EDMOND E. CHANG, District Judge.
Natalie V. brings this action against Health Care Service Corporation (HCSC) under the Employee Retirement Income Security Act of 1974 (ERISA), seeking benefits related to her mental health treatment at a residential treatment center.
For purposes of this motion, the Court accepts as true the factual allegations in Natalie V.'s complaint. Erickson v. Pardus, 551 U.S. 89, 94 (2007). Natalie V. is a 23-year-old Illinoisan who suffers from anorexia nervosa, general anxiety disorder, and major depressive disorder. Compl. ¶¶ 2, 6. In mid-2014, Natalie V. spent about three months at a residential treatment center in California to treat these disorders. Id. ¶¶ 7, 9. Although Natalie V. paid for her treatment upfront, she promptly submitted claims for reimbursement to HCSC. Id. ¶¶ 8, 9.
HCSC denied Natalie V.'s claims for the entirety of her treatment. Compl. ¶ 10. Natalie V.'s group health plan (call it "the Plan," for short) only covered treatment at residential treatment centers
R. 18-1, Exh. 1 at 66-68, Health Care Service Corp. Health Care Benefit Program at 53-55.
After HCSC relied on the exclusion to reject coverage, Natalie V. appealed the denial, asserting that the Parity Act required the Plan "to cover [her] residential treatment as it would for treatment of any physical illness." Compl. ¶ 11. But again HCSC refused to pay for Natalie V.'s treatment on the grounds that the Plan excluded residential treatment for mental illness. Id. ¶ 12. After exhausting all administrative remedies (as required under ERISA), Natalie V. brought this action against HCSC. Id. ¶ 15. Natalie V. alleges that HCSC violated the Parity Act, which requires parity between mental health and medical/surgical benefits, by denying her claims for inpatient residential mental health treatment. Id. ¶ 13. Natalie requests relief for all past benefits due to her under the Plan, plus pre-judgment and post-judgment interest, as well as the costs and attorney's fees spent on this case. Id. at ¶¶ 17, 20.
Under Federal Rule of Civil Procedure 8(a)(2), a complaint generally need only include "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). This short and plain statement must "give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (alteration in original) (internal quotation marks and citation omitted). The Seventh Circuit has explained that this rule "reflects a liberal notice pleading regime, which is intended to `focus litigation on the merits of a claim' rather than on technicalities that might keep plaintiffs out of court." Brooks v. Ross, 578 F.3d 574, 580 (7th Cir. 2009) (quoting Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514 (2002)).
"A motion under Rule 12(b)(6) challenges the sufficiency of the complaint to state a claim upon which relief may be granted." Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). "[A] complaint must contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). These allegations "must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555. The allegations that are entitled to the assumption of truth are those that are factual, rather than mere legal conclusions. Iqbal, 556 U.S. at 678-79.
This motion to dismiss boils down to one issue: whether the Parity Act required HCSC to cover Natalie V.'s residential treatment for her mental disorders. Analyzing this issue requires a bit of background on the Parity Act and the two sets of regulations—the "Interim Final Rules" (an oxymoron if there ever was one) and the Final Rules—that were issued to provide guidance to health insurance companies (like HCSC) on how to comply with the Parity Act. The next section summarizes the Parity Act, the Interim Final Rules, and the Final Rules, see Section III.A., and then the Opinion moves onto analyzing whether Natalie V. has adequately stated a claim for relief, see Section III.B.
In an effort to increase the scope of coverage for mental illness treatment, Congress passed the Mental Health Parity Act in 1996. Pub. L. No. 104-204, 110 Stat. 2874 (1996); Coal. for Parity, Inc. v. Sebelius, 709 F.Supp.2d 10, 13 (D.D.C. 2010). The Act required group health plans to provide the same aggregate lifetime and annual dollar limits for mental health benefits and medical/surgical benefits. Mental Health Parity Act of 1996 § 712.
