Mental Health Parity Ruling Called ‘Watershed Case'

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By Matthew Loughran

Aug. 24 — The decision by the U.S. Court of Appeals for the Second Circuit to vacate and remand dismissal of claims under the Mental Health Parity and Addiction Equity Act will have wide-ranging effects in litigation between psychiatric care providers and benefit plan administrators, practitioners said.

Attorneys representing both providers and insurers agreed in comments to Bloomberg BNA that the ruling by the Second Circuit in N.Y. State Psychiatric Ass'n v. UnitedHealth Grp., 2015 BL 268088, 2d Cir., No. 14-20-cv, 8/20/15 changed the landscape by allowing provider associations to bring claims against third-party plan administrators for alleged violations of the parity act through an action under Section 502 of the Employee Retirement Income Security Act.

“This is really a watershed case,” said Jason S. Cowart, a partner at Zuckerman Spaeder in New York, who represented the New York State Psychiatric Association before the Second Circuit. “One of the reasons is that there is a large market participant, the third-party plan administrator, that is making all the relevant decisions in regard to mental health benefits and there has been a high degree of uncertainty as to whether they could even be sued under the parity act.”

“Hopefully this will open the door to better enforcement of the parity act,” he added.

Robert Rachal, a senior counsel at Proskauer Rose in New Orleans, who wasn't involved in the case but whose practice includes extensive ERISA class action defense work, agreed, said the decision “will make it easier for participants and medical providers with valid assignments to enforce claims for benefits.”

However, Rachal cautioned, “I think it is too soon to tell whether associations will be able to bring systematic claims seeking to change how insurers process mental health benefits.”

“I expect there will be some real battles here on whether parity act claims can be proven at the global level,” Rachal added, “or whether they will require detailed analysis of how each plan treats and pays its medical and mental health benefits at a plan-by-plan, benefit-by-benefit level.”

“The key thing to understand is the incredible power that the third-party administrators have in the market here,” Cowart said. “They have all the discretion when it comes to approving or denying benefit claims. This makes them plan fiduciaries, meaning they owe heightened duties to plan participants and they are required to conform their conduct to all federal and state laws, including the parity act.”

Second Circuit Decision 

The decision by the Second Circuit vacated in part a ruling by the U.S. District Court for the Southern District of New York, which had dismissed claims against UnitedHealth Group alleging that the insurer breached the parity act by denying mental health coverage to individuals covered by self-funded group health plans.

In the opinion, the Second Circuit found that the trial court erred in denying the standing of the New York State Psychiatric Association to bring the claims on behalf of its members, mental health-care providers who had obtained assignments of benefits from their patients.

Commenting on the court's opinion, a UnitedHealth spokeswoman said, “We consistently help people access proven mental health and substance abuse treatments to ensure they get the right care at the right time in the right setting. While we are still reviewing the decision, we believe this opinion is inconsistent with the way this court has addressed similar cases in the past, so we are evaluating our options for further action.”

Association Standing 

Much of the court's opinion centered around the question of association standing, that is, the idea that an association of providers could bring claims for a breach of the parity act on behalf of its individual members.

The American Medical Association, which appeared as an amicus curiae in the Second Circuit, said that the organization hoped that the decision would result in other courts holding third-party administrators subject to parity act requirements.

“We are very pleased with the recent Second Circuit Court’s decision in the NY Psychiatric Association case,” a spokeswoman for the AMA said. “We hope other courts will also embrace that ERISA beneficiaries may pursue claims against third-party administrators which have sole and absolute discretion to deny benefits and to make final and binding decisions on appeals from those denials. The case also sets an important precedent for physician organizations to pursue claims on behalf of their physician members.”

Cowart agreed, pointing to the systematic nature of the alleged violations. “Who better to lead the way on these cases than providers?” he asked. “Who is in a better position to bring these cases? They know all of the clinical aspects of the claims, they know the patients better than anyone and they interact with the key players, the insurance companies and plan administrators, more regularly than anyone else.”

However, Rachal again sounded a note of caution. “Although the case could be read to approve a broad view of associational standing, I think there is still an open issue whether an association can pursue fiduciary breach claims untethered from its members’ medical claims for benefits. If this is true, it could turn medical associations into private attorneys general with broad-ranging writs to enforce the provisions” of the Affordable Care Act “and the parity act untethered from payment or denial of particular claims for benefits. At least some courts may not find that an appetizing prospect.”

According to Cowart, such concerns might be overstated. “No one is arguing that associations could go into court and seek a court order enforcing the law that isn't tethered to some actual violation of the act,” he said. “The question is more can associations seek injunctive relief against these third-party administrators for systematically violating the mental parity act.”

Enforcement of Parity Act Provisions 

In an amicus brief that he presented to the Second Circuit but which was denied leave for filing, former Rep. Patrick J. Kennedy (D-R.I.), one of the original congressional sponsors of the parity act and who has served as a mental health advocate in the years since leaving office, argued that the intent of Congress in passing the law and in linking its enforcement to the civil enforcement provisions of ERISA was to “focus on acts, not actors.”

As such, Kennedy argued, Congress envisioned enforcement of the act reaching any defendant who violates it, regardless of whether that defendant is a formally designated plan administrator.

According to Cowart, decisions like this one from the Second Circuit go a long way to addressing that concern. “As long as the courts are prepared to enforce the parity act through the provisions of ERISA as required, that will alleviate a lot of the pressure to find that the parity act has some kind of implied independent enforcement mechanism,” he said.

Similar claims are still pending before the Second Circuit in an appeal of a case in which the U.S. District Court for the District of Connecticut dismissed claims by the American Psychiatric Association against Anthem Health Plans Inc. on the grounds that an assignment of benefits doesn't give rise to a fiduciary breach claim under ERISA or the parity act (American Psychiatric Ass'n v. Anthem Health Plans, Inc., 2015 BL 267844 (D. Conn. 2014) ).

“That raises an interesting question,” Rachal said. “Under Section 502(a)(3) of ERISA, you can bring a fiduciary breach claim for any act or practice that violates Tile I of ERISA, and the parity act is included in Title I. So, on its face, there may be a colorable claim, if fiduciary breach claims can be assigned and they are not viewed as repackaged claims for benefits.”

“That is a tension which remains, even after this decision,” Cowart said of the Connecticut case. “The law is beginning to coalesce around this point. There is still definitely some uncertainty about it, but it is hard for me to understand how you don't allow the providers who are in the best position to see these breaches to bring the case.”

To contact the reporter on this story: Matthew Loughran in Washington at mloughran@bna.com

To contact the editor responsible for this story: Janey Cohen at jcohen@bna.com

Text of the Second Circuit's opinion is at http://www.bloomberglaw.com/public/document/NEW_YORK_STATE_PSYCHIATRIC_ASSOCIATION_INC_in_a_representational_.