Not Disclosing Medical Necessity Criteria Led to Over $32,000 in Penalties

By: HUB’s EB Compliance Team

In recent Mental Health Parity and Addiction Equity Act (“MHPAEA”) litigation, a Montana district court awarded $32,340 in ERISA document penalties to a dependent covered under the plan. The penalties arose because the third-party administrator (“TPA”) of a self-funded health plan failed to furnish certain MHPAEA-related plan documents on request. The court concluded that the plan’s failure to provide the requested documents interfered with the dependent’s ability to understand their rights under MHPAEA and ERISA.

Background

The plaintiff received treatment for depression at three inpatient mental health treatment facilities between November 2017 and September 2020. The plan’s TPA denied coverage for most of the treatments saying the care was not medically necessary.

In early November 2021, the dependent’s parent requested that the plan provide (among other documents) a full copy of the medical necessity criteria that the plan used regarding “skilled nursing facilities, sub-acute inpatient rehabilitation treatment, and inpatient hospice treatment.” After exhausting the claims procedures, the dependent and parent sued the plan, plan administrator, and the TPA. They were seeking to recover benefits under ERISA and alleging violations of MHPAEA. They also pursued ERISA statutory penalties, claiming the plan failed to timely provide certain MHPAEA-related documents on request.

Lose Some, Win Some

The court generally ruled for the plan on most of the claims. It held that the participant and dependent were given adequate notice and a full and fair review of their claims, as required by the ERISA claims procedures. The court also held that the TPA did not abuse its discretion in denying the residential treatment claims. Specifically, it relied on its guidelines to state that not all the requirements for inpatient residential treatment were met and that outpatient treatment would be a safe alternative. Finally, the court concluded that the plaintiffs did not show that the plan imposed more restrictive criteria for mental health benefits than it did for medical surgical benefits in part because it used the same guidelines for both types of treatments. If it had used more restrictive criteria for mental health plans, the plan would have violated MHPAEA, but the court concluded it did not.

However, the court did find that the TPA and the plan failed to provide documents required by ERISA. ERISA generally requires plan administrators to timely provide (generally within 30 days of a request) certain plan-related documents on request by a participant or beneficiary, including the latest updated summary plan description (SPD), latest annual report, any terminal report, bargaining agreement, trust agreement, contract or, as is relevant in this case, “other instruments under which the plan is established or operated.”

Noting that federal courts have been inconsistent in determining whether documents like medical necessity criteria for mental health benefits are considered “other instruments” for this purpose, the court concluded that evaluation criteria used to determine medical necessity is within the scope of the MHPAEA and must be provided to plan participants upon written request. This meant that the TPA’s failure to disclose them was an ERISA violation, entitling the participant to up to $110/day in penalties. Given that it had been almost a year between the end of the 30-day deadline for responding and the date of the case (294 days, to be exact), the court awarded the full amount of $32,340 in penalties. 

Takeaways

While this is a single district court case, more cases are likely to be forthcoming in this area. Additionally, to the extent additional cases involve the delay in providing, or failure to provide, relevant MHPAEA documentation, the reasoning in this case could prove persuasive.

Employers with self-funded plans should ensure their TPAs are aware of this case and are willing to provide requested documents. To the extent existing claims include document requests that have not been answered, employers should consider, after consultation with counsel, asking their TPAs to go ahead and provide the documents now to limit or avoid potential penalties.

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.

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