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Rea v. Blue Shield of California

California Court of Appeals, Second District, First Division

June 10, 2014

MARISSA REA et al., Plaintiffs and Appellants,
BLUE SHIELD OF CALIFORNIA, Defendant and Respondent.

[As Modified on July 9, 2014]

APPEAL from a judgment of the Superior Court of Los Angeles County, No. BC468900Anthony J. Mohr, Judge.

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Kantor & Kantor, Lisa S. Kantor, J. David Oswalt and Elizabeth K. Green for Plaintiffs and Appellants.

Law Offices of Daniel H. Willick and Daniel H. Willick for Honorable Helen MacLeod Thomson and California Psychiatric Association as Amici Curiae on behalf of Plaintiffs and Appellants.

Disability Rights California, Melinda Bird, Connie Huang Chu; Western Center on Law and Poverty, Richard A. Rothschild and Mona Tawatao for Mental Health America of California, Mental Health Advocacy Services, Inc., Alliance of California Autism Organizations, Autism Deserves Equal Coverage, Disability Rights Education and Defense Fund, Inc., Disability Rights Legal Center and National Health Law Programs as Amici Curiae on behalf of Plaintiffs and Appellants.

California Department of Insurance, Adam M. Cole and Teresa R. Campbell for California Insurance Commissioner Dave Jones as Amicus Curiae on behalf of Plaintiffs and Appellants.

Law Offices of Russell G. Petti and Russell G. Petti for International Association of Eating Disorders Professionals, Eating Disorder Coalition, Binge Eating Disorder Association and Residential Eating Disorder Coalition as Amici Curiae on behalf of Plaintiffs and Appellants.

Manatt, Phelps & Phillips, Gregory N. Pimstone, Adam Pines and Joanna S. McCallum for Defendant and Respondent.

Crowell & Moring, William A. Helvestine and David D. Johnson for California Association of Health Plans as Amicus Curiae on behalf of Defendant and Respondent.

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In 1999, the Legislature enacted the California Mental Health Parity Act (Health & Saf. Code, § 1374.72)[1] (Parity Act) to address the imbalance between medical coverage for physical illnesses and mental illnesses. The Parity Act mandated that every health care service plan contract “provide coverage for the diagnosis and medically necessary treatment of severe mental illnesses... under the same terms and conditions applied to other medical conditions.” (§ 1374.72, subd. (a).) At issue in this appeal is whether the Parity Act requires coverage for residential treatment for the eating disorders anorexia nervosa and bulimia nervosa even where the health plan does not provide coverage. In Harlick v. Blue Shield of California (2012) 686 F.3d 699 (Harlick), the Ninth Circuit found that the Parity Act, which requires coverage for all “medically necessary treatment” for “several mental illnesses” mandated the coverage of residential care treatment for such eating disorders. The trial court here disagreed, holding that the statutory language of the Parity Act and the statutory scheme of the Knox-Keene Health Care Service Plan Act of 1975 (§§ 1340–1399) (Knox-Keene Act) (of which the Parity Act is a part), as well as the Parity Act’s legislative history, did not support coverage for a treatment not specifically enumerated in the Parity Act.

Plaintiffs Marissa Rea and Kelly Melachouris, who suffer from eating disorders and are covered by defendant Blue Shield of California’s health plans, principally argue on appeal that the Parity Act’s “medically necessary treatment” language must be read broadly to include residential treatment for the mental illnesses anorexia nervosa and bulimia because there is no treatment analog in the realm of treatments for physical illnesses, and thus the trial court’s limited reading of the statute failed to take into account the Legislature’s goal of achieving parity. Blue Shield counters that nothing in the statutory language evinces a legislative intent to cover all treatments for mental illness simply because they are medically necessary; rather, reference must be made to the Knox-Keene Act of which the Parity Act is a part and which defines required coverage for physical illnesses to consist of “basic health services.”

We conclude that the Legislature in crafting the Parity Act, which uses broad statutory language to mandate the provision of medically necessary services for mental health conditions, recognized that most mental health conditions have a physical basis, and also recognized the fundamental

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difference between the most effective treatments of mental and physical conditions. As a result the Legislature chose to delimit the scope of the Parity Act’s reach with the concept of “medically necessary” rather than relying on the Knox-Keene Act’s limiting principle of “basic health services.” We reverse the judgment of the trial court.


