Ghazarian v. Magellan Health, Inc.

53 Cal.App.5th 171

266 Cal.Rptr.3d 841

Rafi GHAZARIAN et al., Plaintiffs and Appellants,

v.MAGELLAN HEALTH, INC., et al., Defendants and Respondents.

G057113

Court of Appeal, Fourth District, Division 3, California.

Filed August 7, 2020

As Modified on Denial of Rehearing August 31, 2020

The Arkin Law Firm and Sharon J. Arkin ; Law Office of Randy D. Curry and Randy David Curry for Plaintiffs and Appellants.

Cole Pedroza, Kenneth R. Pedroza and Cassidy C. Davenport for Defendants and Respondents Magellan Health, Inc., and Human Affairs International of California.

Manatt, Phelps & Phillips, Gregory N. Pimstone, Joanna S. McCallum, Justin Jones Rodriguez and Joseph E. Laska for Defendant and Respondent California Physicians' Service.

OPINION

MOORE, J.

Generally, an insurer is not liable for bad faith if its denial of a claim was reasonable. In this appeal, we clarify that to avoid bad faith liability, it is not enough that an insurer's ultimate decision might be considered reasonable at first glance.

Here, the trial court erred by failing to look past an arguably reasonable denial to determine whether the insurer fairly evaluated its insured's claim.

Plaintiffs Rafi Ghazarian and Edna Betgovargez (collectively plaintiffs) have a son, A.G., with autism. A.G. receives applied behavior analysis (ABA) therapy for his autism under a health insurance policy (the policy) plaintiffs have with defendant California Physicians' Service dba Blue Shield of California (Blue Shield). Mental health benefits under this policy are administered by defendants Magellan Health, Inc. and Human Affairs International of California (collectively Magellan). By law, the policy must provide A.G. with all medically necessary ABA therapy. ( Health & Saf. Code, § 1374.73, subds. (a)(1) & (c)(1).)¹

Before A.G. turned seven years old, Blue Shield and Magellan (collectively defendants) had approved him for 157 hours of medically necessary ABA therapy per month. But shortly after he turned seven, defendants denied plaintiffs' request for 157 hours of therapy on grounds only 81 hours per month were medically necessary. Plaintiffs requested the Department of Managed Health Care (the Department) conduct an independent review of the denial. (§ 1374.30 et seq.) Two of the three independent physician reviewers disagreed with the denial, while the other agreed. As a result, the Department ordered Blue Shield to reverse the denial and authorize the requested care.

Plaintiffs then filed this lawsuit against defendants. They asserted a claim for breach of the implied covenant of good faith and fair dealing against Blue Shield, and they also asserted claims for intentional interference with contract and violations of Business and Professions Code section 17200 (the UCL) against defendants. Primarily, plaintiffs allege defendants have adopted unfair medical necessity guidelines that categorically reduce the amount of ABA therapy autistic children receive once they turn seven years old, regardless of medical need.

Defendants each moved for summary judgment. Both motions were granted. As to the bad faith claim, the trial court found that since one of the independent physicians agreed with the denial, Blue Shield acted reasonably as a matter of law. As to the intentional interference with contract claim, the court found no contract existed between plaintiffs and A.G.'s treatment provider with which defendants could interfere. Finally, the court found the UCL claim was based on the same allegations as the other claims and thus also failed. Separate judgments were entered in favor of defendants. Plaintiffs now appeal.

We find summary judgment was improperly granted as to the bad faith and UCL claims. Superficially, defendants' denial of the treatment might appear to be reasonable since an independent physician agreed with their decision. But it is well established that an insurer may be liable for bad faith if it unfairly evaluates a claim. Here, there are factual disputes as to the fairness of defendants' evaluation. In particular, the medical necessity standards defendants used to deny plaintiffs' claim appear to arbitrarily reduce ABA therapy for children once they turn seven. There are questions of fact as to the reasonability of these standards. If defendants used unfair criteria to evaluate plaintiffs' claim, they did not fairly evaluate it and may be liable for bad faith.

Further, had the trial court examined why the independent physician found A.G.'s treatment should be reduced, other questions of fact about whether defendants' denial was reasonable would have been obvious and also would have required denial of the motion. The independent physician found treatment should be reduced because A.G. was not making much progress with ABA therapy. In contrast, Blue Shield stated A.G. did not need as much treatment because he had already made significant progress under ABA therapy. There are also questions of fact as to whether defendants thoroughly evaluated supporting documentation for the claim and pressured A.G.'s therapy provider to adopt their allegedly unreasonable criteria.

