If litigated, there may be no winners in child mental health treatment disputes

Two recent cases from the Tenth Circuit dealt with one of our most difficult legal and medical problems – how to treat severe mental health issues of children and how decisions are made about their treatment. In each case, everyone lost. The plaintiffs won legal victories, but they were largely pyrrhic due to the real-life consequences for the child and parent. The results for defendants were, I suspect, worse than they anticipated because major changes in the way that they administer claims for medical benefits were required.

These cases should not have been litigated. Through mediation, there should have been ways to develop compromises that would protect the key needs of the children, parents, and insurance companies. One possibility (discussed below) would have been to create more balance in the decision process, including in that process physicians responsive to the needs of each party. A solution of this type is not available through the courts. It is part of the magic of mediation – solutions can be created outside the confines of what the courts can do.

The children’s medical situations

The facts in these cases, which are summarized, are hard and don’t give the full picture.

In each, starting at a young age a child was diagnosed with severe mental health difficulties – including serious depression. As each became older, their health deteriorated, including multiple suicide attempts. There were emergency room (ER) visits, in-patient hospitalizations, and outpatient treatments. In a period of less than two years, one child had 11 psychiatric ER visits; five in-patient hospitalizations (totaling 58 days); four periods of residential treatment centers lasting 38 days, 57 days, 63 days, and 79 days (237 in total), six enrollments into partial hospitalization programs (69 days total), weekly individual therapy, family therapy, and additional medical treatment. None of this was sufficient to keep her stable and avoid self-harm.

In both cases, the child’s physician recommended long-term treatment at a residential facility to give the best chance for a full recovery and avoid relapse. Short-term treatment and return to the community had not worked before.

The medical care coverage decision was made by United Behavioral Health in the first case and Health Net Life Insurance Company in the second (for this article, together as the “insurance company”). The issue for the insurance company was whether long-term residential treatment was “medically necessary.” In both cases, the company said “no” to the initial claim; both internal and external reviewers also decided “no.” Coverage for the long-term treatment that was recommended by each child’s physician was denied.

The legal setting

Each child’s medical coverage was provided through the employee benefit plan provided by the parent’s employers. So, these cases were covered by ERISA, including the mental health parity rules.

Under ERISA, medical “plans” are essentially contracts where the employer promises to provide stated benefits. Usually what is provided by a contract is determined by a court. But under ERISA, the plan administrator – here, the insurance company – makes the coverage decision after there are appeals to both internal and external reviewers. The plan and regulations set the claims and appeals process, but the insurance company controls it.

Moreover, while a plan participant can challenge a medical coverage decision in court, in most situations a court will only rule on whether the decision to deny coverage was “arbitrary or capricious.” Furthermore, the court will only review the administrative record to see if this standard is met. Therefore, that record is critical. That was the basis for the first of the two decisions by the Tenth Circuit.

The first decision

D.K. v United Behavioral Health 67 F 4th 1224 (May 15, 2023), petition for certiorari denied Feb. 20, 2024. Because the administrative record is critical to the ability to challenge the administrator’s denial of a claim, the court held that all of the medical opinions must be reviewed and responded to, and a written denial of coverage must set out the rationale for denial. The administrator must engage in a “meaningful dialogue” about the case. Without this, the administrator will have “shut its eyes” to relevant medical information and a denial decision would be arbitrary and capricious.

If the record is the basis for a lawsuit, then the court felt that the claimant should know from the record – the denial letter – exactly why there was a denial of coverage. The court decided that was not done in this case.

United Behavioral Health has asked the Supreme Court to review this case, signaling that it believes the requirement set by the court is wrong. The legal basis was that, arguably, the decision by the Tenth Circuit is inconsistent with Labor Department regulations. The practical basis, and most likely the real reason for the petition for certiorari, is that insurance companies believe the case will require a major change in the way that medical claims are decided. From court filings, it appears that administrators make tens of thousands of medical claim denials electronically “with little or no human involvement.” Human involvement will increase costs for insurance companies and claims administrators.

