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Home Preemption ERISA Does Not Preempt Third Party Providers' Unfair And Deceptive Business Practice Claims Against Health Insurer, Rules Ninth Circuit
ERISA Does Not Preempt Third Party Providers' Unfair And Deceptive Business Practice Claims Against Health Insurer, Rules Ninth Circuit
By Greg Bennici on September 19, 2018 Posted in Health, Insurance Benefits, Jurisdiction, Preemption
In Hansen v. Group Health Cooperative, 2018 U.S. App. LEXIS 25033, (9th Cir. Sep. 4, 2018), two psychotherapists ("Providers") sued Group Health Cooperative ("GHC") in Washington state court, alleging GHC engaged in unfair and deceptive practices, in violation of Washington's Consumer Protection Act.
The Providers claimed that GHC engaged in unfair and deceptive business practices by utilizing so-called Milliman Care Guidelines as its primary and exclusive criteria for authorizing mental health treatment. The problem with GHC's use of these guidelines, according to the Providers, was that they: (1) were intrinsically biased against mental healthcare, (2) were utilized to avoid paying for mental healthcare required by Washington's Mental Health Parity Act, and (3) enabled GHC to unfairly compete by employing its own psychotherapists and discouraging patients from seeking treatment from rival practitioners.
GHC removed the Providers' case to federal court, contending that Providers' claims were completely preempted by ERISA. In support of its position, GHC located assignments of benefits from three of the Providers' patients who were insured under ERISA-governed health plans. The Providers, in turn, moved to remand the case to state court, while GHC simultaneously moved to dismiss the complaint in federal court. The district court denied the Providers' motion to remand and granted GHC's motion to dismiss in part, concluding that the Providers' claims were subject to conflict and express preemption to the extent that they concerned GHC's business practices in administering ERISA plans. The district court declined to exercise supplemental jurisdiction over the Providers' claims as to GHC's administration of non-ERISA plans, and remanded that part of the case to Washington state court.
The Providers appealed to the Ninth Circuit, which ruled that the district court had misapplied Aetna Health Inc. v. Davila, 542 U.S. 200, 210 (2004), and concluded that ERISA did not preempt the Providers' state-law claims.
Davila held that ERISA preempts a state-law cause of action if: (1) the plaintiff could have brought the claim under ERISA § 502(a)(1)(B), and (2) there is no other independent legal duty that is implicated by the defendant's actions. Both elements of Davila's test need to be met to show complete preemption. (We've previously discussed Davila's preemption test here and here.)
The Ninth Circuit concluded that GHC could not satisfy the second prong of the Davila test because the Providers' claims implicated independent legal duties.
The Court summarily explained that two of the Providers' three claims were based on "independent dut[ies] to refrain from engaging in unfair and deceptive business practices." First, with respect to the Providers' claim that GHC wrongfully utilized intrinsically biased mental health coverage guidelines as its exclusive criteria for approving psychotherapy treatment, the Court noted that there was "no dispute" that the claim arose under Washington law. Second, with respect with the Providers' claim that GHC employed its own psychotherapists in order to apply GHC's guidelines and discourage patients from seeking treatment from rival practitioners, the Court explained that this claim concerned GHC's independent legal duties as an employer of psychotherapists which existed "whether or not GHC administered any health benefit plans at all, let alone any ERISA plans." Accordingly the Court ruled, this claim arose from GHC's duty to refrain from unfairly harming its competitors under state law, not ERISA.
The Ninth Circuit dedicated most of its analysis to the Providers' claim that GHC used its treatment guidelines to avoid complying with Washington's Mental Health Parity Act, which generally requires health benefit plans to treat medical services and "medically necessary" mental health services alike. The Court flatly rejected GHC's argument that assessment of whether a health insurance company violated this duty required a court to interpret plan language (such as the plan's definition of "medically necessary"). Instead, the Court ruled that the statutory duty existed independent and apart from a plan's defined terms. The panel explained:
The relevant inquiry, however, focuses on the origin of the duty, not its relationship with health plans. See Marin Gen. Hosp., 581 F.3d at 949. The state laws at issue in Davila, for example, did not impose an independent legal duty to provide benefits because they excluded treatments not covered by a plan's terms. 542 U.S. at 212-13. As a result, the denials of treatment in that case turned on the terms of the specific health plans, not the requirements of state law. Id. By contrast, Washington's Mental Health Parity Act does impose an independent coverage requirement, mandating that health plans for medical and surgical care cover mental health treatment as well. See O.S.T. ex rel. G.T. v. BlueShield, 181 Wn.2d 691, 335 P.3d 416, 420 (Wash. 2014). If the terms of a plan exclude this treatment, they may violate the state law. See id. This statutory duty is unlike those in Davila because it does not piggyback on, and is thus independent of, the specific rights "established by the benefit plans." 542 U.S. at 213. In Davila, the state law applied only when a benefit plan covered treatment, while here the state law applies to how all benefit plans cover mental health treatment.
Citing Franchise Tax Bd. of State of Cal. v. Constr. Laborers Vacation Trust for S. California, 463 U.S. 1 (1983) (which we've previously discussed here), the Court summarized: "Providers' claims for unfair and deceptive business practices … are basically that, as mental health professionals, the Providers are unfairly being cut out of the market of suppliers of mental health services by GHC's unfair and deceptive use of treatment guidelines. … Business and property injuries of this sort are 'not of central concern' to ERISA, but instead pose important public policy issues under state law that are best decided by a state court." The Court expressed no opinion as to whether the Providers' state law claims were valid as pleaded, but rather concluded "only that these claims do not mirror a suit for benefits due under an ERISA plan."
Tags: Consumer Protection Act, Davila, GHC, Group Health Cooperative, Hansen, Mental Health Parity Act, mental healthcare, Milliman Care Guidelines, Ninth Circuit, Washington
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