A U.S. District Court in Connecticut recently issued an order that highlights the importance of understanding exactly what the term "medically necessary" means in an ERISA health plan.1 This is another in a growing line of cases finding a disconnect between the term "medically necessary" in a health plan and the guidelines that third-party administrators use to determine whether treatment is "medically necessary."
In general, ERISA plans may specify what kinds of medical services they cover, subject to requirements in the Affordable Care Act that are beyond the scope of this article. Therefore, health plans can generally limit coverage to care that is "medically necessary." But if a plan does not define what is considered medically necessary and what is not, the courts tend to look to the medical community to fill in that blank. However, third-party administrators tend to have their own guidelines that do not always match what the medical community thinks.
The Plan at issue provided for coverage of services required for the direct care and treatment or management of a condition, or for which a condition would be adversely affected if the services were not provided, so long as the services were provided in accordance with generally-accepted standards of medical practice.2 The Plan also indicated that coverage could be determined based on a review of, among other things, reports and guidelines published by nationally recognized health care organizations and professional standards of safety and effectiveness.
The issue in this case was that while the Plan seemingly had defined what constituted a medical necessity, and provided for discretion in the review of claims, the guidelines used by the third-party administrator were at odds with what the court considered "generally-accepted standards of medical practice" or "professional standards of safety and effectiveness." Because the Plan had specified that "medically necessary" was to be based on generally-accepted standards of medical practice, the court ruled that the company and administrator could not deny coverage based upon the third-party administrator's own guidelines about what constituted medical necessity.
In granting benefits under the Plan, the court favored the American Psychiatric Association (APA) guidelines addressing the exact medical condition that the plaintiff had sought coverage for over the third-party administrator's internal guidelines.3 Thus, the court concluded that the administrator's guidelines were not representative of the medical community's view of proper treatment for the ailment at the root of the case.4
The court found support for its analysis in a magistrate judge's recommendation from the U.S. District Court of the Northern District of California that is being closely watched.5 The magistrate judge had, in a 51-page opinion, found that denying coverage based on guidelines that are not recognized by the broader medical community violates even the arbitrary or capricious standard applicable to discretionary review of ERISA plans.6 And while at least one court has refused to give too much deference to the California magistrate judge's recommendation, at least until the case has been addressed on review,7 the Connecticut court, and possibly other courts, are starting to follow suit.
ERISA litigation tends to follow a bit of a cyclical nature. Plaintiffs win, plan sponsors understand why, amend their plans, and then new theories replace the ones that have been solved for by plan amendments.
There are many ways that plans can address recent case law. Assuming the policy uses definitions that are ambiguous or that would suggest a deference to industry definitions, a plan could contractually direct third-party administrators to look to the same guidelines to which the courts are starting to look: namely, to make certain that their internal guidelines adhere to those in the applicable community or industry.
On the other hand, if a plan wants to be able to have "medical necessity" interpreted consistent with its third-party administrator's internal guidelines, perhaps those guidelines can be appropriately incorporated into the definition of "medically necessary" by reference (provided that doing so does not create issues under the Affordable Care Act). In other words, if a plan incorporates an industry-wide phrase into its policy, such a phrase should be so well-defined within the boundaries of the policy so as to clearly articulate the exact parameter covered,; leaving the courts with no reason to seek clarification as to the meaning of a certain phrase from outside of the policy itself.
But not sufficiently defining "medically necessary" leads to an ambiguity that, like many ambiguities, might create uncertainty. That uncertainty can, in turn, create a disconnect between what the plan intends to cover and what a court says it actually does cover.
1 S.B. v. Oxford Health Ins., Inc., No. 3:17-CV-1485 (MPS), __F.Supp.3d__, 2019 WL 5726901 (D. Conn. Nov. 5, 2019).
2 The court enumerated other ways of establishing medical necessity, but for purposes of this article, these three were considered dispositive.
3 Plaintiff, a minor at the time of plan coverage/denial, was admitted to residential treatment for an eating disorder.
4 The standards applied by the administrator were consistent with mental health concerns, but failed to specifically address the applicable, narrower, field of eating disorders.
5 Wit v. United Behavioral Health, 2019 WL 1033730 (N.D. Cal. Mar. 5, 2019).
6 The same arbitrary or capricious standard was applied in S.B.
7 Michael W. v. United Behavioral Health, No. 2:18-cv-00818-JNP, 2019 WL 4736937, at *7 (D. Utah Sep. 27, 2019)(the court concluded that because the order in Wit is being briefed on appeal, the order as it exists currently cannot be considered a final order).
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