In late August the U.S. Court of Appeals for the Second Circuit reinstated a lawsuit by a physician association against a third-party plan administrator. The case against UnitedHealth Group and related entities (United) had been dismissed by the United States District Court for the Southern District of New York. The appellate opinion is significant both because it holds the plaintiff has associational standing, and because it allows parity claims to proceed against a plan administrator.
The plaintiffs claimed that United violated the Mental Health Parity and Addiction Equity Act of 2008 (the Parity Act), fiduciary duties under ERISA, and the terms of ERISA-governed health insurance plans administered by United, by using more restrictive guidelines and preauthorization and concurrent review procedures for mental health claims than those for medical claims. United allegedly subjected plan participants to preauthorization requirements for mental health claims that it did not apply to medical claims. It also allegedly conducted concurrent review of mental health claims based solely on the frequency of office visits, which it did not do for medical claims. The medical necessity review standards for outpatient psychotherapy sessions were allegedly more restrictive that those applied to medical claims under the same plan. In the underlying case, United successfully moved to dismiss the complaint, arguing that the psychiatric physician association did not have associational standing and that United could not be sued for alleged violations of the Parity Act under ERISA.
The Court of Appeals reversed, holding that an association has standing when (a) its members would otherwise have standing; (b) the interests it seeks to protect are germane to the organization’s purpose, and (c) the nature of the claim and the relief sought does not make the individual participation of each injured party indispensable to the proper resolution of the matter.
The Court of Appeals also reversed the dismissal to the extent it was based on the holding that United was not a proper defendant. The Court of Appeals stated that United appears to have exercised total control over the health plan’s benefits denial process, making it the “logical defendant” in a suit to recover benefits, enforce rights, or clarify rights to future benefits under ERISA. The Court of Appeals held that a claims administrator has total control where it has “sole and absolute discretion” to deny benefits and makes “final and binding” decisions as to appeals of those denials. It explicitly chose not to decide if a claims administrator is a proper defendant when it exercises less than total control over the benefits denial process. The Court noted that its holding that claims administrators are proper defendants is in accord with six other circuits: the Fifth, Sixth, Seventh, Eighth, Ninth and Eleventh. The U.S. Department of Labor filed an amicus brief supporting reversal on this issue.
The case is N.Y. State Psychiatric Ass’n v. UnitedHealthGrp., No. 14-20-cv (2d Cir. Aug. 20, 2015).
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