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August 21, 2015 01:00 AM

Plan administrators may be sued over mental health parity law, court decides

Lisa Schencker
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    Third-party administrators of insurance plans can be sued over allegedly failing to follow a federal law that requires insurers to offer mental health coverage equal to that provided for physical problems, a federal appeals court ruled Thursday.

    It's a decision that could lead to more patients and providers challenging plan administrators who try to limit access to mental health services, some say. It's also the first case to address the issue of whether plan administrators may be sued for violations of that federal law, known as the Mental Health Parity and Addiction Equity Act of 2008, said Brian Hufford, a partner at Zuckerman Spaeder, who represented the plaintiffs in the case.

    UnitedHealth Group, the defendant, claimed that only health plans, not their administrators, may be sued under the federal Employee Retirement Income Security Act (ERISA), relative to the types of allegations made in the case.

    A panel of judges for the 2nd U.S. Circuit Court of Appeals decided Thursday that UnitedHealth Group, as a third-party administrator for an employee health plan, is not exempt from ERISA, which regulates traditional pensions and other employer-provided benefits. Also, under ERISA, the administrator must follow the mental health parity law, the judges ruled.

    “We ultimately reject United's argument that it cannot be sued under [ERISA] in its capacity as a claims administrator,” Judge Raymond Lohier, Jr., wrote. “Indeed, when a claims administrator exercises total control over claims for benefits under the terms of the plan, that administrator is a logical defendant in the type of suit contemplated by [ERISA].”

    UnitedHealth said in a statement that it is evaluating its options for further action.

    “While we are still reviewing the decision, we believe the opinion is inconsistent with the way this court has addressed similar cases in the past,” UnitedHealth said. It also said, “We consistently help people access proven mental-health and substance-abuse treatments to ensure they get the right care at the right time in the right setting.”

    But lawyers for the New York State Psychiatric Association, which brought the lawsuit, said the ruling affirms that plan administrators can be held liable under ERISA, and it strengthens the mental health parity law's power.

    “The 2nd Circuit now has made very clear that you can, in fact, sue claims administrators, and that, I think, will open the door to providers and patients to allow them to challenge this conduct and enforce ERISA and the parity law in much more effective ways,” Hufford said.

    The ruling also affirmed that professional organizations such as the state psychiatric association, may sue on behalf of their members for violations of the mental health parity law, said Dr. Renee Binder, president of the American Psychiatric Association.

    “Today's decision gives professional organizations, such as APA and NYSPA, the right, on behalf of their members and their patients, to sue for mental health parity violations, which is important because patients are often unable to speak out for themselves,” Binder said in a statement. “This ruling gives us hope that the Mental Health Parity Act of 2008 will now be enforced.”

    But Amy Gordon, a partner in the employee benefits group at McDermott Will and Emery, who was not involved in the case, cautioned that although the ruling is significant, it doesn't necessarily apply to all third-party administrators. It likely applies to those that, like UnitedHealth Group, are not just administering plans, but also exercising total control over claims.

    “I think most third-party administrators try to disclaim any fiduciary liability by not taking on those duties and responsibilities,” Gordon said.

    The court noted in its decision that six other circuit courts have also ruled that claims administrators may be sued as defendants under ERISA.

    A lower court had dismissed the case, saying that the New York association did not have standing to sue on behalf of its members and that the administrator could not be sued under ERISA for violating the parity law.

    The New York association brought forth the case with Jonathan Denbo and Dr. Shelly Menolascino. Denbo, who has dysthymic disorder and generalized anxiety disorder, alleged that UnitedHealth improperly administered his employee health plan by treating medical claims more favorably than claims for mental health. Menolascino, a psychiatrist, alleged that United denied or reduced her benefits for services provided to patients.

    The appeals court vacated and remanded Denbo's case but affirmed the lower court's dismissal of Menolascino's case. The court did not decide whether UnitedHealth actually violated the parity law, only that it could be sued for alleged violations.

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