Twelve years later, Congress passed the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008, which imposed additional parity requirements on group health plans. Pub. L. No. 110-343, 122 Stat. 3765 (2008) (codified as 29 U.S.C. § 1185a (ERISA); 42 U.S.C. § 300gg-5 (Public Health Service Act); and 26 U.S.C. § 9812 (Internal Revenue Code)). One important way that the Parity Act seeks to achieve parity is to mandate parity between the "treatment limitations" placed on mental health benefits and on medical/surgical benefits:
29 U.S.C. § 1185a(a)(3)(A)(ii) (emphases added).
The Parity Act instructed the Secretaries of Labor, Health and Human Services, and Treasury (for convenience's sake, the "Departments") to issue "guidance and information" on the Parity Act's requirements. 29 U.S.C. § 1185a(g). Congress directed, however, that the Act would apply to all plans beginning on or after October 3, 2009, and Congress did not provide for a delay of the Parity Act even if the Departments had not yet issued the rules. Pub. L. No. 110-343, 122 Stat. 3765 (2008) (codified as 42 U.S.C. § 300gg-5 ("The amendments made by this section shall apply with respect to group health plans for plan years beginning after the date that is 1 year after the date of enactment of this Act [October 3, 2008]. . . ."); see also Preamble, Interim Final Rules Under the Parity Act, 75 Fed. Reg. 5410-01, 5411 (Feb. 2, 2010) ("The changes made by [the Parity Act] are generally effective for plan years beginning after October 3, 2009."); 29 C.F.R. § 2590.712 (amended Jan. 13, 2014).
In February 2010, four months after the Parity Act took effect, the Departments published the Interim Final Rules (IFRs). Preamble, IFRs, 75 Fed. Reg. 5410-01; 29 C.F.R. § 2590.712. The IFRs applied to "plan years beginning on or after July 1, 2010," Preamble, IFRs, 75 Fed. Reg. at 5410, and remained in effect until the Departments published the Final Rules in July 2014, see Preamble, Final Rules Under the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (hereinafter "Final Rules"), 78 Fed. Reg. 68240-01 (Nov. 13, 2013); 29 C.F.R. § 2590.712(i).
The IFRs addressed the requirements for achieving parity of treatment limitations. Specifically, the IFRs explained that "the parity requirements for . . . treatment limitations are applied on a classification-by-classification basis." Preamble, IFRs, 75 Fed. Reg. at 5412. As a premise for the classification-by-classification regulation, the IFRs established six "classifications of benefits" for purposes of Parity Act compliance: (1) inpatient, in-network; (2) inpatient, out-of-network; (3) outpatient, in-network; (4) outpatient, out-of-network; (5) emergency care; and (6) prescription drugs. 29 C.F.R. § 2590.712(c)(2)(ii)(A); Preamble, IFRs, 75 Fed. Reg. at 5413. The Departments chose these classifications after observing that many plans already varied treatment limitations "based on whether a treatment is provided on an inpatient, outpatient, or emergency basis; whether a provider is a member of the plan's network; or whether the benefit is specifically for a prescription drug." Preamble, IFRs, 75 Fed. Reg. at 5413. While the regulations left it to group health plans to define, for example, "inpatient, outpatient, and emergency care," they did mandate that plans apply those terms "uniformly" for both mental health and medical/surgical benefits. Id.
The regulations also explained that group health plans had to provide the same treatment limitations for mental health and medical/surgical benefits within each classification and vis-à-vis each classification. 29 C.F.R. § 2590.712(c)(2)(ii)(A); Preamble, IFRs, 75 Fed. Reg. at 5413. So, a group health plan could not place a treatment limitation on mental health benefits in a classification that was more restrictive than the predominant treatment limitation applied to medical/surgical benefits in that same classification. 29 C.F.R. § 2590.712(c)(2)(ii)(A); Preamble, IFRs, 75 Fed. Reg. at 5413. And, if a plan provided any benefits for a mental illness, the group health plan had to provide those benefits in each classification for which it provided any medical/surgical benefits.
