Understanding Mental Health Parity: Insurer Compliance and Recent Litigation

Health Update

Editor’s Note: The Mental Health Parity and Addiction Equity Act (MHPAEA) requires health plans to provide comparable levels of treatment for mental health conditions and substance use disorders (SUDs) as they do for physical illnesses. Mental health parity has become an increasingly critical challenge for health plans, partly driven by the exploding opioid crisis that is dominating headlines and making SUDs and mental health problems a central issue in the national healthcare debate.

In a recent webinar, Manatt examined mental health parity and its effects on health plans and state regulators from multiple perspectives—regulatory, policy and litigation. In part 1 of our article summarizing the webinar, published in our September “Health Update,” we provided an overview of MHPAEA and a detailed look at state insurance regulators’ role. In part 2 of our summary, below, we focus on insurer compliance and recent MHPAEA litigation. To view the full webinar free on demand, click here. To download a free copy of the presentation, click here.


Back to Basics: What MHPAEA Requires

MHPAEA prevents group health plans and health insurance issuers that provide mental health or SUD benefits from imposing less favorable benefit limitations on those benefits than on medical/surgical benefits. Treatment limitations are defined as limits based on the frequency, number of visits, days of coverage, prior authorization, or other scope or duration limits.

To ensure MHPAEA compliance, every benefit in the plan needs to be placed into one of six classifications: in-patient in-network; in-patient out-of-network; outpatient in-network; outpatient out-of-network; emergency services; and drugs. Within each classification, the plan examines mental health/SUD benefits that are provided and determines whether they’re comparable and no more stringent than medical and surgical benefits.

To conduct the analysis, treatment limitations are examined in two broad categories—Quantitative Treatment Limitations (QTLs), which are standards with numeric limits (such as the number of outpatient visits per year) and Non-Quantitative Treatment Limits (NQTLs), which are standards that otherwise limit the scope or duration of benefits (such as prior authorization, fail-first protocols, provider network and medical necessity standards). The MHPAEA regulations establish a mathematical test for evaluating QTL compliance. NQTLs require a more subjective analysis.

The basic standard for NQTLs is that they must be comparable and no more stringent for behavioral health services than for medical and surgical services in each of the six classifications. In a frequently asked questions document, the federal Department of Labor (DOL) emphasized that plans should not focus on outcomes but instead should look at the underlying processes and strategies used in applying the NQTLs. While outcomes are not determinative of compliance, rates of denials could be a warning sign of potential parity noncompliance. Other warning signs the DOL lists as warranting further scrutiny include:

  • Blanket preauthorization requirements for SUD/mental health services
  • Treatment facility admission preauthorization requirements
  • Selective medical necessity review delegation
  • Differing rules for prescription drug preauthorization
  • Extensive prenotification of requirements
  • Unequal fail-first protocols
  • Likelihood of improvement requirements
  • Limitation of benefits due to patient noncompliance
  • Residential treatment or geographic limitations

Adopting Internal Policies to Comply With MHPAEA

The DOL Compliance Guide outlines a basic analysis for NQTLs to help plans determine compliance. The DOL checklist for plans to follow includes:

  • Defining the NQTL. Review all documents to identify all the services to which NQTLs apply, including internal documents and provider contracts.
  • Identify the factors considered in the design of the NQTL.
  • Identify the sources (including processes, strategies and evidentiary standards) used to define the factors considered in the NQTL design.
  • Check that the processes, strategies and evidentiary standards used in applying the NQTL are comparable and no more stringently applied to mental health/SUD than to medical/surgical benefits, both in writing and in operation.
  • Document the analysis.

It’s important to note that the comparative analysis exercise is not about matching a behavioral health service with a medical or surgical service and determining whether the same standards apply. The analysis should focus on looking holistically at the standard applied within each of the six classifications and ensuring that standard is comparable for both behavioral and medical/surgical benefits. The key is to determine that no standard is being applied more stringently for mental health/SUD benefits than for medical/surgical benefits.

Mental Health Parity Litigation Has Exploded

There have been more than 100 lawsuits in the past several years, concentrated in California, Utah, Illinois, New York, Pennsylvania and New Jersey, most arising from ERISA and concerning coverage for residential and other treatment facilities. There also have been several cases around medical necessity criteria and guidelines, and more recently, around payment rates to providers.

Most lawsuits test the scope of treatment limitations that could fall within the scope of parity—specifically with respect to NQTLs. So far, courts have seemed inclined to explore new theories.

Litigation Challenging Coverage Exclusions

Some of the earliest mental health parity lawsuits involve coverage exclusions. The theory behind these cases is that a health plan is categorically excluding coverage for a mental health or SUD condition that it either is required to cover or is covering for the medical/surgical analog. In the case of residential treatment, for example, the plan may be covering skilled nursing facilities for medical conditions but not residential treatment facilities for mental health/SUD treatment. While some cases (such as Craft v. HCSC (N.D. Ill.)) involve blanket exclusions of residential treatment, others focus on exclusions of just the room and board portion of the charges, giving rise to one of the few appellate decisions on parity. In Danny P. v. Catholic Health Initiatives, the Ninth Circuit held that an exclusion for room and board for residential treatment but not for skilled nursing facilities violated the Parity Act.

We also have started to see cases involving exclusions for investigational treatments, such as transcranial magnetic stimulation (TMS), which is a treatment for depression.