A. Legal Framework

1. Knox-Keene Act and the Parity Act

In 1975, the Legislature enacted the Knox-Keene Act, which provides the legal framework for the regulation of California’s individual and group health care plans, including health maintenance organizations (HMO) and other similarly structured managed care organizations (MCO). While HMO’s and MCO’s are regulated by the Department of Managed Health Care (DMHC), traditional health insurance companies are regulated by the Department of Insurance. The express purpose of the Knox-Keene Act is “to promote the delivery of health and medical care” for persons enrolled in health care service plans. (§ 1342.) The Knox-Keene Act provides that DMHC “has charge of the execution of the laws of this state relating to health care service plans and the health care service plan business including, but not limited to, those laws directing the department to ensure that health care service plans provide enrollees with access to quality health care services and protect and promote the interests of enrollees.” (§ 1341, subd. (a).) Under the Knox-Keene Act, plans must provide their subscribers with “basic health care services, ” which are defined to include physician services, hospital inpatient services, diagnostic laboratory services, home health services, and preventive health services. (§ 1345, subd. (b).) DMHC’s director is authorized to define the scope of required basic health care services. (§ 1367, subd. (i).)

In 1999, in enacting the Parity Act, the California Legislature specifically found that mental illnesses can be reliably diagnosed and treated, and that the treatment of mental illness was cost effective. Further, most private health insurance policies “provide coverage for mental illness at levels far below coverage for other physical illnesses." (Stats. 1999, ch. 534, § 1, p. 3702.) Such coverage limitations resulted in inadequate treatment of mental illnesses, “relapse and untold suffering, ” as well as increases in homelessness, crime, and resultant demands on the state budget. (Ibid.)

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The three main subdivisions of the Parity Act and its implementing regulation are the heart of the present debate over the scope of coverage for residential care to treat eating disorders. The Parity Act provides that, beginning in July 2000, 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” as specified in the statute. (§ 1374.72, subd. (a), italics added (hereafter subdivision (a)).) The statute specifically itemizes the “‘severe mental illnesses’” which must be covered, including “[a]norexia nervosa” and “[b]ulimia.” (§ 1374.72, subd. (d)(7), (8).)

The Parity Act does not specifically define the term “medically necessary treatment, ” although it does state that “[t]hese benefits include” outpatient services, inpatient hospital services, partial hospital services, and prescription drugs (if the plan otherwise covers prescription drugs.) (§ 1374.72, subd. (b) (hereafter subdivision (b).)[2] The Parity Act also provides “[t]he terms and conditions applied to the benefits required by this section, that shall be applied equally to all benefits under the plan contract, shall include, but not be limited to, the following: [¶] (1) [m]aximum lifetime benefits[;] [¶] (2) [c]opayments[; and] [¶] (3) [i]ndividual and family deductibles.” (§ 1374.72, subd. (c) (hereafter subdivision (c).)

The Parity Act’s implementing regulation states, “(a) The mental health services required for the diagnosis, and treatment of conditions set forth in [] section 1374.72 shall include, when medically necessary, all health care services required under the Act including, but not limited to, basic health care services within the meaning of Health and Safety Code sections 1345(b) and 1367(i), and section 1300.67 of Title 28.” (Cal. Code Regs., tit. 28, § 1300.74.72, subd. (a) (implementing regulation).)[3]

2. Harlick v. Blue Shield

On June 4, 2012, in Harlick, supra, 686 F.3d 699, the Ninth Circuit interpreted these provisions and addressed the issue of whether residential treatment for anorexia nervosa was covered under Blue Shield’s insurance

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plan, and if not, whether the Parity Act nonetheless required coverage.[4] Blue Shield’s plan covered inpatient services, limited outpatient services, office visits, psychological testing, and counseling sessions for the treatment of mental illnesses. Although the Harlick court held the terms of Blue Shield’s plan did not cover residential treatment for anorexia nervosa, the court found that the Parity Act mandated such a level of care. (686 F.3d at pp. 710, 721.)

