In a cautionary tale that highlights the importance of the claims and appeals process, a federal judge is requiring the AT&T, Inc. health plan to pay more than $117,000 for treatment of one of its employee’s daughters at Equine Journeys, a Utah residential treatment center that combines psychotherapy with horse riding and training. Lynn R., v. ValueOptions, No. 215CV00362RJSPMW, 2017 WL 3610477 (D. Utah Aug. 22, 2017).

The case arose when the AT&T plan, which generally covers care provided at residential treatment facilities, denied a claim for inpatient mental healthcare at Equine Journeys.

In determining whether the claim administrator’s decision to deny benefits was “arbitrary and capricious,” the court explained that it may only consider evidence and arguments in the administrative record that were developed during the claims and appeals process. The defendants asserted two grounds for denial of the claim: (1) the participant failed to seek the pre-certification for residential treatment as required under the plan, and (2) the treatment facility was not nationally accredited. First, the court found that because the claims administrator failed to assert the plan’s pre-certification requirement as a specific reason for denial “in a manner calculated to be understood by the participant . . .” during the claims and appeals process, the defendants were prohibited from asserting lack of pre-certification as a ground for denial during the litigation.

Moving to the second ground for denial – the treatment facility’s lack of national accreditation – the court once again rejected the defendants’ arguments. The defendants argued that, although the plan did not state that a treatment facility must be nationally accredited, the claims administrator relied on national accreditation to determine whether a facility’s services were provided in accordance with nationally recognized medical standards. The court explained that by using national accreditation as a proxy for determining medical necessity, the claims administrator was acting in an arbitrary and capricious manner and, in effect, imposing a new condition on coverage. Ultimately, after concluding that remand for further administrative review would be inappropriate, the court entered a judgment in favor of the plaintiffs.

This case concerns a residential treatment facility similar to those at issue in a series of class-action lawsuits initiated in recent months under the Mental Health Parity and Addiction Equity Act (MHPAEA), which generally requires that insurers cover mental health treatment on the same terms as medical and surgical care. Although both types of litigation involve the denial of claims for expensive residential treatment facilities that offer resort-style amenities in combination with treatment, the MHPAEA class-actions challenge plans that contain blanket exclusions for mental health services as contrary to MHPAEA, while the judgment against the AT&T health plan was simply the result of a failure to properly manage the claims and appeals process.

The lesson for plan administrators is simple – even though questions remain as to validity of blanket coverage exclusions for wilderness or resort-style residential treatment facilities, there is no substitute for a well-managed claims and appeals process through which the participant is informed in clear terms of every reason for denial of their claim at each stage of the administrative review process.