Tenth Circuit Holds Denial of Minor’s Residential Treatment Claims Was Abuse of Discretion

On August 15, 2023, in David P. v. United Healthcare Ins. Co., the Tenth Circuit Court of Appeals (Tenth Circuit) reversed the defendant group health plan’s claim denial because the court determined that the defendant claims administrator abused their discretion and failed to follow ERISA claims procedures. The case was remanded with instructions to the district court to determine the appropriate disposition of the plaintiffs’ claims.

The plaintiff, a participant in the defendant’s group health plan, submitted claims to the plan for residential mental health treatment for the plaintiff’s daughter (also a plaintiff). The plan covered mental health and substance abuse services that are “medically necessary” and defined “medically necessary” as “[t]hose services…that are determined by the health plan administrator to be: provided for the diagnosis, treatment, cure or relief of a health condition, illness, injury or disease.” In this case, the defendant claims administrator denied the claims because they did not have information to establish the treatment as medically necessary. However, the defendants did not provide the plaintiffs with an explanation of what they needed to approve the claim.

The plaintiffs appealed these denials. The plan provided four levels of claim review: an initial decision and two levels of administrative review conducted by the plan, with additional review, at the claimant’s request, by an external reviewer independent from the plan. During this appeal process, the plaintiffs provided information to support their assertion that the treatment was medically necessary, including recommendations from treating physicians that residential mental health treatment was appropriate under the circumstances. Despite this, the defendants denied the appeals.

The plaintiffs filed suit to reverse the defendants’ denials. The district court ruled in favor of the plaintiffs, determining that the defendants failed to follow ERISA procedures when it reviewed the claims. The defendants appealed to the Tenth Circuit.

The Tenth Circuit agreed with the district court that the defendants did not follow claims procedures established under ERISA. ERISA requires that “every employee benefit plan . . . provide adequate notice in writing to any participant or beneficiary whose claim for benefits under the plan has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by the participant.” Denial notices should include the reasons for the denial, the plan provisions upon which the denial is based, and an explanation of what information the plan requires from the claimant to perfect the claim. The district court and the Tenth Circuit determined that when the defendants denied the plaintiffs’ claims, they failed to provide the plaintiffs with an explanation of what plaintiffs needed to perfect the claims at issue until it was too late in the process.

ERISA also requires that “every employee benefit plan . . . afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim.” The appeal process must provide the claimant with an opportunity to submit additional information in support of their claim, and the reviewer must take that additional information into account when considering the appeal. The district court and the Tenth Circuit determined that the defendants did not appear to consider the recommendations from treating physicians that residential mental health treatment was appropriate under the circumstances, nor did the defendants appear to consider other information provided by the plaintiffs in support of the claims’ medical necessity.

It should be noted that the defendants asserted that they had internal notes that established the basis for their decisions; however, the Tenth Circuit determined that ERISA requires a meaningful dialogue between the plan and the claimant and that the information in those notes was never provided or relayed to the plaintiffs during the claim process, denying the plaintiffs the opportunity to engage with that information. In addition, the fact that the external reviewer agreed with the conclusions reached by the defendants earlier in the appeal process did not cure the defendants’ failure to follow ERISA procedures.

Employers should ensure that plan claim processes, including appeals, conform with ERISA requirements. Communications to claimants should be clear regarding the basis for a claim denial and any additional information necessary to perfect the claim.

David P. v. United Healthcare Ins. Co.»