Skip to content

Blue Shield Improperly Denied Mental Health, Drug Treatment Claims, Suit Alleges

Close-up of elder psychologist asking his patient a question

Blue Shield of California and its claims administrator wrongly restricted patients’ access to outpatient and residential mental health treatment, a class-action lawsuit says.

Initially filed in the U.S. District Court for the Northern District of California, the complaint comes from two parents who allege their teenage children were repeatedly denied coverage under their employer-based plans despite serious mental and substance abuse problems. In June, a federal district judge granted a request for class-action status, meaning that patients whose claims were rejected under similar circumstances may join as plaintiffs.

The suit contends that Blue Shield and Magellan Health Services of California, which handles the insurer’s mental health claims, developed criteria that violate accepted professional standards and the terms of the health plan itself. The suit also alleges violations of the Employee Retirement Income Security Act, a federal law that regulates employee benefit plans.

For instance, according to the suit, patients were authorized for residential care only if less intensive treatment in the previous three months was unsuccessful. Such a “fail-first” approach is inconsistent with standards established by professional groups such as the American Psychiatric Association or the American Society of Addiction Medicine, the complaint says.

“They came up with internal guidelines which allowed them to justify denying coverage when it should have been provided,” said D. Brian Hufford, a New York-based partner at Zuckerman Spaeder LLP, one of the law firms representing the plaintiffs.

“It’s very difficult for patients to challenge those kinds of denials because … so much of the decision-making happens behind the scenes,” Hufford said.

In an email, Blue Shield said “we disagree with the allegations in the lawsuit,” adding that the insurer would continue to “defend the case vigorously.” In court documents, Magellan has denied wrongdoing, but it declined a request to comment for this story.

The plaintiffs seek to change Blue Shield’s and Magellan’s policies to be consistent with the law, generally accepted professional standards and the terms of its own plans, according to the lawsuit. Also, they seek to have the defendants reprocess thousands of mental health and substance-use benefit denials.

The lawsuit, Charles Des Roches, et al. v. California Physicians’ Service, et al., is part of a national strategy by the law firms involved to hold insurers accountable for their obligations to provide mental health treatment, Hufford said. In September 2016, the federal district court in Northern California certified a nationwide class action against United Behavioral Health, also contesting that insurer’s coverage criteria.

In the Blue Shield/Magellan lawsuit, plaintiff Charles Des Roches, of Salinas, Calif., said his 15-year-old son was admitted for urgent treatment to a drug rehab center in Southern California, suffering from major depression, abuse of multiple drugs and severe emotional disturbance. According to the lawsuit, the young man had a history of shoplifting, stealing money for drugs, severe anxiety and anger, for which he had already taken medication and received psychotherapy. He incurred a bill for tens of thousands of dollars, which Blue Shield refused to pay, the suit alleges.

Plaintiff Sylvia Meyer, of Los Angeles County, alleged Blue Shield rejected claims for her 18-year-old son, who received intensive outpatient psychiatric services following hospitalization for similar mental health and drug abuse problems. In both cases, the denials of coverage were based on Magellan’s benefit determination guidelines.

Magellan is among the nation’s largest managed-care companies for behavioral health. The suit is limited to Magellan’s Blue Shield employer-paid group members. However, if it succeeds, “it is hard to imagine that Magellan would be able to justify continued use of its proprietary guidelines in other markets,” according to Meiram Bendat, president of Psych-Appeal, a Los Angeles advocacy law firm that is co-counsel in the case.

Class-action lawsuits, potentially representing thousands of consumers, can “bring much broader and much more meaningful relief,” said Ira Burnim, legal director of the Bazelon Center for Mental Health Law in Washington, D.C., a legal advocacy organization. A win for the plaintiffscould have far-reaching effects in the managed-care industry, which commonly uses proprietary guidelines to adjudicate claims, he said. “Corporate authorizers are trying to figure out how to save health care dollars and address health needs cost effectively, and at the same time they have a profit motive. There can be a tension between those two goals,” said Burnim.

Generally accepted guidelines are neutral, transparent and based on thorough research, said Dr. Anita Everett, president of the American Psychiatric Association. In an email, she said that when insurance companies create their own standards, “[t]he process is often not transparent, conflicts are not disclosed, and the standard is generally more restrictive which suggests a focus on cost, rather than patient outcome.”

When insurance companies deny coverage based on restrictive guidelines, they shift the cost of appropriate care onto patients, said Everett. A win in this case would mean that ‘medically necessary’ means just that, necessary as an objective medical matter not medically necessary only if not too expensive,” said Everett. Ideally, insurers would be required to disclose when their guidelines are more restrictive than generally accepted guidelines, so that employers and consumers evaluating insurance plans can make informed choices, she said.

The recent lawsuit challenges several other Blue Shield/Magellan “internal guidelines,” including requiring patients to prove they are a serious, imminent danger to themselves or others to qualify for residential mental health treatment.

“We dispute that the ‘imminent danger’ standard should apply for people who are seeking non-hospital levels of care,” said Bendat. “That’s a standard that generally applies to inpatient hospitalization, not residential treatment.”

Another Blue Shield/Magellan guideline, pertaining to outpatient treatment for substance use disorders, denies coverage unless a patient demonstrates “motivation to manage symptoms or make behavioral change,” the suit states. Yet “patients with substance use disorders are generally depressed and lack motivation, particularly in their early recovery,” Bendat said.

Under generally accepted standards, a lack of motivation, especially in adolescents, in itself warrants residential placement, Bendat said. Requiring patients to exhibit motivation in order to receive services “goes against the grain for why the treatment is necessary in the first place,” he said.

The guidelines also demand that intensive outpatient therapy be authorized only if the treatment plan is expected to bring about “significant improvement” — a requirement the suit alleges has “no basis in accepted medical standards.”

This story was produced by Kaiser Health News, an editorially independent program of the Kaiser Family Foundation.


Related Topics

Courts Insight Insurance Mental Health