The six classifications generally applied to both "quantitative" and "nonquantitative" treatment limitations. 29 C.F.R. § 2590.712(a); Preamble, IFRs, 75 Fed. Reg. at 5412-13. A quantitative treatment limitation, as defined under the IFRs, is a limitation that is "expressed numerically (such as 50 outpatient visits per year). . . ." 29 C.F.R. § 2590.712(a); see also Preamble, IFRs, 75 Fed. Reg. at 5412. By contrast, a nonquantitative treatment limitation is a limitation that "otherwise limits the scope or duration of benefits for treatment. . . ." 29 C.F.R. § 2590.712(a); Preamble, IFRs, 75 Fed. Reg. at 5412. Significantly, the IFRs established a standard for scrutinizing nonquantitative treatment limitations:
29 C.F.R. § 2590.712(c)(4)(i) (emphases added); Preamble, IFRs, 75 Fed. Reg. at 5416.
Although the Departments provided much needed guidance on "nonquantitative treatment limitations" in the IFRs, they left one major issue unaddressed: the extent to which the Parity Act required that the "scope of services" that a plan offered for mental health conditions had to be on par with those offered for medical/surgical conditions. The term "scope of services" "generally refers to the types of treatment and treatment settings that are covered by a group health plan or health insurance coverage." Preamble, Final Rules, 78 Fed. Reg. at 68246. Though the Departments acknowledged that "not all treatments or treatment settings for mental health . . . correspond to those for medical/surgical conditions," they made clear that the IFRs did not address the scope of services issue and "invite[d] comments on whether and to what extent [the Parity Act] addresses the scope of services . . . provided by a group health plan. . . ." Preamble, IFRs, 75 Fed. Reg. at 5416-17.
In November 2013, the Departments published the final regulations, which the agencies declared would apply to health-plan years beginning on or after July 1, 2014. Preamble, Final Rules, 78 Fed. Reg. 68240-01. The Final Rules retained the IFRs' standard for scrutinizing nonquantitative treatment limitations; that is, on a classification-by-classification basis, the processes, strategies, evidentiary standards, or other factors used to impose nonquantitative treatment limitations generally had to be applied in a comparable manner to both mental health and medical/surgical benefits. 29 C.F.R. § 2590.712(c)(4)(i); Preamble, Final Rules, 78 Fed. Reg. at 68244-45. According to the regulations, this standard provided flexibility for plans "to take into account clinically appropriate standards of care when determining whether and to what extent medical management techniques and other [nonquantitative treatment limitations] apply to medical/surgical benefits and mental health . . . benefits. . . ." Preamble, Final Rules, 78 Fed. Reg. at 68245. This flexibility was necessary because plans did not have to use the same nonquantitative treatment limitations for all benefits; rather, it was just that the processes, strategies, evidentiary standards, and other factors plans used to impose those limitations had to be comparable for all benefits. 29 C.F.R. § 2590.712(c)(4)(i); Preamble, Final Rules, 78 Fed. Reg. at 68245. Despite acknowledging this flexibility, however, the Departments cautioned that "it is unlikely that a reasonable application of the [nonquantitative treatment limitation standard] would result in all mental health . . . benefits being subject to [a nonquantitative treatment limitation] in the same classification in which less than all medical/surgical benefits are subject to the [nonquantitative treatment limitation]." Preamble, Final Rules, 78 Fed. Reg. at 68245 (emphasis added). So, for example, a plan administrator would be hard-pressed to prove that a policy requiring prior authorization for all outpatient mental health benefits, but only prior authorization for just a few outpatient medical/surgical benefits, did not run afoul of the Parity Act.
