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Roches v. California Physicians' Service

United States District Court, N.D. California, San Jose Division

June 15, 2017

CHARLES DES ROCHES, et al., Plaintiffs,
v.
CALIFORNIA PHYSICIANS' SERVICE, et al., Defendants.

          ORDER GRANTING MOTION FOR CLASS CERTIFICATION RE: DKT. NO. 86

          LUCY H. KOH United States District Judge.

         Plaintiffs Charles Des Roches (“Des Roches”), Sylvia Meyer (“Meyer”), and Gayle Tamler Greco (“Greco”) bring this action against Defendants California Physicians' Service d/b/a Blue Shield of California; Blue Shield of California Life & Health Insurance Company; Human Affairs International of California; and Magellan Health Services of California, Inc.-Employer Services (collectively, “Defendants”). Before the Court is Plaintiffs' motion for class certification. Having considered the submissions of the parties, the relevant law, and the record in this case, the Court GRANTS Plaintiffs' motion for class certification.

         I. BACKGROUND

         A. Factual Background

         1. Defendants' Use of Medical Necessity Criteria Guidelines

         Plaintiffs Des Roches, Meyer, and Greco are each insured through their employers by a health insurance plan governed by the Employee Retirement Income Security Act of 1974 (“ERISA”) and administered by Defendants. FAC ¶¶ 5-7. Specifically, Plaintiffs' plans were insured either with Defendant California Physicians' Service d/b/a Blue Shield of California (“CPS”) or with Defendant Blue Shield of California Life & Health Insurance Company (“Blue Shield”) (collectively, the “Blue Shield entities”). Id. ¶ 7.

         Plaintiffs allege that each of their plans covers “residential and intensive outpatient treatment for mental illnesses and substance use disorders.” Id. ¶ 8. Under Plaintiffs' plans, a “Mental Health Service Administrator” (“MHSA”) is designated to adjudicate all mental health and substance use claims. Id. ¶ 10. The Blue Shield entities have designated Human Affairs International of California (“HAIC”) and Magellan Health Services of California, Inc.-Employer Services (“Magellan Health Services”) (collectively, “Magellan”) to serve as the MHSA for Plaintiffs' plans. Id. ¶ 11. Thus, under Plaintiffs' plans, all claims for mental health and substance use claims are first evaluated by Magellan, and claims are paid if they are for “medically necessary” treatments and meet other plan requirements. Id. A claimant has a right to appeal all claim denials by Magellan to the Blue Shield entities, which retain “the right to review all claims to determine if a service or supply is medically necessary.” Id. ¶ 12.

         In order to evaluate mental health and substance use claims, Magellan has adopted, and the Blue Shield Entities have approved the adoption of, Medical Necessity Criteria Guidelines (“Guidelines”) developed by Magellan's parent company, Magellan Health, Inc. Id. ¶ 13. Plaintiffs allege that these Guidelines violate the terms of Plaintiffs' health care plans. Plaintiffs claim that their plans provide coverage for mental health and substance use treatment if such treatment is “medically necessary” as defined by generally accepted professional standards, but that the Guidelines are “far more restrictive than generally accepted standards of care” in “determining medical necessity” for mental health and substance use treatments. ECF No. 86, at 1-2.

         Specifically, Plaintiffs claim that the Guidelines improperly restricted access to the following levels of care (i) Residential Treatment, Psychiatric; (ii) Residential Treatment, Substance Use Disorders, Rehabilitation; (iii) Intensive Outpatient Treatment, Psychiatric; and (iv) Intensive Outpatient Treatment, Substance Use Disorders, Rehabilitation. Under the Guidelines, residential treatment is defined as 24-hour care for patients with “long-term or severe” mental or substance use disorders that include medical monitoring and nurse availability. FAC ¶ 19. Intensive outpatient programs provide less care than residential treatment, and include treatment, rehabilitation, and counseling sessions or professional supervision and support for at least 2 hours per day and 3 days per week. Id. ¶ 20.

         Plaintiffs allege that the Guidelines contain many requirements for patients to qualify for residential and intensive outpatient programs for mental health and substance use that are inconsistent with generally accepted professional standards, including the following:

• A “fail-first” requirement for residential substance use treatment, which provides that a claimant must have had “recent (i.e., in the past 3 months), appropriate professional intervention at a less intensive level of care” before residential care treatment is approved. Id. ¶ 24.
• A requirement of “evidence for, or a clear and reasonable inference of, serious, imminent physical harm to self or others” before residential substance use treatment is approved. Id. ¶ 26.
• A requirement that acute hospitalization will be required in the absence of residential treatment before residential treatment for mental health disorders is approved. Id. ¶ 27.
• A requirement that the patient “demonstrate motivation to manage symptoms or make behavioral change” before residential or intensive outpatient substance use treatment is approved. Id. ¶ 28.
• A requirement of evidence that continued residential mental health treatment or intensive outpatient treatment will “bring about significant improvement.” Id. ¶ 30.
• A requirement of a “severely dysfunctional” living environment before residential substance use rehabilitation treatment is approved. Id. ¶ 31.