Conversely, we find summary adjudication proper as to the intentional interference with contract claim because plaintiffs have failed to show any contract with which defendants interfered.

We reverse the judgments and remand the case to the trial court as directed.

IFACTS

A. Background Law

Under the Mental Health Parity Act enacted in 1999 (section 1374.72), "every health plan providing hospital, medical or surgical coverage must also ‘provide coverage for the diagnosis and medically necessary treatment of severe mental illnesses of a person of any age, and of serious emotional disturbances of a child’ as specified in the statute. [ (Citing § 1374.72, subd. (a).) ] The statute specifically itemizes the ‘ "severe mental illnesses" ’ that must be covered, including ‘[p]ervasive developmental disorder or autism.’ [ (Citing § 1374.72, subd. (d)(7).) ]"² ( Consumer Watchdog v. Department of Managed Health Care (2014) 225 Cal.App.4th 862, 870, 170 Cal.Rptr.3d 629 ( Consumer Watchdog ).)

In 2011, the Legislature further addressed autism treatment by enacting section 1374.73. This statute specifically requires health plans subject to section 1374.72 to also provide coverage for medically necessary ABA therapy.³ ( § 1374.73, subds. (a)(1) & (c)(1) ; Consumer Watchdog, supra , 225 Cal.App.4th at pp. 874-875, 170 Cal.Rptr.3d 629.) ABA therapy "is a form of behavioral health treatment which develops or restores, to the maximum extent practicable, the functioning of an individual with autism. [Citation.] Numerous studies indicate that ABA is the most effective treatment known for autistic children. Studies also demonstrate that ABA has lasting results.... ABA therapy can create new brain connections in a child with autism ; these new connections are to be contrasted with the abnormal connections caused by autism." ( Consumer Watchdog, supra , 225 Cal.App.4th at p. 868, 170 Cal.Rptr.3d 629.)

The Department "is entrusted with the protection of patients' rights to quality health care, including enforcement of laws relating to health care service plans." ( California Consumer Health Care Council, Inc. v. Department of Managed Health Care (2008) 161 Cal.App.4th 684, 687-688, 74 Cal.Rptr.3d 215.) These responsibilities include handling the grievances of patients whose claims have been denied by their insurers for lack of medical necessity. ( Consumer Watchdog, supra , 225 Cal.App.4th at p. 871, 170 Cal.Rptr.3d 629.) Such patients may request the Department conduct an independent medical review (IMR) of their denied claims. ( Ibid. ; § 1374.30, subds. (a), (b) & (d).) In the IMR process, "an independent medical reviewer (or reviewers) determines whether the disputed health care service is medically necessary based on the specific needs of the patient and such information as peer-reviewed scientific evidence, nationally recognized professional standards, and generally accepted standards of medical practice.... If the IMR decision is in favor of the patient, the plan shall either promptly authorize the services or reimburse the provider or the enrollee for services already rendered." ( Consumer Watchdog, supra , 225 Cal.App.4th at p. 871, 170 Cal.Rptr.3d 629.)

B. Denial of Plaintiffs' Claim

Plaintiffs' son, A.G., was born in April 2009 and later diagnosed with autism. A.G. began receiving ABA therapy from the Center for Autism Related Disorders (CARD) in 2012, which was covered by Blue Shield under the policy. Mental health benefits under the policy were arranged and administered by Human Affairs International of California (Human Affairs) under a contract it had with Blue Shield. Human Affairs is a wholly owned subsidiary of nonparty Magellan Healthcare, Inc., which is a wholly owned subsidiary of defendant Magellan Health, Inc. (MHI).⁴ There is no dispute that the policy was subject to section 1374.73 or that Blue Shield was legally required to cover all of A.G.'s medically necessary ABA therapy.

Prior to May 2016, i.e., before A.G. turned seven years old, Blue Shield had covered 157 total hours of medically necessary ABA treatment per month (roughly 36 hours per week). This amount was comprised of 137 hours of direct one-on-one services, 14 hours of supervision, and 6 hours of caregiver training. Shortly after A.G. turned seven, plaintiffs received a letter dated May 2, 2016, from Magellan acting as Blue Shield's mental health service administrator.⁵ In the letter, Magellan denied plaintiffs' request for 157 hours of ABA treatment per month for the upcoming period between May 23 to November 23, 2016. Instead, Magellan approved only 81 total hours per month (roughly 19 hours a week), including 68 hours of direct one-on-one services, 7 hours of supervision, and 6 hours of caregiver training. The letter explained that A.G. had made significant progress under ABA therapy.

Consequently, the remaining 76 hours were not...