenses, and incentive awards, in accordance with the plan of allocation. Plaintiffs’ counsel also filed a Motion for Attorneys’ Fees and Expenses and Incentive Awards, which was granted.

9. Additional Comments: Counsel’s Motion for Class Certification was granted. Defendants appealed the District Court’s decision; however, the USCA denied Defendants’ appeal. Defendants’ later filed a Motion for Summary Judgment, arguing that Defendants were entitled to summary judgment on Plaintiffs’ fiduciary duty and wrongful denial claims because Plaintiffs lacked proof of causation, amongst other grounds, which was later declared moot.

10. Website: https://www.lexislegalnews.com/articles/23544/class-health-insurer-reach-7m-settlement-over-mental-health-coverage

11. Practical Implications and Lessons Learned: Medical necessity guidelines must comply with generally accepted professional standards in the mental health and substance abuse disorder treatment community.

12. All Legal Theories Presented in Case: Breach of Fiduciary Duty and Improper Denial of Benefits

13. Successful Legal Theories in Case: All

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