         Plaintiffs allege that together, these and other provisions render the Guidelines overly restrictive and incompatible with generally accepted professional standards, including the standards of the American Association of Adolescent Psychiatry (“AACAP”) and the American Society for Addiction Medicine (“ASAM”). Therefore, Plaintiffs also allege that the Guidelines violate the terms of Plaintiffs' plans.

         Along with their motion for class certification, Plaintiffs also submit two expert reports, by Dr. Eric Plakun and Dr. March Fishman, that discuss the alleged defects in the Guidelines. ECF Nos. 87-2, 87-3. Dr. Plakun and Dr. Fishman opine that during all relevant years, the Guidelines fell below generally accepted standards. Dr. Plakun and Dr. Fishman discuss and elaborate on many of the same deficiencies that Plaintiffs identify in the FAC and also identify other deficiencies. For example, Dr. Plakun opines that the Guidelines are not consistent with generally accepted standards because the Guidelines' definition of medical necessity “omits recognition that the services are ‘not primarily for the economic benefit of the health plans and purchasers, '” as required by generally accepted standards of care such as those of the American Medical Association. ECF No. 87-2, at 9. Additionally, Dr. Fishman opines that the Guidelines fail to provide proper distinctions in criteria for adolescents and youths. ECF No. 87-3, at 18. Both Dr. Plakun and Dr. Fishman opine that the Guidelines inappropriately focus on acuity of symptoms and crisis management rather than providing the most effective long-term care for patients. ECF No. 87-2, at 17; ECF No. 87-3, at 16.

         2. Experiences of the Named Plaintiffs

         a. Des Roches

         Plaintiff Charles Des Roches is a subscriber to a Blue Shield PPO plan. Compl. ¶¶ 137-38. His son, R.D., is a beneficiary of the plan. Id. Des Roches's plan covers both substance use disorders and mental health services, including residential and intensive outpatient treatments. Id. ¶¶ 139-40. Mental health claims under Des Roches's plan were administered by Magellan, which used the Guidelines in adjudicating claims.

         On August 26, 2015, at the age of fifteen, R.D. was urgently admitted for residential treatment at Evolve Treatment Center in Topanga Canyon, California, due to substance abuse, major depression, and severe emotional disturbance of a child. Id. ¶ 154. R.D. had abused several controlled substances, had a history of theft, and exhibited excessive anxiety and aggression. Id. ¶ 155. R.D.'s parents, who are divorced, were “unable to present a unified parenting front” and could not effectively supervise or “contain” R.D. in their homes. Id. ¶ 156. R.D. had undergone several outpatient treatments prior to admission at Evolve Treatment Center. Id. ¶ 155.

         On August 28, 2015, Blue Shield issued a letter denying coverage for R.D.'s treatment at Evolve Treatment Center based on Magellan's adjudication of the claim. Id. ¶ 157. The denial letter stated that “residential substance use rehabilitation treatment is not medically necessary based on 2015 Magellan Medical Necessity Criteria Guidelines.” Id. ¶ 158. Specifically, the letter offered the following reasons for the denial:

Your substance use/dependency has not caused significant impairment that cannot be managed at a lower level of care. You have not had recent, appropriate professional intervention at a less intensive level of care. Your living situation does not undermine treatment, or alternative living situations are appropriate. There is no evidence for serious, imminent danger outside residential treatment. There is no clinical evidence that you are unlikely to respond to treatment at a less intensive and less restrictive level of care.

Id. On August 31, 2015, R.D. appealed the denial to Blue Shield. Id. ¶160. On September 3, 2015, Blue Shield denied the appeal and cited the same reasons Magellan had cited and finding that “you did not meet the Blue Shield of California/Magellan guidelines for treatment at a residential program.” Id. ¶ 161. R.D. received residential rehabilitation treatment from August 26, 2015 to October 25, 2015 and incurred “tens of thousands of dollars of unreimbursed expenses.” Id. ¶ 168. Plaintiffs allege that in light of R.D.'s ongoing problems, “it is expected that R.D. will require such treatment again in the future.” Id.

         b. Meyer

         Sylvia Meyer is a subscriber to a Blue Shield PPO plan. Compl. ¶ 199. Her son, D.V., is a beneficiary of the plan. Id. Meyer's plan covers both substance use disorders and mental health services, including residential and intensive outpatient treatments. Id. ¶¶ 201-02. Mental health claims under Meyer's plan were administered by Magellan, which used the Guidelines in adjudicating claims. Id. ¶ 204.