The Final Rules also addressed the "scope of services" issue—that is, the types of treatment or treatment settings that plans offer within each of the six classifications. It is important, for this case, that the regulations declared that the standard for scrutinizing nonquantitative treatment limitations applied to any restriction affecting the scope of services provided under the plan. Preamble, Final Rules, 78 Fed. Reg. at 68246-47 ("These final regulations also include additional examples illustrating the application of the [nonquantitative treatment limitation] rules to plan exclusions affecting the scope of services provided under the plan. The new examples clarify that plan or coverage restrictions based on geographic location, facility type, provider specialty, and other criteria that limit the scope or duration of benefits for services must comply with the [nonquantitative treatment limitation] parity standard under these final regulations."); 29 C.F.R. § 2590.712(c)(4). This meant that "intermediate" services, like residential treatment or intensive outpatient treatment, were subject to the Act's parity requirements. See Preamble, Final Rules, 78 Fed. Reg. at 68246 ("The Departments did not intend that plans and insurers could exclude intermediate levels of care covered under the plan from [the Parity Act's] parity requirements.").
What's more, the regulations also confirmed that skilled nursing facilities are the medical/surgical "scope of services" analogue for residential mental health treatment centers:
Preamble, Final Rules, 78 Fed. Reg. at 68247; see also id. at 68273 (Example 9 illustrates why categorically excluding coverage for residential mental health treatment when covering comparable treatment settings for medical/surgical conditions violates the Parity Act). So, although the IFRs had left the "scope of services" question unanswered, the Final Rules made clear that plan restrictions based on types of treatment or treatment settings—like residential treatment centers—must comply with the nonquantitative treatment limitation parity standard. 29 C.F.R. § 2590.712(c)(4); Preamble, Final Rules, 78 Fed. Reg. at 68246-47.
With the statutory and regulatory framework set, the Court moves onto the question of whether HCSC's group health plan violated the Parity Act by categorically excluding mental health benefits for residential treatment. Remember, however, that Natalie V. was in residential treatment from June to September 2014,
To be sure, a few courts have dismissed similar denial-of-benefit claims on the grounds that the Departments' refusal to address the "scope of services" issue in the IFRs is the equivalent of an agency interpretation against coverage for residential mental health treatment. See, e.g., P. v. Catholic Health Initiatives, 2016 WL 3551972, at *6 (W.D. Wash. June 30, 2016) (granting the defendant's motion for summary judgment after reasoning that "[t]he [IFRs] specifically invited further comment on this un-addressed issue, and the Final Rules require such coverage. But the [IFRs] did not."); Order Granting Defendants' Motion to Dismiss at 13-14, S.S. v. Microsoft Corp. Welfare Plan et al., No. 2:14-cv-00351, Dkt. 49 (Feb. 11, 2015) (unpublished order) (granting the defendants' motion to dismiss after reasoning that "[t]he IFRs specifically noted that they did not address `scope of treatment,' and recognized that residential treatment centers may not have a medical/surgical analog," and that "[the defendant] [wa]s entitled to rely on the [IFRs] to define and interpret the [Parity Act]."). These courts reasoned that the Final Rules introduced new treatment limitations—like types of treatment or treatment settings—that were not previously subject to the Parity Act's parity requirement. Catholic Health Initiatives, 2016 WL 3551972, at *6; Order Granting Defendants' Motion to Dismiss at 12-14, S.S. v. Microsoft Corp. Welfare Plan et al., No. 2:14-cv-00351, Dkt. 49. So, those courts held, residential treatment center exclusions were legal under the IFRs. Catholic Health Initiatives, 2016 WL 3551972, at *6; Order Granting Defendants' Motion to Dismiss at 12-14, S.S. v. Microsoft Corp. Welfare Plan et al., No. 2:14-cv-00351, Dkt. 49.