Harlick, supra, 686 F.3d 699reasoned that section 1374.72 defined anorexia nervosa as a “serious mental illness” that was subject to the Parity Act and therefore subdivision (a) required that “medically necessary treatment” be provided for the condition. Further, Harlick concluded the four benefits listed in subdivision (b)—(1) outpatient services; (2) inpatient hospital services; (3) partial hospitalization services; and (4) prescription drugs, if the plan contract includes coverage for prescription drugs—were not exhaustive because the language of the implementing regulation stated that the medically necessary benefits required to be provided included, but was not limited to, the basic health care services set forth in subdivision (b). (686 F.3d at p. 712.) In addition, the DMHC had asserted that it was not appropriate to list all services a plan needed to achieve parity because beyond specifying some of the essential services, “‘it is sufficient to state that the plans must provide all medically necessary services. To the extent that certain services are medically necessary, then those services will be provided.’” (Id. at p. 715, italics omitted.)

Harlick, supra, 686 F.3d 699further reasoned that the Knox-Keene Act and the Parity Act operated in fundamentally different ways: Mandated coverage under the Parity Act applied to nine specified “severe mental illnesses, ” while Knox-Keene Act mandated coverage for all physical illnesses, whether severe or not; thus, the Parity Act limited insurer liability by limiting the illnesses to which it applied, while the Knox-Keene Act limited insurer liability by limiting the scope of medically necessary treatments. (686 F.3d at p. 716.) As a result, “[t]he most reasonable interpretation of the Parity Act and its implementing regulation is that plans within the scope of the Act must provide coverage of all ‘medically necessary treatment’ for

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‘severe mental illnesses’ under the same financial terms as those applied to physical illnesses.” (Id. at p. 719.)

The dissent in Harlick, supra, 686 F.3d 699 observed that the text of the Parity Act’s implementing regulation that “‘services required... shall include, when medically necessary, all health care services’” was modified by the language of the second portion of that sentence, “‘required under the [Knox-Keene] Act.’” (686 F.3d at p. 723 (conc. & dis. opn. of Smith, J.).) As a result, the dissent concluded the second portion of the implementing regulation’s text limited the scope of the health care services that must be provided by the Parity Act to the types of benefits already provided under the Knox-Keene Act, and the Parity Act could thus not be used to enlarge the scope of the Knox-Keene Act. “It is undisputed that the Knox-Keene Act does not require all medically necessary treatment for physical illnesses. [Citation.] Thus, viewed in this light, the ‘when medically necessary’ language operates as a necessary (rather than sufficient) condition on the type of benefits that must be provided. In other words, plans must provide the type of benefits the Knox-Keene Act provides when they are medically necessary for mental health.” (686 F.3d at pp. 723-724 (cone. & dis. opn. of Smith, J.).) The dissent found the majority ignored this modifying language and ran afoul of the statutory construction rule that no words should be treated as surplusage. (Id. at p. 724 (cone. & dis. opn. of Smith, J.).) Further, the dissent found that the “including, but not limited to” language in the implementing regulation on which the majority relied did not contradict the dissent’s interpretation of the Parity Act. “California courts have explained that, while the phrase ‘including, but not limited to’ is admittedly a ‘phrase of enlargement, ’ this phrase is ‘not a grant of carte blanche that permits all actions without restriction, ’ and it cannot be used to create an ‘unreasonable expansion of the legislature’s words....’ [Citations.] Thus, the context surrounding the ‘including, but not limited to’ phrase cannot be ignored when determining the extent of the ‘enlarging’ effect this phrase has on benefits that [the implementing regulation] requires insurance companies to provide." (686 F.3d at p. 724 (cone. & dis. opn. of Smith, J.).)

B. Procedural History

1. PlaintiffÂ’s First Amended Complaint (FAC)

Plaintiffs were enrolled in Blue Shield health plans that cover the treatment of mental illness, but exclude coverage for residential treatment.[5] Both plaintiffs suffer from eating disorders (either anorexia nervosa or bulimia

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nervosa), and have been advised by their treating medical professionals that residential treatment for their eating disorders was medically necessary and they meet the criteria for such treatment.

The FAC alleged that eating disorders have the highest mortality rate of any mental illness, and can lead to medical complications including cardiac arrhythmia, heart failure, kidney stones and kidney failure, cognitive impairment, osteoporosis, and infertility. Suicide, depression, and anxiety are common in eating disorder sufferers. One of the most effective therapies for treating eating disorders is residential treatment and is widely accepted in the medical community and recognized by the American Psychiatric Association as a critical level of care. Residential treatment entails less intense medical monitoring than hospital-based care, and lasts several months. Residential treatment is necessary where the individual does not make ...

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