         On July 6, 2015, at the age of 18, D.V. was admitted for an intensive outpatient program at Evolve Treatment Center in Topanga Canyon, California, for treatment of co-occurring substance use and mental health disorders. Id. ¶ 211. “For more than four years before his admission, D.V. suffered from major depression, which was compounded by abuse of alcohol as well as cocaine, marijuana, benzodiazepine (i.e., ‘benzos') and other drugs. D.V. had been involved in criminal activity and was suspended from school for fighting with a classmate.” Id. ¶ 212. D.V.'s home life is also unstable. D.V.'s parents are divorced, and his father abuses controlled substances and has attempted suicide. Id. ¶ 213. D.V. had previously been treated with psychiatric treatment, residential care, and partial hospitalization. Id.

         On August 11, 2015, Blue Shield issued a letter denying coverage for D.V.'s intensive outpatient treatment at Evolve Treatment Center from August 7, 2015 going forward based on Magellan's adjudication of the claim. Id. ¶ 215. The denial letter stated that “intensive outpatient substance abuse treatment is not medically necessary based on 2015 Magellan Medical Necessity Criteria Guidelines.” Id. Specifically, the letter offered the following reasons for the denial:

Your treatment plan does not consider the use of medications to help with cravings and relapse prevention. Your provider has not shown that the treatment plan will bring about further significant improvement in the problems that required an intensive outpatient treatment program. Your provider has not shown that you have the motivation, and the ability, to follow your treatment plan. Outpatient psychiatric and substance use rehabilitation treatment should be considered. Your provider has not shown that your treatment plan meets the expectations for intensity and quality of service for this level of care.

Id. In denying the intensive outpatient treatment, Defendants instructed D.V. “to participate in self-help groups and to make use of community resources.” Id. ¶ 216. On August 21, 2015, D.V. appealed the denial to Blue Shield. Id. ¶160. On September 3, 2015, Blue Shield denied the appeal, citing the same reasons Magellan had cited and finding that “you did not meet the Blue Shield of California/Magellan guidelines to be at an intensive outpatient psychiatric (IOP) level of care.” Id. ¶ 220.

         D.V. received intensive outpatient treatment from August 7, 2015 to September 4, 2015, and Meyer has incurred “a significant amount of unreimbursed expenses” because of the treatment. Id. ¶ 226. Plaintiffs' allege that “[b]ecause of D.V.'s severe substance use disorder and co-morbid mental health conditions, it is expected that D.V. may require such treatment again in the future.” Id. ¶ 225.

         c. Greco

         Gayle Tamler Greco and her son, C.G., are beneficiaries of a Blue Shield PPO plan. Compl. ¶ 169. Greco's plan covers both substance use disorders and mental health services, including residential and intensive outpatient treatments. Id. ¶¶ 139-40. Mental health claims under Greco's plan were administered by Magellan, which used the Guidelines in adjudicating claims.

         On July 7, 2015, at the age of 20, C.G. was admitted for residential mental health treatment at the Sanctuary Centers of Santa Barbara. Id. ¶ 181. In the years before admission, C.G. had struggled with depression, bipolar disorder, and a pervasive developmental disorder, and had recently begun to act aggressively toward his parents. Id. ¶¶ 182, 185. C.G. had been treated with outpatient treatment, but was subsequently hospitalized due to the danger he presented to himself and others. Id. ¶ 185. On June 13, 2015, C.G. was transferred to a locked psychiatric unit at Aurora Las Encinas Hospital, and on June 25, 2015, Aurora referred C.G. for residential treatment at the Sanctuary Centers. Id. ¶ 186.

         C.G. was evaluated by the Sanctuary Centers' clinical director on June 29, 2015. Id. ¶ 187. The clinical director found that C.G. was “incapable of providing for his own daily living needs without intercession from a focused and structured residential program that would not merely maintain the crisis (hospital setting) but provide the skills necessary for C.G. to reintegrate into the local community so that he could maintain maximum functional capacity on a long term basis.” Id. ¶ 187.

         On July 9, 2015, C.G. received a letter from Blue Shield denying coverage for residential treatment at the Sanctuary Center based on Magellan's adjudication of the claim. Id. ¶ 188. The denial letter stated that “residential psychiatric treatment was not medically necessary based on the 2015 Magellan Medical Necessity Criteria.” Id. ¶ 189. Specifically, the letter offered the following reasons for the denial:

Based on the available clinical information, the acuity, signs, and symptoms of your condition was [sic] not likely to require hospital treatment in the absence of a 24hrs/day residential supervision and treatment. You did not appear to be a serious risk to self or others that would require a residential treatment program. You did not appear to have required treatment and supervision seven days per week/24-hours per day to be able to return a less intensive level of care. Medical necessity criteria appear to have been met for psychiatric partial hospital (PHP) treatment, which was available. Evaluation and treatment for your mood, thoughts, and related symptoms including therapy, counseling, and medication treatment can be provided in partial hospital (PHP) treatment setting.

