Denial of Residential Mental Health Treatment Benefits Overturned on De Novo Review

After claims for a child’s residential mental health treatment were denied under an ERISA-covered group health plan, the child’s parents sued the plan and its claims administrator. The trial court upheld the denial, but an appellate court subsequently determined that, because the decisionmaker’s discretionary authority was not mentioned in the SPD or otherwise disclosed, the trial court should have applied the “de novo” standard of review rather than the deferential “arbitrary and capricious” standard (see our Checkpoint article). The case returned to the trial court, which performed its own independent review of the denial and determined that the family was entitled to plan benefits for the residential treatment.

Analyzing specific treatment criteria set forth in the plan’s “medical policy,” the trial court concluded that residential treatment was appropriate under the policy’s “severity of illness” criteria because medical records reflected that the child continued to exhibit an active risk of self-harm during the relevant time period. The court was unpersuaded by the claims administrator’s argument that two independent medical reviewers had agreed with the denial. According to the court, the administrator had instructed one reviewer not to base his determination on the medical policy—an instruction the court called “procedurally irregular.” And the other reviewer’s conclusions about the child’s condition were directly contradicted by the medical records. Highlighting these procedural problems, the court determined that the claims administrator failed to provide “an explanation of the scientific or clinical judgment for the determination, applying the terms of the plan to the claimant’s medical circumstances” as required by the claims procedure regulations. This bolstered the court’s view that the treatment was medically necessary and benefits were warranted.

EBIA Comment: According to the appellate court, the claims administrator’s denial was arbitrary and capricious and should not have been upheld by the trial court in the first place—even under the deferential standard of review. Nevertheless, plan decisions are more likely to be upheld when courts apply deferential review, which is available only if the plan grants the decisionmaker discretionary authority. As demonstrated here, the deferential standard may not be available if that discretionary authority is not disclosed to participants, or for other reasons such as failure to follow ERISA’s claims procedure rules. And, as here, the de novo standard is more likely to produce a less favorable outcome for the plan. For more information, see EBIA’s ERISA Compliance manual at Sections XI.B (“Discretionary Authority to Interpret Plan and Determine Facts”) and XXXIV.E.7 (“Notification of Adverse Benefit Determination (All Types of Health Claims)”). See also EBIA’s Self-Insured Health Plans manual at Sections IX.E (“Recommended Plan Provisions”) and XIII.E.2 (“Considerations for Specific Exclusions and Limitations”), and EBIA’s Group Health Plan Mandates manual at Section IX.G (“Disclosure of Criteria for Medical Necessity Determinations, Claims Denials, and Other Document Requests”). You may also be interested in our upcoming webinar, “Group Health Plans Year-End Update and Looking Ahead to 2022” (live on 12/16/21).

Contributing Editors: EBIA Staff.