Health Law Daily Wrap Up, CLAIMS APPEALS—10th Cir.: Court holds administrative service agreements are ERISA disclosures, (Oct 2, 2024)

By Leah S. Poniatowski, J.D.

Family denied coverage for residential mental health treatment won on ERISA disclosure issue but lacked standing on Parity Act claim.

Residential treatment for a dependent needing mental health services was not supported by the evidence the U.S. Court of Appeals for the Tenth Circuit held, vacating a ruling that the federal Mental Health Parity and Addiction Equity Act of 2008 (Parity Act) was violated on a sua sponte review of Article III standing. However, the appellate panel, as a matter of first impression, held that administrative service agreements are encompassed in the unambiguous, plain language of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. §1132, affirming the lower court’s ruling that the notice requirement had been violated. The panel reversed in part with respect to separate guidelines the plan used when making its coverage decision as those guidelines did not fit into the category of documents necessitating disclosure under ERISA (M.S. v. Premera Blue Cross, Nos. 22-4056 and 22-4061 (10th Cir. Oct. 1, 2024)).

Background. A parent whose family was covered by an employee health benefit plan governed by ERISA sought coverage for his son’s care at a residential treatment center in late 2017. Premera Blue Cross, the plan’s claims administrator, denied coverage on the basis that the treatment as not “medically necessary based on accepted medical standards” and was not “needed to prevent, diagnose or treat an illness, injury, condition or disease.”

Premera reviewed the son’s medical records and the “McKesson InterQual Criteria, BH: Child and Adolescent Psychiatry InterQual 2017” (the InterQual Criteria), which are guidelines used to determine the appropriateness of a medical service based on up-to-date data, including clinical expert panels and evidence-based literature. Premera’s conclusion was that the intensity of the son’s symptoms and the intensity of the treatment at the facility did not meet InterQual’s threshold for residential treatment center coverage.

Procedural history. The family filed an internal appeal of the denial, asserting that the residential treatment was “medically necessary” and that use of the InterQual Criteria violated the terms of the plan. The family also requested the criteria that were used for “skilled nursing facilit[ies]” claim evaluation. However, an independent psychiatrist reviewing the appeal concluded that the stay “would not be considered medically necessary,” supporting Premera’s affirming the denial. Premera did not provide the family any documentation beyond copies of the plan and the InterQual Criteria.

The family then sought an external review of the denial. The independent review organization agreed with Premera that there was no evidence that the son would need 24-hour care. Again, the plan administrator did not provide any administrative service agreements or skilled nursing facility criteria as requested by the family.

The family filed a lawsuit in a federal district court against Premera, the employer, and the plan, asserting that: ERISA was violated by the failure to provide medically necessary treatment; the Parity Act was violated by evaluating mental health care claims more stringently than other medical claims; and there was a failure to provide documents related to the establishment and operation of the plan as mandated under ERISA. The family also sought compensation for the stay at the residential facility, equitable relief, statutory penalties, and attorney fees and costs. The family and the other parties filed cross-motions for summary judgment.

District court. The district court concurred with Premera and granted summary judgment on the issue of ERISA benefit coverage, holding that the evidence did not support the presence of a “medical necessity” of the residential treatment. However, the court sided with the family on the issues of the Parity Act violation and the ERISA disclosure violation claims, imposing a statutory daily penalty for the latter. The court also ordered supplemental briefing on the appropriate remedy for the Parity Act violation.

In their supplemental briefing, the family contended that the court provided declaratory relief, but also requested injunctive relief, specific performance, surcharge, disgorgement, and equitable restitution. Additionally, the family sought attorney fees and costs pursuant to ERISA. Premera and the other defendants asserted that the family was not entitled to any remedy under the Parity Act. And reserved their rights to appeal the underlying orders and the relevant award of fees, costs, or interest.

The district court reviewed the supplemental briefs and determined that the family had “not tethered the requested . . . relief to harm incurred due to [the] Parity Act violation or demonstrated how the relief sought would remedy any such harm.” Accordingly, the court held that the family was not entitled to the relief requested. First, the court explained that the family lacked standing to obtain injunctive relief because they did not demonstrate that they faced “a continued or repeated threat of actual or imminent injury” absent an injunction. Second, specific performance, namely, to reevaluate the claim without using the InterQual Criteria, was not an available remedy because the record contained sufficient other evidence that the claim was not “medically necessary.” Finally, the surcharge, disgorgement, and restitution requests were rejected because there was no loss in the absence of a medically necessary claim. The district court granted the attorney fees request pursuant to 29 U.S.C. §1132(g)(1). Premera and the other defendants filed the present appeal.

