July 14, 2020

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July 14, 2020

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July 13, 2020

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Federal Court Rules United Behavioral Health Breached Fiduciary Duties in Denying Mental Health and Substance Use Coverage Claims

Background of the Case

United Behavioral Health (“UBH”), a subsidiary of UnitedHealth, administers mental health and substance use disorder benefits for welfare benefit plans. As claims administrator, UBH is delegated discretion to interpret the terms of employer-sponsored welfare benefit plans for purposes of coverage, limitations and exclusions in determining whether a particular service for behavioral or substance use disorders is covered. To perform its duties as claims administrator, UBH developed “Level of Care Guidelines” and “Coverage Determination Guidelines” (“Guidelines”) to use in making standardized decisions about coverage.

The plaintiffs in the case were all participants or beneficiaries covered by benefit plans that were insured and/or administered by UBH, who had been denied coverage for residential and/or intensive outpatient treatment for mental health and substance use disorders. The plaintiffs brought two claims against UBH:

  • Breach of Fiduciary Duty. Plaintiffs claimed that UBH was a fiduciary under ERISA and breached its fiduciary duty of loyalty by (1) developing guidelines for making coverage determinations that were far more restrictive than the “generally accepted standards of care” required by the plan documents, and (2) prioritizing UBH’s own cost savings over the interests of plan participants and beneficiaries.
  • Denial of Benefits. Plaintiffs claimed that UBH’s use of the Guidelines to make coverage determinations and deny benefits was arbitrary and capricious because the Guidelines (1) did not align with the coverage required under the plan documents, and (2) with respect to one of the classes of plaintiffs, violated mental health and substance use coverage requirements mandated by state law.

Court’s Analysis and Conclusions

The bulk of the court’s analysis centered on the content of the Guidelines and the process UBH followed in developing the Guidelines. The court evaluated whether the Guidelines were consistent with the terms of the health plans covering the plaintiffs, which required that coverage decisions for treatment must be consistent with “generally accepted standards of care” for treatment of mental health and substance use disorders. Drawing from several sources to define the “generally accepted standards of care,” the court found by a preponderance of evidence that the Guidelines did not align with these standards, based in large part on the fact that the Guidelines focused on addressing acute symptoms and stabilizing crises, without attending to the effective treatment of participants’ and beneficiaries’ underlying mental health conditions and substance use disorders. Therefore, the court found that the Guidelines resulted in a narrower scope of coverage than was required under the health plans.

The court next looked at the process used to establish the Guidelines and found that while various clinicians and health care professionals generally helped draft and maintain the Guidelines, representatives from UBH’s Finance and Affordability committees had the ultimate authority to approve the Guidelines. The court found that these individuals had a strong financial incentive to keep costs of UBH down and the court found a strong inference that “UBH’s financial interests interfered with the Guideline development process.”

Breach of Fiduciary Duty Claim

As to the breach of fiduciary duty claim, the court found that (1) UBH was a fiduciary under ERISA by virtue of its authority to interpret and apply plan terms for coverage, (2) UBH breached its fiduciary duties of loyalty, due care and compliance with plan terms by adopting Guidelines that were unreasonable and did not reflect generally accepted standards of care. The court further found that UBH’s breach of its fiduciary duties caused harm to plaintiffs by denying them the right to fair adjudication of their claims for coverage under the health plans.

Denial of Benefits Claim

As to the denial of benefits claim, the court found that UBH abused its discretion in denying mental health and substance use disorder claims based on the Guidelines. With respect to the state law mandates, the court found that UBH’s application of the Guidelines violated state laws in Illinois, Connecticut, Rhode Island, and Texas.

Next Phase of the Case

The case will now move to the remedy phase, in which the judge will determine what relief is appropriate for the plaintiffs and what steps UBH will be required to take with respect to its administration of mental health and substance use disorder benefits. The decision (N.D. Cal., No. 3:14-cv-02346-JCS, 3/5/19) consolidates two different lawsuits – Wit v. UnitedHealthcareand Alexander v. United Behavioral Health.

© 2020 Faegre Drinker Biddle & Reath LLP. All Rights Reserved.National Law Review, Volume IX, Number 99


About this Author

Karen E. Gelula, Retirement Plans Lawyer, Drinker Biddle

Karen E. Gelula counsels public and private companies across industry sectors such as manufacturing, financial services, public utilities, energy, and health services, among others, on all types of employee benefits and executive compensation matters.

Karen has significant experience in the design, operation, compliance and governance of qualified retirement plans including 401(k) and profit-sharing plans, traditional defined benefit plans, cash balance pension plans, money purchase pension plans, and 403(b) plans. She also...

(215) 988-2729
Monica Novak, Employment lawyer, Drinker Biddle

Monica A. Novak assists clients with a range of employee benefits matters, including health and welfare benefits, tax-qualified retirement plans and nonqualified plans. She routinely counsels clients regarding the design, implementation and administration of benefit plans to ensure consistency with plan terms and compliance with the Internal Revenue Code and ERISA requirements, as well as the requirements under Health Care Reform.

K.Elise Norcini, Drinker Biddle Law Firm, Corporate and Tax Attorney

K. Elise Norcini provides representation to a variety of corporate, institutional and tax-exempt clients regarding employee benefits and executive compensation issues. Elise is a contributor to Drinker Biddle’s Broker-Dealer Law Blog, which provides practical insights on litigation, regulatory, compliance and fiduciary issues impacting broker-dealers.

Prior to joining Drinker Biddle, Elise was in-house legal counsel at The Northern Trust Company and, in part, represented Northern in...