As discussed here, D.K. et al. v. United Behavioral Health et al. is a case that has been carefully watched in the health benefits space for its potential to change what health plan administrators must include in adverse benefit determination letters. On May 15, 2023, the Tenth Circuit issued its opinion affirming the district court and significantly heightening the notification requirements for adverse benefit determinations on medical necessity grounds. The Tenth Circuit’s decision means that health plan administrators cannot rely on compliance with ERISA’s claims procedure regulations to establish that the plan engaged in a “meaningful dialogue” with claimants in addressing an administrative appeal from a determination that particular services were not medically necessary.

Background Facts:

The case involved a request for benefits under a plan administered by United Behavioral Health for services provided to a minor child at a residential treatment center. Due to an extensive history of suicidality, suicide attempts, cutting behaviors, and frequent hospitalizations and readmittance, the plaintiffs sought long-term residential treatment of twelve months or more. Along with medical records, the plaintiffs submitted multiple letters from the patient’s treating providers outlining the need for long-term care. After review by an independent review agency, United approved three months of treatment and informed the plaintiffs it would reevaluate the request at that time.

After three months, United denied further benefits for residential treatment. United initially mistakenly relied on an exclusion for out-of-network care, not contained in the plan’s terms, which the plaintiffs appealed twice. After recognizing the error, United nevertheless denied benefits for lack of medical necessity and, following several internal appeals and an external review, affirmed its decision that further residential treatment was not medically necessary. The plaintiffs then filed suit in federal court in the District of Utah.

On cross-motions for judgment on the benefits claim, the district court determined that United’s denial of benefits was arbitrary and capricious because the denial letters did not explicitly address the opinions of the treating providers and did not provide an analysis of the patient’s medical history with citations to the medical record. The district court refused to consider United’s physician-reviewers’ notes — which showed United considered the provider opinions and medical records in their reviews — concluding that United was required to include all such information in the denial letter and thus could not rely on internal notes not provided to the plaintiffs. Because United had not addressed those issues in the denial letters, the district court concluded the denial of benefits was arbitrary and awarded benefits to the plaintiffs.

The Appellate Decision:

The Tenth Circuit agreed with the district court on all grounds and affirmed the decision.

With respect to a physician-reviewer’s engagement with the opinions of the treating providers, the Tenth Circuit agreed with the district court that a reviewer must provide an “explanation for rejecting or not following those opinions.” The court concluded that claims reviewers’ “duties under ERISA require them to address medical opinions, particularly those which may contradict their findings.” In reaching this conclusion, the Tenth Circuit rejected the argument that the district court had improperly relied on cases interpreting the related claims procedures for disability claims, which expressly require “[a] discussion of the decision,” including an explanation for disagreeing with the claimant’s reviewing healthcare or vocational professional’s opinion. The court found that the adoption of “more precise” requirements in the disability context did not “absolve United of providing a full and fair review for health benefit claims,” further noting that the regulations are only “minimum guidelines” and ERISA holds administrators to a “greater fiduciary duty.” Thus, where “benefits are denied and the claimant provides potential counterevidence from medical opinions, the reviewer must respond to the opinions.” For a reviewer, to do otherwise is to “effectively ‘shut its eyes’ to readily available medical information.”

Importantly, the Tenth Circuit also effectively ruled that this explanation must be set forth in connection with the denial letter notifying the claimant of the benefits decision. The court held that the district court correctly considered only the denial letters themselves in determining whether United had appropriately engaged with the opinions of the treating providers. Although United pointed out that its physician-reviewers’ notes demonstrated they had considered the opinions of the treating providers, the Tenth Circuit concluded the “the district court appropriately did not credit information that was not shared with the beneficiary” during the pre-litigation process. In other words, not only must claims administrators require their reviewers to “address” the opinions of treating physicians, that analysis must be provided to the claimant “prior to litigation,” i.e., in the denial of benefit notices provided during the administrative appeal process. Any information demonstrating a “full and fair review” not communicated to the claimant during that process need not be credited by the district court in assessing whether the benefits decision was arbitrary and capricious.