Parity Act standing. The U.S. Court of Appeals for the Tenth Circuit, on a sua sponte inquiry, determined that the family did not have Article III standing with respect to the Parity Act claim. Specifically, the denial of benefits under the plan and the deprivation of notice as to how Premera and the plan review claims were not sufficient as injuries in fact to merit jurisdiction.

The appellate panel explained that although the denial of healthcare benefits is a concrete and particularized injury for Article III purposes per precedent, the family’s alleged injury was not traceable to a Parity Act violation. The lower court concluded that the Party Act was violated by use of the InterQual Criteria, but the same court ruled that the under the plan’s own language the family’s claim was not “medically necessary,” and thus the claim would have been denied independent of using the InterQual Criteria. The family did not challenge this finding. Therefore, the family failed to show that their purported injury was the result of the Parity Act violation.

Next, the appellate panel was not persuaded that the family was injured by Premera for failing to provide notice that the plan would evaluate mental health claims differently from other medical claims. The panel stated that there was not specific notice requirement or any other legal precedent to support the family’s argument. Because the family lacked standing to bring the Parity Act claim, the lower court lacked jurisdiction to hear the claim. Accordingly, the grant of summary judgment on the Parity Act claim was vacated and the matter remanded to be dismissed for lack of jurisdiction.

ERISA disclosures. The Tenth Circuit, as a matter of first impression, held that the administrative service agreements (ASAs) are within the scope of ERISA’s disclosure provision. The panel explained that under 29 U.S.C. §1024(b)(4), a plan administrator “shall, upon written request of any participant or beneficiary, furnish a copy of the latest updated summary, plan description, and … contract, or other instruments under which the plan is established or operated.” This provision is to allow plan beneficiaries to understand their rights and obligations under the plan. ERISA permits private rights of action against plans that violate this disclosure provision.

In the case at bar, the family requested documents of “any administrative services agreements that exist” and “mental health and substance use disorder treatment criteria . . . [for] skilled nursing facilit[ies].” Premera and the plan conceded that these were not provided, insisting that these documents were not within the scope of ERISA’s provision. The appellate panel agreed with the lower court that the ASAs were within scope, but the InterQual Criteria were not.

The appellate panel concluded that the ASA was a “contract” because it was an agreement between the employer and Premera for the services of claims administration. Further, the ASA was a “contract … under which the plan is established or operated” pursuant to the commonly understood meaning of “establish” and “operated.” Accordingly, the statutory language was unambiguous.

The panel also stated that this reasoning was consistent with a persuasive ruling by the Seventh Circuit—upon which the lower court relied as well. The panel was not persuaded by any of Premera’s other arguments. Because there was no dispute that the ASA was not provided to the family within the statutory time frame, Premera and the others violated the ERISA disclosure agreement.

However, the panel did not come to the same conclusion about the InterQual Criteria because the lower court reached beyond the unambiguous language of the statute to apply the language of a regulation under the Parity Act (29 C.F.R. §2590.712(d)(3)). Instead, the inquiry should be whether the criteria were “other instruments under which the plan is established or operated” under 29 U.S.C. §1024(b)(4) because if the statue’s language is unambiguous, “a court’s analysis begins and ends with the text,” the panel stated.

Although the term “instrument” was not defined in ERISA, at the time of its enactment it meant “a legal document (as a deed, will, bond, lease, agreement, mortgage, note, policy, warrant, writ) evidencing legal rights or duties esp. of one party to another.” Under certain legal principles, the panel reasoned that the statute’s use of “other” after a list constrained the definition of “instrument” to items sharing the characteristics of the items in that list. Accordingly, the criteria did not fit into the types of legal documents included in the list. The panel also emphasized that reliance on a source outside the unambiguous plain text of a controlling statute is inappropriate, thus foreclosing reliance on the regulation’s language. Therefore, the lower court’s ruling on this issue was reversed.

Relatedly, the statutory penalties imposed against Premera should not be recalculated despite the partial reversal of the ERISA disclosure claim, and because the family showed “some degree of success on the merits” of the ERISA claim, the award of attorney fees and costs was affirmed.

The case is Nos. 22-4056 and 22-4061.

Judge: Rossman, V.

Attorneys: Brian Smith King (Brian Smith King, Attorney at Law) for M.S., L.S. and C.J.S. Adam Howard Charnes (Kilpatrick Townsend & Stockton) for Premera Blue Cross. Timothy C. Houpt (Parsons Behle & Latimer) for Microsoft Corp. and Microsoft Corp. Welfare Plan.

Companies: Premera Blue Cross; Microsoft Corp.; Microsoft Corp. Welfare Plan

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