But there is a problem with relying on the IFRs to conclude that categorically excluding residential mental health treatment was legal under the Parity Act. The issue is whether the Parity Act—not the IFRs—permits a complete bar of all coverage for mental health treatment at residential treatment centers. The IFRs only offered "guidance and information . . . concerning the requirements of [the Parity Act]," 29 U.S.C. § 1185a(g) (emphasis added), and the IFRs did not purport to affirmatively authorize health plans to exclude residential treatment centers for mental health treatment. Remember, the Departments refused to address the "scope of services" issue in the IFRs. See Preamble, IFRs, 75 Fed. Reg. at 5416. And despite HSCS's claim to the contrary, see Mot. to Dismiss at 6-7 ("This is the very question at issue in this case which the Departments answered by expressly deciding to not prohibit categorical exclusions of treatment settings at that time."); Def.'s Reply Br. at 7-9, that refusal does not constitute an endorsement of treatment-setting limitations. Cf. Craft v. Health Care Serv. Corp., 84 F.Supp.3d 748, 756 (N.D. Ill. 2015) (rejecting the defendant's due process defense and concluding that "[i]t would be a stretch to conclude from the Departments' request for comments that it was authorizing issuers to enforce treatment-setting limitations. They simply were not prepared to issue guidance at that time.").
To be sure, the IFRs did set a standard for evaluating nonquantitative treatment limitations set forth in the IFRs (and the Final Rules), see supra Section III.A.1-2 (the processes, strategies, evidentiary standards, or other factors used to impose nonquantitative treatment limitations generally have to be applied in a comparable manner to all benefits), and that standard will be applied in assessing whether HCSC lawfully excluded mental health benefits for residential treatment centers, see infra Section III.B. at 18-22. But where the IFRs do not answer a question one way or the other, it is the Parity Act that controls whether a group health plan provided mental health benefits in parity with medical/surgical benefits.
Instead of fixating on what the IFRs did not say about the "scope of services" issue, the focus should be on what those regulations did say about treatment limitations. First, the IFRs advised group health plans that they had to provide the same treatment limitations for mental health and medical/surgical benefits within each classification and vis-à-vis each classification. 29 C.F.R. § 2590.712(c)(2)(ii)(A); Preamble, IFRs, 75 Fed. Reg. at 5413. The IFRs further confirmed that the parity requirement extended to nonquantitative treatment limitations—limitations that "otherwise limit the scope or duration of benefits for treatment. . . ." 29 C.F.R. § 2590.712(a) (emphasis added); Preamble, IFRs, 75 Fed. Reg. at 5412. What's more, the IFRs also went so far as to caution group health plans that excluding mental health benefits in a particular classification in which the plan provided medical/surgical benefits would constitute a treatment limitation.
The IFRs also set forth a standard for determining whether a group health plan could impose a nonquantitative treatment limitation to mental health benefits. As noted earlier, the standard requires comparability in the process, strategies, evidentiary standards, and other factors applied in deciding what nonquantitative treatment limitations to impose:
29 C.F.R. § 2590.712(c)(4)(i); Preamble, IFRs, 75 Fed. Reg. at 5416. So if HCSC in fact used comparable processes, strategies, evidentiary standards, or other factors when analyzing whether it should categorically exclude residential mental health treatment, then there would be no Parity Act violation. For example, if HCSC applied an overall strategy to cover only those inpatient treatments (whether medical/surgical or mental health) with a particular success rate, and found after applying this criterion that residential mental health treatment would not meet that success rate (while treatment at skilled nursing facilities would), then excluding residential treatment centers would not violate the Parity Act. At this dismissal-motion stage, the complaint's allegations are assumed to be true, and all factual inferences are interpreted in favor of Natalie V. Viewed from that perspective, the complaint adequately alleges (this will be tested in discovery) that HCSC failed to apply comparable standards when it decided not to cover residential treatment centers for mental illnesses. Natalie V. expressly put HCSC on notice of her contention that the Parity Act required coverage of the residential treatment; in January 2015, when appealing the denial of coverage, she wrote a letter that explicitly referred to the Parity Act. Compl. ¶ 11. Natalie V. alleges that HCSC then responded without any reasonable explanation for why the residential treatment center cost would not be covered, despite the Parity Act. Id. ¶ 13(b). Discovery will reveal what sort of process, strategy, evidentiary standard, or other factors HCSC used in setting its treatment limitations, including its blanket ban on residential treatment centers for mental illness. But based on the complaint's allegations, and the applicable legal principles, HCSC's motion to dismiss must be denied.