The Tenth Circuit reached the same conclusion with respect to the sufficiency of the explanation for denying benefits on medical necessity grounds, concluding that the application of plan terms to the patient’s medical records must likewise be set forth in the denial letter — including citations to the medical record. United’s denial letters set forth four grounds for the denial of benefits: “1) that [the patient’s] diagnosis and medications did not change extensively from admission . . . to the date of the review, 2) that the record lacked evidence of self-injurious behavior during her time [in residential treatment], 3) that she had ‘treatment resistant behaviors,’ and 4) that she ‘continued to act out behaviorally.'” The Tenth Circuit held none of these statements were supported by citations to the medical record or included a discussion of the patient’s extensive history of hospitalizations. As a result, the Tenth Circuit determined the denial letters did not provide a reasoned analysis and were conclusory.

The court again rejected United’s argument that its internal notes demonstrated a reasoned analysis of the patient’s medical records and history. The court stated that “ERISA regulations require denial letters themselves to be comprehensive” and therefore a court’s review of the “explanation provided to claimants must focus on the content of the denial letters.” The court accordingly affirmed the district court’s conclusion that United “acted arbitrarily and capriciously in not providing analysis or citations to the medical record in its denial letters.” Conspicuously absent from the Tenth Circuit’s analysis, however, is any discussion of the regulation’s provision that expressly allows a claims administrator to omit the explanation of the clinical judgment underlying a medical necessity determination so long as the denial notice includes a “statement that such explanation will be provided free of charge upon request.”

Having affirmed the district court’s ruling on the merits, the Tenth Circuit also affirmed the district court’s decision to award benefits outright rather than remand for further proceedings. The Tenth Circuit concluded that United’s “clear and repeated procedural errors in denying this claim” meant that it did not get “an additional ‘bite at the apple'” through remand.

The Upshot:

The import of the Tenth Circuit’s decision on benefits denials involving medical necessity determinations can be understood as follows:

  1. Medical reviewers for health plans, like disability plans, must “engage with” the opinions of treating providers by discussing their opinions and explaining why they disagree, and the claims administrator must set forth this explanation in the benefits denial letter.
  2. In the benefits denial letter, claims administrators must cite to the medical evidence on which the reviewers relied in concluding that treatment is not medically necessary and include a reasoned analysis of the patient’s medical history.
  3. Courts in the Tenth Circuit will focus solely on the explanations given in the denial letter in determining if a benefits decision is reasonable and can disregard clinician notes and other information not included in the letter.

This decision thus severely curtails the ability of health plans and claims administrators to rely on information contained in the administrative record to demonstrate both that they conducted a “full and fair review” of a claim and that a denial of benefits on medical necessity grounds is supported by reasoned analysis. The novel requirements adopted by the Tenth Circuit for information that must be contained within benefits denial letters will be problematic for plans and administrators that have relied on the text of the ERISA claims procedure regulations to develop templates and forms for denial letters which need not include a detailed discussion of the reviewers’ clinical judgment. These new requirements will both make defense of medical necessity determinations made prior to this decision more difficult as well as complicate the claims review process. Claims administrators will need to carefully balance the requirement that they provide this more fulsome analysis of a claimant’s clinical presentation with the regulation’s requirement that the benefits decision be set forth “in a manner calculated to be understood by the claimant.”

Moreover, the effect of this decision will not be limited to health plans or claimants located within the states that make up the Tenth Circuit. Due to ERISA’s nationwide service of process provisions, courts have generally accepted that an ERISA benefits lawsuit may be brought in any federal judicial district in the country. Accordingly, claimants who are denied benefits on medical necessity grounds will likely be incentivized to file suit in jurisdictions like the District of Utah — which is already a hotbed of ERISA litigation from across the country — that will be subject to the Tenth Circuit’s ruling.