Wilderness therapy has been the focus of a series of cases involving exclusion. In all of these cases, the plans expressly excluded wilderness programs from coverage—and courts have responded differently to these matters.

For example, in Roy C. v. Aetna Life Ins. Co. (D. Utah), the court dismissed a parity claim because the plaintiff “failed to identify any language or provision” in the plan that created “any sort of disparity” between mental health and medical/surgical benefits. The court went on to say that the plaintiff had failed to identify any analog to wilderness treatment in the medical/surgical context.

Some wilderness program cases (such as Vorpahl v. Harvard Pilgrim Health, Ins Co. (D. Utah 2018) and A.Z. v. Regence Blueshield (D. Wash 2018)) have turned out differently. In both of these cases, the courts denied motions to dismiss the parity claims.

Most of the wilderness program cases have involved motions to dismiss, where the court is required to accept the plaintiff’s allegations as true, so the claims are allowed to proceed. There is at least one case, however, that has gone all the way to evaluating the merits. In Alice F. v. HCSC (N.D. Ill. 2019), the court entered judgment for the plan on the MHPAEA claim. The court found that “because each contract must be interpreted according to its own terms, the results of these cases are, predictably, all over the map.” In examining the exact plan language in the Alice F. case, the court concluded that there was no disparity in the coverage provisions, because, although the wilderness exclusion applied only to mental health, there was a comparable exclusion on the medical/surgical side. Therefore, the court found that there were no parity issues.

Litigation Challenging Criteria or Guidelines

The most widely reported case around coverage guidelines is Wit v. United Behavioral Health. (For more information on Wit v. United Behavioral Health, read our article in the April “Health Update.”) Wit was an ERISA class action challenging United Behavioral Health’s (UBH’s) coverage determination guidelines for mental health and SUD across three levels of care: residential treatment, intensive outpatient and outpatient. The claim was that the plan’s terms were more restrictive than generally accepted medical standards.

The theory in Wit was that the plan said that it would pay for mental health treatment that was medically necessary—and it defined medically necessary as treatment that, among other things, is consistent with generally accepted medical standards. The allegation was that UBH then was using level of care guidelines that resulted in a scope of coverage that was more restrictive than the “generally accepted medical standards” required in its terms.

There was a ten-day bench trial, in October 2017—and in February 2019, the 106-page “Findings of Fact and Conclusions of Law” was issued. The court’s ruling was based on two categories of evidence: first, criteria and guidelines published by industry groups focused on SUD and mental health issues, as well as the Centers for Medicare & Medicaid Services’ (CMS’s) manual, and second, expert opinion.

Based on that universe of evidence, the court identified eight “generally accepted standards” for treating mental health and SUD:

1. Treatment should not be limited to alleviating current symptoms and should address chronic underlying conditions.

2. Treatment should address comorbid conditions.

3. Treatment should be at the least intensive and least restrictive level of care that is safe and effective.

4. When uncertain, practitioners should err on the side of higher-level care.

5. Treatment should include services to maintain functioning or prevent deterioration.

6. Duration of treatment is based on the individual needs of the patient.

7. Care should account for the unique needs of children and adolescents.

8. Determination should be based on a multidimensional assessment.

When comparing the generally accepted standards against every version of UBH’s level of care guidelines, the court found that all the UBH guidelines were more restrictive than the generally accepted standards.

The court’s ruling was based heavily on expert testimony. The plaintiffs put forth two retained experts—one for SUD and one for mental health. UBH put forth one retained expert for mental health and multiple in-house experts. The experts strongly disagreed on whether the guidelines were consistent. The court relied heavily on the plaintiffs’ experts and essentially disregarded the testimony of the defense experts.

Wit is not the only case involving guidelines. Doe v. HCSC (N.D. Ill.) challenged the 19th edition of the Milliman Care Guidelines (the MCGs). Des Roches v. Blue Shield of California (N.D. Cal.) challenged the level of care guidelines developed by Blue Shield’s mental health services administrator, Magellan. In both cases, the companies moved to a different set of guidelines during the litigation, and both cases were ultimately settled.

Newer Cases Challenging Criteria or Guidelines

There’s a newer wave of cases moving these attacks on guidelines to a more traditional parity analysis. These cases challenge medical necessity criteria and guidelines on the basis that they’re more restrictive than the medical/surgical analog.

For example, in Melissa P. v. Aetna Life Ins. Co. (D. Utah, filed 2018), the plaintiffs alleged that the mental health guidelines apply acute standards that the equivalent medical/surgical guidelines do not and therefore are more restrictive. In Melissa P., the court denied the motion to dismiss, held that the allegations were sufficient to state parity claims, and let the case proceed to discovery phase. The case has since settled.

Litigation continues to expand into new areas. In a recent class action, Smith v. UBH (filed by the same lawyers who represented Wit), the plaintiffs are challenging UBH’s payment rates for out-of-network therapists. The allegation is that the provision reducing rates by 25–35% is a “Discriminatory Reimbursement Penalty” under both ERISA and MHPAEA. The plaintiffs allege three separate theories to support the claim that payment reduction is discriminatory—discriminatory QTL, discriminatory NQTL and a discriminatory financial requirement. The court denied UBH’s motion to dismiss, permitting the alternate theories and holding that each theory was sufficient to state a parity violation. Moreover, the court stated that plaintiffs could pursue alternative and even conflicting theories at this early stage of the case.

Note: To view the full webinar free on demand, click here. To download a free copy of the presentation, click here.