The second decision

E.W. v Health Net Life Insurance Company (Case No. 21-4110; Nov. 21, 2023). This case established the pleading standards, for the first time by any appellate court, for bringing a federal mental health parity case. However, it also held that, if the as-applied facts support the allegations, the mental health parity rules were violated when the insurer used the existing standard – the McKesson InterQual Behavioral Health Criteria For Child And Adolescent Psychiatry - for determining whether long-term residential care for mental health should be covered. It said that this standard for sub-acute residential care is more stringent than comparable standards for sub-acute medical-surgical care so using the InterQual standard would be a violation of the mental health parity rules.

While not a death sentence for the InterQual standard, this case has put it on life support. If it cannot be used for determining medical necessity for long-term residential care, then other less stringent standards will be required, up ending the existing claims administration process and most likely increasing costs.

There were no “winners”

In both cases, the children’s physicians strongly recommended a period of long-term residential care because short-term residential care had not worked. Coverage was denied. Either the parents had to dig deep into their pockets to pay for expensive care for whatever period they could afford, or they had to bring their children back into what their physicians said were highly risky situations. The children needed long-term stability in treatment. Without it, they were at risk of severe negative consequences, including serious self-harm.

It is reasonable to conclude that this caused parents and children high levels of stress and worry for many years. For Amy K - the child in D.K. - tragically the stress is over. She died by suicide just before oral argument in the appellate court.

Yes, there were legal wins, but not personal wins for the parent and child. It took over nine years from the initial claim denial to the Tenth Circuit’s decision in D.K.; for E.W, it took over 5 years. Moreover, E.W. is not finished; it was sent back to the trial court for further proceedings.

More than they bargained for

We cannot know what the insurance companies thought their downside would be when they decided to litigate these cases, but it’s hard to believe they thought they would be facing a major new requirement for administering claims (D.K.), or losing their current criteria for adjudicating claims (E.W.). If they knew this at the outset, would they have litigated? At stake for D.K. were medical claims of $88,505. For E.W. the claims were for $145,000.

The cases should have been settled

It’s unknown whether the cases were mediated, but let’s explore that possibility and look at what the key concerns of both parties could have been:

For the parent and child, a critical issue is the consequence of a mistake. A mistake can put the child’s health and safety at major risk and seriously affect their lives for many years.

The parent and child also may feel that the deck is stacked against them. The claims administrator - here, the insurance company - must act solely in the interest of the beneficiary, but they may see a process totally controlled by the administrator. They can submit physicians’ statements and arguments, but the rest is out of their control.

The insurance company also has serious concerns. It must act objectively and follow the terms and conditions of the governing document – the benefit plan. It must act for the benefit of all participants and beneficiaries.

The decisions in these cases are not easy. The lower court in D.K. said it clearly: “[T]his is a particularly hard issue: At some point during long-term residential treatment a patient must be discharged to a lower level of care to see if the treatment helped stop self-harming behavior. There is no sure way to tell [when] discharge would be appropriate. …”

Settlement – beyond monetary compromise – would require recognition of all these concerns and a resolution that prioritizes the child. A pathway forward may be to create a different decision process. Perhaps parent and child could have a say in the process in a way that would recognize their concerns about the severe consequences of a mistake, and concerns about the process itself. The claims administrator would also know that concerns will be taken into account. Maybe a three-person panel could be used, one chosen by parent and child, one by the insurer, and a third by those two, together, if they do not agree. The panel may have to revisit its decision periodically and standards would have to be agreed upon within the context of the plan benefits. This is just an example; there surely are several ways to settle that can be explored in mediation.

With imagination and work, the parties should be able to find an acceptable settlement, as opposed to years of risk, stress, and worry for both the child and parent, and substantial loss for administrators. It won’t be perfect, but that’s the essence of any compromise. With mediation, solutions can be developed that address the key concerns of each side, including what is most important for the medical claim’s administrator while building more protection for the child.