         On April 21, 2016, Blue Shield denied C.G.'s appeal and stated that the reason for denial “is that there was no attempt to initiate care at a lower level such as partial hospitalization.” Id. ¶ 192. C.G. received residential psychiatric treatment from July 7, 2015 to October 7, 2015 and Greco incurred “a significant amount of unreimbursed expenses” because of the treatment. Id. ¶ 198. Plaintiffs allege that in light of C.G.'s ongoing problems, “it is expected that C.G. may require such treatment again in the future.” Id. ¶ 197.

         B. Procedural History

         On May 26, 2016, Plaintiffs filed the original complaint in this action. ECF No. 1. Defendants answered the complaint on August 5, 2016. ECF Nos. 29, 33. On September 29, 2016, the parties filed a stipulation to allow Plaintiffs to file an amended complaint. ECF No. 50. Plaintiffs filed an amended complaint (“FAC”) on September 29, 2016. ECF No. 51. Defendants answered the FAC on October 13, 2016. ECF Nos. 54-55.

         Plaintiffs filed the instant motion for class certification on April 17, 2017. ECF No. 86. Pursuant to the parties' stipulation, Defendants filed a joint opposition to the motion for class certification on May 1, 2017. ECF No. 102. Plaintiffs filed a reply on May 15, 2017. ECF No. 105.

         C. Proposed Class

         In their motion for class certification, Plaintiffs move to certify the following class under Federal Rule of Civil Procedure (“Rule”) 23:

All participants or beneficiaries of a health benefit plan administered by either Blue Shield defendant and governed by ERISA whose request for coverage (whether pre-authorization, concurrent, post-service, or retrospective) was denied, in whole or in part, between January 1, 2012 and the present, based upon the Magellan Medical Necessity Criteria Guidelines for any of the following levels of care: (i) Residential Treatment, Psychiatric; (ii) Residential Treatment, Substance Use Disorders, Rehabilitation; (iii) Intensive Outpatient Treatment, Psychiatric; or (iv) Intensive Outpatient Treatment, Substance Use Disorders, Rehabilitation.
Excluded from the Class are Defendants, their parents, subsidiaries, and affiliates, their directors and officers and members of their immediate families; also excluded are any federal, state, or local governmental entities, any judicial officers presiding over this action and the members of their immediate families, and judicial staff.

         Mot. at 1. Plaintiffs seek to certify this class under Rule 23(b)(1) and Rule 23(b)(2). On behalf of this class, Plaintiffs assert two causes of action: (1) breach of fiduciary duties under ERISA, 29 U.S.C. § 1132(a)(1)(B); and (2) improper denial of benefits under ERISA, 29 U.S.C. § 1132(a)(1)(B). As a remedy for these violations, Plaintiffs seek “declaratory and injunctive relief establishing that Defendants' conduct is unlawful, to compel Defendants to reform their medical necessity criteria in a manner consistent with generally accepted standards, and to require Defendants to reprocess denied claims under reformed guidelines.” ECF No. 86, at 4.

         II. LEGAL STANDARD

         Class actions are governed by Rule 23 of the Federal Rules of Civil Procedure. Rule 23 does not set forth a mere pleading standard. To obtain class certification, Plaintiffs bear the burden of showing that they have met each of the four requirements of Rule 23(a) and at least one subsection of Rule 23(b). Zinser v. Accufix Research Inst., Inc., 253 F.3d 1180, 1186, amended by 273 F.3d 1266 (9th Cir. 2001). “A party seeking class certification must affirmatively demonstrate . . . compliance with the Rule[.]” Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 350 (2011).

         Rule 23(a) provides that a district court may certify a class only if: “(1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.” Fed.R.Civ.P. 23(a). That is, the class must satisfy the requirements of numerosity, commonality, typicality, and adequacy of representation to maintain a class action. Mazza v. Am. Honda Motor Co., Inc., 666 F.3d 581, 588 (9th Cir. 2012).

         If all four prerequisites of Rule 23(a) are satisfied, the Court must also find that Plaintiffs “satisfy through evidentiary proof” at least one of the three subsections of Rule 23(b). Comcast Corp. v. Behrend, 133 S.Ct. 1426, 1432 (2013). Rule 23(b) sets forth three general types of class actions. See Fed. R. Civ. P. 23(b)(1)-(b)(3). Of these types, Plaintiffs seek certification under Rule 23(b)(1)(A) and Rule 23(b)(2). The Court can certify a Rule 23(b)(1)(A) class when Plaintiffs make a showing that there would be a risk of substantial prejudice or inconsistent adjudications if there were separate adjudications. Fed.R.Civ.P. 23(b)(1)(A). The Court can certify a Rule 23(b)(2) class if “the party opposing the class has acted or refused ...


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