Doe v. Blue Shield California

620 F.Supp.3d 875

Jane DOE, et al., Plaintiffs, v. BLUE SHIELD OF CALIFORNIA, Defendant.

Case No. 21-cv-02138-RS

United States District Court, N.D. California

Signed August 8, 2022

Lisa Sue Kantor, Elizabeth Katherine Green, Kantor & Kantor LLP, Northridge, CA, for Plaintiff Jane Doe.

Elizabeth Katherine Green, Kantor & Kantor LLP, Northridge, CA, for Plaintiff John Doe.

Misty Ann Murray, Maynard Cooper & Gale LLC, Los Angeles, CA, Peter John Felsenfeld, Hinshaw & Culbertson LLP, San Francisco, CA, for Defendant.

OPINION AND ORDER

RICHARD SEEBORG, Chief United States District Judge

I. Introduction

In this action averring violations of the Employee Retirement Income Security Act of 1974 ("ERISA"), Plaintiff John Doe seeks mental health benefits for his daughter Jane Doe's residential treatment under an employee benefit plan ("Plan") administered by Defendant California Physicians' Service dba Blue Shield of California ("Blue Shield"). Jane received benefits for four weeks of care for her eating disorder at a residential treatment program, but Blue Shield decided that residential treatment was no longer medically necessary at the conclusion of that four week period, and instead recommended a day treatment program. Reviewing for abuse of discretion, Blue Shield's denial was unreasonable, and judgment will be granted in favor of Plaintiffs.¹ This decision, however, only covers the denial of benefits between January 7, 2021 and January 18, 2021—the period assessed in Blue Shield's decision—and thus the period following January 18, 2021 is remanded for determination of benefits by the administrator. This Opinion and Order comprises the findings of fact and conclusions of law required by Federal Rule of Civil Procedure 52(a).

II. Factual Background

In 2020, Jane was a 22-year-old college student who had struggled with anorexia nervosa since her senior year of high school. She also suffered from severe anxiety (including panic attacks) and obsessive-compulsive disorder ("OCD"). She previously received treatment in intensive outpatient, partial hospitalization, and inpatient hospitalization settings, and had prior instances of self-harm and suicidal thoughts. On December 10, 2020, Jane was admitted to residential treatment at Avalon Hills Treatment Center ("Avalon"), an in-network provider with Blue Shield. Her diagnoses at the time were anorexia nervosa, generalized anxiety disorder, panic disorder, and OCD. Blue Shield approved benefits from December 10, 2020 to January 6, 2021.

On January 6, 2021, a peer review phone call was held between Jane's treatment team at Avalon and Blue Shield's physician. On January 8, 2021, Blue Shield issued a letter denying approval for residential care at Avalon from January 7, 2021 forward. On January 19, 2021, Avalon submitted a written expedited appeal with treatment records and letters of support from Jane's treatment team. In a five-page letter, Jane's therapist Amanda Willett wrote, among other observations, that "[Jane] CANNOT manage the most basic person need, eating" and that "[Jane] is very clear that if left to herself, she would return to restrictive eating." AR 349. In a two-page letter, nurse practitioner Chad Speth detailed Jane's ongoing symptoms, concluding that he was "concerned that were she to be treated at a lower level of care that there is a high likelihood of relapse with potential associated morbidity and/or mortality." AR 352. Blue Shield denied this grievance on January 22, 2021. In its letter denying the appeal, Blue Shield noted that Jane's appeal "was looked at by an independent psychiatrist who agrees that care at a residential program from January 7, 2021 and going forward, is not medically necessary, and [Jane] could have safely been treated in a daytime only program."² Administrative Record ("AR") 398. The letter provided much of the same basis for denial as the January 7 letter, and explained as follows:

The most appropriate level of care for your ongoing care is treatment only during the daytime (partial hospitalization program, also called IOP). You can safely spend your nights and weekends away from Avalon Hills Adult Health Care. You were not a danger to yourself or others. You were cooperative in your treatment. You did not need care 24 hours per day. It was not likely that treatment only during the daytime (PHP) instead of treatment 24 hours per day would increase your chance of getting worse (relapse).

Id. Jane remained in residential treatment at Avalon until July 31, 2021, with Plaintiffs paying out of pocket for Jane's residential care.