One final point is worth making now, because it will provide guidance for discovery. HCSC contends that "until the Departments . . . promulgated the Final Rules, certain intermediate services (like [residential treatment centers] and skilled nursing [facilities]) were deemed not to have clear analogues necessary for purposes of applying `treatment limitation' guidelines and therefore were outside the reach of the [IFRs]."
But even if the Departments did not, in the defense's words, deem "certain intermediate services (like [residential treatment centers] and skilled nursing [facilities]) . . . to have clear analogues" when the IFRs were in effect, Def.'s Reply Br. at 7, it appears that HCSC itself did. In fact, Natalie V.'s Plan classified both residential treatment centers and skilled nursing facilities as a type of "[i]npatient"
For the reasons stated above, HCSC's motion to dismiss, R. 18, must be denied. In light of the denial of the motion, the parties shall update the initial status report, including conferring about a discovery plan consistent with this opinion. The updated status report is due by September 19, 2016. The status hearing of September 22, 2016, remains in place.
On a separate issue, the Court notes that Natalie V. filed this suit using a pseudonym for her last name. In the status report, the plaintiff shall address the propriety of proceeding with a pseudonym, citing specifically to Seventh Circuit authority that would permit a pseudonym in these circumstances. See Fed. R. Civ. P. 10(a) (generally requiring the parties to proceed in their actual names); Doe v. Blue Cross & Blue Shield United of Wis., 112 F.3d 869, 872 (7th Cir. 1997). The defense should also state its position in the status report.
R. 18-1, Exh. 1 at 33, Health Care Service Corp. Health Care Benefit Program ("Plan") at 20.
29 U.S.C. § 1185a(a)(3)(A)(i). Under the Parity Act, "[t]he term `financial requirement' includes deductibles, copayment, coinsurance, and out-of-pocket expenses. . . ." Id. § 1185a(a)(3)(B)(i). And "[a] financial requirement . . . is considered to be predominant if it is the most common or frequent of such type of . . . requirement." Id. § 1185a(a)(3)(B)(ii). Although HCSC makes a passing reference to the Parity Act's "financial requirements" provision, see Mot. to Dismiss at 2, neither side presents any substantive arguments as to that provision. So, at this stage, the Court does not address the "financial requirements" provision either.
29 C.F.R. § 2590.712(c)(4)(ii); Preamble, IFRs, 75 Fed. Reg. at 5416.
United States Department of Labor, FAQs About Affordable Care Act Implementation (Part VII) and Mental Health Parity Implementation (Nov. 2011), available at http://www.dol.gov/ebsa/faqs/faq-aca7.html.
Id. In other words, the Final Rules only confirmed what group health plans had already determined, namely, that residential treatment centers are the mental health counterpart to skilled nursing facilities.
But Chevron has no application here. This is because Chevron only applies where an agency has actually answered the specific issue that the statutory language itself does not address. 467 U.S. at 843 ("If, however, the court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation." (emphasis added)). In this case, the Departments specifically declined to address the "scope of services" issue. See Preamble, IFRs, 75 Fed. Reg. at 5416. In other words, there is no "administrative interpretation" for the Court to follow or to reject. And as discussed below, see infra at Section III.B. at 17-18, the Departments' refusal to address the "scope of services" issue does not constitute an endorsement of treatment-setting limitations. So, although at least one other district court has relied on Chevron to analyze whether the term "treatment limitation" under the Parity Act permits residential treatment center exclusions under the IRFs, see Craft v. Health Care Serv. Corp., 2016 WL 1270433, at *8-10 (N.D. Ill. Mar. 31, 2016), the Court declines to do so here.