III. Legal Standard

The parties dispute the applicable standard of review. Plaintiffs argue that de novo review applies; Defendant argues that abuse of discretion review applies. "[A] denial of benefits challenged under § 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989). "That means the default is that the administrator has no discretion, and the administrator has to show that the plan gives it discretionary authority in order to get any judicial deference to its decision." Kearney v. Standard Ins. Co., 175 F.3d 1084, 1089 (9th Cir. 1999). The parties do not dispute that the relevant plan document states the administrator has discretion to interpret the plan; instead, Plaintiff argues that California law prohibits the kind of discretionary language present in the plan, citing language in California Insurance Code § 10110.6(a) which states that "[i]f a policy . . . that provides or funds life insurance or disability insurance coverage for any California resident contains a provision that reserves discretionary authority to the insurer . . . to interpret the terms of the policy . . . that provision is void and unenforceable."

Defendant argues that section 10110.6 applies only to health insurance policies, not managed health care plans like the plan at issue here. As Defendant explains, Blue Shield is a health care service plan subject to the Knox-Keene Act and regulated by the Department of Managed Health Care ("DMHC"), see Hailey v. Cal. Physicians' Serv., 158 Cal. App. 4th 452, 460-63, 69 Cal.Rptr.3d 789 (2007), and a plan regulated by the DMHC is not subject to the Insurance Code or the California Department of Insurance's rules and regulations. See Cal. Ins. Code § 791.02(k) (" 'Insurance institution' shall not include . . . health care service plans regulated pursuant to the Knox-Keene Health Care Service Plan Act[.]"). As Defendant points out, other courts have recognized that California law treats health insurance policies different than health care service plans. See, e.g. Namdy Consulting, Inc. v. UnitedHealthcare Ins. Co., No. CV 18-01283-RSWL-KS, 2018 WL 6430119, at *3 (C.D. Cal. July 11, 2018) ("[T]he Legislature has elected to subject insurers and health care service plans to distinct regulatory regimes. Insurers are regulated by the Insurance Code and the Insurance Commissioner. Health care service plans fall under the jurisdiction of the Department of Managed Care and the Knox-Keene Act.") (quoting Smith v. PacifiCare Behavioral Health of Cal., Inc., 93 Cal. App. 4th 139, 159, 113 Cal.Rptr.2d 140 (2001)).

Further, Defendant points out that California recently enacted a corollary of the prohibition in California Insurance Code § 10110.6 that explicitly applies to health care service plans. California Health & Safety Code § 1367.045(a) provides that "[i]f a health care service plan contract . . . contains a provision that reserves discretionary authority to the plan, or an agent of the plan, to determine eligibility for benefits or coverage, to interpret the terms of the contract, or to provide standards of interpretation or review that are inconsistent with the laws of this state, that provision is void and unenforceable." This section, which concerns health care service plans, is applicable to Blue Shield. The statute, however, only applies to contracts "offered, issued, delivered, amended, or renewed on or after January 1, 2021." Cal. Health & Safety Code § 1367.045(a). The Plan in this case was issued on October 1, 2020. Given the clear language about the effective date of the statute, there is no indication that the legislature intended for California Health & Safety Code § 1367.045(a) to apply retroactively. Section 1367.045(a) therefore does not apply to the plan, and the standard of review is abuse of discretion.

"In reviewing for abuse of discretion, [the court] consider[s] all of the relevant circumstances in evaluating the decision of the plan administrator." Pac. Shores Hosp. v. United Behav. Health, 764 F.3d 1030, 1041 (9th Cir. 2014). Review for abuse of discretion requires assessing whether the administrator's decisions was "(1) illogical, (2) implausible, or (3) without support in inferences that may be drawn from the facts in the record." Salomaa v. Honda Long Term Disability Plan, 642 F.3d 666, 676 (9th Cir. 2011) (internal quotation marks and citation omitted). The court may "weigh[ ] a conflict of interest as a factor in abuse of discretion review." Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 968 (9th Cir. 2006) (en banc).

IV. Discussion

For a multitude of reasons, Blue Shield abused its discretion in its denial of further residential care for Jane. First, the denial letter was barebones. Although the letter indicated that Blue Shield used the Level of Care Utilization System ("LOCUS") guidelines in reaching its determination, it failed to discuss any parts of the record or even mention evidence Jane and her treatment team submitted on her behalf. It provided no basis for its conclusions such that Jane was "not a danger" to herself or others and that Jane was "cooperative" in her treatment. AR 398. The only reference...